Fly Leasing Limited (FLY)

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Fly Leasing Ltd. (FLY)

Q4 2012 Earnings Call

March 7, 2013 9:00 AM ET

Executives

Matt Dallas – IR Manager

Steve Zissis – President and CEO, BBAM

Colm Barrington – CEO

Gary Dales – CFO

Analysts

Richa Talwar – Deutsche Bank

John Godyn – Morgan Stanley

Gary Liebowitz – Wells Fargo

Helane Becker – Dahlman Rose

Jamie Baker – JP Morgan

Glenn Engel – Bank of America

Presentation

Operator

Good morning. My name is Aldus and I will be your conference operator today. At this time, I would like to welcome everyone to the FLY Leasing Limited Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After speakers’ remarks, there will be a question-and-answer question.

(Operator Instructions) Mr. Matt Dallas, you may begin.

Matt Dallas

Thank you, operator. Good afternoon, everyone. I am Matt Dallas, the Investor Relations Manager at FLY Leasing. And I’d like to welcome you to the fourth quarter and full year 2012 earnings conference call.

FLY Leasing, which we will refer to as FLY or the company throughout this call, issued its fourth quarter and full year earnings results press release earlier today, which is posted on the company’s website at www.flyleasing.com.

Representing the company today on this call will be Colm Barrington, our Chief Executive Officer; Gary Dales, our Chief Financial Officer; and Steve Zissis, the President and CEO of BBAM, the company that manages and services FLY’s fleet.

I’d like to begin the call by reading the following Safe Harbor statement. This conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements regarding the outlook for the company’s future business and financial performance. Forward-looking statements are based on current expectations and assumptions of FLY’s management, which are subject to uncertainties, risks, and changes in circumstances that are difficult to predict.

Actual outcomes and results may differ materially due to factors that are summarized in the earnings press release and described more fully in the company’s filings with the SEC. Please refer to these sources for additional information. FLY expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.

This call is the property of FLY and cannot be distributed or broadcast in any form without the express written consent of the company. A replay of this conference call is available for one week from today. An archived webcast of the call will be available for 90 days on the company’s website.

I will now hand the call over to Steve Zissis, the President and CEO of BBAM. Steve?

Steve Zissis

Thank you, Matt, and welcome, everyone, to our fourth quarter earnings call. In my prepared remarks today, I will touch on demand for aircraft from our airline clients, the financing environment, and I’ll also speak about the amount of capital flowing into the sector, and the impact this capital is having on market pricing.

But let me first make four high level comments. Given the macroeconomic backdrop, we believe the long-term prospects for the sector are stronger than they would have – than we would have expected. Industry fundamentals continued to improve, despite a background of economic uncertainty in many parts of the world. Interest rates are at historic lows and lease rates are either stable or increasing across virtually all in-production aircraft types. This means that the fundamental economics of our business are improving. And we expect them to continue improving over the next several quarters.

Second, we made strong progress at FLY over the last 12 months. We have grown FLY’s fleet with attractive aircraft acquisitions, sold multiple aircraft at premiums to book value, increased the company’s dividend on the back of healthy free cash flow after debt service, produced substantial book profits, executed on our financing plan, and, most importantly, grown our unrestricted cash, so that we’re in a position to grow more aggressively in the coming months. In fact, as it relates to growth, we’re targeting $300 million to $500 million in new aircraft acquisitions in 2013.

We expect the growth will come from a mix of new or nearly-new aircraft and selected acquisitions of mid-life in-production aircraft. The new or nearly-new equipment, particularly from Boeing, represent in our view a relatively safe corner of the market to deploy capital for predictable returns.

Investments in mid-age equipment represents strong prospects for attractive returns with reasonable downside protection from current pricing levels. As always, we seek our relative value and remain committed to being nimble and agile in what is a dynamic sector. We expect this growth to translate into top line revenue growth and commensurate growth in income.

Third, we brought a great partner – brought a great, long-term investor into our business with the recently announced Onex related transaction. When you combine the management team’s direct and indirect shareholdings with those of Onex, on a combined basis, we hold more than $50 million worth of stock at today’s closing price. Excluding the Onex investment, your management team alone holds more than $22 million of the company shares on a market cap of $375 million.

As this is stock we have acquired, not through share grants, equity awards or option plans, but instead through the investment of our own after-tax cash savings, the management team is fully aligned with our common shareholders and has a long-term commitment to the business. Evidence of this commitment can be found not only through our large shareholding, the largest by insiders as a percentage of the company across all publicly-listed lessors, but also through the long-term lockup agreements we’ve signed at the end of last year. We expect to hold our shareholdings for many years to come and are dedicated to growing the long-term value of this business on a per share basis. We have a track record of executing on this strategy and we will continue to do so.

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