Steve Házy - Executive Chairman John Plueger - Chief Executive Officer, President Greg Willis - Executive Vice President, Chief Financial Officer Mary Liz DePalma - Head of Investor Relations

Ladies and gentlemen, thank you for standing by, and welcome to the Air Lease Q4 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ 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. Thank you. Please go ahead, ma’am.

Thanks, Justin. Hello, everyone, and welcome to Air Lease Corporation's fourth quarter and year-end 2020 earnings call. This is Mary Liz DePalma, and I am 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 fourth quarter and year-end 2020 results. 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, Monday, February 22, 2021, and the webcast will be available for replay on our website. At this time all participants to this call are in listen-only mode. 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, February 22, 2021. 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 pretax 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 reconciliation to corresponding GAAP measures can be found in the earnings release and 10-K 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. I would now like to turn the call over to our Chief Executive Officer and President, John Plueger.

Thanks, Mary Liz. Good afternoon, everyone, and thank you for joining us. 2020 was an amazingly difficult year for the world, the aviation industry and for millions of people personally dealing with the impacts of the COVID-19 pandemic. The ALC team met the challenges of the past 12 months ahead on, working tirelessly to move our business forward. While no business in the commercial aviation space is immune to the stress the industry has endured, thanks to our team's ongoing efforts and our fundamental business model, the strength of our platform is more evident today than ever before. For the first time this year, we exceeded $25 billion in total assets. And for the full-year 2020,. our revenues once again surpassed $2 billion, in line with the prior year. For the fourth quarter, our revenues of $489 million were down 10.9% year-over-year. Our diluted earnings per share of $4.39 for the full-year and $0.94 for the fourth quarter are down 13.8% and 33.8%, respectively. Despite approximately $2.4 billion of aircraft investments this year, which were well below our expectations at the beginning of 2020, both revenues and earnings were impacted by a slowdown in the growth of our fleet and our planned major reduction in aircraft sales activity, in addition to rental revenue not recognized, as we have certain lessees on cash basis recognition and impacts from lease restructurings. Our cash collections remained healthy at 88% in the fourth quarter, up from 86% in the third quarter, with an equally strong lease utilization rate of 99.8% in the fourth quarter, slightly higher than what we saw in Q3. To date, we have agreed to accommodations with approximately 61% of our lessees, with deferrals totaling $240 million. Importantly, however, our total deferrals net of those that have already been repaid, stands…

Thank you, Steve, and good afternoon everyone. In the fourth quarter of 2020, ALC generated total revenues of approximately $489 million, including rental revenues of $484 million and $5 million of aircraft sales trading and other activities. Total revenues in the fourth quarter decreased by approximately 10.9% as compared to the prior year. This decline was primarily due to the following factors. First, similar to last quarter, we were unable to record approximately $21 million in rental revenues, due to collections of lease receivables not being reasonably assured. This was down from $25 million in the third quarter, as collections from these lessees were modestly stronger than expected. As you will remember from last quarter, when lease receivables exceed our security package, we deem that collectability can no longer be reasonably assured and thus we revert to recognizing only cash payments received from the lessee during the period as rental revenue. I do want to note that we have been receiving cash payments from all of our cash basis lessees and that a majority of them are in the form of restructuring. And have expressed to us that they desire to keep our [inaudible]. We remain hopeful that as these lessees will emerge from the restructuring and we will continue to see these numbers improve. Although despite the positive trend of collections from our cash basis lessees, it is very difficult to predict how this will trend going forward until we see a more meaningful improvement in passenger traffic and airline financial health. Second, we have continued to enter into restructuring agreements with our airline customers. As discussed in the past, the primary form of accommodation that we provide to our lessees, is a deferral agreement, whereby the airline is granted a temporary rental reduction, which is typically repaid within…

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

Thank you. [Operator Instructions] And our first question is going to come from Moshe Orenbuch with Crédit Suisse. Your line is now open.

