Aircastle Limited (AYR)
Citi 2011 North American Credit Conference Call
November 15, 2011 10:45 AM EST
Michael Inglese – CFO
Unidentified Company Participant
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With that, let me turn it over to Mike.
Thank you, Ryan [ph]. Good morning, everyone. For those of you who don’t know Aircastle, we’re one of the leading commercial jet aircraft leasing companies in the world, 138 aircrafts and 61 customers in 34 countries around the world. We have a slightly differentiated business model and growth strategy than some of our peers, and I’ll elaborate on that in the course of the next 15 minutes or so. We have a modern fleet of commercial jet aircraft, both passenger and cargo, financed in a conservative capital structure. And I think we’re well positioned to capitalize on the resumed growth trends in both passenger and cargo markets in the industry over the long-term.
From our perspective, key investment highlights with our business model. Very long-term good growth market expanding at a multiple of global GDP historically and it seems to be headed back on that trend through the recent cycle. And we’ve seen a very dramatic increase in a number of aircraft lease versus owned by airlines around the world over time. Our aircraft portfolio is very moderate. 93% of it is latest generation technology. And we also focus, as I mentioned, on the cargo sector of the air market, as well as the passenger sector.
We have a very strong servicing and origination track record over a 145 leases done in our six years of existence and we’ve acquired our fleet via 79 transactions with 60 different counterparties over time. We focus on finding value in each investment and have done one significant portfolio acquisition in our history. But institutionally [ph] find in our view and in evaluating our own portfolio that the best value is done on sort of a stone-by-stone basis is now [ph] finding value in many different transactions.
Our management team comes from a lot of industry players. The business was started in 2005 as a Greenfield business, and Fortress Investment Group who started the business recruited experienced managers from around the business. As the CFO, I’m the only one in the senior management team who doesn’t come from the aircraft leasing industry. I’ve been here for about 4.5 years and previously spent about 13 years in the satellite services business.
Business model; we have very stable cash flow. Last 12 months EBITDA was up $569 million, ended the third quarter with $266 million of unrestricted cash, operated about 60% net debt to net book value our flight equipments, and have demonstrated access to many different market capitals over our five or six-year history.
A couple of industry slides just to give you some context, 2010 passenger and freight traffic was up dramatically over the dismal 2009, comps that were out there given the financial crisis. Through the first nine months of 2011, we’ve continued to see strong passenger traffic growth and we see freight growth was actually basically flat with the prior year which is pretty impressive given what we’ve seen in the marketplace.
Freight recently has shown some modest downtick on a sequential basis. And I think people are just taking a more conservative view as are we in terms of adding capacity on an un-leased basis and looking for investment opportunities in both of those segments. We expect to see, as I add a statistic show here in the right on the top graph, about 5% plus growth in each of the passenger and freight markets, given the normalized GDP growth forecast around the world.
The global fleet is expected to grow substantially over the next 12 years whether it’s Boeing or Airbus who put out there projections here, Airbus in blue and Boeing in the silver color. We’re going to see a lot more passenger and freight airplanes flying around the world. A lot of that growth will be driven by the emerging economies, but there is also substantial re-fleeting activity that needs to be done, particularly in the North America and some of the European carriers over that timeframe.
As I mentioned, the rest of our markets here has increased steadily from the early 70s when the first business started to where we are in 2011 of somewhere north of 35% of the global fleet is operated by lessors. It provides an attractive value proposition for airlines 100% off-balance sheet financing, although that concept may change as accounting rules change, most importantly transfer of residual risk and management of fleet capacity.
And finally, lessors historically have had much more stable business operations margins compared to the airline. As you can see in the bottom chart here, even through the financial crisis, aircraft lessors continued to remain very substantial high revenue utilization and very strong operating performance through the recent downturn.
Our fleet looking back to the beginning of 2007, we’ve consistently maintained about 98% to 99% revenue utilization which is basically days that aircraft are available for lease and how many days of those they’re actually generating revenue for us. And our rental yield which is our basic lease rentals received over the net book value of our carrying value of our equipment has averaged around 14% over that timeframe. You can see one modest dip in utilization in the first quarter of 2009. Late in 2004, we had our number four customer go bankrupt. And taking back those aircraft and getting them back on lease in about a five months timeframe put a little dent in utilization and revenue yields in that quarter. But we’ve consistently been driving it back up from that point.