Ladies and gentlemen, thank you for standing by. And welcome to Air Lease’s Third Quarter 2019 Earning Conference Call. At this time, all participants lines are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mary Liz DePalma, Head of Investor Relations. Please go ahead.

Hello everyone, and welcome to Air Lease Corporation’s earnings call for the third quarter of 2019. This is Mary Liz DePalma, and I’m joined this afternoon by Steve Házy, our Executive Chairman; John Plueger, our Chief Executive Officer and President; and Greg Willis, our Executive Vice President and Chief Financial Officer. Earlier today, we published our results for the third quarter of 2019. A copy of our earnings release is available on the Investors section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, November 7, 2019, and the webcast will be available for replay on our website. At this time, all participants to this call are in listen-only mode. At the conclusion of today’s conference call, instructions will be given for the Q&A session. Before we begin, please note that certain statements in this conference call, including certain answers to your questions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. This includes, without limitation, statements regarding our future operations and performance, revenues, operating expenses, stock-based compensation expense and other income and expense items. These statements and any projections as to the Company’s future performance, represent management’s estimates for future results and speak only as of today, November 7, 2019. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our filings with the Securities and Exchange Commission for a more detailed description of risk factors that may affect our results. Air Lease Corporation assumes no obligation to update any forward-looking statements or information in light of new information or future events. In addition, certain financial measures will be using during the call such as adjusted net income before income taxes, adjusted diluted earnings-per-share before income taxes and adjusted pretax return on equity, or non-GAAP measures. A description of our reasons for utilizing these non-GAAP measures as well as our definition of them and the reconciliation to corresponding measures can be found in the earnings release and 10-Q we issued today. This release can be found in both the Investors and the Press section of our website at www.airleasecorp.com. Unauthorized recording of this conference call is not permitted. I would now like to turn the call over to our CEO and President, John Plueger.

Well thanks, Mary Liz. And good afternoon everyone, and thank you for joining us. I’m happy to report the continued strength of our business with revenues up 18% year-over-year for the quarter and up 19% year-over-year for the first nine months of the year. Our diluted EPS is up 9.2% to $3.67 for the first nine months of the year and we continue to generate strong pretax margins and returns on equity. ALC’s fleet at quarter-end included 307 owned aircraft with a net book value of $18.9 billion, up 20% from $15.7 billion at year-end in 2018. In the third quarter alone, we delivered 15 aircraft from our order book representing approximately $1.5 billion in aircraft investments despite the MAX grounding and ongoing industrial delays at Airbus. In the first nine months of 2019, we made approximately $4.1 billion in aircraft investments 20% more than we did in a full year of 2018. And as we told you we would do, in the third quarter, we proceeded with aircraft sales with more to follow in Q4. On that note, I'm very pleased to announce the successful pricing of our third mid-life securitization Thunderbolt III. As most of you know our Thunderbolt platform serves as a valuable tool to keep ALC’s fleet age young, yet allow ALC to keep its hand in the valuable midlife space as these aircraft age, and to retain the important customer relationships. Thunderbolt III is a portfolio of 19 aircraft including two wide bodies, with an average age of approximately 10 years on lease to 18 lessees located in 15 countries. Its structure is substantially similar to that of Thunderbolt II, including ALC holding 5% of the equity. This transaction along with Thunderbolt I and II demonstrates how ALC should be valued with a focus on…

Thanks, Steve. And good afternoon everyone. As mentioned earlier, we recorded another great quarter, reporting diluted earnings per share of $1.34. Our results were largely driven by the growth in our fleet along with aircraft sales activities. We have continued to generate a 15% adjusted pre-tax return on common equity and a 36.5% pre-tax margin, which reflect the embedded strength in our business model. And we achieved this despite the continued aircraft delays from both Boeing and Airbus. Important to note our key portfolio of metrics, our portfolio of yield and lease term remaining were stable and in line on an age-adjusted basis. ALC generated record total revenues of 531 million in the third quarter, up almost 80% year-over-year. Comprised of 493 million of rental revenues and 38 million in aircraft sales trading and other activities. Our fleet activity included the purchase of 15 new aircraft representing $1.5 billion in aircraft investments and the sale of 5 aircraft. Turning to expenses, interest expense increased year-over-year in line with the growth of our fleet, partially offset by the decline in our composite cost of funds. On the financing side of the business we have benefited from a decline in prevailing interest rates, as we have opportunistically accessed the capital markets to lock in long term low cost financing which I’ll cover in more detail momentarily. SG&A was elevated this quarter due to transactional and aircraft transition expenses. Our transition related expenses were covered by our security packages and our transactional cost were incurred related to our very successful Thunderbolt III transaction, the sales from which we expect to close over the course of the next two quarters. For Thunderbolt III we expect to realize 575 million in total consideration. Similar, in many respect to Thunderbolt II, we anticipate recognizing 116 million…

