Good day ladies and gentlemen and welcome to the Air Lease Q2 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host Ms. Mary Liz DePalma, Vice President of Investor Relations.

Hello, everyone and welcome to Air Lease Corporation’s earning call for the second quarter of 2020. This is Mary Liz DePalma, and I am joined this afternoon by Steve Hazy, our Executive Chairman; John Plueger, our Chief Executive Officer and President; and Greg Willis, Executive Vice President and Chief Financial Officer. Earlier today, we published our results for the second quarter of 2020. 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, August 6th, 2020, and the webcast will be available for replay on our website. At this time, all participants to this call are in listen-only mode. Please note that each member of the Air Lease team speaking today is in a separate location in their respective homes. However, we expect the format of the call to remain the same, including the Q&A session, for which instructions will be given at the conclusion of the call. 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 speaks only as of today, August 6th, 2020. 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 we will be using during the call, such as, adjusted net income before income taxes, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on equity are non-GAAP measures. A description of our reasons for utilizing these non-GAAP measures, as well as our definition of them and the reconciliations to corresponding GAAP measures can be found in earnings release and 10-Q we issued today. This release can be found in both the Investors and Press section of our website at www.airleasecorp.com. Unauthorized recording of this conference call is not permitted. Before we proceed, I would like to make a quick announcement as it relates to our third quarter earnings call. Our third quarter earnings call would normally has been scheduled towards the end of the week of November 2nd. However given the presidential election is that week, we will move our third quarter earnings call to Monday, November 9th. I as usually, we will press release call details after the conclusion of the third quarter. I would now like to turn the call over to our Chief Executive Officer and President, John Plueger.

Well, thanks, Mary Liz, and good afternoon everyone and thank you for joining us. I'm pleased to share that today Air Lease is reporting another strong quarter of financial performance. Our revenues for the second quarter grew by 10.6% year-over-year to $521 million with net income of $144 million, up 15.9% year-over-year. Our fully diluted earnings per share for the second quarter was $1.26, up 14.5% over the second quarter of last year, and we continue to generate strong pretax margins and returns on equity. Since our last earnings call in May, the airline industry has continue to navigate through an unprecedented extremely difficult environment. We are seeing signs of recovery. More than 65% of the world's commercial passenger fleet was in service at the end of July as compared to mid April where nearly two-thirds of the world's passenger aircraft were stored. In the United States, TSA checkpoint number this week have been seven to eight times greater than that of early April. And just today the U.S. State Department lifted its advisory on avoiding international travel. Eurocontrol reported this Tuesday that flights reached 46% of 2019 levels as compared to roughly 10% of 2019 levels in early April. In China, which was ahead of Europe and the U.S. in terms of the pandemic, domestic daily flights have significantly improved. While all those updates are progress when compared to where each region was at the start of the pandemic, we still have a very long way to go. And airlines are adjusting schedules on a weekly basis. We know that many of you remain focused on lease deferrals, cash collections, airline bankruptcies and the status of how we're dealing with each. So let me provide a quick update on these matters. When we last spoke to you in May,…

Thank you very much, John. I would like to echo John's comments about the unmatched efforts and dedication of our team in working with our airline customers and our industry partners, and also his sentiments regarding our second quarter results, which are extremely strong against a difficult and evolving backdrop in the industry. As most of the knows since going public, and even before then, we spent a lot of time and effort sharing with the investor community all the success of a well managed, well capitalized lessor is not solely dependent on the profitability of the airlines, despite them being our customers. There are several reasons for this. Many airlines while not profitable, our flag carriers are systematically important to the countries they serve. Government aid in the form of grants and loans made available to airlines is now over $120 billion this year. And this is a very important reason that the local economies rely on airlines bringing passengers in country to fuel their other business sectors, particularly in areas and places where tourism is a large portion of their GDP. Today, the aviation industry supports more than 65 million jobs around the world and enables 2.7 trillion of the world's gross domestic product or said simply, the world needs airlines in times of stress. They are worthy of assistance and investment by their stakeholders. Let me remind you that approximately 75% of the net book value of ALC fleet are leased to flag carriers or airlines that have some form of government ownership. Additionally, as airlines have had to significantly increase their liquidity, they're doing so with financing at a much higher rate in the pre COVID crisis, and further levering their balance sheets in the process, taking on more debt and more obligations. In the face…

