Thank you, and good afternoon. I’m Matt Dallas, the Investor Relations Manager of Fly Leasing, and I’d like to welcome everyone to our Fourth Quarter and Full Year 2020 Earnings Conference Call.

Fly Leasing, which we will refer to as FLY or the company, issued its fourth quarter and full year earnings results press release, which is posted on the company’s website at flyleasing.com. We will have a slide presentation that accompanies today’s call, which is available to participants on the webcast.

If you are not accessing the webcast, you can find a copy of today’s presentation in the Investor Relations section of our website on the Events & Presentations page. Representing the company today on this call will be Colm Barrington, our Chief Executive Officer; and Julie Ruehl, our Chief Financial Officer.

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. An archived webcast of this call will be available for one year on the company’s website.

And with that, I’d now like to hand the call over to Colm Barrington, the CEO of FLY Leasing. Colm?

Thank you, Matt. Good evening, everyone, and thank you for joining us on our call.

Well, 2020 was certainly a challenging year for the global aviation industry. And for many other industrial sectors, particularly in travel and for millions of individuals who succumb to the COVID virus and for their families and friends, our thoughts are certainly with them.

Airlines, aircraft lessors and manufacturers have all gone through a torrid time with airlines worldwide where our customers being the front line and suffering most as their businesses declined. While the first quarter of 2020 was largely unaffected by COVID, in the last three quarters, many airlines saw the passenger traffic drop, in some cases, by more than 90% as compared to 2019.

For 2020 as a whole, global air traffic was down by nearly 70% as compared to the prior year. During this time, the aircraft leasing sector has shown its resilience and durability.

Strong financial management among the lessors aligned to conservative and well-capitalized balance sheet has allowed us to manage through this crisis as we did indeed during the global financial crisis 12 years ago. As a relatively small lessor, FLY has been fortunate to have had the support of the large and experienced BBAM team to bring us through this difficult period and to avail of the limited opportunities that arose.

The medium-term outlook is certainly improving as vaccines are rolled out and the numbers of COVID cases and COVID-related deaths is dropping significantly. As more and more people are vaccinated, with many countries aiming to have most of the populations done vaccinated, in fact, by mid-summer, we expect to see a relaxation in government restrictions on travel.

This should lead to a return of consumers, who appear to have a continuing strong desire to get up and go. IATA also reports that, particularly in areas such as Latin America increased border testing is already boosting travel in that region as it negates the need for travelers to quarantine on arrival.

There’s still a little way to go, but there are certainly green shoots emerging. As regards to aircraft types, we are already seeing improvements in the utilization and values of narrow bodies, which reflects the fact that domestic and regional travel is rebounding more rapidly than long-haul and international travel.

This trend is likely to continue through the end of the year. Reflecting the resilience of the aircraft leasing sector, capital markets have remained open for aviation products.

And there’s been no shortage of liquidity in our industry. FLY and other aircraft lessors have availed these markets to bolster liquidity through sales of aircraft and through entering into new debt facilities.

We have also benefited from historically low interest rates. Allied to generous pandemic-related government support in many jurisdictions and support from their aircraft lessors, the capital markets have also provided most major airlines with sufficient liquidity to compensate in part for the revenue losses of the past year and to survive through the last difficult months.

As always, we and BBAM have been responsive to our airline customers’ needs, and have worked with them to help ensure their survival through these unprecedented times, while also focusing, of course, on our own cash needs. 2020 was certainly among the most difficult years in FLY’s 13-year history, and our financial results reflect this, showing a net loss of $67 million on total revenues of $334 million for the year.

This loss was mainly as a result of a $115 million noncash impairment charge that we took in respect of nine aircraft, of which $106 million related to two seven-year-old Airbus A330-300s expected to be returned early by a lessee. Julie will explain this impairment in more detail during her part of the presentation.

By the way, these are the only A330-300s in our fleet. If it were not for this impairment, FLY’s 2020 pretax income would have been positive at more than $40 million.

The net loss represented $2.21 per share. But at year-end, our book value was at $25.88 per share, a very healthy premium to our share price, and again, reflecting the resilience of the sector and of FLY.

During 2020, we focused mainly on liquidity enhancements. In the fourth quarter, we closed a new $180 million five-year term loan.