Thank you Greg. This concludes management's remarks. Now I would like to hand the call back over to the operator to open the line for the Q&A session.

Thank you. [Operator Instructions] And our first question comes from Moshe Orenbuch from Credit Suisse. Your line is now open, please go ahead.

Great, thanks. In looking through the queue you did mention that you know you do expect the Airbus delays to continue through 2021. You don't need to -- obviously putting aside that delays in the 737 MAX. Can you just talk you know through whether there's any kind of change in that process in terms of the pace of deliveries and how you're kind of looking at that?

Well, thanks Moshe. It’s John. Yes we are actively engaged with Airbus. The fact of the matter is they have an industrial problem, primarily centered at their Hamburg facility, which is where the A321 neo is manufactured. It started of course, with a delayed delivery and the engine problems with the Pratt & Whitney geared turbofan fan but is now advanced well beyond that into industrial issues including complications from their very popular ACF Airbus Cabin Flex offering that they that many airlines are taking advantage of. So the bottom line is, Guillaume and his team have been very clear that they are completely revamping the production system at Hamburg, but that this will take time. And he has publicly stated and told us, that this is a several year process. So we feel the end result is good. It will cause some pain and some further delays as we are continue to experience. The other challenge of course is this is being done at a time when Airbus is trying to increase rate. Having said that, we continue to work with Airbus and our customers, but these delays are a factor that we're dealing with, and it just means that we just push the CapEx out, the leases start when they start. Everybody needs these aircraft, but for us, it's a timing issue, and it's a customer hassle issue. But we're dealing with it, as close as we can, and especially with the MAX groundings, people need these aircraft. And all of our customers really need all of these aircraft. So look, this is really a question you should direct more towards Airbus, but that is the industrial situation. Thank you.

Got it. And just as a -- perhaps as a follow up. Could you kind of talk about the impact you know between the both that and the MAX groundings and the impact that's had on lease rates. I'm assuming that you know you talked about relatively healthy traffic and how does that how does that play in?

Yes. The delays really haven't impacted lease rate, because it's generally with a few exceptions, a different universe of airlines that are taking the MAXs and the A321 that John mentioned. So we're not seeing the delays as impacting the lease rate.

Got it. Okay. Thank you very much.

Thank you. Your next question comes from Vincent Caintic from Stephens. Your line is now open. Please go ahead.

Hey, thanks. Good afternoon guys. Appreciate all the detail on how you're thinking about the MAX delivery delays and that it would take about 24 months before we get everything back on. When we're just thinking about earnings, and I know like this is just a timing issue, but is it simply a matter of when we think about 2020 and 2021 that we just have -- we just removed or significantly delayed the MAX aircraft and that's the end of it? Or is there other near-term opportunities that you can deploy your capital into whether it's the used aircraft or wide body aircraft or something else?

No, no. I think that's the wrong assumption. I think what John was saying is that to absorb all of the aircraft that have been manufactured since the March grounding it could take up to 24 months to deliver those aircraft. But it will not be a two year delay on every plane that's been manufactured. You understand the distinction?

We're talking Vincent here about globally. All those aircraft that Boeing has produced for everybody, but not yet delivered to all those customers. So certainly, as soon as the grounding is listed, those deliveries were commencement, all will start to commence. But it will take in our estimation about two years or so before all of those aircraft, which are parked not yet delivered, go into the global marketplace, not our specific units delayed for two years each. That's not the case.

Yes. Currently we have 15, 737 MAXs that were delivered prior to the grounding, and went into service with multiple airline customers. There's a further 27 that have been built and assembled by Boeing that await certification and delivery. So today, we have 42 aircraft that are affected. The 15 that have already been delivered will quickly go back in the service, and we expect that a large percentage of the backlog aircraft our customers will deliver hopefully in the first six months from the time the aircraft are certified.