Great, thanks. And Steve, I wanted to kind of return to one of the comments that you made about the lessors taking on a stronger role. Clearly, they, as you said, are financing more than half of the new deliveries. Are there other ways in which that's going to manifest itself and things that could help Air Lease and its shareholders? Steve Házy: Yeah, we have had actually a significant number of airlines that have approached us and saying the following. We, the airline, have X number of Boeing and Airbus deliveries in 2021, 2022, 2023, 2024. Because of all the debt that we, the airline, have taken on, we'd like to defer those deliveries into later years, reduce our CapEx as an airline, reduce our progress payments to the OEMs as an airline, and we’d like to have Air Lease fill in positions earlier in 2022, 2023 and 2024, that we, the airline, would have taken directly. Now we’d rather lease those aircrafts on an off-balance sheet, operating lease from Air Lease, and take the direct order plans that the airline orders later on. So it’s a dramatic shift in the composition and the ratio we can lease in all the aircrafts. It also creates a situation where the airline recognizes that our cost of funds are significantly lower than what the airline has to pay. So in effect, even though we can have a very strong profit margin on these leases going forward, from the airlines point of view, it is still a dramatic savings over what they would have to pay to finance their direct buy aircrafts. So we're seeing this seismic shift for the lessors, both in terms of sale lease back opportunities, which is less, our sort of appetite basket, but more towards filling in these gaps using our slots, our direct orders in the years to come. Particularly, right now, the focus is on 2022 and 2023 and through the spring of 2024. We're getting a lot of requests from airlines to kind of shift their order and backfill with Air Lease leases.

Got it. Thank you. And Greg, you noted in the release that the amount effect, essentially the deferrals was kind of flattish. As you look out into the balance of 2021, obviously, your - the airlines themselves are kind of looking at the summer travel season, and you mentioned that there are some additional requests. How do you think that tracks as we go through 2021?

I think to clarify, the comments of additional request came through at the end of Q4 and the first part of January to bring us to where we are about on a net basis, roughly $141 million – or excuse me, $144 million. I think as - it really depends on what it looks like going forward as to how the recovery goes, right? As you see bookings take place, I think, you're going to see airlines with more and more confidence. It also will depend on what happens with border restrictions and the rollout of the vaccine. So it's really – it's almost too soon to say. I like the improvement that I saw on the cash basis payers as they were paying more than they were last quarter, and they seem to have good plans to lead them out. But it's really too soon to waive the all-clear sign, because other airlines could fall in that category and we won't really know until we see more improvement from the airlines themselves.

Thank you.

And thank you. And our next question comes from Helane Becker from Cowen. Your line is now open.

Thanks very much, operator. Hi, everybody, and thank you very much for the time. So just to clarify one point. Steve, in that answer to Moshe’s, when you talked about the airlines deferring their own orders and using your orders to backfill, does that imply that there – that your – that other deferrals that you’re giving airlines go beyond 2023? Steve Házy: No, I was talking about delivery deferrals, not financial deferrals.

Okay, that's helpful. Thank you. Sorry for my confusion. Steve Házy: Yeah, the airlines that are looking to use our aircraft in 2021, 2022, 2023 will pay market rate as we determine. What I was talking about is they want to defer their own direct purchase orders from Boeing and Airbus and back to the leased aircraft that come from our order book.

Gotcha. Okay, that makes sense. Thank you. And then my other question, kind of just an offbeat one. United last week or the week before announced its investment in foreign order with Archer Aviation. And I've heard a lot about eVTOL recently, and I know it's got to be like four or seven years away. But are you talking to any of the manufacturers and thinking about placing orders for those type of aircrafts at some point in the – maybe for delivery in the second-half of the decade?

Helane, let me answer that, Helane. So, look, we are always talking about long-term future goals with the manufacturers. Airbus, in particular, has seemed to be focused on electric and hydrogen technology. Boeing, on the other hand, recently announced probably a greater emphasis on bio fuels or the use of more – a process in more sustainable fuel that could be used in current generation engines. It seems quite obvious to us that the use of electric or hybrid technology or hydrogen technology in the mainline aircraft, the bread and butter single aisles, the A320 and 21neos, the 737-8s and 9s, et cetera, as well as the wide-bodies is probably at quite a distant future. But the – of course, the alternate fuels is probably much sooner on the horizon. So your specific question of how we talked about orders, the question would be orders for what? You have to specifically come out with your program and say what you're offering. So the answer is no, not orders, but definitely conceptual discussions. And one thing I'd like to point out in all these discussions that's common to all the power plants or all the main propulsive technology, and that is how are these technologies going to be supported in the field with airlines operating globally and presumably different technologies being used there. So, I think that's one thing that's not been addressed a lot in the industry is, it's one thing to speculate intellectually and academically talk about how these things are possible, but it is a greater leap to determine to what degree they are realistically supportable in the airline fleet operations over the next five to 10 years.

Gotcha. The second… Steve Házy: Helane, on your question about the smaller planes, I mean, the smaller rotorcraft airplanes for urban mobility, we think the technology will grow in leaps and bounds. So as an aircraft lessor, as an active investor, it's very hard for us to project what the useful lives of those new assets would be, and will they remain economical once better technologies come along. So we're going to watch that very carefully, but also the dollar amounts involved per unit are so small, that literally we’d have to buy thousands and thousands of these urban mobility electric and other hybrids to even make a dent in our financial performance.