In that quarter, we also repaid our $325 million 2021 notes, which were due in October of this year. As a result, we have no significant debt repayments scheduled until 2023, and have extended our overall debt maturities.

We also continued to sell assets at a reasonable pace, selling eight aircraft and three engines. As I’ll explain in a few minutes, these sales continued to be at a significant premium to the book value of the assets sold.

During the year, deliveries of the new purchase and leaseback of A320neo aircraft to which we had committed were deferred. And so we have no capital commitments during 2021.

We believe that this is a positive development as it provides breathing space until airline traffic returns and the supply and demand situation for aircraft settled. As the year progressed, we also saw our future rental cash flows improving.

We signed nine lease extensions and five new leases during the year. We also collected most of the rent deferrals during quarter four and so the pace of rent deferrals decreasing, nearly $4 million of rent deferrals granted in that fourth quarter.

At year-end 2020, FLY was in a strong financial position. In addition to our $132 million of unrestricted cash with several unencumbered aircraft, which, along with the cash, totaled $312 million [ph], we also reduced our leverage to a historically low level with a net debt-to-equity ratio of 2.3 times at year-end, the same as a year ago and a significant reduction on the figure at the end of 2018.

Resulting from positive conditions in the financial markets and the repayment of our 2021 notes, we also reduced our average debt cost by nearly 50 basis points in the year and by 60 basis points since the end of 2018. And as already mentioned, FLY has no significant debt maturities until 2023.

Coming to aircraft sales. During 2020, FLY sold eight aircraft and three engines from our portfolio for a total gain of $36 million.

This was a 19% premium to the book value of the asset. Of these sales, two aircraft and one engine were sold in the fourth quarter, and produced a gain of $4 million, a 17% in premium to book value.

Despite the industry difficulties and because of continuing capital market interest in aircraft assets, FLY was able to continue its strong record of profitable aircraft sales, and once again, demonstrated that there is value in our balance sheet. In 2021, we expect to implement further aircraft sales, with the objective of generating net income, enhancing liquidity and managing credit exposures.

To this end, we have already signed letter of intent relating to the sale of several aircraft. We are certainly encouraged by the amount of capital that is interested in aircraft assets as a strong long-term investment, and which is already resulting in an increase in aircraft values, particularly for narrow-body aircraft, which comprise the majority of our fleet.

FLY, as prudent business model and experienced management team, have been the foundations that have allowed us to weather the last unprecedented year. Our fleet is composed of the most popular narrow-body aircraft type, with 70% by value being these most popular narrow bodies.

These aircraft types have maintained their values better than most wide-bodies, and we expect them to be in greater demand from airlines as domestic and regional travel accelerates more quickly than long-haul international travel. We have a diversified customer base with more than 50% of our lessees being comprised of flag carriers and U.S.

majors. To date, we’ve experienced a limited number of bankruptcies among our lessees.

We will continue to work with viable airlines to help them survive these difficult current market conditions. Our balance sheet is also durable, with low leverage and long-dated financing that protects us from debt repayment crunches, and gives us the opportunity to pursue our opportunistic acquisition strategy, a strategy that has demonstrated its merits during this period of very low demand from airlines for new aircraft acquisitions.

FLY has certainly benefited from being managed by the experienced BBAM team during these challenging times. The broadly-based full-service and experienced BBAM team, with more than 30 years’ experience in our industry, has managed aircraft and financial assets through several industry cycles.

BBAM, whose shareholders own more than 20% of FLY, will continue to provide these skills and personnel to maximize value for FLY’s shareholders. And with that, I will hand you over to Julie, who will take you through the financials for the quarter and for the year.

Julie?

Thank you, Colm. For Q4, FLY is reporting a net loss of $107 million, driven by an impairment charge of $115 million relating primarily to two wide-body aircraft expected to be returned early.

The net loss equates to $3.51 per share as compared to earnings per share of $2.43 in Q4 2019. The impact of the COVID pandemic on the airline industry is directly correlated to the impairment charge, and the ongoing challenges being experienced by airlines continuing to affect FLY’s top line, although, to a lesser extent than in Q3 due to the non-recognition of revenue for certain lessees.