Okay, perfect. That is very helpful. Fabrication, so I misunderstood that. Very helpful, thank you. And then separately on -- so we saw the recent acquisition of one of your competitors. I'm wondering, if you're seeing it as a consistent trend that you're seeing more appetite and if there's anything you can do to maybe take advantage of that. Nice to see Thunderbolt do so well for the third iteration. Just kind of wondering, what you're -- what you're seeing there and any opportunities for...

Look, we continue. Thanks for the Thunderbolt. We feel great about it. We are always opportunistic Vincent as you know. You know us. We're looking for a well-priced assets and opportunities to grow. As I mentioned in my remarks, Japan has been stepping up their investment in our space. That's a good thing. The management teams associated with those acquisitions are highly experienced. We respect them. I think, that's a stable transition. So when we find an opportunity, we will see it. I think we are taking advantage of those anything that we, that we possibly can. But I think at the end of the day, the valuations that have been achieved, certainly the public valuations, there was a transaction of air castle, are inching up. And that bodes well for us.

I think, it's also – this is Greg. It’s also important to note that a lot of these private investors all across the board are really focusing on cash flows. And I think when you look at the strength of the cash flow thing you take the time to understand it. It supports a much higher valuation than what you currently see out there. And in terms of -- in terms of the public markets, right. If you look at where we clear the Thunderbolt III transaction which is in line with II and I. We're hitting premiums to Ascend in 139%, 140% range. So it's substantial premiums to the appraised values. I think, overall if you look at our history of selling airplanes significantly at levels significantly above our carrying values. Year-after-year after year I think that supports a much higher value than what's being reflected on our box. So inherently that applies a much higher valuation across the board.

Perfect, and I agree. Thanks very much for your help desk.

Thank you. Your next question comes from Catherine O'Brien from Goldman Sachs. Your line is now open. Please go ahead.

Hi, everyone. Thanks so much for the time. So you noted that you already have all the aircraft that were previously at Thomas Cook back on unprofitable leases, and so just a couple questions on that. Can you talk about the lease rates on those aircraft versus what you might have seen on a five year old A320 before the MAX grounding? And then also, how would you compare the piece of getting those aircraft back out on lease versus what you saw in WOW earlier this year? Thanks so much.

Yes, well the Thomas Cook aircraft that we had, seven of them were owned by Air Lease and four are in the various asset structures that we have. There are A321 aircraft young A321s that were manufactured in 2014, 15, and 16 and all of them have been placed with four -- sorry three different airlines and then two of them in Europe, and one in North America and one A330-200 is going to an airline in North America. And the lease rates are market rates that we're seeing of comparable age A321s and A330s.

So I would just add, these are not distressed placements, to the contrary they are in line with our expectations, current market levels etcetera, etcetera. You -- the last part of your question Kate, I think was the pace of -- tonight. The pace of -- was less than 24 hours.

Pace, yes.

Yes. Yes that's right. You know and as was our well placement. So I mean again, I think the totality of our marks. You know airlines need these aircraft, and they are in demand. And I will reiterate, we had multiple bidders for every one of the aircraft in the Thomas Cook fleet.

I think, it's also worth pointing out that there's other less orders out there, second and third tier platforms. They're still working on their wild placements. And I think what you hear today is the difference between a top tier aircraft lessor, and its ability to move airplanes very quickly, and have a sense of where the demand is in the marketplace versus some of these other guys that are still trying to figure out how to lease aircraft.

Yes, we were the only lessors that immediately replaced all of the Thomas Cook aircraft. There’s some lessors that are still looking for clients.

Very impressive. You guys got a deep Rolodex [ph] now. And so maybe just one more just on your manage fleet, you know that's now about 20% the size of your own fleet, and obviously growing with the Thunderbolt III transaction here. So when should we start thinking about management fees becoming a material revenue source for Air Lease. And then you know could you help us think about the relative durability of those cash flows versus the cash flows generated by your own fleet, which of course you know we realize are very durable? Thanks.

