Aengus Kelly - CEO and Executive Director Peter Juhas - CFO Joseph McGinley - Head of IR.

Mark DeVries - Barclays Ross Harvey - Davy Jamie Baker - JPMorgan Gary Liebowitz - Wells Fargo Helane Becker - Cowen and Company Scott Valentin - Compass Point Koosh Patel - Deutsche Bank Moshe Orenbuch - Credit Suisse Rajeev Lalwani - Morgan Stanley Kristine Liwag - Bank of America Merrill Lynch Kevin Crissey - Citigroup Vincent Caintic - Stephens.

Good day, and welcome to the AerCap Third Quarter 2018 Financial Results Call. There will be an opportunity to ask questions following the briefing. Today's call is being recorded and a copy of the presentation will be available on the company’s Web site following the call. At this time, I would like to turn the conference over to Mr.

Joseph McGinley, Head of Investor Relations. Please go ahead, sir..

Thank you, operator, and hello everyone. Welcome to our third quarter 2018 conference call. With me today is our Chief Executive Officer, Aengus Kelly; and our Chief Financial Officer, Pete Juhas.

Before we begin today's call, I would like to remind you that some statements made during this conference call which are not historical facts may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements.

AerCap undertakes no obligation, other than that imposed by law, to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after this call.

Further information concerning issues that could materially affect performance can be found in AerCap's earnings release dated October 30, 2018. A copy of the earnings release and a conference call presentation are available on our Web site at aercap.com.

This call is open to the public and is being Webcast simultaneously at aercap.com and will be archived for replay. We will shortly run through our earnings presentation and we'll allow time at the end for Q&A. As a reminder, I would ask that analysts limit themselves to one question and one follow up. I will now turn the call over to Aengus Kelly..

Thank you, Joe. Good morning, everyone, and thank you for joining us for our third quarter 2018 earnings call. I am pleased to report another quarter of strong earnings and profitability.

During the quarter, we generated earnings per share of $1.79 and net income of 263 million, both of which were driven by a strong underlying performance in the business. I’d like to remind everyone what the underlying business is. AerCap is the world’s largest owner of commercial aircraft.

This provides us with tremendous scale and insight to the entire aviation industry. We place our aircraft on long-term leases to 200 customers in 80 countries. This diversification coupled with our proactive approach to risk management has contained credit costs to 1% of revenue throughout the last decade.

The relentless focus of the AerCap platform on a consistent strategy and operating excellence has resulted in double-digit earnings growth and 12 years of uninterrupted GAAP profitability. This has been achieved despite $147 oil, the financial crisis, the Eurozone prices, et cetera.

Furthermore, this unrivaled value creation has been achieved without any large financial or industry parent. This is the AerCap business. The AerCap platform remained very active in Q3 executing 87 aircraft transactions including 20 widebody. Our utilization rate improved to 99.4% reflective of the strong broad-based demand for our aircraft.

Passenger traffic continues to grow strongly with IATA reporting a 6.4% growth in RPK for the month of August. Load factors reached record levels of 85.3% edging closer to obviously as the natural ceiling. We took delivery of 12 new aircraft in Q3 comprised of six A320neo, two A350s, two 787s and our first two 737 MAX 8.

These aircraft types are the most in-demand variants of today’s new technology aircraft families. This demand is reflected in our strong placement activity with 95% of our lease rent through 2021 already contracted. Our average remaining lease term is one of the highest in the industry at 7.1 years, up from 6.6 at the end of Q3 '17.

Given the production delays from Airbus and Boeing, we now expect to take delivery of 33 aircraft in the fourth quarter and a small number of units have shifted into 2019. Our trading team remained active during the quarter as we continue to optimize our portfolio. We sold 13 aircraft in Q3.

These included two A330s, two 767s, and one A340 as well as six narrowbody aircraft. The sales of midlife and older aircraft coupled with the delivery of new technology aircraft has decreased our average fleet age to 6.6 years, down from 7.1 in September 2017. This will move towards the low 6s by the end of 2019 as our order book delivers.