Thank you, Steve. And good afternoon, everybody. As highlighted earlier, we recorded another solid quarter of financial performance. Despite the continued challenging backdrop. Our results were largely driven by the growth of our fleet over the last 12 months with our key portfolio metrics of lease yield, lease term remaining, and average age remaining relatively constant. In the second quarter of 2020, ALC generated total revenues of approximately $521 million, representing an increase of 11% year over year. This includes 23.5 million of aircraft sales, trading and other activities. As John noted, our fleet activity included the purchase of one new aircraft. And we sold four aircraft, with total sales proceeds of approximately $7 million. Turning to expenses interest expense increase year over year, primarily due to the rise in our average debt balances partially offset by a decline in a composite cost of funds. Our composite rate decreased to 3.15% from 3.49% in the second quarter of 2019. Depreciation continues to track the growth of our fleet, while SG&A represented approximately 5.1% of total revenues, as compared to 5.9% in the same quarter last year. Outside of quarter-to-quarter variations, we continue to expect that over time, our revenue growth will outpace our SG&A growth. John thoroughly covered lease deferrals, collection rates and utilization in his comment. However, I want to reiterate that we believe our accommodations remain manageable relative to our liquidity position, which stood at $6.9 billion at the end of the second quarter. As a reminder, this number does not include projected operating cash flows or aircraft sales. To give context to our strong liquidity position, you also should note that our balance sheet was originally design to support approximately $6 billion in aircraft investment annually over the next several years. Right now, we expect aircraft investments…

Thanks, Greg. This concludes management's remarks. For the question answer session, we ask each participant to limit their time to one question and one follow up. Now I'd like to turn the hand the call over to the operator to open the line for the Q&A session.

[Operator Instructions] First question. We have Moshe Orenbuch from Credit Suisse. Your line is open.

Great. Can you hear me? Okay?

Yes.

Okay, great. Thanks. I appreciate that and thanks for all of the incremental detail and disclosure that you guys are giving. I was wondering if you could talk, I don't know if it's John or Greg, about the level. You talked -- you had mentioned that there's some new requests for forbearance or deferrals. Could you just talk about the pace at which the first round are paying back? And maybe just to put a little more color around what's going on with those new requests. And if you have a thought as to, when the cumulative amount that you've provided could level off?

Well, thanks, Moshe. I try to be clear in my remarks. The pace has slowed, in fact, the amount of the increase was much, much slower going from first quarter to second quarter. And we indicated that the frequency and the flow really has been much reduced. We also -- and I've also said that most of these deferrals are relatively short term and the majority -- the vast majority are all paid within a year or less. So I'm not sure how much other color that I can give on that. You've seen the total that we have there. But I think, the big message is the pace has significantly slowed. And we're still pretty -- we're in a good shape with the deferral repayments. We've said -- I also said in my remarks that the vast majority of all these deferral agreements are being honored. So, I'm not much in terms of their payments and how they're coming in. So, really don't know how much more color I can offer than that.

The only comment I have, Moshe, is that the amount of the payback of the short term deferrals is now far in excess of any new requests for some small deferrals. So in other words, it's now flipped into a positive where the repayment of deferrals that we made in Q1 and early part of Q2, the cash flow is coming back in. And those amounts significantly exceed any new requests that are quite limited in the last several weeks.

Got it. That's extremely helpful. Thanks, Steve and John. And follow up questions just three months ago, when we were talking on the first quarter call, you had -- we had discussed the possibility of doing sale lease backs in the place to replace some of the CapEx that has been pushed out. Is that still a consideration? And you kind of alluded to it a little bit with respect to the cost of funds, the relative cost of funds point that you made. Maybe could you just talk about that a little bit?