I think, they are both incredibly stable, because they source in the same part. I think your question with regards to timing as to when they come in, I think in time as we continue to layer on more and more of these transactions, we'll see it become a more significant portion of our sales training and other activities line, especially as we start to recognize incentive fees from our earnout as we sell airplanes from the managed portfolios. So I think, I'm not willing to commit to a time when it’s big enough to break out, but it's definitely picking up size, and we expect it to grow over time.

Kate, I'd like -- I guess emphasize one point. It is not just for the management fees that we pursue the managed business. In fact, the managed business has greater strategic importance for us. We kept 5% interest in these aircraft. It does reduce our exposure, but it keeps us in the midlife space, which is still a very very valuable space from a financial investment point of view. And perhaps most importantly, in fact I would argue, I would say within our organization from a strategic perspective, perhaps the most important, we retain all of these customers. We're not selling them off to other potential competitors or startup leasing companies etcetera. And today more than ever, the relationships that we have with all of our customers are extremely important. They want us there at the return of the aircraft, as they – they want to talk to the people they did the deal with. So even though the ownership might not change, that's an extremely important element for us, that our customers still talk to us in eight, nine, 10 years, time when the lease comes back. They don't talk to somebody who they don't know.

That's really helpful. Thank you all.

Thank you. Your next question comes from Scott Valentin from Compass Point. Your line is now open, please go ahead.

Good afternoon, everyone. Thanks for taking my question. Just with regard to the SG&A, Greg, I think you mentioned there's some transition costs in there and some transaction costs and there. Is there anyway to figure out kind of what the base level of SG&A, just for modeling purposes going forward, kind of a core level?

You know we've been averaging between 5% and 6% SG&A to rental revenue, total revenues. I think that's sort of in line. I think, clearly you see it spike up a little bit this quarter but we expect it to even out overtime especially as we continue to grow, because we definitely, we expect that as we continue to grow the growth and revenues will exceed our growth in SG&A.

Okay. And then just follow up question. I know you mentioned Thomas Cook, you guys came out very well economically with security package, but looking at the lease rate factor, you would try and do simple math of average, you know average aircraft fleet versus revenue I guess, that at lease rate factor was negatively impacted by those aircraft that were earning for a little bit there. Is there anyway to quantify that? Do you expect a recovery? Again, it's simple math, but…

The difference is the difference is really the fleet getting younger. That's, that's what you're seeing come through.

Okay. All right, thanks very much.

Thank you. Your next question comes from Helane Becker from Cowen. Your line is now open. Please go ahead.

Thanks, Operator. Hi everybody. Thank you. I just have, I think two questions. One is, when you transfer. I think John, in your prepared remarks you talked about the innovations in transferring the ownership as you move these aircrafts. I'm -- do you find that the airlines would work with you in a timely basis, or do they sometimes delay the innovations because they don't -- they don't want to work with somebody else, they want to work just with you?

Sure. Look, airline, aircraft transfers of ownership have been an issue within our industry. All leasing companies sell aircraft, it's part of our capital. You know our capital reassessed, rejuvenation by new aircraft. It's a hassle for the airlines. It just is. But for example, our – foresight, our General Counsel is working with the aviation working group to try and come up with methods that mechanically and administratively make it easier. I will say that Air Lease is a differentiator and that we do enjoy very good relationships with our airlines, so that we do use that relationship just to say, hey look, this is very helpful to us. We appreciate your attention, and we get traction from that relationship. Having said that, yes, sometimes it's unrealistic for us to sit there and put innovation in front of a North American Airline on December 22nd the peak of their season, expect them to get to it. So we are also reasonable in return, which is why we say in our comments that as we've done in prior securitizations, this will probably take a couple of quarters for all these aircraft to transfer. We think, we've got a great basis to do so, but this has been a known issue for quite some time in the leasing industry.

Helane, one of the things that helps us a little bit is that if we sell a 10 or 12 year old aircraft to an existing customer, but we have pending transactions with that airline, they will introduce new aircraft in the near future. It makes it a lot easier to get innovation done, because they understand that we're trying to keep our exposure at a certain level. And when we have a new aircraft going in there in the future, and we're simply transitioning an airplane to one of these structures, the whole thing makes a lot more common sense to the airline, than if we introduce a strange new lessor that comes in, that has no prior interaction with that carrier.