Okay, that's all very helpful. Thank you very much gentlemen. Steve Házy: You're very welcome.

Thanks.

And thank you. And our next question comes Ron Epstein from Bank of America. Your line is now open.

Yes, hey man. Good afternoon guys. Could you talk a little about the 787’s. I noticed in your K that you were talking about some of your 787 delivery slots might be upwards of 12 months plus wait and that gives you the option to cancel if you so choose. So what are you guys thinking about where do we stand on 787’s and if you could give us some color there.

Well, first of all Ron, it's clear that the production issues that have risen on the 787’s seemed to have mushroomed and there's just greater and greater levels of inspection going on due to the non-conformity findings you know that have transpired as yet today. It is difficult to see a definitive fix that is agreeable by the aviation authorities and all going forward, I think the goal of course is to do a lot of engineering work to determine that the aircrafts are on a ‘Use-as-is’ basis. In other words the tolerances, machining issues, etc., have – will propose no threat to safety. But I don't think that we're there yet and this has been dragging on longer than any of us have imagined. In fact, I don't think Boeing has delivered a 787 to anyone since the end of October. So we have several aircrafts, a number of aircrafts are waiting and yes, some of them are coming up on their 12 months and some have already past the 12 month point past delivery. Having said that, you know that decision as to cancellation is largely driven by our customers and if we give that customer the same right that we have, that if it's greater than 12 months. So suffice it to say, we're working with those impacted customers and we will take action as we've done with the MAX, based upon what those customers want to do. So look, it’s still an unfolding story. I wish I could say that we knew definitively there was an end to it and when things would start. I also don't mean to say that things fuel on for months and months and months. We just don't know and we're just waiting for more definition from the Boeing Company. We certainly hope things will get back on track very quickly.

Got it, got it. And then maybe shifting to the other end of the spectrum, to the A220’s that you guys have, how does the market look for that? What are you hearing from customers on that platform and given you know the adjustment post pandemic, would you expect to see more demand for that size aircraft going forward?

Yes, no question Ron. We're seeing A319 operators that are looking at replacing their oldest A319’s. We’re looking at airlines who would have older 737-700’s; some airlines that might convert out of an E190 or E195. So we are seeing a pick-up in the last 12 months in interest in the 220. Our first deliveries are not going to be until the latter part of next year and then it starts out very modestly, but we are seeing a lot of activity across multiple continents and we've already signed agreement and those will be announced in due course when we and the airline feel that it’s appropriate timing. And yes, a lot of airlines are looking at operating a 140 seat aircraft instead of 180 seat aircraft in certain market segments. I think Air France is a good example of that, where they will be replacing their A319’s and A320’s with 60 A220’s. We've seen Delta replace you know some of their oldest, you know their MD-88’s and MD-90’s and some of the oldest aircrafts acquired from Northwest through their merger with 220’s. So look, it got off to a slow start because the number of air traffics they can produce in Montreal is limited. It’s only like maybe four or five aircrafts a month. Now they've got mobile production going, which is seating the U.S. carriers like Delta and JetBlue. But I think the momentum is definitely picking up, and the vast majority of our deliveries are in 2023 and 2024, so I think we're going to hit the right spot in terms of when we have available slots and what airlines we want. But it's really a replacement market more than a growth market. In fact, literally every campaign we have Ron is replacing planes that are hitting 20 to 25 years of age.

Great! Thank you.

You’re welcome.

Thank you. And our next question comes from Catherine O'Brien from Goldman Sachs. Your line is now open.

Hi! This is Katie Buda on for Catherine O’Brian. In terms of placing additional aircraft from your order book, are you holding back on placing aircraft as far out as you usually would, given the current lease rate environment for incremental aircraft or in terms of the market holding inverse pre-quoted [ph] levels. And on a related note, have terms on direct operating leases diverged at all from those on sale lease back financings?

Well, let me answer the first part and then I’ll try and go to the second part. The answer is we really haven't changed our philosophy at all on for replacements of aircraft. You know each one stands on its own and we evaluate our desire to keep some airplanes in the store if you will, keep some inventory to have available for forward campaigns, alongside the ability to place more aircrafts than we have today. So we take each of those, we take each campaign on its own merits and suffice to say there really has been no change to how much we so-call hold back or not. You know certainly market lease rates and commercial terms are a big determiner of that, but actually they've always been. There's really been no change to that at all. And can you just remind me again, the second part of your question?