Sure. Look, we continue to evaluate, but at the same time, you've all seen and we all see the industry evolving. Part of the reason, frankly, for a little bit of our, not a pause, but I would say cautiousness, is we like to see how airlines are unfolding. We want to see how their credit metrics come in, how are they doing on their own liquidity? How successful have they been, no matter who the airline is at obtaining additional liquidity in this difficult time. And these things take a lot of time. So I would just say that our conservatism and looking one by one at each airline, and making sure, not jumping too quickly into the fray, if you will. Again, it's not our primary business model. But I would say, it's primarily been driven by our conservatism, seeing who's going to get funded, who's not, making those observations. And finally, just having said that, we do have a number of sale leaseback possibilities that we are evaluating today and we will act upon them if we see fit. But big picture is our conservative -- our conservatism has really led us to be watchful on the airline forefront.

Got it. Thanks very much.

Next question, we have Catherine O’Brien from Goldman Sachs. Your line is open. Catherine O’Brien: Hey, good afternoon, everyone. Thanks so much for the time.

Hi, Catherine. Catherine O’Brien: Hey, everyone, thanks. I guess just with the OEM production cuts we've seen so far and a relatively high number of aircraft being retired, how far do you think we are from equilibrium? And how much -- I'm guessing we're still a bit of ways off given where traffic is today. But how much of matching supplies to demand do you think will come on the back of further OEM production costs? Is there a certain point where the OEM will just say, enough, enough and expect customers to meet their obligations. Any thought there would be appreciated?

Well, we're meeting our obligations. There are airlines in lessors that have requested deferrals and in some cases, cancellations, or restructurings, but I can tell you that Air Lease has honored all of our commitments. And one of the challenges that we face is that once an aircraft is delayed more than 12 months, both the lessor and the lessee has certain rights. That's something that we're watching very carefully. But I think we've made public statements and interviews alluding to the fact that we could see some further adjustments downward of production rates. You've already seen these occur on the 777X being delayed. You've seen production rate cuts on the 777, the 787, the A350, the A330 and the A320, 21 family. If the rate of traffic recovery is less than what is projected by the OEMs, you could see another round of small reductions in production as you go on in 2021, 2022. But hopefully by the time we get into 2023 and 2024, we'll begin to see the equilibrium that you refer to between supply and demand. And our expectation is things will begin to normalize as we get down 18 to 24 months from now. Catherine O’Brien: Okay, great. And then if I could just ask one follow up. So I guess, you mentioned signing some new lease deals in your press release. And then you've also seemed to have had some success and extending leases as part of your deferral negotiations. I was just wondering if you could share any color on what the terms of those either the new lease deals or the extensions look like and four new lease deals that you're looking at. What are the security patches look like just compared to pre-COVID?

Yes. We are intently, religiously committed to security packages. And as much as some of our airline customers don't like to pay large cash security deposits and maintenance reserves. We believe that in times of distress that philosophy is really very beneficial to Air Lease and our shareholders. So we continue to stress cash deposits upfront even from the most creditworthy airlines. It is one of the hallmarks of our sort of corporate philosophy. As far as extensions, we have done some extensions that were really not part of deferrals and some extensions that were part of short term deferrals. And they can be anywhere from two to six years additional rental periods. And we've also negotiated some incremental transactions with existing customers to top up on added aircraft. And they even include a MAX. We just had a European airline commit to an additional 837 MAX in 2022. So we're seeing activity there, both on the wide body and single-aisle front. Obviously, the A321neo is right now the strongest in demand among the single-aisle aircraft and we're cautiously optimistic. Catherine O’Brien: Great.