End of lease income and gains on aircraft sales were also both down dramatically versus Q4 2019. FLY’s net spread came in at 5% for the quarter.

FLY’s year-to-date net loss was $67.4 million or $2.21 per share as compared to net income of $225.9 million or $7.12 per share in 2019. The impairment charge I mentioned a moment ago was the most significant driver of the year-over-year changes.

End of lease income and gains on sales of aircraft were down significantly as well. Net spread for the year decreased to 5.9% on the revenue decline.

FLY’s operating lease rental revenue in Q4 2020 decreased to $64.3 million, driven by the non-recognition of revenue for certain lessees and FLY’s smaller fleet. While operating lease rental revenue declined as compared to the prior year quarter, the $64.3 million recognized in Q4 represents a sequential increase of nearly 20% over Q3.

Total revenues for Q4 were $72.8 million, which includes $5.2 million of end of lease income related to the early return of an aircraft, and $4.3 million gain on sales of aircraft or a 17% premium to net book value. Year-to-date, operating lease rental revenue declined to $283.9 million and total revenues were $333.4 million.

To provide a bit more detail on the decrease in operating lease rental revenue, this chart bridges from Q4 2019 revenue to Q4 2020 revenue. Nonaccrual lessees accounted for an $11.2 million drop in revenue in Q4 2020 as compared to Q4 2019.

Non-recognition of revenue was much less significant in Q4 as compared to Q3, and nearly half of this amount is attributable to lessees that were placed on nonaccrual prior to Q4. Sold aircraft were the next largest driver of the revenue decline at $10 million, followed by lease extensions, restructurings and remarketing, which contributed $4.3 million decrease.

The last category driving the decline is the decrease in LIBOR, which is offset by lower interest expense and other items, with the aggregate decrease being partially offset by a $3.3 million increase due to revenue recognized from aircraft purchased in the last year. This chart shows the full year operating lease rental revenue bridge from 2019 to 2020.

By far, the largest driver of the revenue decline is aircraft sales, as a result of 43 aircraft being sold in 2019 and 2020. Nonaccrual lessees accounted for a $35.6 million drop in revenue, representing less than 10% of 2019 operating lease rental revenue.

Lease extensions, restructurings and remarketing accounted for $9.7 million of the decrease, while lower LIBOR and other items caused a $5.2 million revenue decline. These decreases were partially offset by a $22.8 million increase due to revenue recognized from aircraft acquired.

FLY has placed some airlines on nonaccrual status as the collectability of revenue from these airline customers is not considered probable. In Q4, we placed three additional airlines on nonaccrual status, representing only 3% of contracted rental revenue.

In total, 11 airline customers leasing 19 aircraft are currently on nonaccrual status. For nonaccrual lessees, FLY only records revenue to the extent of cash receipts, inclusive of cash security deposits.

We have seen an improvement in cash collections with $14.3 million of rent collected in Q4 and an additional $6.4 million collected thus far in Q1. We expect to continue to collect cash from nonaccrual lessees throughout 2021, and are optimistic that cash collections will accelerate in the second half of the year with the anticipated uptick in air travel.

More information regarding nonaccrual accounting is contained in the appendices with the presentation. On the expense side, Q4 expenses include a $115 million impairment charge, which I will talk about in more detail in a moment.

Depreciation was up slightly, while interest expense decreased as compared to the prior year quarter, due to the repayment of debt and a lower weighted average cost of debt. SG&A expense decreased $0.6 million in Q4 2020 as compared to Q4 2019, due to the smaller fleet, partially offset by realized and unrealized foreign currency losses as well as higher general corporate costs.

In the current quarter, we recorded an additional allowance for uncollectable operating lease receivables of $1 million, bringing the total allowance to $4 million at year-end. Maintenance costs increased in the quarter, primarily due to costs to repair two aircraft for lease as well as costs related to off-lease aircraft.

For the full year, depreciation, interest expense and SG&A were all down due to aircraft sales. In 2020, FLY recognized an unrealized loss of $13 million to write-down marketable securities to estimated fair value.

This relates to FLY’s investment in the equity tranche of aviation ABS vehicles, commonly referred to as E-Notes. At December 31, the remaining book value of FLY’s investment at E-Notes is $3 million.