All right. That makes sense. And then my other question is just on the environment. John, you spent some time talking about it. I was in Hong Kong this weekend, and on every panel everybody was talking about it. I think nine finance ministers proposed a tax, I guess on aviation because of it. Do you find, or do you think that, this is going to be a leasing industry issue or an airline and OEM issue? I would think it would be airline and OEM? No.

So actually I was one on one of those very first panels in Hong Kong. Actually, this is a global issue. And it affects everyone. It affects the OEMs, the airlines, certainly leasing companies as to our order books. So this is not -- believe it or not at its fundamental roots. It's not. This is a broad global issue across all sectors, all aspects across all humanity. And so, on in our space, the airline space, yes. This this impacts decisions on buying and leasing by airlines more and more going forward. So yes, this is this is a big deal, and to your point we've seen in Europe and other places increasing escalation of taxes based upon you know carbon emissions or some other environmental metric, and we believe this will continue. So my point here is okay, global economic factors, traffic supply demand. All that being whatever they will be and as they mature over time, the environment and the need to protect our planet Earth will always be forever more extremely important, and a priority going forward. And that is what the airlines see. A month ago, you saw the International Airlines Group, IAG put out an announcement that says, that they promise they will be carbon neutral by 2050. And while that sounds like a long time away, and it is, that's a huge achievement. I guarantee you’ve never seen a statement like that two years ago, three years ago, four years ago. So more and more, this is a focal point of responsible airline management, to the world, to its passengers, to the marketplace.

Yes, I don't disagree. Thank you. Thanks for that answer.

Thank you. Your next question comes from Koosh Patel from Deutsche Bank. Your line is now open. Please go ahead.

Hey, good afternoon guys. Earlier this year the U.S. Export-Import Bank authorized the financing of transactions in excess of $10 million for the first time since 2015. Just wanted to see if you could give us an update as to what you're seeing in the market, and how you think this additional lever for financing may impact aircraft demand?

Yes, so far we have not seen a lot of activity. Part of that is you know some years ago, the fee structures for both the ECA and the EXIM bank were restructured. So the entry fee, the upfront fees, have gone up considerably. And with the current state of interest rates, both in the U.S. Europe and Asia, when you combine those upfront fees with what airlines can get in the marketplace, either through debt financing, operating leases or sale leaseback, the Exim structure is not necessarily cheaper for an airline as compared to what it was maybe 10, 15, 20 years ago. So, so far we haven't seen a lot of activity. I think it will pick up. But there's not a huge difference today between a U.S. government guaranteed Exim loan with all of the built in costs associated with it, plus it's secured financing versus other sources that are available to airlines.

Great. Thanks. And then just a follow up on the MAX. You spoke of it taking roughly 24 months from the time that regulatory approvals are received in order to get the plane, in order to get all of the currently grounded planes back in the air. And then, I just wanted to get an understanding, is that driven by a physical constraint as it pertains to the supply chain and labor, or is that what would ultimately dictate the pace at which these aircraft can re-enter global fleets?

They're actually many many factors that have to do with getting the aircraft out and flying. One is the capacity and the rate which each individual airline can reabsorb those aircraft. One of the many examples of an issue there is, how much more pilot training will be required and what time does that take. You have the actual technical aspects of taking aircraft, which have effectively been put in storage, and therefore placed under storage care programs for engines landing gears everything else. All of that being brought up to speed. You have the software that needs to be, the software that's been a question, the MCAS software flight control that all is to be done aircraft has flown. There are just so many different variables. There are other things like time control components. When an aircraft is delivered, the time starts ticking on certain things from as small as life vests to other things, landing gear. The airlines will need these effectively warranty travel times, extend it out, so they will have to be agreements with the Boeing company on many things. So there are just so many different variables. And for sure, the Boeing Company will do everything they can working very closely with the airlines to make sure the airline is ready. But so many different variables, and that's why we believe, for all the aircraft that have been produced but part undelivered, it's probably going to take close to two years for everything. Certainly deliveries will start taking ASAP, but some of that is how quickly can these airlines take them. The major U.S. carriers are probably in the best position to take the aircraft first, but the variables are large.

Great. Thanks a lot guys.

Thank you. And your next question comes from Mike Lindenberg from Deutsche Bank. Your line is now open, please go ahead.