Let me add two other additional comments Catie. Number one, even in the sale leaseback market with which we admittedly haven't done a lot of. We do watch it quite a bit. And where there has been competition or if you will, from lessors to larger name carrier, whether they be large, et cetera, et cetera, we are seeing an increase in the lease rate factor. And to Steve's point, also much more of a little bit of a stronger hand on the part of the lessors on getting the security packages. And I will comment, we have the same position going forward. Although we're in a very distressed period. For us placing a new aircraft now opportunistically with a carrier also has a lot of credit metrics, concerns. So those are there. But the second comment really is that, and I kind of think this might have been part of what you're talking about. Where we've had to give concessions, and we have had to, et cetera, et cetera. If we've done so, we couple lease extension on or that such that the total amount of monies that we're getting on the aircraft, which is really what we're looking at over the lease life of an aircraft, the total amount of money through the extension period is not only preserved but increased, the total amount of cash on any given -- when you buy an airplane, accelerate, you depreciate over time. But the whole goal is how much total money are you collecting on against that asset? And that has a counting implications as well. So, generally speaking, the advantage of the deferrals is even where we have to give certain concessions, whether it's restructuring, et cetera, by these extension we preserve or actually increase the total amount of committed funds that we're getting against these aircraft. Catherine O’Brien: That's great color. Thank you both so much.

And I think that applies to both single-aisle and wide body aircraft. The comment that John just made about extensions. Catherine O’Brien: Okay. Understood. Interesting.

Next question, we have Vincent Caintic from Stephens. Your line is open.

Thanks. And good afternoon everyone. Another question on deferments. If you could talk about some of the $190 million of current deferments, if you could remind us what the security and maintenance deposits you have on those deferrals? I think last quarter we were talking about roughly $500 million, but if you could remind us or update us on the security deposits? And then for how long the remaining term of the deferments are?

Greg?

Yes. I don't have the detail allocation of the individual security packages on the $190 million and deferrals that we've granted to date. I will note that it represents -- we have roughly a $1 billion in security deposits and maintenance reserves on our balance sheet. And the deferments granted to date cover roughly 60% of our customer base. So there you can see we're pretty well covered. I mean just looking at the numbers from the highest level.

And most of the deferments that you're asking about occurred in March, April, May, somewhere like mid April to sort of the first part of July. And then the paybacks usually start the month after the three month deferral. And so typical deferral would be 90 days a portion of the rent. I want to make that very clear. We're not deferring the entire rent. So if an airline pays $100 a month, $50 is deferred for three months. And that $150 is paid back usually over the subsequent months or subsequent quarters. And most cases with interest, of course. That's a typical profiel

Okay. That's very helpful. Thank you. And second question and this might be for Greg as well. It's on impairments question I get a lot from investors. But -- so we've seen a couple of the other leasing companies that have impairment in some aircraft, including young aircraft with deferred leases and also with airlines that have gone through some of restructurings. Just if you could remind us about how the accounting methodology and how you look at impairments and asset values carried on your books? Thank you.

We've had no impairments since this company started. And Greg can comment on the accounting methodology.

Yes, Steve, and Vincent, no problem. If you look at our situation, we have a young fleet, a three year old fleet. And the way the accounting works is you have 20 -- you aggregate cash flows that you expect to earn on those assets over the remaining useful life, which in that case would be 22 years. And once you aggregate them up, including a salvage at the end, it's pretty, pretty easy to get to a point where you have more cash flows and what you're carrying the assets for on your balance sheet. I can't really speculate as to why the other lessors have had so many impairments. I mean, they might be tied to some of the bankrupt carriers that John listed that others have had large exposures to. And they may have been on older midlife assets where you have smaller period of time in which to aggregate cash flows up because they're midlife in nature. All those factors may have contributed to those situations. But with regards to us, I think we're sitting in a very strong position given the high demand nature of our fleet. And also the commentary both John and Steve has already touched on about the placement, the extensions, and the fact that airlines are gravitating towards the aircraft that we have in our fleet.

Great. And I think it was useful color when you gave it some of the -- even some of the restructurings you're preserving the cash flow of your asset with the extensions that you're generating. So very helpful and appreciate the detail. Thanks very much.

Thanks.

Next question. We have Helane Becker from Cowen. Your line is open.

Thanks very much. operator. Hi, everybody. Thank you very much for the time this afternoon. I just had two questions. One is on your fleet, actually, Greg, you were just talking about it being so young and fuel efficient. But is there any aircraft in the fleet that maybe one or two that you would wouldn't mind getting out of?