To provide some color regarding the Q4 impairment charge, you can see on the slide that the vast majority of the charge, $106 million, relates to two seven-year-old A330 wide-body aircraft that are expected to be returned early by the lessee. As a result, our estimate of future undiscounted cash flows decreased to below net book value.

As a reminder, under U.S. GAAP, an asset is not impaired if the expected undiscounted future cash flows exceed the net book value.

Once it is determined that expected undiscounted cash flows do not cover book value, the actual impairment charge is calculated by comparing the net book value to cash flows discounted at an appropriate discount rate. This analysis led to $106 million impairment charge for the two wide-body aircraft.

FLY has no other A330-300s in its fleet and only one other A330, an older a A330-200 with a minimal net book value. $4 million of the impairment charge is attributable to two 15-year old A320-200s.

FLY is due to collect significant end of lease compensation for these aircraft in 2021, and expects to part out the aircraft. Lastly, $5 million of the impairment charge was driven by five A319 aircraft with a weighted average age of over 18 years.

FLY expects to sell these aircraft in 2021, which caused the relatively minor impairment charges. FLY evaluated its entire fleet on an aircraft-by-aircraft basis, and no other impairment was identified as of year-end.

I’ll now provide an update regarding FLY’s rent deferrals. In Q4, FLY collected 47% of pre-deferral contracted rent.

For 2020, FLY had approximately $54 million of rent deferrals, of which, about $47 million is included in rent receivables at December 31. Deferrals for 2021 are currently expected to be approximately $10 million or less than 4% of 2020 operating lease rental revenue.

A table on Slide 19 provides the details of rent deferrals and scheduled repayments by period based on expected deferral agreements. Please note that FLY continues to work with lessees regarding rental payments.

And as a result, these amounts may shift over time, including, in some cases, revisions to previous deferral arrangements or lease restructurings that may be granted. Based on contracted deferrals to date, repayment of rent deferrals are scheduled to increase substantially in 2021 with about half of deferrals due to be repaid by the end of 2021.

I’ll turn it back to Colm now for his closing remarks.

Thank you, Julie. So FLY has come through a very difficult year in good shape, primarily because of our prudent business model and our experienced management team.

Our attractive fleet of mainly narrow-body aircraft maintained its value well. During the year, we sold eight aircraft, representing nearly 10% of our portfolio by number, and as 19% premium to book value, demonstrating that the market for aircraft sales recognized its value and was prepared to pay for it.

Importantly, we have maintained a book value per share of nearly $26, which is more than twice our current share price. For the future, we have no near-term CapEx commitments have low leverage and no near-term debt maturities.

A result, we have financial flexibility, and are free to pursue our opportunistic acquisitions strategy when market conditions support it. And with that, we will take your questions.

Hi, everyone. Thanks for the time.

Hi, Catherine.

Hey, there Colm. Maybe a couple on the impairment charges, just to start.

I know that impairments are tied to the decision to sell. But perhaps that decision triggered some of these impairment charges.

And I know on the A330, it was – it seems more tied to the fact that those aircraft are coming back early on lease. But in the same quarter, you also sold several aircraft at a gain.

So I’m just trying to like solve the out the puts and takes on those A330s. Of course, the backdrop is continuing to change.

But I think, last quarter, you noted you were comfortable with the book value of your fleet. So really just trying to understand better, what’s triggering this A330 impairment?

I don’t know if it’s just you’re marking to market for – where rentals are on that coming back? Would just love some additional color.

Julie, do you want to take this? I mean, I think you’ve sort of explained the GAAP measures we have to take.

So would you want to maybe just summarize that again, perhaps?

Sure. On the A330s specifically, during the quarter, during Q4, it became highly likely that those aircraft would be returned early, and that’s sort of what changed and triggered it in Q4.

Prior to that, it didn’t appear to be highly likely they would be returned early. And just in the current environment, there’s a possibility, they could remain off-lease for a period of time.

And the rate – rental rates on those aircraft are depressed. So that’s what really drove us to record the impairment in the quarter, is a strong likelihood those will be returned early in 2021.

And I think the other factor was that – is that you have to discount the cash flow, the projected cash flows in those circumstances, whereas until – while they are still on lease, you actually can deal with undiscounted cash flows.