I would like to highlight, however, that we do not believe that newer aircraft are always better. It is far more nuanced than that. You have to make sure that you have the new aircraft that your customers want for the next 20 to 25 years, not just the next 8 to 10.

We have been very careful with our portfolio management strategy to ensure that we only have the most in-demand aircraft and that age is a secondary consideration. There were plenty of excellent older aircraft just like there were new aircraft that we would not purchase today.

The average age of our current technology aircraft is over 10 years and we are very confident that these aircraft will be in demand for the next 12 years, thereby consuming the remaining economic value and reducing any impairment risk.

In contrast, we believe that young variants of the current technology assets will face residual value risk because in 12 years these aircraft will be replaced in large numbers by new technology assets such as the Neo and the 787. We will continue to manage the fleet to maximize value rather than purely age.

At a macro level, we see a generally healthy environment for airlines notwithstanding the recent increase in oil prices. We continue to see solid demand for good aircraft. We have now placed over 90% of our order book to 2020. The three major markets of Europe, North America and China continue to perform well. Domestic travel in the U.S.

and China grew 5.2% and 14.9%, respectively, in August, significantly ahead of GDP growth. Whilst there have been a number of smaller bankruptcy events in the last couple of months, such as Primera and Small Planet. These cases have been small in nature and reflect individual issues.

We believe the airline industry is in a stronger structural position than it was a decade ago which provides better scope for carriers to manage capacity and cash flows.

Nonetheless, we will likely see some weaker airlines continue to struggle through the winter as they face higher fuel prices and in some cases a decrease in the value of their local currency relative to the U.S. dollar.

It should be remembered that we protect ourselves in these events by collecting security deposits and maintenance reserves and having an active approach to risk management. The combination of these factors means that credit costs have averaged 1% of lease revenue in the last 10 years. This shows the power of the AerCap platform.

On the liability side of our business, we closed on 750 million of debt facilities in the third quarter at attractive pricing. We continue to carry strong levels of liquidity ending the quarter with $11 billion. We also ended the quarter with leverage of 2.7x which is the lower end of our 2.7x to 3x target range.

Our share repurchase program continued during the quarter. In Q3, we spent 87 million buying back 1.5 million shares. This brought the total number of shares we purchased so far this year to 10.2 million shares for 540 million. Since June 2015, we have repurchased 35% of the company.

As we highlighted on our Q2 earnings call, we continually evaluate our options for capital deployment and today we are announcing a new share repurchase program of $200 million effective through March 31, 2019. In closing, our third quarter results demonstrate once again the consistency of the AerCap business.

We will continue to run AerCap to optimize shareholder value and generate long-term consistent returns for our shareholders. With that, I will hand the call over to Pete for a detailed review of our financial performance..

Thanks, Gus. Good morning, everyone. I’ll start on Slide 5 of the presentation. Our net income was $263 million for the third quarter and our diluted earnings per share was $1.79. Our net income was roughly flat year-over-year while our EPS was up 10%, primarily driven by the repurchase of 20 million shares from July 2017 through September 2018.

On Slide 6, over the past year our book value per share has increased 11% from $55.06 to $61.24. In the third quarter, we repurchased $87 million worth of stock and this year-to-date through last Friday we have repurchased 10.2 million shares, as Gus said, for a total of $540 million.

As Gus mentioned, since 2015 we have repurchased 35% of the company’s outstanding shares. On Slide 7, our total revenue for the third quarter was $1,167 million. Our basic lease rents were $1,039 million, roughly flat year-over-year. Our maintenance revenues for the third quarter were $94 million.

This is a decrease from the third quarter of last year when we had very high maintenance revenues as a result of the Air Berlin bankruptcy. This quarter, our maintenance revenues were somewhat higher than normal as a result of the Shaheen lease terminations.

We are seeing higher maintenance revenues coming through now but these will be offset by additional leasing expenses in 2019. Overall, we expect the net effect will be a timing shift of about $0.10 of EPS forward from 2019 into 2018. Last year, we provided EPS guidance for 2018 of $5.30 to $5.50 which did not include any gains on sale.