Well, our fleet is pretty much where we want it to be. We have very few older aircraft. And I would remind you that our Thunderbolt platforms One, two and three have been very, very successful. And placing aircraft into the hands of investors who like the midlife space and we retain management and therefore those customer contact. So we have a disposal path for those assets. But we've told you in our release and on our Q. Having said that, with a significantly reduced CapEx profile we are not pushing aircraft sales this year for the rest of the year. So, there's really no -- there's no like one dog eared airplane in our fleet that I can really think of going forward. I think we've done an overall pretty good job at managing those dispositions. We don't need to sell aircraft. And I would just say that the lack of the MAX deliveries in particular, has had somewhat of an impact on our fleet edge -- on our overall fleet edge just by a matter of decimals, 3.5 years to 3.9 or 3.6. You turn off an inflow of narrow body aircraft, the MAX, which we had counted on and had a plan and that's how you keep your fleet young is to take delivery of new aircraft and sell the aircraft when they get to a certain age. So that has impacted our fleet age a little bit, but for unknown reasons. So I think we're overall happy. I really can't think of any real dogs in our fleet.

Yes. I mean, we don't have any 737 classics. We don't have any 757. We don't have any more 767s. We have no 747. We have A380s. We have no A340s. We have one A319 that was build at the end of 2004. That's approximately 15.5 years old right now. And That aircraft, the lease had ended with an airline in Africa. And we just leased it to an airline in Eastern Europe. And once that aircraft matures for a few months or a couple of years, we intend to sell that aircraft with the lease attached. And then we'll have no A319s, we'll only have A321s and with a high concentration of the Neo series. So I really can't think of any airplanes that are really unfit for our portfolio.

Yes. No, I mean, I was just looking at it. It looks what you just said. I mean, it's an ideal portfolio. I just wondered. The other follow up question I had is that on the airlines that are coming back for deferrals. It's a little surprising given your comments earlier and looking at distribution, right? You don't have very many and much distribution in Europe or exposure there where we're -- and even there, they're coming back or the U.S. where they're really not coming back. But is it just that the airlines haven't had much government support? Is that…

No. I think the main reason that a few airlines are coming back for an additional like say, 30 days of partial deferment has to do with government restrictions on travel. It's not so much related to the lack of government support. It's a situation when airline had planned on operating international schedules to certain countries and certain destinations. And all of a sudden the Minister of Health comes out with a rule thing. We don't want people traveling to and from that country or if they do there's an automatic mandatory 14 day quarantine. So what happens then, is the bookings they have, the reservations drop off because people want to wait another 30 days or 45 days and reprogram their trip, because they don't want to be in a 14 day quarantine. So it's not related to the airline's ability to perform, or their willingness to make their lease payments. It has more to do with these random government orders that come out every few weeks changing the rules of who can travel internationally to and from a particular country. And that is something that has been very dynamic over the last three months. And hopefully, as we look forward to a vaccine or a series of vaccines, a lot of this activity and sort of overreaction will begin to taper off from the regulators.

Let me just add big picture. This is yet another area of differentiation where besides the factor Steve mentioned, certainly in the United States starting this past week and early this week, we see the major U.S. carriers going back to the government again, sort of for a second round. And again, only 2% of our business in the United States, we have almost nothing with the U.S. carriers, but that is differentiated from Europe and Asia where you don't see this yet, this large sort of push for second round requests by Air France or Lufthansa or et cetera, et cetera. Because frankly, as we've indicated, the growth has been a bit stronger domestically and really in Europe and in Asia, our main market. So, again, I think it's important to differentiate the U.S. from Europe and Asia here.

We also have dozens of airline customers, large airline customers that have asked for no government support. And ever since the pandemic started have made all their lease payments completely on time without any interruption, and never asked for any deferrals or any kind of financial assistance. So it's really hard to characterize and put every airline in the same bucket. Because we've had many customers that have continued to operate in a fairly normal fashion and not come back to us for any kind of financial assistance.

That's very helpful. Thank you very much for all that color.

Thank you.

Next question. We have Ron Epstein from Bank of America. Your line is open.