Have turns on direct operating leases diverged at all from those on-sale lease financings?

Diverge, well you know what terms, the length of the leases?

Yes.

Well, I would say that you know to Steve's comments earlier, we are seeing a movement towards taking aircraft from our order book, in the face of some airlines differing their own deliveries. And so when you say there is a divergence, I think you know based upon not only supply/demand, but on the specific needs of the airlines, I think it's probably safe to say that right now the operating lease platform still has a stay, a commercial premium in terms of placing our order book in terms of the terms we are getting as compared to the sale leaseback marketplace. Although having said that, with the demand having grown so much for sale leasebacks, the lessors are in a stronger position. So if anything, those lease rates have improved, lease rate factors have improved, and no longer are lessors just willing to pay almost any price that an airline puts forth. So you know I would broadly say that we still enjoy a bit of a premium on our operating lease portfolio on our directly ordered aircraft.

Understood, that's helpful. And then I just had one follow-up. Are you comfortable with the current size of your order book over the next couple of years and what kind of flexibility do you still have for this year and 2022 to potentially adjust closer in or will any future changes more likely be due to OEM delays verse request for deferrals from Air Lease and its customer? Steve Házy: Well, you know it's a dynamic situation. Our order books are not fixed in concrete and we pride ourselves since 2010, when we started the company, to having a flexible order book. And so generally how we look at it is we plan a certain dollar amount of CapEx in given years, and within that dollar amount we have a lot of choices as to the composition of the deliveries going forward. As long as we give the OEMs anywhere from 12 to 15 months advance notice, they give us a lot of leeway in what are the quantities and subtypes of aircraft that we order. So for example, if we order the A350 for delivery in 2022 and we see an airline that would rather have two A321neo LR’s, we then have the flexibility to make that adaptation and satisfy our airline customer and at the same time, adjust our fleet composition to meet the demands.

Got it, thank you. Steve Házy: You're welcome.

Thank you. And our next question comes from Mark DeVries from Barclays. Your line is now open.

Yeah, thanks. Steve, I appreciated the specific comments you made around the supply/demand imbalance or dynamics for wide-bodies, but was hoping to get your broader thoughts on kind of where we are in the global avian industry and finding kind of the new equilibrium given what you're seeing with like the early retirements and production delays and an increasing demand for seats. Steve Házy: Yeah, if you look at the total landscape in the last, say 11 months, you see a dramatic decrease in the number of available total seats, passenger seats the airlines are offering a wide-body aircraft, and the primary reason for that is the retirement or grounding of A380’s, many of which are not going to come back into service. The literally 100% elimination of all 747 passenger aircrafts and then the retirement of a lot of the four engine airplanes like the A340-500, A340-600. So, if you look at the whole wide-body latitude [ph], the number of seats that have come out of the wide-body sector on the global scale is phenomenal, probably more than 35% of total wide-body seats if we aggregate everything from a 767, A330 upwards that’s come out. Secondly, there's also a wave of cargo conversion, whether it's A330’s, 767, you see companies like Amazon Prime Air converting a lot of 767 for freighter, that's going on in China, it’s going on in Europe. A330’s are being converted and now there's a new program that will begin to gain momentum to convert the oldest 777-300 ER’s in the cargo. So we have a combination of retirement of the largest wide-body aircraft, and then we also have an active and lively cargo conversion program going off the multiple aircraft types. It takes them out of passenger role and puts them into freighter roles and all those things are helping to achieve this equilibrium that you referred to. So the pace of retirements in the wide-body sector has actually outstripped to single aisle, and we find that very comforting that the marketplace is working efficiently between supply and demand, and I really hope that by the middle of ‘22 we’ll reach the point where things will be back to some level of normalcy in the wide-body market.

Okay, that's helpful. And then just one follow-up. Just you know given the increasing importance of the leasing community that you’ve kind of highlight on this call, is this having any impact on kind of your expectations for the returns that you can realize in this business going forward, whether it's because of you know increased leverage negotiating prices with the OEMs or just more favorable terms on sale lease backs or other leases the you negotiate?