And we now expect to be at the top end of that range for the full year. For 2019, we had previously provided guidance of $6.00 to $6.20 of EPS again with no gains on sale. And at this point we’re reaffirming our guidance for next year and continue to expect to be in this range.

However, as a result of the $0.10 timing shift I mentioned, at this point we’re probably more likely to be in the lower half of that range. Our net gain on sales were $20 million for the third quarter compared to $64 million a year ago. In the third quarter, we continued to sell midlife and older aircraft at attractive prices.

We continue to see strong demand from buyers of used aircraft. However, our sales volume is lower this quarter than the third quarter of last year. Our other income was $14 million for the quarter which was slightly higher than last year. Turning to Slide 8.

Our net interest margin was $742 million for the third quarter and our net spread was 8.4%, the same as last quarter. The primary driver of the decrease from the third quarter of 2017 was the lower age of our fleets. Our average cost of debt was 4.1% for the quarter, an increase from 4% last year.

As we continue to take delivery of new technology aircraft and sell older and midlife aircraft, we are reducing the average age of our fleet, which is now 6.6 years down from 7.1 years. We’re also increasing the average remaining lease term of our aircraft which is now 7.1 years, an increase from 6.6.

As we take delivery of more new aircraft, we expect the average age to decrease to the low 6s by the end of 2019. In line with the guidance we provided last year, we expect our net spread in 2019 to be around 8% and we expect our net spread less depreciation to be around 3%.

On Slide 9, our net gain on sales was $20 million for the quarter as we sold 13 of our owned aircraft with an average age of 17 years. That brought our total sales so far this year to around $1.7 billion. Our higher than expected level of sales this year has been driven by the continued strong demand for midlife and older aircraft.

At this point, we expect to sell around $1 billion worth of aircraft in 2019. But, of course, the ultimate volume will depend upon demand from buyers of midlife and older aircraft as well as the financing environment for those buyers.

Turning to aircraft purchases, we took delivery of 12 new aircraft in the third quarter including our first two 737 Max 8s, six A320neo family aircraft, two A350-900s and two 787-9s. Our total CapEx for the quarter was around $1 billion.

We had a few deliveries move from September and October and we now expect to take delivery of 33 aircraft in the fourth quarter bringing our total for this year to 72 aircraft. For the full year, we expect our total CapEx to be around $5.7 billion. In 2019, we expect to take delivery of 92 aircraft for CapEx of just over $6 billion.

As a result, we expect our lease assets to grow by around $4 billion from now until the end of 2019, which will drive an increase in our lease rents in 2019. Slide 10, our maintenance rights expense was $34 million for the third quarter, down from $109 million in 2017.

This was primarily driven by the lower maintenance rights intangible asset balance which has been coming down over time and is now approximately $1.2 billion. We expect quarterly maintenance rights expense to remain generally around this level through the end of 2019.

Of course, along with maintenance revenue and other leasing expenses, this can vary each quarter depending on the level of maintenance activity. Our other leasing expenses were $51 million for the quarter and increased from $29 million last year. Our SG&A expenses were $63 million for the quarter, a decrease from $84 million last year.

This is mainly due to a significant reduction in our stock-based compensation expense, as I’ve mentioned in previous calls. It’s also due to some other one-time items that reduced SG&A expenses this quarter. Going forward, I would expect the run rate for total SG&A expenses to be around $75 million a quarter.

On Slide 11, we continued to maintain a very strong liquidity position. As of September 30, we had available liquidity of $11 billion. Together with our operating cash flows that gives us total sources of $14.1 billion which is 1.4x our cash needs of 10.1 billion over the next 12 months. This amounts to excess coverage of around $4 billion.

We’ve reduced our secured debt to total assets percentage from 29% in September of 2017 to around 25% at the end of this quarter. And we ended the quarter with a debt to equity ratio of 2.7 to 1 which is at the lower end of our target range. So to wrap up, we had a very strong third quarter.

