Mary Liz DePalma - Director of IR Steven Hazy - Executive Chairman John Plueger - President and CEO Gregory Willis - EVP and CFO.

Jason Arnold - RBC Capital Markets Jamie Baker - JP Morgan Moshe Orenbuch - Credit Suisse Vincent Caintic - Stephens Scott Valenitin - Compass Point Helane Becker - Cowen Mark DeVries - Barclays Catherine O'Brien - Deutsche Bank Susan Donofrio - Macquarie Capital Kevin Crissey - Citigroup.

Good day, ladies and gentlemen, and welcome to the Air Lease First Quarter of 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call maybe recorded.

I would now like to turn the conference to the Mary Liz DePalma, Head of Investor Relations. You may begin..

Good afternoon everyone and welcome to Air Lease Corporation's earnings call for the first quarter of 2018. This is Mary Liz DePalma, and I'm joined this afternoon by Steve Hazy, our Executive Chairman; John Plueger, our Chief Executive Officer and President; and Greg Willis, Executive Vice President and Chief Financial Officer.

Earlier today, we published our results for the first quarter of 2018. A copy of our earnings release is available on the Investors section of our website at www.airleasecorp.com. This conference call is being webcast and recorded today, Thursday, May 10, 2018 and the webcast will be available for replay on our website.

At this time, all participants to this call are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the Q&A session.

Before we begin, please note that certain statements in this conference call, including certain answers to your questions are forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

This includes, without limitation, statements regarding our future operations and performance, revenues, operating expenses, other income and expenses and stock-based compensation expense.

These statements and any projections as to the company's future performance represent management's estimates for future results and speak only as of today, May 10, 2018. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations.

Please refer to our filings with the Securities and Exchange Commission for a more detailed description of risk factors that may affect our results. Air Lease Corporation assumes no obligation to update any forward-looking statements or information in light of new information or future events.

In addition, certain financial measures we'll be using during the call, such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on equity are non-GAAP measures.

A description of our reasons for utilizing these non-GAAP measures as well as our definition of them and the reconciliation to corresponding GAAP measures can be found in the earnings release and 10-Q we issued today. This release can be found in both the Investors and Press section of our website at www.airleasecorp.com.

Unauthorized recording of this conference call is not permitted. I would now like to turn the call over to our Chief Executive Officer and President, Mr. John Plueger..

Thanks, Mary Liz. Good afternoon to all of you and thank you for joining us. I'm very pleased to report that Air Lease closed another strong quarter, recording total revenues of $381 million versus $360 million in the first quarter of 2017, representing a 5.8% increase.

Earnings for the quarter rose 28% year-over-year with diluted EPS of $1 per share for the first quarter of 2018, largely driven by the continued growth of our fleets and tax reforms. ALC continues to deliver solid pretax profit margins and returns on equity which as of this quarter were 37.1% and 16.1% respectively.

ALC has $16 billion in total assets which is approximately twice -- two times of our asset base looking back five years, and we see that growth trajectory continuing. Our own fleet increased to 253 aircraft this quarter and together with our order book and managed fleet, ALC has 674 aircraft owned, managed and on order.

We told you on our last call that we would look to accelerate opportunistic aircraft asset growth to deploy the incremental capital from tax rates and from tax reform.

We commenced execution of that long-term plan in the first quarter where in addition to four new aircraft delivered from our order book, we purchased five young used aircraft in the secondary market and announced an incremental order for eight additional Boeing 737 Max 8 aircraft.

Looking forward, let me just emphasize the disciplined and opportunistic nature of our incremental aircraft additions for capital deployment and as such we do not project or give guidance as to the quantity or timing of similar future aircraft additions outside of our order book deliveries.

However, I do feel confident that we will continue to find best opportunities. As we indicated in our quarterly and activity report, the majority of aircraft that delivered this quarter occurred in the last two weeks of March. In addition, we did have two further Airbus delays which are now anticipated to deliver in the second quarter.

Despite these delays, we met our CapEx internal targets for the quarter with a purchase of the incremental used aircraft. As it relates to aircraft sales, you also saw from our activity report and it should be no surprise to you from our Q4 earnings call that we did not sell any aircraft this quarter.

As we told you last quarter, we're focused on aircraft growth and we're targeting our aircraft sales to occur in the second half of the year, but as with incremental aircraft additions, we remain opportunistic when it comes to selling aircraft.

Shipping to the macro picture, globally passenger traffic remains very robust with IATA reporting last week a 9.5% year-over-year increase for March and load factors at 82%. These statistics remain very positive for the health of the airline industry. The substantial need to replace aging aircraft is further driving demand for new modern aircraft.

We're also seeing now a renewed focus by our airline customers on rising fuel prices that we believe will further drive demand for new aircraft, both single and twin aisle. The manufacturers have responded to growing demand by announcing production rate increases on narrow body aircraft.