I think the broad answer to your question Mark is yes, over time. Now currently we and other lessors and another’s that – other companies and industries that serve the airline industry were all impacted by the problems and the great difficulties we've all been talking about. But taking a larger view going forward, and yes, with a larger percentage – with lessors taking a larger and larger percentage of the aircraft space, we mentioned in our prepared remarks that in 2020, 55% of all deliveries that Airbus did returned to – were to the leasing Avenue. So over the long term we believe that that does – did well for continuing our margins to start and however they end up over the next one, two or three years as the pandemic unfolds and hopefully get into recovery, no, we definitely see an improving trend beyond that for those reasons, because once the lessors start taking such large market shares going forward, you know that has a profound impact for many, many years to come. So I think it bodes well. You know I'm not forecasting, but I think it does bode well for an improvement overall long term. I don't know if we get back to pre-COVID levels or margins, etc., but definitely an improvement over the next year to two.

Okay.

And the other factor that will influence that is the cost to capital. If interest rates remain relatively low, obviously that's a big factor in the future costs to us, because depreciation expense and the interest expense are the two largest components of our cost structure. So as long as we have rising demand, a robust appetite from the airlines to our planes, I see a steady recovery in lease rate factors as long as we don't have any major, catastrophic changes in the interest rate environment.

Makes sense, thank you.

You’re welcome.

And thank you. And our next question comes from Vincent Caintic from Stephens. Your line is now open.

Okay, thanks, good afternoon. Thanks for taking my question. First question on the sales lease back pipeline, I was just wondering if you could maybe talk about that. And then the deal you did recently, I’m just wondering if you could talk about the appetite for more of that in greater detail. It was interesting that you were able to get the sale lease backs at what seems to be pretty attractive economics, and then also get new aircraft placements as part of that. I was just wondering if you’d talk about maybe more appetite for that in the pipeline? Steve Házy: John, you want to take that?

Yeah, well certainly Vincent, as we demonstrated in 2020 by the examples you just pointed out, yes, we're very much looking for that in 2021. But again, we're doing so in a very disciplined basis whereby we can bias it much more towards a sale leaseback transaction that is co-located if you will with the simultaneous placement of aircraft from our order book. We do believe those opportunities will continue to present themselves in 2021, so we're quite open to that, especially as we – as in my remarks I indicated that you know the deliveries that we have under contract, technically speaking in 2021, probably for the reasons that we’ve already talked about, you know may not all materialize, whether it's the 787 manufacturing delays or you know protracted time to get you know our 737-8’s or 9’s European tariffs, etc. So, you know knowing that the likelihood will be that our CapEx will not be proportional to what's contractually there, we're very much looking for these opportunities, but again, I would just emphasize, it's a very disciplined approach and you know you haven't seen us rush to the floodgates of sale leasebacks. You’ve seen us in a very targeted specific basis and that will absolutely continue for 2021.

Okay, great, thank you. The next question is – and it's a broad question, but it sounds like I think you're – you've always been a voice of calm in the aviation industry and it sounds just from my read that maybe you're spending a bit more positive. You know the net deferrals are down and it sounds like there’s more opportunities here, and so I’m kind of wondering if you maybe think that we’re past the low of this aviation cycle, even if the recovery is slow and sort of what are you looking for and watching out for in terms of next year, in terms of just the global aviation cycle? Thank you. Steve Házy: Well, we're talking to more than 100 airlines in any given point in time. We are watching their advance bookings; we're watching their cancellation. In other words, if a family makes a booking to fly in June to Europe, are they going to cancel that fly or are they going to go on that flight, and it looks like the ratios are starting to look a little better. But the real key is these government restrictions on quarantines, on testing prior to departure and the different rules and regulations in multiple countries that seem to be changing literally overnight. So I think ones who travel in public and business travelers feel a greater sense of calm, a greater sense of normalcy. In talking to our airline customers all over the world, we do expect a progressive delivery – I mean, recovery, but it won't be uniform across all continents, so we're going to have to just watch our political leaders adapt to the post-vaccine environment. But I think as you can gather from my comments, we are seeing light at the end of the tunnel. We still have our ways to go and I really hope that by the third and fourth quarter that recovery will be meaningful and measurable. So in the meantime we keep our seat belt fastened.

Yeah, Vincent I would add I think you know most eyes are really focused on the summer season you know. For the northern hemisphere lines, that's a real benchmark, it's a real – it's typically a time when a lot of cash is generated. So you know we're still holding our breath a bit, and all the things Steve is indicating are out there, but I think a lot of this will depend upon how the summer season actually unfolds. And to the restrictions and such, you know you've all been reading about things like vaccine passports and instantaneous testing right at the airport, right at the jet way, therefore negative tests. These things are still under development, but in its broadest sense I think 2021 will really be largely geared to how things go over the summer season.

Great! Very helpful, thank you.

Thank you. And our next question comes from Jamie Baker from JPMorgan. Your line is now open.