We continued to grow our EPS and book value per share at a double digit rate. We continued to make good progress in placing our new aircraft and we’re now over 90% placed through the end of 2020. We completed the transitions of a number of aircraft and our utilization rate returned to over 99%.

We ended the quarter in a very strong liquidity and capital position. And we announced the new share repurchase program for $200 million. With that, now we’ll turn it over for Q&A..

[Operator Instructions]. We will now take our first question from Mr. Mark DeVries from Barclays. Please go ahead, sir. Your line is open..

Thanks. I was hoping to get some updated thoughts on best use of capital here particularly in light of the discount in stock price here.

Would you consider potentially selling more planes than you’ve discussed or even allowing the balance sheet to relever a little bit considering you’re now at the low end of your target range to get a little bit more aggressive on buybacks and implied by the current repurchase authorization? Thanks..

Sure. As you point out, we are increasing it by 200 million and we have not been shy about taking advantage of lower stock price over the last three years. We’ve bought back 35% of the company. So I think that behavior will continue. Having said that though, we want to make sure that we stay within the targeted range of our debt equity levels.

As regards aircraft sales, we continue to sell aircraft. We will continue to do that. And so I don’t think you’ll see any change in the behavior going forward..

Okay, got it. Thank you..

Hello? Sorry, who is the call addressed to?.

Mr. Harvey. [Operator Instructions]. We will now take our next question from Mr. Ross Harvey. Please go ahead, sir..

Hi.

Can you hear me?.

Yes, go ahead..

Great. Thanks. I’ve got two questions if I can. Just in terms of the placement activity as mentioned that over 90% of the aircraft deliveries through 2020 are leased. I was just wondering in terms of looking out over kind of 26 months what would usually be your placement levels in terms of where that might be different to history.

Is it led by yourselves trying to place ahead of any issues resulting on the OEM side or is it market led? Is there demand there? Secondly, I might be repeating one of the questions that came earlier but maybe with more of a strategic plan.

In terms of the younger fleet, the slightly lower absolute net spread relative to history, just wondering would you reconsider your leverage targets given that younger age of the fleet, given the visibility that that provides or would there be too much of a threat on the credit rating?.

Sorry, could you just explain the second part of the question.

You’re saying the younger fleet versus --?.

Yes, I was just wondering in terms of younger fleet would you consider at any point your leverage targets of 2.7x to 3x net debt to equity or would you look to three lever higher given the younger aircraft and that people can ascribe a higher visibility on that?.

I’ll let Pete answer that. In relation to the first part of your question, as a policy generally through any cycle we would tend to want to place on the used side everything pretty much 12 months out and on the new side two plus years out. So there’s nothing unusual really about where we stand at the moment in our placement activity..

Ross, on the leverage question, so you’re right. The fleet is obviously getting younger and we believe when we look at the credit profile of the company that is improving, because of all the sales that we’ve done of older aircraft, because of the new technology aircraft that were coming in. Clearly that’s a positive for the credit profile.

But as we look at the leverage ratio, we want to continue to stay within our range. As you have seen, we have tended to be around the 2.7 to 2.8 number. I’d say that’s probably a good estimate about where we’ll continue to be..

Great. Thanks for the detail..

Sure..

We will take our next question from Mr. Jamie Baker from JPMorgan. Please go ahead, sir..

Hi. Terrific. It’s working now. Gus, so Michael or Larry was quoted saying that there would be more airline failures this winter. You touched on this topic in your prepared remarks.

Obviously the market really ploughed through Air Berlin and Monarch without missing a beat, but those failures weren’t struck against sort of the current backdrop of global dislocation, however you want to describe it.

To the extent that we do have another wave of shutdowns, how confident are you that the business manages through as easily as it did last round?.

Jamie, of course, the Air Berlin was a big airline that went down and on its own is the sum total of all the different smaller failures we’ve had over the course of the last few months. Now during the winter do I think there will be some more stress in this sector? I do I think but that’s the normal cut and thrust of the industry.