Hey, Good evening guys. When you when you see the demand for aircraft from your customers, are you seeing a preference today of the A320 over the 737 MAX?

Well, I would say certainly the MAX grounding has impacted for sure. The marketplace and the market evolvement of those two broad single-aisle types. The MAX for obvious reasons, has suffered against the Neo. That's all there is to it. And the question is, how will it be -- not necessarily a year from now and when the thing is flying. But really the question is, how will it be five years from now? So, yes, just by circumstance, the Neo has taken a stronger role. But I would remind you, Ron, that for Air Lease, we have always been one of the largest proponents and in fact are the largest customer of the A321neo and we were the launch customer and the 321 LR and the 321 XLR because well before MAX crash and well before all of the current pandemic situation, we could see and foresaw that the A321neo in particular was going to be an extremely strong aircraft and we're seeing that bear fruit regardless of the MAX situation or the pandemic.

Out before this crisis, Ron, I think, and assuming the MAX was going to go back in the service as Boeing had originally predicted, either late last year, early this year, I think Boeing's goal was to capture say 45% to 50% of the single-aisle market. What we're seeing is that because of the strength of the A321neo, the LR and the XLR, that number is shifting in Airbus's favor. Additionally, Airbus is building the single-aisle family in four separate production facilities; in France, Germany, Alabama and in China. So I think we're seeing that market share drift closer to 60%, maybe even 65% in favor of the Airbus mainly because at the larger end of the spectrum in the 200-seat or size, the A321neo appears to be the most desired airplane from the airlines. It's purely a function of what the airlines are looking for. But we don't really see a lot of 737 operators abandoning the Boeing 737 family and most of the demand that we're seeing is the lessor for the A320neo and A321neo are from existing Airbus single-aisle operators or Airbus twin-aisle operators.

Are you seeing any of it? Are you seeing an airline has come to you and looking for aircraft at the other end of the spectrum on the HQ 2020. Which I know you guys support. Our even the E195. Are you seeing airlines wanting that particularly in this new environment, post pandemic?

Absolutely. We ordered 50 A220-300s. We think that 300 is the more desirable aircraft for us. And we ordered those last year at the Paris Air Show. And we'll get our first deliveries in 2022. By then that airplane should be humming with all systems and engines, so everything already the latest generation of improvements. And we are seeing really good demand for that aircraft in Europe, North America and Asia is beginning to pick up as well. So we're very optimistic that aircraft in 140 to 160-seat size will be a winner.

And Ron, it makes sense. Just look at a big picture. In this period of reduced passenger loads, well if you have reduced passenger loads that dictates in many cases a smaller aircraft. Now as those loads increase and normalize, you get more into the typical MAX, Neo size regime. But particularly now, we've had a lot of inbound, more inquiries on the 220 and our deliveries are also more geared towards when the power plants on the A320s Pratt & Whitney has gone through several iterations and improvements on the gear turtle fan. And so our deliveries are time to take advantage of those deliveries. But I think we're pretty -- we're feeling pretty good about where we sit today on our 220 order.

A lot of A319 replacements. Some are even 737, 700 replacements. And then some airlines that are simply down gauging with the idea of adding more frequencies in certain city pairs and using the 220 as a tool to connect to hubs and also city-to-city pairs where they want to increase frequency and gain market share. So, as John said, we're seeing good demand building for the airplane. And I believe now we're the only one of the lessors with a significant backlog and capability to do fleet solutions on the 220s.

Got you. And then maybe just one last question, if I may, on the airplane front. As you know, Boeing took down their stated production rates on 787 just recently. And then if you're not comfortable answering this, I understand. But do you think it was enough? Right? I mean, it's still at six per month on that line seems like at least from my vantage point, given what's going on in the world, still a lot of wide body shells hitting the market after [Indiscernible].

I think [Indiscernible] Ron, is China. China -- there's a number of 787 that have been built for Chinese airlines this year that are still in storage awaiting delivery. So the question is, may represent probably 20%, 25% of the 787 market globally. So the question that we in Boeing are pondering when will China begin to take delivery of airplanes that already built. And when will they top up their orders, and for growth and also replace some of their older wide body aircraft. So that's the billion dollar question that we don't have the answers to. And perhaps we won't have the answers to it till after the election.