Hey, good afternoon everybody. A new headset here, so I hope you can hear me.

Yeah, we can hear you. Steve Házy: Hi James!

Great, great. So Steve, at the Dublin event you noted that Airbus this year in the single IR market, I think inclusive of the 220 was going to be you know getting up to 65%, you know a level that upset the duopoly for lack of a better term, and of course middle of the market rumors are percolating again. So what should Boeing do or more importantly, let me ask it this way, what did Air Lease want Boeing to do as it relates to resurrecting the middle of the market effort. Steve Házy: Well look, Boeing has some very, very tough decisions to make about where do they invest in R&D, which segment of the market, and I think it comes down to two segments; one is, the ultimate replacement of the 737; and then second, the void that exists today between the 737 and the 787. And I think that Boeing and Airbus both recognize that Airbus does have a product in the 200 seat plus category, particularly now with the A321 LR and the XLR that fills some of that void. Now, you know better than us that the airline’s balance sheet across the globe have been seriously damaged. So airlines that would have signed up for say 50 or 60 middle market 797’s three years ago, are they in a posture today to do that? I don't have a crystal ball, but I would think that airlines have a much more conservative CapEx outlook until they can repay these government loans or government guaranteed loan or they convert some of the debt that they've taken out into equity or some form of other non-debt security. So I think the airlines balance sheet today as you know are a much different shape than they were in 2018 and ’19. So the airlines ability to make large scale, multi-billion dollar commitment is different today than it was. And then secondly, you know how much the Boeing wants to invest in the long term future and make that decision in ‘21 or ’22. I'm not sure that we're at that point yet, that Boeing as a company can make a definitive commitment to invest in the right sized aircraft, because as I said, there’s two categories. There's the 737 replacement and then there's the 757, 767 mid-market size. And there's probably a need for both sizes, but is that something that an OEM can embark upon when we are just entering or expecting most difficult years since World War II.

Jamie, let me just add. You specifically asked, what does Air Lease want Boeing to do? Let me give you a very specific answer. We want Boeing to continue to make – to get its house right, to get its house in order. The 787 delays are impacting us, as well as the rest of the delivery, the manufacturing process. Boeing has gone through a tremendously difficult time and while they certainly have made a lot of progress, the blunt truth is we need them to fix the remainder of their house first before we have any interest in talking about new aircraft.

Understood. I appreciate that John, and a follow-up. Looking at the Alaska deal, you know it seems that Air Lease played a pretty significant role in helping them you know recommit to being an all Boeing operator. I think most investors think of aircraft leasing you know and this is the problem, you know as just a simple commoditized business, but you know Alaska feels like it was much more you know an example of partnership and Steve touched on that a little bit earlier in his prepared remarks. Mark and I were wondering, you know any war stories you can share about that particular deal or any other similar transactions?

Well look, the DNA of Air Lease is fleet planning. The DNA of Air Lease is not just financing planes. So I think it's the intimate understanding of the airline that we work with that really makes the difference. And in the case of Alaska as you know well, they acquired Virgin America, which had in all A319 A220 fleet and A321 deals in order. Most of those aircrafts were leased and the ones that were owned outright, Air Lease agreed to some very tough negotiations with Alaska to acquire on the condition that they would lease them back, number one; and number two, they would lease a higher number of new 737-9’s, which have a greater passenger capacity than the A320’s they are replacing. But this is a multi-year process, and I think it was a three-way partnership between Boeing and Air Lease and Alaska, to come to a fleet solution that Alaska is comfortable with for the next say decade, at least for another 10 years. And even the configurations will be there perhaps on the A320 that they inherited from Virgin America, as you know are completely different than the Alaska standard two-class configurations. So it was really a strong effort. You know I don't want to get into war stories, but it was not an easy transaction, and it took more than 12 months to put that together. And all during that period we had pandemic and we had Boeing stop the production of the MAX. None of us had any idea Jamie when the MAX would be recertified by the FAA. Alaska already had some orders for the MAX that were delayed and not delivered. So we’re dealing with a complex world of unknowns, but yet through all of that Alaska had enough confidence in Air Lease that we would persevere and put a deal together, that's a win-win for Air Lease, Alaska and the Boeing Company. And we will redeploy those A320’s and perhaps even bring in some new customers for Airbus. So there’s some interesting element to that transaction that ultimately when the book is written, it's going to be quite a case study of reconfiguring an airline’s fleet composition.

That's great. Mark and I really appreciate your thoughts on these topics. Thanks gentlemen, take care.

Thank you, Jamie.

Thank you. And our next question comes from Koosh Patel from Deutsche Bank. Your line is now open.