So I don’t see any particular threat there. If you’re talking about the ability to cope with defaults, I think I’d take you back as I mentioned in my prepared comments what we’ve gone through over the last 10 years when we’ve consistently generated significant earnings, significant growth in the equity value of the company throughout.

So I think that’s where the real benefits have scaled, placement power, diversification show themselves versus smaller platforms that may lack that type of diversification and that placement power around the world..

I appreciate that.

And as a follow up just on this issue of your portfolio and look, I don’t want to exaggerate this issue but do higher fuel prices make you think any differently about AerCap’s exposure to the low-cost carrier space and whether you might want to dial down some of the exposure there, or is it just too much to say that rising fuel is predominately a challenge just for that particular part of the airline market..

No. I think rising fuel has an impact on all carriers, be they LCCs, full service carriers or charter operators. They have an impact. What I would say though is that the industry is in a better place than it was 10 years ago on a global basis to cope with this. And so far it has to be stressed that we have not seen a significant wave of bankruptcies.

We’ve seen small guys. We have not seen an inability to place our airplanes. So the major markets of the world in North America, Europe and domestic China are still extremely strong and we are continuing to place airplanes.

The key, Jamie, is to make sure that you have aircraft that your customers want and that’s where the consistent portfolio strategy will pay dividends as well..

Excellent, Gus, I really appreciate it. Take care..

No problem..

We will take our next question from Mr. Gary Liebowitz from Wells Fargo. Please go ahead, sir. Your line is open..

Thank you, operator. Good day, gentlemen. Pete, at the Investor Day a year ago, you said not only will net spread margins go through low 8% in 2019 and you’re affirming that today but that should be the bottom.

Given what we’ve seen in lease rent and in borrowing cost, are you still comfortable with that low 8% being the floor for net margins post 2019?.

Thanks, Gary. Yes, I think that 8% is where we see it bottoming out at this point. So that’s our estimate for '19 and I think that’s where we’ll bottom out. Look, there are obviously things that can affect this.

For instance, significantly more in sales and sell off more higher yielding aircraft than we currently expect and use the proceeds to buy back stock that’s going to have an effect on our yield. But it’s a good – we’ll do that because it’s a good business decision.

Similarly, if we put aircraft out on very long-term leases, long-term extensions, we have a straight-line rental impact which affects net spread. But again you’re doing those type of things because it’s a good deal. And we won’t let that deter us, right? So we’re going to do what’s right for the business.

But as of now – as we look at now we see it bottoming out around 8%..

Okay. Thanks. And my second question is around you mentioned Shaheen Air.

Can you tell us what your exposure is there in number of aircraft, how many are coming back early, how many are coming back for the scheduled lease expiration and what do you anticipate doing with those planes?.

We took all our planes out of Shaheen some time ago, Gary, and already all under contract at this point..

Okay. I got some --.

We had six airplanes there at the end. We sold down a lot of our exposure already..

And just one more quick one.

On average, how many months does it take for you to get your former Air Berlin and Monarch claims back into revenue generating service? And would that be a good revenue number? Is that a good proxy for your Primera narrowbodies?.

No, because narrowbodies move much faster, Gary, because you’re not reconfiguring the interiors. In Air Berlin you had quite a number of A330s, so you’re doing more time on reconfiguring those airplanes. But it can be a mix. So some of them move very quickly, some of them took a bit longer, four or five months and one of them took over six months.

But on the narrowbodies they tend to move much faster..

I was really asking about the narrowbodies. Okay..

The other thing that occurred actually last year – there was one other thing that occurred last year was that there was a shortage of MRO capacity in the world and because of the size of the Air Berlin and Monarch bankruptcies happening at the same time, that probably added on 30 to 45 days extra across the board just waiting for MRO slots..

And has that situation improved?.

Yes. There’s MRO capacity now out there. It was just – you had a lot of airplanes coming out at the same time..

Thank you..

We will now take our next question from Helane Becker from Cowen. Please go ahead..

Thanks very much, operator. Hi, everybody. Thank you so much for the time. So two questions here. One is I know you guys have been raising a lot of capital and I’m wondering if you’re seeing any investor fatigue? That’s my first question.