Right. So China and these factors, as Steve talking about, Ron, look, that's it that's crystal ball and we really don't know. Time will tell. I would say however, I would say that the 787 broadly even though we are in a reduced aircraft demand environment, certainly by wide bodies, the 787 remains a very strong focal point of a lot of airlines that in fact are looking at their wide body fleets going forward and using this as an opportunity to again as we said, park older wide bodies, much more or less efficient and get into the service. So we have a number of discussions ongoing for new 787 placements sitting here today. They will probably take some time to evolve. But the 787 been a very strong airplane, I think it will continue to be.

Yes. And the payload range envelope, the versatility, we have airlines that are looking to replace 747 or larger A340-600 or even 777-200s that are getting on to over 20 years of age. We're seeing a good healthy demand. I think in the short term, as you say, probably in 2021, we're not seeing a lot of customers asking for 21 positions. But we are seeing airlines asking for 22 and 23 positions. And some of these have never operated 787. And to some extent the same is true for A350s. We just did a deal with a European airline that is going to take an A350 that they've never had before. So as I said earlier, in the smaller and midsize wide body, we see the 787 and A350 playing a very, very healthy role in the years ahead.

Thanks for your questions, Ron.

Yes, thanks.

Next question. We have Jamie Baker from JP Morgan. Your line is open.

Hey, good afternoon, guys. So, Greg, question on the 91% collection rate in the second quarter, because Mark and I want to be able to reconcile that with whatever capital Avalon disclosed last week. So your rate is calculated, after giving effect to lease deferral arrangements in place as of, I guess, this morning. Can you express collections as a percentage of your pre pandemic expectations?

Let me think, Jamie, I don't know if I have that number in front of me. I mean, I think you can just look at our operating cash flow statement. I think we've performed very well relative to the peer group. I don't know if we've publicly disclosed that number. I think we stick with 90% plus $190 million, and that gives you the complete picture. I don't know if we have enough following -- the complete details of the Avalon disclosures. I think they're under a different basis of counting. But I think they're under IFRS. So I'm not quite sure. I follow what they've been doing.

That -- sorry, go ahead.

I wish I could give you more clarity. I can give you what we disclose today. The 90% collection rate, $190 million worth of deferrals, which is still relatively small both in terms of revenues as well as our liquidity position. And you can see how we're all kind of doing upon our operating cash flow statements. But I think what is really nice to see is the customers is hearing through their deferral schedules, and those cash flow starting to come in.

Okay. I will try to-- sorry, go ahead, John.

Four months from now, a lot of that 190 will have already been paid back.

Yes. I hope so. And sorry, Steve. John, I wasn't sure who was piping in there. We'll try to back into it just going through the financials. But second question. This one will go back to John. In your prepared remarks back to Virgin Atlantic, you mentioned participating in the restructuring. Does that mean you've already re-cut a wide body deal with him? And can you provide some color if you have?

Yes, I'm actually, Steve's been the most involved in that. So I'm actually going to have him answer that. But yes, we've already cut our deals, not to cut Steve off. But bottom line is we cut our deals, they are long term deals that we have cut it in the context of all the restructuring with all the other creditors and that sort of thing. And so it's all been worked out.

Anything to add Steve?