Oh, yes. Hey, good afternoon guys. Hey John when you were talking about Boeing and the MAX and your order book, you mentioned something, I think I heard you say, something about ongoing financial assistance from Boeing. Were you, were you referencing that you're just, you're not making PDPs now. Did I hear that right? What was…

No, no. As we said last quarter, the Boeing Company is stepping up its financial support for our lessees. We can't comment individually as a matter of agreement, a contract whereby, whereby, where but that financial assistance is coming through. We were invited to certain air-launch of some airlines and a number of customers who need the support. So so long as that continues and progresses, which we think so far where I said ongoing, because it is happening now, we feel fairly confident that we will preserve all the forward placements we have with certain MAX customers. So Boeing is stepping up to the play, and we feel overall better about that today.

Okay, great. Then just one second sort of a quick one here. You know with A380 now sort of emerging, it's becoming clear that this is this is a 10 or 12 year old airplane, or an airplane with a 10 or 12 year life. We're going to see a lot of those planes get parked over the next few years. It feels like there could be a step up for wide body demand. You know you look at the 777X and I think absent the recent order from BA, I don't think you've had any orders in four or five years. Does that breathe new life into that program? Do you see a step up in demand for other programs, as a lot of seats are going to be leaving the market over the next few years, really over the next five plus years? Thoughts on that?

Yes. We're working with virtually every one of A380 operators. Yes, most of them will phase out the aircraft at 12 years. Some may hang onto them for a little while longer, but definitely the A380 fleet is going to shrink at a very rapid rate. And what we're seeing, is that most of the airlines that we're dealing with are not interested in replacing them with the largest twin engine wide bodies. The actual trend is the other way. They're more interested in increasing frequencies in existing CD fares. So the 787-9 the 787-10 the A350-900 the 1000 are the four models that appear to be the most interesting to the airlines. And what we're finding is that until there's clear visibility on the 7779X we are not seeing a lot of momentum there until the airlines understand what that airplane is going to do, and it’s an expensive airplane. So until it's flying and in service, we just don't see a lot of new campaigns coming to fruition.

Okay. You guys are in a great position now given your order book, and just the airplanes you just mentioned so, great. Thanks Steve. Thanks John.

Thanks Mike.

Thank you. Your next question comes from Jamie Baker from JPMorgan. Your line is now open. Please go ahead.

Hey, good afternoon everybody. Follow up on that because I'm a little confused on this phenomenon of MAX centric airlines that are not current on leases. So first off, how widespread is this? Is it just the MAX heavy airlines or bigger customers? And I guess, I’m confused? Is Boeing compensating Air Lease or are the lessors or the airlines and then they remit payment back to you, how is the cash flowing?

We never said Jamie that airlines are not paying us on their MAXs. Where did you see that?

Well that, that was my interpretation based on what you had said before. So you're not or what. Because we have heard that some smaller, you know MAX airlines are not current. My -- I guess you answered the first part of my question was, does Air Lease have any exposure to that? And I guess, I guess the follow up to that would be, are there triggers in either any of your contracts or just broadly at the industry level that we would expect to see sort of horse trading behind the scenes in terms of delivery positions or should we consider your MAX delivery stream as well as that of the industry to be sort of setting stone? Does that make sense?

Jamie, it’s John. Yes. I think, it's not overly complicated. Here's the bottom line. I think you can safely assume both based on our comments and you know you're very astute. You talk to many airlines over the world. Boeing is working very carefully with all of its customers to try and remedy the MAX grounding, alleviate financial burdens when they may happen. And as we've indicated and I indicated in our remarks that includes Boeing working with us and our customers. And part of that is helping getting our lease payments paid, bottom line. So we can't comment on individually here or there or some industrial wise standard, Boeing is going through a very arduous because it takes a lot of work. Every customer is different. But the bottom line is with Boeing's continual financial support, we're comping up for replacements. We are getting paid, and we can't comment on who is unable to pay us or who is paying us but we have offered as consistent with what you read and what Boeing itself is saying, they are helping our customers and we are getting paid.