Despite these lofty production rate goals, ultimately we believe that Airbus and Boeing a rationale duopoly, and we expect them to continue balancing supply and demand. An example of that is Airbus recent announcement reducing A330 production rate.

At the same time, we see major global supply chain and production constraints, significant challenges remain with single aisle delivery delays as the OEM struggle to cope with rectification of engine technical issues by flushing production line engines to support the in-service fleet.

This is now spread to the wide-body 787 fleet powered by Rolls Royce engines with a number of 787's part or operation restricted today due to engines finding. As such, we remain skeptical with the timing of these planned production rate hikes in the phase of remedying current engine problems.

I would also point out that supply chain constraints are not just with the engine manufacturers. We believe that overtime these engine issues will be resolved. In the mean time, we continue to work very hard with our airline customers to solve these near term challenges where we can. Steve will provide a further example of that later in his remarks.

One byproduct of these challenges is the increasing demand for good used interim substitute aircraft both single and twin aisle with a corresponding increase in lease rates that also applies to lease extensions on our current fleet.

And with regard to the lease rates on our new aircraft delivery, this year we are seeing our interest rate adjustors kick-in adding to our base lease rates. We see this continuing for the foreseeable future as interest rates continue to rise. Let me also comment a bit further here on the wide-body demand outlook.

Beyond the need for substitute interim list specific to the 77 Rolls Royce issue.

Despite Airbus' recent announcement concerning a reduction in production rate of the A330, it is also true that the industry will be facing growing retirements of the oldest Boeing 777 300 yards in the 2021 to 2023 timeframe on top of current retirements of 777 200 yards and older A330 and A340 aircraft.

Add to that a significant retirement outlook of the A380 in that same 2021 to 2023 timeframe. We believe this forward retirement schedule coupled with renewed focus on fuel prices will serve us catalyst for demand in the larger twin aisle aircrafts such as the A350, 900, and 1,000 and the Boeing 787, 10.

ALC's available order book is well positioned to capture this demand. ALC continues to enjoy a successful placement of all of its wide-bodies including the A330 new aircraft. And once again, Steve will provide you with a recent example of that in his remarks.

I will be re-missed in not pointing out that are Boeing 787-9 placements remained consistently very strong and in fact we're now on the backside of our 787 order book in terms of units remaining to be placed.

Finally, a comment on the leasing competitive environment, yes, competition remains very robust, yet as we look forward continued strong worldwide passenger growth shows no sign of ebbing.

To answer that fundamental growth, higher production rates whether they come sooner or later, also mean tremendously increased capital requirements to deliver those aircraft. We expect that at least 40% of those deliveries will be funded through the leasing channel.

In this context, let's not forget that the leasing capital requirement pie is huge and getting bigger. This pie cannot be consumed by the top global lessors as their balance sheets fit here today.

At the same time, we believe rising interest rates will begin to filter and test the more recent entrance into leasing space or those who are looking for immediate quick returns rather than having a long-term dedication in view towards the airline industry. So we believe the competition sorts itself out naturally overtime.

Furthermore, we strongly believe that air travel and more broadly aviation has become one of the most important elements of our interconnected world and our industry is being propelled by the emerging middle class, the increasing important of experiences, and the affordability of air travel.

So to conclude, our team continues to execute and deliver strong consistent results and we remain bullish on the future. And with that, I'll hand over the call to Steve to provide further ALC and industry color and commentary.

Steve?.

Thanks, John, and thanks to all of you for joining us today. I think it's very important to emphasize ALC’s strong performance in the first quarter of 2018. As a result indicates, Air Lease is delivering outstanding financial and operating members.

We're adding to our best-in-class fleet with long-term leases to our global customer base, to our order book and also to incremental aircraft purchases. We continue to have a positive outlook on air travel globally.

However, we also keep our eye on interest rates, labor and fuel prices, all of which can negatively impact our customers, but also at the same time, tend to increase the lease demand. It is known that interest rates and fuel are rising.

With the 10 year treasury rates, reaching about 3% for the first time in four years and fuel now at or above $70 per barrel, and that labor negotiations specifically in the U.S. and Europe continue to be in the state of flux.

Still, we believe that airlines are better equipped both financially and in terms of their management skills to manage their changing environment that they've been historically.

This is evidenced by the satisfactory overall global airline industry profitability since 2010 and the past three years of airline profitability well above $30 billion with 2018 again forecasted to remain at above $10 billion of net income for the industry. Generally speaking, our customers are healthy and doing well.

They'll always be pockets of strengths and weaknesses, but we manage this to asset selection, customer diversification, geographic diversification and ongoing conservative risk management principles. Regionally, I would note that strong demand from Europe, Asia Pacific and Latin America are very, very healthy.

These three regions continue to lead year-to-date growth in RPKs, each north of 7% growth year-on-year for the first quarter of this year. Even the Middle East and India are showing positive traffic trends. At the same time, we're making excellent progress with our placements and just this quarter added three new customers.