Got it. And so...

Yes, I mean, the – sorry, go ahead, Catherine.

So do you have to – like when you take – once you move to the undiscounted cash flow measure, do you have to mark-to-market for prevailing rates or are you able to forecast out some type of recovery, or is this really just – you’re remarketing it and those are the types of rates you’re seeing, and you have to bake that in going forward?

No. We can take a long-term view.

And we don’t have to assume that the rates that are available today will stay in place for the rest of the life of the asset. So we use various third parties that predict out future lease rates.

We use those in our cash flow projections.

Okay. And one more.

Apologies for just harping on this, but if – I understand that you guys did a pretty comprehensive fleet review, but if – are there any other aircraft where – thinking through prevailing rates today, where – if they were returned early, you could see another impairment charge like this or just see – narrow bodies, I know you were mentioning throughout the call that those values are recovering, so maybe not, but just would love to hear your thoughts.

Yes. So obviously, we can’t predict the future, but in general, we’re comfortable with the quality and marketability of the fleet, which is predominantly the most popular aircraft types, A320s and Boeing 737 NGs.

But you did touch on what I think could be a driver of future impairments, which would be an early termination of leases. I mean, I doubt that it would be as significant as the charge we’re seeing this quarter.

But again, it’s difficult to predict what might change in the future. But overall, we are pretty comfortable with our fleet.

Yes. In particular, I think, Catherine, that if you had a narrow-body returned prematurely by lessee, you would not expect to – you would expect to release it more rapidly than you would with a wide-body at the present time.

Understood. Thanks for all that color.

I’ll hop back in the queue. Thanks.

Hey, thanks. Good afternoon everybody.

So, Mark and I are still trying to wrap our heads around a $53 million impairment per A330 and how that’s even possible. Could you give us perhaps the age of the aircraft?

And very importantly, what percentage of the book, the write-down, represents? Also, are there any LTV tests in the secured facilities that might be impacted by the impairment?

Julie, do you want to handle that?

Yes. Yes, of course.

Jamie, thanks for the question. So on the age, age of the aircraft are just over seven years old each.

We don’t typically comment on specific values of individual aircraft. But as you can imagine, it is significant to the pre-impairment book value of these aircraft.

And I’m sorry, what was the third part of your question?

Any LTV tests in your secured facilities that there can be a knock-on effect, given the impairment?

Yes, these – there are LTV tests, but we don’t anticipate any knock-on effect. They are based on appraised values.

And in the case of these particular aircraft, they are in a facility that looks at base values. And we just haven’t really seen appraised values come down, certainly, base values and even current market values.

So we wouldn’t expect an impact from LTV tests from the impairment – related to the impairment charge.

Okay, that’s helpful. And Colm, somewhat of a repeat of what I asked last quarter, but it’s a hectic time in the business.

Any new thoughts on how you’re thinking about an outright sale versus a go private type transaction versus the status quo? I mean, obviously, trading at less than 50% of book, the public market just increasingly doesn’t seem like it’s the right place to be.

Yes. Well, as I said, and I think we said before, we look at options all the time.

But we’re not going to comment on any sort of measures like this at this point in time, Jamie. So I’d rather not go any farther than that.

There were some rumors in the newspapers and media, and we don’t comment on rumors.

Sure. Well, let me squeeze in a quick one then, just kind of fine tuning.

The slowing pace of deferrals granted in the fourth quarter was an encouraging data point. Do we assume that, that reflects fewer deferral sought or should we interpret it as you – as FLY simply turning – taking a harder line, for example?

Like I assume, it’s fewer asks by the airlines, but I think it’s a fair distinction to ask about.

Yes. Julie, correct me if I’m wrong, but my understanding is fewer asks at this point in time.

Yes, that’s right. The pace of requests has slowed down.

Okay. Perfect.

Thank you very much.

Thanks, Jamie.

Hi, Helane.

Thanks very much. Hi.

How are you? So I’m assuming, from your comments and the slides, you’re not doing any deferrals past this year, and you’re expecting repayments next year, but new deferrals pass this year.

Is that correct?

Helane, it’s Julie. Yes, that is correct.

We have not granted any deferrals past 2021.