And my second question is, did you say and I just missed the Primera Air aircraft that you were delivering this quarter whether they’ve been released or not? Thank you..

The Primera are in the process of being moved at the moment, Helane. We don’t expect any issues with them right now.

Pete, do you want to talk about the capital?.

Yes, sure. Thanks, Helane. No, we’re not seeing any investor fatigue. Our debt issuances have all been very well received. Obviously, we’ve been doing more on the unsecured side but that’s been very positive. And we also did a number of new secured facilities this year and we continue to expand our banking group. So no, no fatigue at all..

Okay. Thanks very much. I appreciate your help..

Sure..

We will now take our next question from Mr. Scott Valentin from Compass Point. Please go ahead. Mr.

Valentin, can you please check if your phone is muted?.

Thank you. I apologize. Thanks for taking my question.

Just with regard to the aircraft sold this quarter, can you give I guess the dollar amount that was sold so we can determine the gain on sale margin or I don’t know if you have a gain on sale margin handy?.

Sure. It was about 190 million sold, so gain on sale margin was about 12% for the quarter..

Thank you. And then just a follow-up question. Obviously, you guys have a pretty full order book but there are some portfolios reportedly available in the market.

Any thoughts on M&A activity? Would you guys partake in that if you saw a good opportunity?.

Look, we’re always looking at how we deploy the capital, be it through buying ourselves, buying someone else or buying airplanes in the market, say, leasebacks or with the manufacturers. At the moment, we continue to see very good value in buying AerCap. If we saw better alternatives, of course we’d look at it..

Okay. Thanks very much..

We will now take our next question from Michael Linenberg from Deutsche Bank. Please go ahead, sir..

This is Koosh Patel on for Mike. Just had a couple of questions here. We’ve seen some recent headlines in the French Press that multiple airlines --.

Sorry. Excuse me, we can’t quite hear you there..

I’m sorry. We’ve seen some recent headlines in the French Press that multiple airlines have deferred A330s.

Is this more of a supply chain issue to your knowledge or is there something else going on here?.

Sorry, if you could speak up. We can’t hear you..

I’m sorry, guys.

Is this better?.

Yes..

Okay. So we’ve seen some recent headlines in the French Press that multiple airlines have been deferring A330s.

Is this a supply chain issue to your knowledge or is there something else going on here?.

This is A330neo, isn’t it?.

Yes..

There are some issues around the engine at the moment on that airplane type which is giving some airlines a pause I think on the aircraft type. We don’t have any on order. So we’re not that close to them..

Okay. And then the second one, we’ve heard from one major U.S. airline that they’ve elected to finance aircraft and put them on their own balance sheet because rates have began to move up.

How does that compare to what you guys have been seeing in the marketplace?.

The decision to put it on their own balance sheet is a question of do they use off their own order book, do they use sale-leaseback financing or do they own it themselves. We haven’t done a sale leaseback since November 2013. So there’s plenty of opportunity out there without that.

Having said that though, we do sell a lot of airplanes to airlines themselves and they put them on their balance sheet, generally used aircraft. They’ll be big buyers of older airplanes particularly in the U.S..

Okay, great. Thanks a lot, guys..

You’re welcome..

We will now take our next question from Moshe Orenbuch from Credit Suisse. Please go ahead..

Thank you. Most of my questions actually have been asked and answered.

But in a follow up to the M&A side, do you think that the increased stress on airlines would create kind of purchase opportunities where you could buy pieces of their fleet and is that something that would be likely at this point in the cycle?.

It may but I’d say it will be marginal. Most of – first of all, half the fleet would be leased at any rate so it will go back to lessors. The other half for the most part be bank financed, so the banks will be taking it over and sure they’d sell airplanes. But it’s small fleets that we’re seeing in those airlines.

We haven’t seen anyone significant get into trouble yet. And the backlog will be absorbed at the Boeing and Airbus backlog. It wouldn’t be available for sale into the market by the airline..

Got it. Thank you..