In Europe, we announced placement of A330-900neo with highflying Portugal to deliver in mid-2019 as the airline is looking for versatile modern wide-body aircraft. We have 10 new A330neo deliveries during the next 12 months, all of them placed.

We also placed an A320-200neo with Atlantic Airways, an airline based in Denmark to provide further connectivity with Europe and Scandinavia for their growing tourism industry.

We also placed three new A320-200neo with Indigo in India, this is an excellent example of ALC helping a growing airline with list needs coming from engine challenges of new aircraft. We also just placed a new Boeing 787-9 Dreamliner on a part of lease to a Western European scheduled airline which will announce soon.

Additionally, we have 3 separate airline transactions and long term lease placements for a total of 8 new Boeing 737-8 Max aircraft for deliveries in 2019 and 2020, details of which will announce shortly along with several A320neo placements.

Currently, there are concerns about freight wars and aircraft tariffs specifically related to China and Russia. We do believe that air transportation is vital to the continued healthy economic growth of these countries and Airbus specifically cannot supply all the required aircraft. And U.S.

suppliers of engines avionics et cetera are critical as these countries continue to develop their own aircraft industries.

Speaking for ALC, as an independent lessor, we benefit from order book positions with both Boeing and Airbus, and we continue to have good dialogue and relationships with our airline customers in China, and bought aircraft from both manufacturers. As many of you know, most of our aircrafts placed with airlines in China have already delivered.

In fact, we only have 5 new Boeing 787-8 left to deliver in China along with one new AC50-900 early next year. And all of those wide-body aircraft are well above the proposed empty weight parameters that maybe subject to future importation tariffs by China.

If those tariffs even ever take place, we continue to discuss future aircraft leasing placement opportunities with our Chinese airline customers. When looking at Russia in the same context, Russia accounts for only about 3% of the net book value of our fleet. Tariffs on the import of U.S.

manufactured aircraft and other aviation product already exists in certain countries including Russia. These tariffs are typically not determined by where the owner of the aircraft is located, but instead by where the asset is manufactured.

All of Air Lease's transactions are triple net leases, which mean that the Airline Lessie is specifically 100% responsible for any taxes or duty.

We surely do not like to see this additional burden based upon our airline customers, but it has not hindered our ability to place aircraft historically, and we do not envision it's limiting our placements going forward. As John indicated, we continue to manage our business conservatively and strategically as we have done since inception in 2010.

When we first ordered aircraft at the beginning of the decade, we placed orders for about 50% of what we thought we could place and our strategy is focused on replacement needs specifically. This was at a time when passenger traffic growth was all forecasted to be year at more modest levels than today.

In fact passenger traffic growth has exceeded our expectations and accordingly we have seen robust incremental need from our airline customers.

For the remainder of the year, our team is focused on advising and assisting our customers with their needs helping them formulating airline fleet planning, placing our aircraft and long-term leases and managing the risks that we can control.

This in turn ultimately produces the best results for our business and good for our shareholders and our customers. We have a strong new aircraft delivery pipeline and lease placement flow in the second half of this year and well into 2019. In fact, between April of 2018 and the end of 2019, we have 121 new aircraft scheduled for delivery.

All of them have been placed and now I will turn this over to Greg Willis, our EVP and CFO..

Thank you, Steve. As mentioned earlier, we’ve recorded another great quarter, reporting diluted earnings per share of $1, an increase of 28% over the prior year.

The results of the first quarter were largely driven by growth in our fleet and the consistency of our portfolio metrics on a weighted average basis, including portfolio yield, age and lease term remaining.

We also continue to benefit from tax reform through the reduction of our effective tax rate to 21.7% as compared to 36.6% in the first quarter of 2017.

Strong earnings generated by our young fleet on long-term leases coupled with a highly efficient platform and our low financial average of 2.3 times gross debt to equity enabled ALC to achieve a 37% pretax margin in the first quarter and 16% pretax return on equity.

ALC generated total revenues of $381 million in the first quarter, which includes 378 of rental revenues and $3 million of management fees. During the quarter, we purchased nine aircraft representing $441 million in CapEx with a majority of delivering in the last two weeks of March. Additionally, as we mentioned earlier, we do not sell any aircraft.

Turning to expenses, interest expense increased slightly year over year. The increase was driven by the rise in our average debt balances, which strikes the growth in our fleet. Despite this, our composite cost of funds declines year over year by 20 basis points with an increasing percentage of fixed rate and unsecured debt.

As of quarter end, we had 91% fixed rate debt and 95% unsecured. Our elevated level of fix rate debt is helped to provide installation from the rising interest rate environment. SG&A declined in the quarter to $23.4 million 6.1% of total revenues. We continue to expect that over time our revenue growth will outpace our SG&A growth.

leading to increased operating efficiencies. We run a highly efficient organization with 89 employees servicing 16 billion in total assets, and we see this efficiency driving shareholder value in the future.

Looking forward to the remainder of 2018, we expect to deliver 39 aircraft from our order book representing approximately $3.3 billion in capital expenditures in the second quarter, specifically, we anticipate 16 aircraft delivering representing $1.3 in CapEx only three of these 16 aircraft are powered new aircraft, for which there may be incremental delays.

We expected this quarter's deliveries will be back in, waited, and accordingly we will see the rental revenue contribution largely beginning in the third quarter for these aircraft.

Consistent with prior years, these CapEx numbers do not include any incremental purchases and at this time we anticipate selling new aircraft in second quarter, as you heard from John moment ago. Moving to the financing side of the business, since our last call, we closed an amendment to our syndicated, unsecure revolving credit facility.

Increasing the capacity by 18% from the beginning of 2018 to $4.5 billion and extending the final maturity to May 2022.

This facility currently is priced at LIBOR plus 105 basis points or 1.05% and backed by globally diversified banking group of 50 financial institutions including the availability under this four year revolving credit facility, ALC ended the quarter with a substantial of liquidity aggregating $4 billion.

Looking ahead, we remain committed to our financing strategies of 80% fixed rate debt, 90% unsecured debt and a debt to equity target of 2.5 to 1. This concludes my review of the results and the financing activities of the company. And I'll now turn it back to Mary Liz..

Thanks, Greg. This concludes management's remarks. For the Q&A session, each participant will be allowed to ask one question and one follow-up. Now, I'd like to turn it over to the operator to open the lines to the Q&A..

Thank you. [Operator Instructions] Our first question comes from the line of Jason Arnold of RBC Capital Markets. Your line is now open..

I was just wondering, if you can speak on the competitive environment in bit more detail, it seems like competition as you mentioned in there in a larger operators like yourselves with forward order book. I was just noting that there is more substantial competition on the smaller kind of sale leaseback side of the equation.

And so I was just curious, if you can kind of comment on that front and see what you're seeing there?.

Sure. We're happy to Jason. Well, I think you nailed it. We're still seeing the highest level of competition amongst those lessors where they primarily utilized the sale leaseback as their business model. So there's still a lot of available capital in that space, a lot of respondents to RFPs in that space.

The world of those of us with though they have a business model is predicated on our order books and for deliveries though is not quite as heavily impacted well. Certainly, we have competition in our business as well. We don't compete with our balance sheets.

We compete with the actual aircraft that we control and have on delivery and that gives us a competitive advantage because as you know even more today, aircraft short supply over the next two, three or four years. So even though there are a number of us that have these positions available, there are less of us than in the sale leaseback market.

And as I indicated, I really want to emphasize, there’s a lot of aircraft to be leased and financed over the next three to four years and these increasing production rates do nothing, but compound that and add to the size of that pie.

So the bottom line is what has been happening for the past year or more, is still the case today, i.e., there's more competition in the sale leaseback space than in a speculative order book operating lease space..

Jason, this is Steve. I just want to add a couple of comments. One of them is that there are some large lessors that do not have any orders with the OEMs. A good example of that is DAE, Dubai Aerospace who acquired AWAS. And also we have not seen Avolon since the acquisition of CIT because of their situation with H&H.

They have not ordered any incremental aircraft. So they're just working off their existing backlog. So here you have two relatively large lessors that have really not added any new incremental orders for some time and in the case of DAE, they’re not done any new orders aside from sale leasebacks.

My second comment is that we have really three distinct categories of competition. One is the sale leaseback market where as you know Air Lease is not really a player and is not really our mainstream business.

Secondly, in the single aisle market where there are more competitors, but it's also a greater volume of aircraft that need to be absorbed into the airline industry.

And thirdly, the wide-body sector and in the wide-body sector, there's only a small handful of players and there’s limited competition, and only a limited number of lessors to who the OEMs will sell wide-body aircraft to on a speculative basis. So, we enjoy a very strong position in the wide-body space both with Airbus and Boeing.

And I think we're in a preeminent position on the single aisle aircraft, as we have close to 300 A320, A321neos and 737 MAXs that we can fulfill our airline customers' requirement. So I think we're in a very good position notwithstanding the competition that's out there..

And then just my follow-up will be on market demand for aircraft.

Just any color you can add there? Any types you're seeing outside of demand for in particular from the airline customers? Or any other surprises from the market kind of the any of the equation on supply demand?.

Well, no surprises. As I commented, we're scrambling in fact the industry is scrambling the single aisle side to cover these production delays primarily on the Airbus neo 320, 321neo series the deliveries. We gave an example of Indigo replaced 3 A320 CEOs to cover these products that Indigo was facing.

And so, I would say the 737-800s now are in actually quite short supply. The 320 and 321 I am talking about the used aircraft, current aircraft segment, are in the same board.

Looking forward, I speculated that I think we're going to see a lot more of the larger wide-body demand, which has been a little softer in terms of their manufactures ability to sell. We continue to place ours, but we're going to see an uptick in that in the '21 to '23 timeframe, especially this year a lot more 777 at the end of year retirement.

So no surprises here, on the single aisle side, it's a bread and butter, 737-800, A320 A321 that have heightened sense of demand to securities engine problems.

And now with the 787, we've been scrambling around some of our customer looking for any interim solutions where they'll be Boeing 777 or A320s or even trying to refer a couple of 767 placements outside the scope of our current fleet, just to help satisfy our customers cover these problems.

And then 787 Rolls Royce issue is a pretty significant problem..

And Jason, just in the past six hours, I have had two airline CEOs call me to accelerate the request earlier deliveries on Airbus and Boeing single aisle aircraft that they already leased from us, but they've asked that we could move up to delivery dates by 3 to 6 months, which again I think is demonstrating the strong robust demand in traffic..

Thank you. Our next question comes from the line of Jamie Baker of JP Morgan. Your line is now open..

John, first question, you know, the comments you've made about opportunistically looking for assets outside of the order book.

Market, I want to confirm that that does possibly include purchasing used aircraft?.

Well, that's what we did. We did, no, that's exactly what we did in the first quarter. And I can't comment as I said, I can't speculate on how much or the timing of additional ones, but specifically this quarter we purchased five additional young used aircraft. In addition to the four new aircraft we delivered from our order book.

And so those aircraft didn't exists a quarter or two ago, but we've got pretty good sources globally and we continue to pursue. But again, with discipline and opportunistically and we probably could have bought 15 or more aircraft. We bought five and that’s because we felt we got the best deal on those five. So again, I don’t want to speculate…..

I just want to confirm, it wasn't really a one-off type exercise, that’s all..

No, this program will continue, as I indicated, told you last quarter about the tax reform. This is one of the ways we're going to spend that capital..

Lastly, remember, Jamie, we bought 11, 737-800 from Pegasus Airlines in Turkey, soon after Turkey went through some turbulence. And so, we continue to be observant and very much on the lookout for special opportunities to pick up young Airbus and Boeing aircraft..

And second question, there by our count at least three leasing platforms that are for sale at the moment.

So given all the comments about production delays and overall competition, I mean, is it reasonable to think that your willingness to consider a platform acquisition, acquisition has changed?.

We already have a platform, so no need to have any platform..

But that’s been your answer for years, guys..

Jamie, to the extent that we can buy groups of assets, if you just mean also by platform, not the whole company, but maybe a very significant part of the assets of a company. That's always something that's of interest. But we continue to be very mindful, we do all the diligence. We do what large shareholders ourselves.

We want to do whatever we can do to maximize shareholder value. So, we evaluate those platforms and so far we've not found a case..

Thank you. Our next question comes from Moshe Orenbuch of Credit Suisse. Your line is now open..

When fuel costs were half of what they are now, there's a lot of discussion about would it have an impact of making of causing airlines to differ deliveries.

Can you about, is there like a break point that you see at which point it can cause airlines to think about the newer equipment as being more significantly important to them? And also to some extent, is there any impact on the airline performance?.

Well, certainly anything which causes an escalate -- any cause to escalate has the potential to impact airline performance. Our comments were more related to what we're seeing in the last month or two, in the last few days given the recent political developments. There’s kind of a renewed focus on fuel prices and forward fleet planning.

So, I think Steve commented also that we consider the overall airline industry health is in a really good footing. Capacity has been relatively rationale, efficiencies have been driven up.

So whatever, whatever may come, we believe that the airline industry is in a much better footing to look forward and to react as to what the magic number is as to what triggers some avalanche towards only just do aircraft. It's really hard to benchmark and number.

I mean we used to say anytime fuels over $100 a barrel that tends to drive all the equations to new aircraft. I'm not sure that's still the case. I think the balance is going to remain going forward, but we can't pick just the waterly level on oil prices..

Airlines make their fleet decisions not based on spot market of oil, but generally what their expectations are over the useful life of that airplane in terms of fuel prices, labor prices etcetera.

So, we are seeing more interest in the new aircraft in the last six months, but I think a lot of that is to replace older planes that will get retired anyway..

And the comment that was made, I think it was from John about, lease rate adjusters in response to rising interest rates.

Can you just talk a little bit about maybe flush out a little bit, how that works from, someone we -- when it happens to when we see it like how -- what sort of lags are there? And how should be expect that to flow into the lease yield?.

Yes, I mean, look, it's pretty simple and in the forward leases, we base a lease rate based upon a financial index.

It’s different financial indexes as you can use seven year forward treasuries, five year, ten year, I mean those indices differ and are a matter of discussion with the airlines, but basically in its simplest form way to say the lease rate is based upon this index at this rate and is it’s over that rate, there is a formula in the leases and we don't say what the formula is, but there is a formula late adjustment for interest cost above that index and that's all there is to it..

And I would assume that you’ve got that that kind of a little bit of a tailwind as you kind of renegotiating leases as wells on existing planes..

Well, the aircraft we already have in our fleet have already been financed.

And so, going forward when you're looking at expiration of the lease normally within a year in about a year or less timeframe from when it goes from one let's say to another and so normally lease rate -- lease rate transfers or the subsequent lessie, generally speaking, the industry negotiates on those fixed rates and us and others don't necessarily put interest rate clauses in there because we've already funded the purchase..

Thank you. Our next question comes from the line of Vincent Caintic of Stephens. Your line is now open..

I guess first question on, if you can talk about kind of lease spreads in your pricing power, when you are talking to your airline customers. I mean you've illustrated several things which seem like it should be improving your pricing power.

You've got 100% of your planes placed through 2019 and over 80% through 2020, lot of replacements in 2021 and beyond, the competition maybe winning, you've got new aircraft in a risingin fuel place environment. And then your comment also John about that there's just not enough capital from sophisticated guys, such as yourselves to satisfy demand.

So I guess, when I sum all that up, shouldn’t that mean -- all mean that even outside of a rising interest rate environment that now you have a lot of pricing power? And if so, what does that mean in terms of what we should see over lease spreads over the next several years?.

Yes, I mean look I can't speculate forward, but yes, generally, your comments are on point and we believe that we do have those tailwinds, and we will wait to see if you know as they materialize. But, I think your comments are pretty close on..

Okay, perfect.

And then just secondly, so your debt to equity ratio below your target to that 2.3 times, do you have a run-rate for how long you think it might take to get back to your normalized leverage of 2.5%? And maybe if you're not there in the interim if you have any thoughts on any capital returns on other actions?.

Well. We have 121 new jet aircraft deliveries between now and at the end of next year. We just increased our dividend by 33% starting January of this year. We do not plan to issue any new common equity at this time. So, we have a very robust capital acquisition plan. And Greg, can common about when we will cost that line of 2.5 to 1.

And that depends a little bit also on what other incremental assets we acquire in the next 6 to 9 months..

Yes, it's tough say with regards to as Steve said, the purchases, the timing of sales, but clearly within 2019 we will expected to be exactly that 2.5 level if not 200..

Thank you. Our next question comes from the line of Scott Valenitin of Compass Point. Your line is now open..

Just one question on operating margin and the positive operating leverage, you guys have been running close to 40 operating margin. And Greg, I think you mentioned the goal was obviously grow revenues faster than expenses.

How far or the how hard do you think operating margin could go? Should we assume as days and time as low around 40% range?.

I think it's tough to get guidance on how high we can go. I think we're very proud of our pretax margin. We think there ways for to benefit. So with regards to SG&A continuing to not keep up with the growth in revenue, but also management fee is driving additional top line as well as what happens with the leases.

So, I think we're in a really good position, but we're not going to give forward guidance as to how high you can go..

And then I know you're placed 100% through 2019.

Is there any remodeling left between 2018 and 2019?.

We have very small number of used aircraft. And generally, we're finding that -- a high percentage of those are just been extended by the existing airline..

And then just one follow-up question. It seems that the wide-body market has gotten better I guess with the, there are some of the delays in wide-body production, but wondering in terms of sale leaseback or secondary Market.

Are you guys finding better opportunities on the wide-body side? You mentioned it's kind of a small operator base, so it's like might be fewer competitors looking in that second.

And just wondering, if that something versus narrow body you see more opportunities in the wide-body side?.

Well, there is less comp -- there are less competitors as Steve pointed out among lessors. And we've actually -- I would just say, we've been very consistent in a wide-body placements both in the pace and economics that we're getting. We as I said we're now in the backside of our power curve on the 787. We've given you examples of A330neo placements.

Steve has hinted us some additional announcements that we're making soon both on the wide-body and the singe aisle side. So I would just say that the wide bodies have been consistent and actually look even better from us in that '21 through '23 timeframe..

I mean currently we have 19 787, new 787 that will deliver between now and at the next of year. All of those will play long term leases. And then in addition to that, we have 15 airbus, new wide bodies, A350 and A330neos. Again, all of those replaced, so we have 34 wide bodies delivering between now and the end of 2019, all of which are place.

So I think we're in a very strong position and that also demonstrates the strength of our franchise with large international carriers that operate those wide-body aircraft..

Thank you. Our next question comes from the line of Helane Becker of Cowen. Your line is now open..

It's actually Conner on for Helane. I know you guys are now exposed to around, but awhile back I think the lot of lessors were talking about a potential market opportunity there? And that other pulling out of deal, the U.S. is pulling out of the deal that’s rest at a roughly like a 100 Boeing aircraft, they're potentially going to get canceled.

I'm just curious on your thoughts somewhat that may mean to the leasing market or is this just like another function of the fact that the OEMs typically over commit and expecting some sort of cancellations later on?.

Yes, I think Dennis Muilenburg either this morning or yesterday morning, actually commented that they really haven't booked and they hadn't placed any of those deliveries which they were hoping for, either on their backlog or in dedicated line positions whatsoever.

And I believe, I believe, that also what most of the larger global lessors who were looking at that market, we were not, we were not. We had a feeling this might happen. So what they're doing, I don't know, but I speculate they didn't put a lot of bank for the buck on committing positions..

Yes and Airbus delivered a few A321s already to Iran Air and ATR has delivered some ATR 72 turbo props, but we have not done any marketing. We have not had any contact with the carriers in Iran and I think that's been a company policy. So we're just staying the course..

And then just a little bit on the A321 LR.

I now you've placed a couple so far, how the discussions has been going there? Do you think the airlines are kind of waiting for more specifics on the Boeing option or just maybe you talk a little bit about the overall demand?.

No, if anything I see the pace of our 21 LR Neo placement actually accelerating this year..

So, we've already placed more than 50 A321neos on long-term lease and a significant percentage of those are LRs..

I do not get the sense that airlines globally are having putting the brakes are pausing until they hear about the middle of the market aircraft. I think the demand is what it is. Let's not forget that middle of market aircraft. It's not out there until about 2025 if it gets launched.

That’s a long time to wait and I don't think there are very few airlines that looks that far out and they're going to stay today, okay, old on a minute. So, we just continued to see a very strong demand profile in A321neo and the LRneo..

Our next question comes from the lines of Mark DeVries of Barclays. Your line is now open..

Sorry, if I missed this all the commentary around higher oil prices, but it seems the consensus view as was this week's events that oil prices are always headed higher from here.

Could you just talk a little about what the implications of that are for the secondary market? More specifically kind of what’s you’re looking for in terms of both your opportunistic purchases of new planes and also the sales you said you’re looking to do towards the back half of this year?.

Well, look, our business model is the purchasing a brand new aircraft, the most current modern technology are from Boeing, Airbus full stop.

Having said that what we've seen in the past and what we see today is a, increasing oil prices, asking a very rapid spike and a very rapid rate and a prolonged rate, does not automatically shut off the current used aircraft.

Again, we're scrambling, the whole industry is scrambling around, trying to substitute lift for these engine problems and you can't do that with newer aircraft. You can only just do that with the existing aircraft. So the bottom line we do not see any major -- we do not see any major fall off in demand for current generation aircraft.

Those aircrafts are simply needed just for their lift. And so, in a normal escalating or normal -- in a rational or modest pace of increasing oil environment, we do not see the –we do not see current engine -- current aircraft without the newest engine technology falling off the cliff or any steep downs lope.

But the fundamental need for lift is too strong..

And could you just talk about what your return expectations for these newer used planes you’re getting versus the new planes you take to deliver around?.

Well, typically speaking in the leasing industry overall, older or midlife aircraft generally have a slightly higher return level initially on the lease rate as a function of the capital cost.

But generally speaking they have a higher residual value risk and there are groups of investors such as some of our sidecar vehicles that like that risk appetite. So just generally speaking, our new aircraft are added exactly at or above our profile norms that we have today.

They use aircraft and I want to emphasize we bought pretty young used aircraft.

Used aircraft that are less than 8 years of age, and so they might have a little bit of a higher return profile because the lease of that we put them are worth of our existing leases were usually at least rates in this case when the aircraft were new and the aircraft was appreciated.

So the used aircraft of anything at a little bit of a higher margin generally speaking, initially on the portfolio we field in the new aircraft..

Thank you. Our next question comes from the line of Catherine O'Brien of Deutsche Bank. Your line is now open..

So, we’ve been talking about the potential for capital space for the past couple of years in search of yield, may be exiting in the face of rising rates.

Have we started to see any examples of this or do you think it's just too early?.

You know really I think it's a little early still. This has really been going on the last six, seven months and I just -- I think we’ve seen this in the past, even I've seen this in the past in a rising rate environment.

We just expect that that’s going to start to filter, I don't think it means by any chance, any kind of a mass exodus of our -- anyhow, I just think that it may act again a filter or the first order test against those that just came in for a quick boost in their asset yields for a shorter period of time.

But it remains to be same, how long it might take for a little bit of a pause or a little bit of people to put their brakes on the inflow of capital into their space. It's still really good returning space. So it's probably going to be a while, but we're not seeing new entrants coming in at this stage..

And then earlier you spoke about passing on 10 potential candidates for used aircraft acquisitions this quarter.

Can you just give us some color on the internal return threshold that you used to make those kinds of decision?.

We don't give color commentary on our internal return thresholds. We take the totality of the purchase pricing going forward in the lease term and also we take into strategic reasons. So we want to establish a new relationship with their airline that's also really important for us.

So, we're not going to tell you what our returns from thresholds, but we're known as pretty astute aircraft buyers. And I think we've brought quite a number of airplanes..

Yes, in five years..

The other thing we can say that we look at each deal and they need to be accretive to our company. I mean we're in a really good position. We have a lot of growth coming and we can be very selective in the deals that we do. So, the ones that we do, they need to be accretive..

Thank you. Our next question comes from Susan Donofrio of Macquarie Capital. Your line is now open..

Just a quick follow-up on your fewer question, and I'm just thinking about the strengthening of the dollar.

Can you just give us some color on? Is there an inflection point that you would be worried about with respect to the overall increase in the strengthening? And are most of your customers hedged I would assume so?.

No, actually most airlines got into trouble because they hedged too long as oil price does decline and some airlines suffered multi billions losses on making the wrong bet, so I would say a number of aircrafts that are coming back into the hedging space but only on a very sort of limited basis, some hedging 25%, 30% of their need as you've got 12-18 months.

If oil prices continue to rise at a rate that exceeds a $10 a barrel per year, I think we would anticipate more airlines will do hedging. There's obviously cost to that. And you have to be quite credit worth. So many airlines are not sufficiently credit worthy to be able to enter into those derivatives.

I think as John indicated earlier, I think oil price would have to be triple digit to make really a huge meaningful different in the way airlines think about their fleet planning..

What about currency? Can you talk about the strengthening dollar?.

Currency, last year we had a period where the dollar was weaker. Euros were stronger. The yens got stronger. Now, we're seeing again higher interest rates. The dollar is getting all stronger. We still have a trade deficit.

And I said earlier, airlines make long term fleet commitments, they don't look at spot markets that much, when they make fleet decisions. Their current pricing strategies on tariffs and ticket prices, yes, those are more short-term related.

But we're not really seeing -- we haven't seen any transactions that sale away because of the dollar strengthening. That's we all I can say..

Thank you. And our next question comes from the line of Kevin Crissey of Citigroup. Your line is now open..

Aside from lease rates, how does increased competition impact your overall lease terms?.

It's all the length of the lease or the commercial structure of leases?.

It all -- there is many economic aspects to a lease. The first that you referenced that comes to mind is a basic lease rate, but there's other features that come into play.

And so, the art of lease if you will, is to balance the risk associated with all those features, so even if you have to take a lower lease rate, maybe you take other things like a stronger set of return conditions or maintenance reserves or other types of risk protections to make the overall deal rational.

So I can't -- some airline may have a hot button on something. Fill in the blank. They don’t want to give engine lives greater than x dollars.

Okay, well maybe you make that up in a risk trade in other aspects of the deal, whether it's either a higher lease rate or a higher security to package or other aspects you might give a little bit less flexibility. You might not offer some sort of extension of favorable extension lease rate term.

There's a lot of tools we can do within the confines of the lease itself so it doesn't all fall into one basket and part of what's most disciplined lessors, and I would put up at the top of that category do as we balanced the entire lease in its entirety in terms of risk, financial returns and friendliness to the customer and being attuned to what the customer wants.

The real key here is, can you write a lease that hits the hot buttons and every airline is different. Lease rate is certainly important, but can you hit, can you write a least specific to each aircraft with airline..

And if I could switch gears a little bit.

What is it that's causing the airlines around the world to be so much more profitable and have, bring their cost to capital? I understand that in the U.S, given the consolidation and maybe that's a theme and other areas, but globally, this is kind of a uniquely strong period in what has been not as strong a GDP type environment.

So, what is it that's causing this? Is it just a general move towards people getting on planes generally? Or what is it?.

Well, there's a couple of very fundamental factors. Number one is the strong growth in passenger travel to begin with. The number to the airlines, are far more disciplined today from a capacity perspective than they were 15 or 20 years ago.

20 years ago, there were a lot of egos involved in protecting city pairs perspective, protecting other aspects of your network.

Now with the ownership of the airlines much more in private hands or public hands as opposed to governmentally owned or for other reasons, there's just frankly, a lot more discipline and nowhere do you see that, as when you get on an airplane today on the seats.

I mean, probably very few of you on the line today get on airliners that are empty or only partially full. They're almost all full everywhere, all the time. Worldwide load factor is 82%.

So I think that capacity is a real key and that kept the discipline and the bottom line discipline is far stronger today, far stronger, driven by who owns these airlines than it ever was 15 to 20 years ago..

Thank you, I am showing no further questions at this time. I turn the call back over to Ms. Mary Liz DePalma for closing remarks..

Okay, well thank you everyone, that’s all for our call today. We’ll look forward to speaking with you again after the conclusion of the second quarter. Nicole, you can now disconnect the lines..

Ladies and gentlemen, thank you for participating in today's conference. That does today’s program. You may all disconnect. Everyone have a great day..