Fly Leasing Limited (FLY)

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FLY Leasing Limited (FLY)

Q3 2010 Earnings Call

November 4, 2010 4:30 PM ET

Executives

Matt Dallas – Investor Relations

Steve Zissis – President and CEO, BBAM

Colm Barrington – Chief Executive Officer

Gary Dales – Chief Financial Officer

Analysts

Helane Becker – Dahlman Rose

David Nasborough – RBC Wealth Management

Jon Evans – Edmunds White Partners

Yeltsin Rabat – Independent Investment

Presentation

Operator

Good afternoon. My name is [Rosche], and I will be your conference operator today. At this time, I would like to welcome everyone to the Fly Leasing Limited Third Quarter 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Dallas, you may begin your conference.

Matt Dallas

Thank you and good morning, everyone. I am Matt Dallas, the Investor Relations Manager of Fly Leasing and I'd like to welcome everyone to our third quarter earnings conference call. Fly Leasing which we will refer to as FLY or the company throughout this call, issued its third quarter earnings results press release earlier today, which is posted on the company's website at www.flyleasing.com.

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

I'd like to begin the call today 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 are 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 Leasing and cannot be distributed or broadcast in any form without the expressed written consent of the company. A replay of this call is available for two weeks from today. An archived webcast of this call will be available for one year and available on the company's website.

I will now hand the call over to Steve Zissis, the President and CEO of BBAM to give you his view on industry conditions. Steve?

Steve Zissis

Thanks, Matt. The news from the commercial aviation industry continues to be positive. I can confirm that we are experiencing strong demand for aircraft lease product from virtually all global jurisdictions. The emerging market regions continue to exhibit very strong growth and passion to traffic, just as they have been for the past several quarters.

U.S. airline industry through consolidation and relatively good discipline and capacity growth has recently been profitable and cash flow positive. We continue to believe that there will be a combination of growth in the emerging market regions and the significant re-fleeting requirements of financially stabilized U.S. legacy carriers that will fuel growth in the aircraft leasing sector for the foreseeable future.

Our airline clients are making fleet planning decisions in a manner consistent with historical practice. That is to say, airlines have moved beyond the short term when thinking about capacity growth and re-fleeting and are now planning two to three years into the future. This is an important change from the prior 18 months and supports a traditional cyclical recovery.

Airlines and aircraft leasing companies are ordering aircraft in large numbers. Both Airbus and Boeing have substantial demand for the newer narrow body equipment, a particular focus for FLY. There are virtually no delivery positions available from either manufacturer on these aircraft types for several years.

Both Airbus and Boeing are increasing production rates in an effort to satisfy the demand but we still see a favorable supply demand dynamic that we expect to continue to underpin the recovery in aircraft values and lease rates.

Equity capital continues to pour into the sector. As mentioned on prior calls, much of the capital is coming from private equity community but the larger existing lessors are also allocating capital to grow their businesses.

As you would expect, this capital is creating more demand for aircraft to pursue prices higher. This demand for leased aircraft is creating more liquidity for FLY's aircraft.

We have taken advantage of this liquidity to rebalance the portfolio in the third quarter. And we sold three aircraft at premiums to net book value. We have another aircraft sale scheduled for the fourth quarter, a 21-year old 757. And we will continue to look for further sales opportunities.

The cash proceeds from these sales will be combined with the company's significant unrestricted cash balances to acquire new aircraft. We made some progress in this front in the third quarter with the flydubai transaction. And we expect more opportunities in the next 12 months to originate sale lease backs directly with the airlines.

I will now turn the call over to Colm.

Colm Barrington

Good afternoon, everyone. FLY is reporting another good result for the three months ending on September 30, 2010 with adjusted net income of $14.1 million and adjusted earnings per share of $0.52, excluding $1.9 million of share-based compensation. This compares to net income of $14.4 million and EPS of $0.48 in the same quarter of 2009. The $0.04 improvement in our EPS from last year is partly due to the reduced number of shares outstanding arising from our ongoing share repurchases.

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