Okay. Follow up also related back to Helane’s question on ESG. So how do we think about the NMA at this point? You know it seems that with the pressure that Boeing is under, there'd be no better time for them to clean sheet an aircraft that they actually had the bandwidth to do it. Well, I would think that ESG would also argue in favor of that. I mean how are you thinking, how is Air Lease thinking about the timing and likelihood of the NMA as it relates to both the ESG phenomenon and thank you for touching on that in your prepared remarks as well as what's happening with MAX?

Well. Are you talking about the NMA, Jamie that was sort of being touted to the airlines and to a few less source say 12 months to 18 months ago, or are you talking about a whole new design of a smaller aircraft that would compete with the A320, A321?

Well, I'd welcome your input on both, but the question was referring to the 12 months to 18 month ago shopping around that was taking place?

Yes, I would have to say that when I talk to Boeing and the engine suppliers and the airlines that is currently as we sit here today, not a high priority.

Okay. And you don't think ESG potentially impacts that?

The engine technology that would go into that airplane is not significantly different.

Okay.

In terms of emissions per pound of thrust, so there’ll be very marginal improvement in that area. On the other hand, I think Airbus is working on other avenues that involve more electric, power and alternative combinations that are perhaps a little more advanced in terms of what the impact is on environment. But again, that's an – time frame. We're probably looking at more than 10 years down the road.

Okay, gentlemen, thank you so much for the clarity to my questions. Appreciate it.

Thanks, Jamie.

Thank you. Your next question comes from Ross Harvey from [Indiscernible]. Your line is now open. Please go ahead.

Good afternoon, and thanks for taking my question. It's more focused on Greg. I'm wondering in light of the CapEx pick up into 2020 and 2021 just looking to check your latest thoughts on the various forms of financing. Firstly, would you would you look to issue more preferred stock given the price and trend since you had your launch in February of this year? And how you compare that to you are looking to execute on more Thunderbolts type vehicles?

Maybe we'll start taking a step back. I think the way we look at financing will depend on ultimately the timing of aircraft that we take delivery of. I mean, we've been doing about three or four billion dollars in bonds a year. This year, we did a billion dollars in sales, that probably ramps up between a billion to billion five over time. And then, with regards to your question on preferred, I think that's something we remain opportunistic on, depending on what we're seeing out in the market place, because that really allows us to buy more, and make bigger investments if we see the appropriate opportunities. So that's kind of how we're looking at things. I think it's pretty easily manageable, given our ratings profile, and our and our financial metrics as well as our large unencumbered asset base.

Okay, that makes sense. And if I may follow up, I'm just wondering in light of your commentary on competition from new Chinese lessors and you know you have been for a number of years a distant observer of the sale leaseback market. How close are you to looking to re-enter that area? Or is it a case of you have enough CapEx commitments of your own? And maybe that's something that we should look at much further down the line?

Yes. Thanks. The short answer is no, we're not looking to get into the sale leaseback market. Steve made in his prepared remarks a very important comment that I hope you all paid attention to. We don't change our business model just from year-to-year, quarter-to-quarter. All you know Air Lease’s business model from day one has always been that we are a new aircraft player. Our business model is we order large numbers of aircraft from Airbus and Boeing going forward, that will stay our business model. And we are not looking to do any shifting to the sale leaseback side.

Yes, we look at sale leasebacks as simply a financing of aircraft that an airline is already ordered. And our primary expertise and what differentiates us from a lot of these other less source that have money, is that we work with the airlines hand-in-hand. Years before they do their fleet planning and develop their network strategy. And we work with them to actually determine what aircraft they will need. And that's where Air Lease is a partner with the airlines. We're not just a financier. We’re a partner that works very closely with the airlines on long lead times to optimize their fleet strategy. And then, we use our airplanes as a portion of their fleet strategy through the operating lease medium. That's a totally different business, than a guy that has a check book and simply buys a plane that the airline already ordered at a premium and then leasing it to the airline. In that case, the lessor has no value added to the planning process or to the strategy that the airline was involved in to get to that point to begin with.

So Ross, I think what you're hearing is the real difference between acquiring aircraft on a wholesale basis versus paying retail for them. And I think that's the first strategy is wholesale.

Thanks very much for your thoughts.

Thank you. Your next question comes from Josh Sullivan from Seaport Global. Your line is now open. Please go ahead.