We will now take our next question from Rajeev Lalwani from Morgan Stanley. Please go ahead..

Hi, gentlemen. Gus, I wanted to follow up on your comments earlier in response to Jamie’s question. You were talking about airline weakness in the fourth quarter. Can you just provide some thoughts on where it’s showing up [indiscernible] and then what’s driving it? Is it simply oil or is there something else at play? And then a brief follow up..

What I would say, Rajeev, it’s really part of the daily cut and thrust that we see every year. You’re always going to have some airlines disappear. I don’t think it will be any different this winter. Generally it’s badly run businesses that got easy capital would be the ones who would fall in the category of going away.

It’s not specific to a particular business model. I think where it does hurt a bit more of course is where the currency has weakened significantly. That would – most well run airlines are able to cope with the higher fuel and they’re able to cope with some depreciation of their currency.

Where you have a badly run airline with a significant increase in fuel and significant weakening of the local currency, then the outlook will be fairly bleak. But those airlines for the most part are pretty small airlines and we wouldn’t see them having a material impact on the results of AerCap, and that’s been the case for the last 12 years..

Thanks. Peter, a question for you. Can you just talk a bit about the debt maturity profile over the next couple of years? And then the strategy you’re deploying or considering deploying just to manage higher interest rates as that comes due..

Sure. Well, over the next year in 2019 we’ve got about 4 billion maturing. So as we look out, it’s a pretty – we are basically replacing that debt with – we’re trying to go out and replace it with debt that matches our average remaining lease term. So we’re going out with debt on average around seven years.

That’s our strategy and you’ve seen that during the course of this year where the debt tenders that we’re going out with have been longer. In terms of taking debt out and liability management, look, that’s something that we always look at. But at the moment it’s not something that we plan to do..

Thank you..

Sure..

[Operator Instructions]. We will now take our next question from Ms. Kristine Liwag from Bank of America Merrill Lynch. Please go ahead, ma’am..

Good morning, guys.

Gus, following up on your comments that some airlines may struggle this winter, can you quantify how much of your business is at risk and how many airlines and aircraft are in your watch list?.

Kristine, nothing out of the ordinary. For the last 12 years it’s averaged 1% on lease revenue. And will it be less than that this year? It’s hard to say. But nothing out of the ordinary, Kristine. I want to stress that..

Great.

And then for this 1% or less than 1%, are you starting to see them make late rent payments? And then also what’s your strategy to mitigate potential risk if they are unable to make payments for the winter?.

We’ll seize the airplanes and move them somewhere else is what we have always done and what we’ll continue to do and what we did with Small Planet, what we did with Primera and what we did with Shaheen, but these are relatively small amounts in the scheme of the value of the business and the level of profitability..

Great. And a follow up on fuel costs.

Can you provide color on how customer behavior has changed? And what percent of your lease terminations are extended by the existing lessee compared to what you would have expected a year ago?.

In terms of fuel cost I think – look, we’re not seeing any different behavior because of the recent rise in fuel. Airlines can’t adjust their fleet overnight. It takes some time to do that. And we haven’t seen any difference there really.

The key for the fleet to make sure it’s in demand that you have assets that the customers are going to want and that you’d be consistent in building a portfolio of assets that the customers want and you’ve done that over many, many years in advance which is what we have done.

That’s how we have trimmed the portfolio not only over the last four or five years but long before that as well.

Pete, do you want to comment on the extension?.

Yes. So the extensions have been – the percentage of extensions has been higher, Kristine. I think it’s around 70% now as we look at it and previously had been closer to 50%. So we have seen that going up over the last year or two..

Great.

And lastly for me, when you look at your lease placements through 2020 and you kind of 10% less than you have to place, I was wondering what’s preventing you from filling those last 10% or you giving yourself flexibility? Can you give a rationale as to why you’re not fully placed?.

Well, look, we’d like to be fully placed many years into the future but there’s only so much at any given time you can look and realize how far out they’ll go. We have airplanes placed in 2021, 2022, 2023 also. And those airplanes that we have remaining to place they’ll definitely get moved.