Hey, good afternoon guys. I appreciate all the commentary around the asset disposal on managed platforms, but I wanted to get a sense about how we should think about the sales margin on the asset sales program. On the one hand you mentioned there's a good appetite for assets, aircraft assets for investors, which would seem to indicate upward pressure. But on the other hand there seems to be a record number of assets in storage and just some of the challenges the passenger and the market faces right now would suggest download pressure. So I just wanted to get some of your thoughts there. And then secondly, I just want to see if you could maybe help us quantify the program a bit. Is it you know – are we thinking something closer to the $150 million you did in 2020 or something a little bit closer to the $1 billion you had in 2020 assets out-front?

Sure, I’ll start. Steve Házy: Greg, do you want to answer that?

No, let me start off the first part. The – look, we are seeing a renewed interest and despite your reference to some aircraft being on the ground, the reason why we're getting a lot more interested is our aircrafts are flying. You’ve seen our aircraft utilization rates are very, very high. So the young fleet, I would say that, and that fleet flying creates a more compelling investment scenario and people want to – buyers want to take advantage of that. So we mentioned this because we do believe that the environment is looking better and right if you will, for us to restore our sales programs and as I indicated in my prepared remarks, that's probably towards the second-half of the year and that also means that we will – if we sell aircraft they will be at respectable gains. They will be at levels that we think are overall in the best interest of our company and our shareholders, as opposed to holding these aircraft, because they are very profitable for a period of time, they go through there exercise frequently. So I think the environment is ripe, whether or not it's the same level or percentage or gain of last year, the prior year, I can't foresee except that we will apply the same level of discipline in the analysis of win and sell and the gains that we would make. So as to the volume, it's really, really hard to say and I hesitate and I pause to just give you an idea of the volume, except to say that you'll see more of whatever transpires more likely in the second-half of the year, but suffice to say it should be much, much higher than what we saw in 2020.

Hey John, just to add to that, just a touch. I mean the one thing to think about also is, the amount of aircraft will be buying from both Boeing and Airbus. If things remain slow, the need to sell is clearly much lower. I mean I think that's a big variable at play. We don't really have that many aircraft that are really in that category to be sold if you will. Right, we usually look to sell airplanes over 8 years of age and we just don't have that many of them, because our average age is four. I think the other thing to keep in mind, which I think bodes well for the sales market is that resurgence that we're starting to see in the AVS market. I think you're seeing financings get there at levels that you wouldn't see pre-COVID, just because they are overall rate environment. I think that's helping to make some of the math work for some of the buyers as well, but I think to John's point, it’s very much a wait and see, but I really like the fact that we have the airplanes that a lot of these buyers are looking for, because they are with high quality lessees, they are young and on long leases.

Great, thanks a lot guys.

You’re welcome.

And thank you. And our next question comes from Ross Harvey at Davy. Your line is now open.

Yeah, thanks for your time. On share buybacks you don't appear to transact on the shares in the $100 million program announced at Q3. I’m wondering can you comment on that and maybe whether or not it's related to the leverage being at 2.7 times. Is that a level do you want to see come down in the coming quarters?

I'll take this one. This is Greg. It has nothing to do with where our leverage is currently. I think the leverage is where it is as I mentioned in my prepared remarks due to our elevated liquidity position and on a net basis, net of cash is at 2.4 times, so we really had the availability to do so. We just haven't disclosed what level we are willing to acquire stock back at and of course we won't do that. But suffice to say, there's been plenty of opportunities and we started it regularly as to what the best uses are for us to deploy capital into, buying back stock or raising dividend, buying from the OEMs or doing the sale leaseback transactions. But you kind of have to trust in us that we are running the math and we are making the right decisions along the way.

That makes sense. And one follow-up maybe on the aircraft values. I mean notwithstanding that, it’s just that Greg, a lot of your lessees and cash accounting and repaying some levels and Steve obviously mentioned that the dow [ph] engagement random on wide-body in the improvement of supply/demand balance. I’m just wondering, is there a risk that the lease restructuring that your disclosing, you know the date rate or any impairment reviews in the wide-body current tech section of your fleet.

Yeah, I think its important note that only 7% of our fleet is on a cash basis and I think we’ve noted in prior calls, we’ve not had exposure to the major airline bankruptcies that we've seen in the industry. So I think we've done very well from a credit perspective. Not to name individual names, but I think if you look at our fleet, relative to a lot of our peers we have far fewer bankrupt carriers in our fleet. So I think it's important to look through that lens as well, but all-in-all I think we're in a pretty strong position, and it doesn't surprise me that we haven't taken impairment charges, we have a four year old fleet. Under GAAP it’s an undiscounted cash flow to us and as you would expect, there's a lot of cash flows that support the values of the airplanes on our balance sheet.

Great! Thanks for the time.

Thank you. And we have a follow up question from Ron Epstein from Bank of America. Your line is now open.

Yeah, and just maybe a couple more detailed questions. When you look out over the next four quarters, are there any customers that you – that are potentially at risk of not taking deliveries? Steve Házy: Well, I mean we have not – we don't have any indication at this point Ron that an airline that has a contractual commitment to take a new plane this year, is not going to take it. Now, in trying to look at the crystal ball, if we don't have a reasonable degree of recovery as we go into the summer – as John emphasized, the summer is really crucial, you could – I'm not saying this is going to happen. You could have an airline come to us and say, ‘Steve, John, Greg, we have an airplane that we were supposed to take say mid-year this year. We’d rather not take it. We don't really have the full need for it, but could we get some kind of a concession for the first six months or something at a slightly reduced lease rates and we'll make it up over the following months.’ In other words, a lease that which maybe $100 a month, they’ll have to say, well I’ll give you $90 a month for six months and then I'll pay you $110 a month for the following six months. That kind of a scenario request is probably a higher probability. If an airline doesn’t really see recovery, then just outright saying we're going to re-neg on our contract to take the plane from ALC; that is more difficult to see at this stage. But even in the current environment that we're in, I doubt that there'll be any airlines asking for what I just described, but there could be exceptions, but it would certainly be a very small number of airplanes that would be subjected to that type of a request.

Ron, I'm more – I’ll just be very straightforward here. I'm more concerned today that the tariff situation gets solved vis-à-vis the importation of tariffs on Boeing aircraft going into Europe. You know Air Lease has – you know Europe is our second largest market place behind Asia, and so the factors that Steve sites as to the airline's willingness to take so far looks pretty good on across all, but the one handicapper we’re going to have is for any deliveries, whether they be on the 737-8 or 9 or the 787, just to give you an example we had a 787 that was supposed to go to LOT in Poland last year and it still hasn’t delivered. So I'm actually more concerned from the tariff situation than I am from a customer receptivity or ability to take, because none of these airlines – you know the airline is technically the importer and so the import tax is assessed directly on the airlines and no airline’s going to take that these days and I think the Boeing company knows it and we know it, nor are we going to take that risk. So frankly, it's actually on the European side, the bigger risk is with what happens with tariffs and the need for both governments, both in the EU and the U.S. to get to a quick place to eliminate both sides of those tariffs, whether it's permanently or temporarily, until things are sorted out or whatever. That's actually a bigger factor that I look at this year, over the next several months especially. Steve Házy: Yeah, that's the biggest impediment Ron to delivering an aircraft in Europe, because no airline is going to want to pay 50% duty, because they're not the guilty ones. It was Airbus and Boeing that had various kinds of subsidies and government assistance in their various programs and so both sides are pointing fingers at each other, but the airline and the leasing companies cannot be the victims. They are not the perpetrators of these various subsidies and those things that the two sides are accusing each other of. So John is right, commercially it’s not where we see the problem. It's only the tariff that could be a barrier to the export of these aircrafts to Europe.

Good, and then maybe just one more detail. What do we think about your collections or revenue, however you want to frame it. What percentage is on cash accounting now? Because you’ve got in some customers, like for example Malaysian, they're in pretty tough shape. I mean, are they on cash accounting? I mean, how do I think about who is on cash accounting and who is not and how you think about it?

Malaysia is paying us, they are totally up-to-date, there's no problem with Malaysia. But Greg, you can answer it.

You know we have about – we disclosed in the K there's roughly 7% of our fleet is subject to cash accounting. As you expect, most of those customers are in some form of reorganization. You have to remember, a good part of our underwriting requirements are a criteria that we focus on having cash reserves and large security packages, so we have a lot of runaway with our customers, more so than maybe some of our competitors, but right now it's only 7%. All-in if you look at cash basis as I mentioned in my prepared remarks, plus the restructuring, it’s less than 5% of revenue. So I think we've been navigating a very tough situation as best we could.

Got it. Okay, thank you guys.

Thanks Ron.

And thank you. I would now like to turn the call back over to Mary Liz DePalma for closing remarks.

Okay, well thank you everyone. That concludes our call for today. We look forward to speaking with you again after the conclusion of the first quarter. Justin, thank you so much. You can now disconnect the line.

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