Fly Leasing Limited (FLY)

FLY 
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FLY Leasing Limited (FLY)

Q4 2011 Earnings Conference Call

March 08, 2012 09:00 AM ET

Executives

Matt Dallas - Manager, IR

Colm Barrington - CEO

Gary Dales - CFO

Steve Zissis - President and CEO of BBAM

Analysts

Glenn Engel – Bank of America

John Evans - Edmunds White Partners

Richard Haydon - Yield Capital Partners

Operator

Good morning. My name is Don and I will be your conference operator today. At this time, I would like to welcome everyone to the FLY Leasing Limited Fourth Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions)

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

Matt Dallas

Thank you. Good morning everyone. I am Matt Dallas, the Investor Relations Manager of FLY Leasing and I'd like to welcome everyone to our fourth quarter and full year 2011 earnings conference call. FLY Leasing, which we will refer to as FLY or the Company throughout this call, issued its fourth quarter 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 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 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 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

Good morning everyone and thank you for joining us today. In recent months, demand for narrow body aircraft has softened, as more airlines hesitate to expand capacity in an uncertain economic environment. And a record number of aircraft are coming off the supply lines from the OEM’s. Although, we remain cautious in the immediate future, the prospects for growth and renewals remain positive over the medium term, due to the real re-fleeting requirements for many legacy carriers, as well as the long term growth potential in the emerging markets

The ongoing recovery on the demand side has been stalled recently by bankruptcy filings, from several airlines that have caused over 50 narrow body aircraft, to be available for lease in the current market, over and above normal supply levels.

We are concerned of the possibilities that marginal operators will either seize operation or reduce their fleets to right size their business over the coming months. Although, this will put downward pressure on the lease rates, in the short term, we expect rates to recover as airlines gradually absorb the oversupply.

On the (inaudible) front, we are now seeing increased opportunities compared to recent years. Some traditional source have pulled back for a variety of reasons, be it the lack of debt, the need to husband capital, pre-delivery payments on their order positions, or because they must scale back acquisitions due to portfolio concentration issues. We expect the next 24 months, to provide attractive opportunities to deploy capital and high yielding and in creative deals for FLY.

Since we now find the best value in a flying aircraft, FLY will increasingly be shifting its strategy from equity indebt repurchases to aircraft transactions. Although, the debt markets remain challenging, we’ve seen some traditional lenders re-enter the market, or be it on a more selective basis and with higher margins. In addition non-traditional lenders from Asia-Pacific have filled some of the void left by European lenders. So far higher credit margins have been offset by lower levels of absolute interest rates. We expect this trend to continue in the near term.

BBAM, which is 15% owned by FLY, has a 22-year history in aircraft leasing. BBAM manages over 450 aircrafts, is supported by a 110 employees globally and is led by seasoned management team, with a proven track record, in remarketing, re-origination and debt sourcing, as evidence by the acquisition and financing 52 aircrafts last year, by BBAM on FLY’s behalf.

I will now hand the call over to our CEO, Colm Barrington.

Colm Barrington

Thanks Steve and good morning everyone. Well, FLY had a truly transformational year in 2011. We grew our fleets of modern commercial aircraft from 59 to 109, an 85% increase in our fleet. Most of this growth was achieved through the acquisition of a $1.4 billion portfolio 49 aircrafts completed in October.

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