Good afternoon. Just a clarification on the timing of the MAXs return here over the next two years. Are you assuming in that timeline that there's any extra requirement for pilots to increase training on the MAX due to the new configuration, or were you just talking generally that pilots would need to be trained up on the old requirements and the timing that would take time. I’m just trying to understand… sorry, go ahead.

Yes. Let me be clear, the certification or revalidation of the airplane is handled by FAA, IATA, various authorities. That's different regulatory process than the certification of the pilots that is done on a country by country, airline by airline basis. So you would theoretically have a situation in a country where the MAX is approved to fly. But one airline may say, we will not do simulator training, we're satisfied that we can do what they call Level V training. And another airline in the same country might say, no, we're going to do a little bit of extra simulator training. So the training aspect of this and the human factors is a totally different element in the sort of reintroduction of the MAXs into operations versus certifying the airplane hardware itself. So it's two different regimes. It could also be that, given any certification it could be for example in the U.S. take it take a U.S. carrier. There may not be a regulatory requirement on the operating side of an airline for anything beyond what's called. We again Steve referred to a Level B, but in fact the airline itself may decide that no it wants to go an extra step and put more training in. So the bottom line is, we don't know. There are. This is one of the large variables, we do think it's highly probable, that training will be required by different airlines, different jurisdictions, foreign regulators etcetera but we don't know. And so therefore, that is a good part of the basis why we think this up to two years number or two years ever is it. You know it's one element in a reasonable timeframe estimate that again this is our estimate. It's not, I'm not we're not speaking for the Boeing Company, but this is our estimate. We think we have a pretty good overall judgment on this.

Got it. Appreciate that. And then just on the A220 offering, you know how our customers responding to that? And then maybe what would you want to see out of the E2 offering? You know or what would it have to bring to the table to maybe be more attractive in your eyes?

While the E2 is attractive to an airline, that already has an embedded fleet of Embraer 1 or [Indiscernible]. A good examples are Azul in Brazil, Air Astana in Kazakhstan. These are airlines that already have Embraer regional jets and it's a relatively easy step up to the E2. The 220 is a larger airplane. And we look at the 220 as more of a replacement for A319, A318s, 737 Classic 737 700NGs. So it serves a slightly different segment of the market. And we look at the 220 as replacing older aircraft in the 100, 250 seat category and that's for most of the interest that we're seeing.

Okay. Thank you.

Thank you. Our last question comes from Rajeev Lalwani from Morgan Stanley. Your line is now open, please go ahead.

Hi gentlemen, it's actually Jonathan [ph] on for Rajeev. So revisiting the widebody comments and then in light of the slower 787 production in the coming years, could you give us an update on the appetite for 787 specifically?

Well, all I have to do is look at our press announcements. The appetite still remains pretty strong, and I think Steve commented earlier again that the sweet spot of the wide body market is you know we've moved away from the point -- we moved away from hub to hub, huge big airplanes and the growth in the wide body market has actually been more in secondary and tertiary destinations. And that means, smaller passenger loads. So you know the largest you know wide bodied twin our wide bodies out there, are probably a little bit too big. So therefore you specifically asked for the 787-9 and 787-10 the places have been going well as well as our A339-100 placements and we've commented that 350 is positive. Now Boeing made its decision on the 787 rate. Partially, I don’t want to say there was more than 50% but a big part of that has been China. China has not you know in case you everybody knows China has not been doing direct orders of the Boeing Company now for quite some time. Well China is a big absorber of 787 and wide bodies in general, in general. So I would say that and sorry one other comment by the way, just from my prepared remarks we just delivered a 787 to China, The China Southern. So through the leasing medium those aircraft are going into China. But if you're the Boeing Company and you're looking at global production and China is off your radar for an uncertain period time, that's a major factor.

But let me remind you that building 12 787 a month is the highest rate for any wide body aircraft. That's over 140 aircraft a year. That is still at a record pace. So going from four to 12 a month is not necessarily a red flag in our opinion.

Okay thanks gentlemen.

Okay, thank you.

Thank you. And that concludes today's question and answer session. I would now like to hand the call back to Mary Liz DePalma for closing remarks.

Okay, thank you everyone. That's it for today's call. We look forward to speaking with you again at the conclusion of the fourth quarter. Operator, thank you. You can now disconnect the line.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.