Okay. And then the other question I had was – actually I had two other questions, if I could squish them in.

One is on the five impaired A319s. So you said, you’re going to sell them, but there’s no date associated with that.

Is that a second half transaction? And then, the part outs on the A320s, are they second half too?

Yes. Julie, we have – we normally don’t comment on sales until we have firm contracts.

In the case of these seven aircraft, the five A319s and the two A320s, we do have letters of intent, which we hope means the sales will be generated in the next – in the coming months. But as I say, we don’t have firm contracts as yet.

So we haven’t commented on them.

Okay. And then my other question, Colm, is, the freighter market is really hot right now, and you have no order book.

Would you consider sale-leaseback transactions on freighter aircraft, or would you consider getting into that space?

Well, we have – currently in our portfolio, we’ve got two large freighters on – which we did on the sale and leaseback transaction. We would certainly look at freighter aircraft on long – if we got them on long-term leases with good credits.

But I think freighter market is hot because they’re very – there are less passenger aircraft flying around with selling capacity. When the market returns, as we hope it will during the course of this year, possibly the freighter market won’t be quite as hot as it is today.

But look, if we can get a good freighter aircraft on a good lease and finances well, then we will look at it in the future as we’ve done in the past.

Okay. That’s fair.

Well, thank you very much.

Thanks, Helane.

Hey, good afternoon guys. I wanted to take a minute to talk about how you guys think about risk management.

Has risk been a function at FLY, which has traditionally been viewed as something that’s reactive in response to specific stress points in the market or has the process evolved since the onset of COVID, or I guess maybe to put it differently, what proactive measures are you taking to subvert the potential for further future impairments if the current situation fails to improve like we all are expecting it to in the next several months here?

Well, Julie, do you want to comment on this or...

Sure. First, I guess I’d say, we’re in a very strong position going into COVID, having completed, I think, 43 aircraft sales and in 2019 and 2020 at 35 of those in 2019.

So we try to be in a decision where we don’t have to be reactive and be prepared for the eventual down cycles. In terms of proactive measures, we’re just actively engaging with our lessees all the time and in certain – trying to work with them to make sure that if we can help them with the long-term survival, if they’re going to survive, we think they’re going to survive long term, we’re going to work with them.

But if we need to move to protect our assets and we think we can deploy them elsewhere, we will work to do that.

Yes. And I think, overall, Koosh, our greatest risk management is that we – 72% of our fleet by value is comprised of very popular narrow-body aircraft, which are – can move from one airline to another, which are still remaining quite popular.

So I think having the majority of the very large majority of our fleet in that particular category of aircraft is perhaps our greatest risk protection.

Yes. And then I guess just thinking along the lines of portfolio strategy, do wide-bodies have a place in the FLY portfolio over the longer-term as we look beyond COVID?

Because it would seem that they carry a significantly greater degree of risk when you compare to the narrow bodies in your portfolio.

Yes. And we’ve always said that FLY is likely to remain a predominantly narrow-body lessor, and that’s what we’ve done.

I think we said before that, we will only acquire wide-bodies if they are on long leases to reasonably good credits and we can finance them inexpensively. We met that criteria with the two A330s.

Unfortunately, the airline looks as if it’s going to let us down. And that’s why we had to take this impairment.

Okay. Well thanks a lot guys.

I appreciate it.

Thanks, Koosh.

Hi, again. Thanks for the extra time.

One is like a forward-looking growth-oriented question. Any thoughts on the A320neo options you have that don’t need to go to AirAsia?

Is it still too early to discern and there’s demand for those? When do you need to make a decision to buy on those or is it just seeming like maybe there’s more of an appetite for sale-leaseback financing versus additional lift?

Would just love to hear your thoughts on maybe growth ultimately going forward.

Yes, the A321neos that we agreed to do sale and leaseback with AirAsia, those deliveries have been pushed out beyond this year, as have the option aircraft. So we don’t have to make any decisions on those deliveries right now.

We’re working with AirAsia on what might be the new delivery program for those, and we’ll have updates on that as the year progresses.

Okay, got it. Thank you very much.

We’d like to thank everyone for joining us for our fourth quarter and full year earnings results conference call. We look forward to updating you again next quarter.

You may now disconnect.