Well, it was a joint effort. It involved the existing lessors. It involved Airbus, because they have direct orders for A350-1000 and A330-900s involve their bank lenders in the UK. It involved Delta as a 49% shareholder. Involved their credit card processors. So it was -- as John mentioned, it was really like a pre package effort. And what we did is some of our deliveries have been rescheduled. But most importantly, their direct buys were rescheduled to later timeframes, which means, the airline has to pay less in fee delivery deposits to Airbus. And therefore they can affect their cash liquidity position. And the leased aircraft from Air Lease will actually arrive before the purchase aircraft on the A330neo family and the E350-1000 are replacing the last 747-400s and the A340-600s. So when it’s all said and done, you'll have a much more streamlined fleet of 787-9, A330neo and A350-1000, and the A350-1000, the highest density markets like they flight in New York, daily, they'll probably update twice a day. They do LA. So the 1000s due to the highest density city spars. And then you'll have the 787 doing the longer, let's say a little thinner routes. Many of those are in codeshare or joint venture with Delta. And then the A330s will do a lot of the other stuff like down the Florida, the Caribbean, the Middle East and secondary markets and Canada across the Atlantic. So it took a lot of effort and the other key lessors AirCap and Avalon participated. We don't have any aircraft at Virgin at the moment, but we obviously had to be cognizant of a total solution rather than a sort of a partial solution.

But Jamie, this brings up a really important point and just allow me to expand on it, because I think it's really fundamental to the message that we're trying to share with you all. This is not -- what we're seeing more and more and more. Yes, fleets are contracting. Yes, some airlines are canceling their orders, et cetera, et cetera. But they are using the leasing vehicle to populate their fleets going forward. And by using this -- by using us as lessors, they're not having to worry about tapping financing resources. Financing is not easy for airlines these days. And so we're seeing this as a very pronounced trend. I can give you -- or even if an airline has not canceled its orders, it shifts or pushes back its direct orders to much later points in time, yet knowing that it actually does need the new aircraft as they move forward they take our positions earlier. I'll give you another very specific concrete examples that I worked personally really hard on. Korean airlines, and we leased, we signed a deal two years ago, year and a half ago, two years ago to lease them 10 model 787-10 for which of course, I'll remind you we Air Lease or a launch customer. They also procured a number, equal or more number directly from the Boeing Company. Originally as the delivery slowed, Boeing deliveries were supposed to precede Air Lease's deliveries. However, that's now flipped. The Airline and Boeing have worked together to push out their direct buys and are going to take our aircraft first. And I think it's a really important point here because this is a trend we're seeing. This is the migration towards leasing as part of the solution that we're talking to you about. And we have these very specific, concrete examples where this is happening globally.

That's very helpful. I really appreciate all the color. Take care of gentlemen.

Thanks, Jamie.

Next question. We have Ross Harvey from Davy. Your line is open.

Hi. Thanks for taking my question. I know you've covered a lot of detail, but just a quick one from me. On the existing fleet, wondering, can you update us on how many aircraft are expected to come off fleet between now and the end of 2021? I think the figure was 29 at the time the 20-F [ph], but I might it’s not change somewhat on what you can do?.

Do you saying 2020?

I believe it's '20.

I think it’s 20. By the end of '21 -- I think its '20

Yes. That's right. Perfect. Thanks. And maybe just one quick follow-up Greg. Obviously, the very low SG&A burden in Q2 it was 5.1% revenue. I think it correctly, and I'm sure some of that is travel expense related, but much of it is potentially sustainable into the future? Thanks.

Could you repeat the last part. I didn't hear the last part of your question.

SG&A he's asking about.

Right. I heard that travel part. I didn't hear the second part of it what you thought it might be.

Yes. I was wondering how much of the year on year decline it looks like 80 bps or so is potentially sustainable into the future?

The way we look at it is clearly we're benefiting for lower travel and T&E, I mean, Traveling and Entertainment. The other thing is, last year, we had elevated transition -- transaction and transition costs, elevated to some aircraft movements. This quarter, there's few of those. But all-in-all, I think it's more important to look at SG&A over a multi quarter period. And as you can see the ratio has continued to decline. So I think that's very positive. And we expected that operating efficiency as we continue to ramp because the business itself has a very low expense burden given how efficient we are with our roughly 120 people on staff.

Excellent. Thank you very much.

Thank you.

I am showing no further questions. At this time, I would now like to turn the conference back to Miss Mary Liz DePalma.

Okay. Thank you everyone for your time today. That's it for our call. We will look forward to speaking with you again after the conclusion of the third quarter. Karina, you can go ahead and disconnect the line. Thank you so much.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and have a wonderful day. You may all disconnect.