Some of it though, particularly on the 320neos, you’re holding back slots actually because the demand for that airplane..

Thank you very much..

You’re welcome..

We will now take our next question from Mr. Kevin Crissey from Citigroup. Please go ahead, sir..

Thank you very much.

Do you expect further consolidation in Europe? And if so, what are the implications of that and how are you positioned for that?.

You’re referring to airline consolidation, Kevin, right?.

Yes, I’m sorry. Yes, airline consolidation..

I think there’s a good chance we’ll see some consolidation arise. It’s a slow process of course the consolidation, but I do think we’ll see some of it over the next year or two. From our perspective what are the impacts – if it’s a voluntary consolidation where two airlines agree to come together, it doesn’t really have a huge impact.

Whatever airplanes we have our lease with them stay on lease with them, it doesn’t change any of the terms.

I think – look, we’ve seen the benefits of the strength – the huge benefits of consolidation in the North American market and where it’s been well executed in Europe as well, you see the benefits, particularly safe to take the example of IAG and Lufthansa.

There’s – particularly in IAG there’s been some excellent work on the consolidation side and I do think that that is a role model for others to follow and it will be a positive for us and for the industry overall if we continue to see that. But they take time. That’s not easy to do as you know yourself. So it will be slow burn I’d say, Kevin..

Thank you.

And any improvement yet and I’m guessing kind of not yet, but in the tourist competitive lessor supply environment?.

You’re referring to my prior comments of the tourist capital, yes. Look, I think what we are seeing definitely is that there’s a couple of guys who had invested in us and they realized that a startup airline in Pakistan is not the same credit as U.S. treasuries and that is the mistake some of them had made that this is a risk-free business. It isn’t.

And in order to manage it, you do need a big platform. It is not a case of just showing up with capital. You have to be able to move assets around the world. And so we’ve seen one or two guys pull back a bit for sure, but there is still a lot of people who find that it’s a investable asset class.

And I think those that pair up with someone with a big platform and advantage, it may cost a bit more but it’s definitely an advantage than trying to do it on the cheap yourself..

Thank you very much..

[Operator Instructions]. We will now take our next question from Mr. Vincent Caintic from Stephens. Please go ahead, sir..

Hi. Thank you. Two questions. So first, I appreciate you reaffirming the guidance for next year, ex-gain from sale. So I had a question on the gain from sales understanding that it’s more volatile than lease revenues.

But would you expect the same trends that you saw in 2018 to continue in terms of the gain on sale margin? And just roughly speaking, would you expect volumes to be about the same or less or more?.

Yes. So, Vincent, on the volumes I mentioned that we expect at this point we would project to sell probably about $1 billion worth in 2019, so that would be lower obviously than this year. And we’ll see what the environment is. But at this point I think 1 billion is the most likely.

And then in terms of the margins, look, as we’ve said in the past, those will move around. This quarter it was a higher margin. Some quarters, it will be lower. So I don’t think you can just take this quarter and say – or this year and say project that forward.

So, look, I think that will continue to sell at some gains, but it’s hard to say what the margin will be..

Okay, understood. And second question, so nice to see that you have over 90% of your leases placed through 2020 and beyond.

Just trying to see if there were any difference in yields or structure of the leases that you’re seeing with your future leases and I’m kind of thinking within the context of rising interest rates and the competitive environment? Thank you..

Sure. Look, I think that it’s customer dependent. If you have a customer that is an extremely strong credit, you’re certainly not going to guess security deposits and maintenances [ph] that you would have had in the past and the overall terms of the deal reflect that. Where you have customers that aren’t that strong, then it is a different proposition.

So it’s a mix across the board as well. But I wouldn’t see any dramatic change in what we’ve been leasing at over the last year as to what we see in the current market..

Okay, got it. Thank you..

Thank you..

There are no further questions in the queue. Mr. McGinley, I’d like to hand the call back to you for any additional or closing remarks..

Thank you, operator, and thank you all for joining us for the third quarter call. We look forward to speaking to you again with the full year results in the new year. Thank you..

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect..