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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day ladies and gentlemen. And welcome to the Air Lease Corporation First Quarter 2019 Earnings Conference Call. At this time 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] And as a reminder, today's call is being recorded for replay purposes.
I'd now like to turn the conference over to your host for today, Jason Arnold, AVP of Finance. You may begin.
Good afternoon everyone. And welcome to Air Lease Corporation's earnings call for the first quarter of 2019. This is Jason Arnold stepping in for Mary Liz DePalma and I am joined this afternoon by Steve Hazy, our Executive Chairman; John Plueger, our Chief Executive Officer and President; and Greg Willis, our Executive Vice President and Chief Financial Officer.
This afternoon we published our results for the first quarter of 2019. 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, February 21, 2019, and the webcast will be available for replay on our website. At this time all participants on the call are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer 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, stock-based compensation expense and other income and expense items. These statements and any projections as to the company's future performance represent management's estimates of future results and speak only as of today May 9, 2019. 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 will be using during the call such as adjusted net income before income taxes, adjusted diluted earnings per share before income taxes and adjusted pretax return on equity are non-GAAP measures. Our 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 our earnings release and 10-Q 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 CEO and President, John Plueger.
Thanks, Jason. Good afternoon everyone and thank you for joining us. I'm happy to report that at Air Lease enjoyed another solid quarter of performance. For the first quarter we recorded diluted earnings per share of $1.23, a pre-tax net margin of 37.5% and a pre-tax return on common equity of 14.7%.
Our revenues were up 22% over the first quarter of 2018. And our portfolio metrics remain strong and consistent. Our balance sheet grew to 19.2 billion with 280 owned aircraft at the end of this quarter. We continue to see healthy aircraft demand and operating trends in our business. To date, we've signed lease placements with 14 Airlines covering 45 aircraft, including seven wide bodies. The 14 Airlines include six customers new to ALC not all of which have yet been announced.
The global reach and strength of our business continues. ALC continues to have significant forward visibility into revenue, with over 25 billion in total committed rentals. Although yesterday IATA reported modestly slower air travel demand in the March traffic data impacted by holiday timing and other factors that Steve will discuss in a moment. The overall trend over the last six months remained healthy and we continue to foresee passenger growth persisting at roughly two times global GDP.
During the first quarter, we took delivery of 11 new aircraft from our order book and sold six aircraft. Three of the sales went to Thunderbolt II, one to Blackbird Capital II and two aircraft to third party buyers. Deliveries totaled $1 billion, which while representing one of the largest quarters of deliveries in our history was 400 million lower than anticipated given delays at both Airbus and Boeing.
Let me spend a few minutes talking about this, first, Boeing and the Max grounding. We have 15 Max's in our delivered fleet spread globally across six airline lessees. They're relatively small portion of our current 280 aircraft delivered fleet. Before the grounding we were scheduled to take 28 more Max aircraft by the end of 2019 and two of those were supposed to deliver by the end of Q1.
Sitting here today we do not know and will not speculate on when the grounding will be lifted, nor when customer deliveries will recommence. Boeing, the FAA and the World Aviation Authorities are working intensely and closely to restore the Max safely to the air with total confidence. And that is what we are looking for and that's what we believe will be achieved. Our airline customers do need these aircraft badly and we're working closely with on alternative lift, including extending current leases where we can.
The Max situation has in fact caused a surge in single out demand to cover this temporary secession cessation of Max deliveries and that demand has generally increased lease rates, particularly on the 737, 800s. However, our main focus and priority is helping our airline customers and not on lease rate premiums in this particular situation.
When we first opened our doors here at ALC, the most common and gratifying comment we received from our airline customers was, hey, we remember when you guys really helped us out in this or that situation. So congratulations on starting ALC and let's see if we get some business done. Neither Steve nor I will ever forget that. We and in fact the global leasing community play a vital role as buffers and facilitators for the airline industry.
Turning to Airbus, we based our 2019 plan on updated aircraft delivery schedule provided to us by Airbus at the end of 2018. We have seen further delays from that schedule. In fact six of the eight aircraft that did not make it into Q1 as originally scheduled were Airbus aircrafts. While the Airbus industrial recovery program is in progress, we now know from Airbus that the delivery schedules are subject to further delays. These delays are no longer just related to engine manufacturer issues.
As we've said many times we remain concerned about the very real supply chain constraints in the face of single-aisle production rate increases. We do believe that Airbus under new leadership has a viable plan for industrial recovery and production overhaul that will benefit long-term stability and schedule integrity, but will take time to complete. As such, we believe we will see continued delays and adjustments in our delivery schedule from Airbus likely through 2021.
We're working closely with Airbus to minimize the impact of these delays with our customers. It's very important to keep the big picture in mind here. And that is the delivery delays from the OEMs for the most part, simply shift our revenues further out on the horizon than previously planned, and in fact a timing delay. The long-term leases are still in place. It's just a question of when they begin.
With these overall delivery delays from both Boeing and Airbus, we have adjusted our full year 2019 estimate for aircraft investments from 6.5 billion to approximately 5.8 billion. Of course, our revised estimate of aircraft CapEx could further reduce depending upon return to service of the Max and updated delivery schedules from Airbus as we receive them. And as is obvious from the Max data, timing of some of these deliveries will shift later in the year.
That said, while lower than our originally planned 6.5 billion in aircraft investments for 2019, our revised estimate of 5.8 billion still represents a major increase of 71% over the 3.4 billion added last year thereby providing a strong growth platform, which will be the case even if there are delays beyond our current estimates. So with that in mind we'll likely slow down, reduce or delay somewhat our aircraft sales program for the year, depending primarily upon when Max deliveries resume. We continue to see good demand from many buyers for our aircraft with profitable leases attached to them and we foresee that demand to continue.
Let me turn out a global airline health and airline bankruptcies. As I've said before airline bankruptcies happen virtually every year. It's just the feature of the landscape. At ALC I think we've done a pretty good job overall assessing risk and we've had no exposure to some of the larger more recent carrier failures such as Avianca Brazil or Jet Airways in India. We did have seven single Airbus aircraft on lease to WOW air in Iceland.
By the time of wealth and insolvency filing, we had already placed four of those aircraft and have since placed another two, leading only one aircraft in which we are now waiting signature with an airline for placement. There was strong demand for these aircraft in the marketplace and we were pleased with the lease rates achieve for the follow on placements. We had robust cash security deposits and reserves in place with WOW, which well exceeded the amounts owed to ALC. In summary, we acted quickly in advance of WOWs filing, placed the aircraft elsewhere and are moving on.
The last major point I want to cover is ongoing trade disputes which are in the headlines again. I simply want to echo what we've told you during the past year. To date, ALC sees no material impact in lease placements from trade disputes. In fact, this week, ALC signed lease agreements on 10 new aircraft with a large airline in China, which will be specifically announced at a future date. We remain vigilant and watchful on these matters, of course, and hope for successful resolution in the interest of global fair and open trade.
To conclude, our team continues to execute and deliver strong consistent results. And we've remained bullish on the future. We remain highly confident in the strong profitability and continued growth of our business.
With that, let me now turn the call over to our Executive Chairman, Steve Hazy to provide his commentary and color. Steve?
Thank you very much, John. We are so pleased with our first quarter 2019 results. On the macro backdrop, global GDP growth remains healthy overall. And as John mentioned, the health of their travel demand picture remains very robust. IATA just reported the year-to-date RPKs were up 4.8% over the same period last year with load factors over 80.6%. Traffic growth slowed modestly in March, primarily due to the timing of the Easter holiday.
IATA is still forecasting RPK growth for 2019 of 6% with demand picking up pace over the remainder of the year. We look to our day to day business operation of our company and confirmed continued favorable operating trends as well, with strong global air travel demand growth manifesting in high demand and strong placement of aircraft from our order book. We see these trends continuing not just over the next several years, but over the next 20 years and beyond, as the global middle class continues to expand at a rapid pace with travel by air being the preferred mode of global transportation.
The substantial need to replace aging aircraft is further driving demand for new modern planes and our airline customers focused on the risk of rising fuel prices. We believe this creates a healthy environment, sustaining both twin and single-aisle aircraft demand. As a result, we're seeing strong demand for long-term leases out to 12 and in some cases even longer out to 14 years, illustrating the desire for airline customers to lock in their fleet planning with certainty for longer periods.
ALC continues to have significant forward visibility into revenue with more than 25 billion of total committed future rentals. I'd like to remind everyone again this quarter that Air Lease's $25 billion order book from Boeing and Airbus represents only about 3% of the total capital needed to fund the industry's $800 billion of aircraft deliveries between 2019 and 2023. Aircraft finance needs of our industry are clearly substantial and we see these needs only expanding in the years ahead.
Our new order model focuses mainly on meaningful competitive advantages as compared to operators focused on sale leaseback market. We continue to see this as a key differentiator of our business, providing us access to in-demand aircraft earlier than available for purchase directly from the OEMs, on attractive terms, as compared to alternatives available to many airlines and also affords us the ability to make very selective approach in determining which airline customers we want to do business with.
As John highlighted earlier, we avoided exposure to two of the larger recent airlines that failed and experienced no credit losses from our exposure to WOW air. I think it's very important to reiterate the fact that over 200 airlines of all sizes and in all regions of the world have failed since 2010. And at ALC, we have not experienced any losses, a testament to our approach to managing credit risk, as well as the diligence and expertise of our team. We remain highly focused on helping our airline customers around the world to modernize their fleet and most effectively address fleet planning needs as they expand and optimize their route structures.
During the past several months, we announced a number of important deliveries and placements with both new and longtime airline customers. There are also more than half a dozen unannounced aircraft lease transactions, which you'll hear about in the weeks ahead. We completed deliveries of A320neo and A321neos to Air New Zealand. In April we announced delivery of the first of five 787-9s on long-term lease to China Southern Airlines, the largest airline in Asia.
We also announced lease placement of three 787-9 aircraft with an airline in Korea. We also announced several additional deliveries including the first of six new A321neo LR aircraft to Air Arabia, our first delivery of the LR from our order book and the first delivery of an A321 LR in the Middle East region. We also announced the delivery of a new A330-900neo to Air Mauritius, the first of two aircraft of that type to be delivered to that airline and the first A330neo in Africa.
The last item I'd like to highlight is I'm proud to report that we expect Air Lease Corporation's balance sheet to exceed $20 billion in total assets in the coming days. This achievement is noteworthy not only in recognizing that's a sizable number, but in reflecting how far we've come over a relatively short amount of time. We founded ALC in the spring of 2010, with no aircraft, but a bold vision of what our combined industry experience and knowledge could create for this business.
I'm very proud of what we've achieved thus far and look forward to our consistent growth and the addition of our next $10 billion in assets and growing beyond. I want to sincerely thank our Air Lease team for their continued exceptional dedication and outstanding work that went into attaining this milestone and for the strength of our continued operating financial performance, which is the best among all aircraft lessors.
And with that, I will turn the call over to our CFO, Greg Willis to provide an update on Air Lease Corporation's financing activities for the first quarter of 2019.
Thank you, Steve and good afternoon. As highlighted earlier, we recorded another solid quarter of financial performance. The results benefited from the net growth of our fleet with our key portfolio metrics of yield, lease term remaining and average age all remaining relatively stable.
In the first quarter of 2019, ALC generated total revenues of approximately 466 million, up 22% year-over-year, which includes 10 million of aircraft sales, trading and other activities. As John noted, our fleet activity included the purchase of 11 new aircraft, representing approximately $1 billion of aircraft investments and sales proceeds of approximately $264 million.
Turning to expenses, interest expense increased year-over-year, primarily due to the rise in our average debt balances, which tracks the growth in our fleet. Our composite funding rate rose only four basis points as compared to the fourth quarter and is up in modest 22 basis points relative with prior year.
Our fixed rate borrowings represented 83% of our debt portfolio and along with our interest rate adjusters on our lease placements, which continue to serve as a buffer to rising interest rates. We also benefit from our investment grade credit ratings, which are the highest in the industry on a standalone basis. They have helped to increase our access to capital and lower our financing costs, which I will cover in more detail later.
Moving on depreciation continues to attract the growth of our fleet. SG&A this quarter was elevated primarily due to transactional costs associated with WOW and we expect SG&A to return to a normalized level next quarter.
Looking forward to the remainder 2019 we expect to add 53 aircraft to our fleet representing approximately $4.8 billion in aircraft investments. As John highlighted in his remarks, we are conservatively tempering our outlook for future deliveries for 2019 as a product of the continued delays at Airbus and a temporary grounding of this Boeing 737 Max.
As of today, we expect 1.9 billion of aircraft deliveries for Q2, which does not include any Max aircraft. Despite these delays it is worth noting that we are still anticipating a record year for aircraft investments and growth. As discussed last quarter, we continue to evaluate sales opportunities in our fleet and still anticipate selling approximately $1 billion of aircraft in 2019.
However, we expected majority of these aircraft sales to take place in the second half of the year.
Turning to financing, we announced today the closing of an amendment to our revolving credit facility. Through this amendment we increase the size by 1.2 billion representing a 27% increase to $5.8 billion. And based on publicly available data this makes it the largest and lowest price facility in the industry. This facility remains priced at LIBOR plus 1.05 percentage points and backed by a globally diversified Banking Group of 50 financial institutions.
This achievement was due in part to our significant base of uncovered assets and low leverage which serves as a key credit differentiator. This facility represents a major step forward in the evolution of our funding profile, aiding us in the continued management of our liquidity as we continue to grow the business.
We also completed our inaugural preferred equity issuance in early March raising 250 million of non-cumulative perpetual preferred stock at a yield of 6.15%. This security is callable in five years and is attractively priced as compared to other long-term debt financing alternatives. We also view the equity treatment applied by the rating agencies as appealing and appreciate the added funding diversity that this new source of capital provides.
Our debt to equity ratio declined quarter-to-quarter to 2.3 times below our long-term 2.5 times target, which is largely the product of our preferred issuance and continued aircraft delivery delays. We expect that we will return to our target debt to equity ratio later in 2019. And as a reminder, our debt to equity target is not a cap and we regularly fluctuate above and below this level based on the timing aircraft investments and sales. We remain committed to our financing strategies of 80% fixed rate debt and 90% unsecured debt.
This concludes my review of the results and the financing activities of the company and I will now turn it back to Jason.
Thank you, Greg. This concludes management's remarks. So I'll turn the call back over to Sonya to open up the line to the Q&A session. Sonya?
Thank you. [Operator Instructions] Our first question comes from Moshe Orenbuch of Credit Suisse. Your line is now open.
Great. Thanks and congratulations on reaching that $20 billion milestone. I was hoping that maybe you could just flesh out the kind of changes in the delivery schedules in terms of both. Obviously, you're talking about - in the neighborhood of three quarters of a billion dollars less this year, possibly offset by slightly less in sales. But are these deliveries - I mean, do you think that they get pushed into 2020? I mean, how should we think about that in terms of - you think about it over kind of more of the intermediate term.
Thanks. Thanks, Moshe. So when you look at it, we have some end of '18 deliveries that got delayed and spilled over into the early part of '19. What has happened is as I indicated in my remark is that the best estimates we had, provided by Airbus during '19 has showed further slippage. So we will likely have some aircrafts that were scheduled for delivery this year towards the end of this year that will spill over into 2020. It's hard to say what the average delays are. We are getting updated schedules from Airbus. And look, on the Max, again, we won't speculate when those deliveries may be resumed, but it will just be dependent upon when those customer deliveries recommence for us. So it's really hard to speculate. I think our big message is, look, we're lower than we thought we would be at the end of last year for these reasons. But I think it's still a very healthy growth for us. And even if we have further slippage or further - don't take as many aircraft by the end of the year as we're forecasting today. It's still a pretty big growth for us.
Yeah, one more comment on uncertain wide body aircraft, for example, an A350 and a 787-9, we're actually accelerating aircraft delivery one month. So the A350s and 787s are all on time. And as I said, two of those were actually pulling forward to offset some of the delays on the single-aisle aircraft. So we're making adjustments along the way. But as John said, some of our late 2019 deliveries could slip into 2020. But the length of the leases and the overall economics of those transactions will not change.
Hey, just one other thing to add Moshe, I think, in my remarks, we guided to 1.9 billion in CapEx x for the next quarter. And in the next quarter call will continue to update us to the timing of deliveries, I think that is going to continue to evolve. And you'll continue to see us balance with sales as well.
And the 1.9 billion for this quarter does not include any Max's. So if the Max deliveries for any reason where to begin toward the end of the quarter that would obviously change the equation.
Got you, thanks for that level of detail. It was - I was just skimming didn't get a chance to read the entire 10-Q, but there was a comment in there that said that as of today May 9, none of the orders that you've had for those planes that have been delayed are subject to cancellation. Is that something that does change at some point?
Typically, the contractual provisions of our agreements with the manufacturers have out at 12 months after the delay from the original delivery date and in some cases, it may be different, and we typically share that right with our lessees. So that's where that disclosure comes from.
Exactly whatever we're committed to contractually with the OEMs, Moshe, we pass on that same thing to our customers. So if we're not on hook they're not on the hook.
Got you. Alright, thanks very much. I know it's a difficult both to manage and to describe, but thanks for the transparency.
Thanks Moshe.
We're staying on top of it.
Thank you. And our next question comes from Michael Linenberg of Deutsche Bank. Your line is now open.
Mike?
Yeah. Hey, yeah, sorry. I just want to go back to John, you talked about that line if they're not on the hook or if we're not on the hook, then they're not on the hook. I just want to - maybe this is slightly a separate different question. For those lessees that have Max airplanes today, they have to remain current on their leases even if they're grounded right, so they're still making monthly payments to you even if the airplanes are on the ground.
Yeah, all of our leases relative to Max or Airbus, generally speaking, yes, they're a hell or high water leases and payments have to continue. Now, I would also comment we have had a few - to your earlier comment. We have had a few Airbus aircraft that have actually delayed beyond 12 months. But in each case, our airline customers need those airplanes and took those airplanes and therefore we did as well. So keep in mind contractual provisions are one thing, but what our airline customers need very much so is another. So we can point in the past two airlines that have had the ability as we have had the ability to opt out beyond 12 months. But those airline customers have chosen not to do so and therefore we have chosen not to do so.
I see okay, so that makes sense. And then with respect to compensation from the OEM, is the onus on the airline lessee to have that negotiation with Boeing or Airbus? Or is that something where you work in conjunction with the lessee in trying to mitigate them? I realize we're getting a little bit ahead of ourselves because I think at the end of the day, everybody wants to see those airplanes back in the air and I know those conversations are probably not likely to take place until sometime down the road. But the fact is they have to happen and somebody showed something. Is that where you work with them? Or do they do that on their own?
Jason, it's a bit premature as you know, all I can say is we've been very transparent with Boeing with all of our customer matters. That's really all we can say at this point in time. To your point, we're all hoping for a successful return to the skies of the Max and until then, it's just premature to comment. We've just been very transparent with Boeing.
Okay, very good, all right, great. Thanks. Thanks, John.
Thanks Mike.
Thank you. And our next question comes from Scott Valentine of Compass Point. Your line is now open.
Great, thanks very much. Just with regard to the secondary market demand, I think it was a comment made about the 737 Max obviously, having a positive impact for demand in the secondary market, but are you seeing any shift maybe to two wide body airlines opting to go maybe to a wide body if they can't?
We have seen a couple of airlines operate wide body aircraft on markets where they previously utilized Max aircraft. For example, I was just down in the South Pacific and there's an airline that was flying Max's and they substituted A330-200s on some of their higher density, single-aisle flights, but most airlines are running their aircraft at pretty high levels of utilization. So I would say there's not a lot of cushion to be able to substitute smaller wide bodies for single-aisle aircraft, but on a selected basis it is going on.
Okay, thanks. And then just in terms of fuel price, oil prices up a little bit, just seems like it's maybe a sweet spot where it stimulates demand for new aircraft or creates increased demand for new aircraft, but doesn't really have too much of a negative impact on airline operations. Is that a fair assessment?
Yeah, I think we're in a band on fuel prices were the current generation of 737 NGs, A320, A321ceos kind of coexist with the new generation aircraft without any major sort of impact either way, we're sort of in that range right now, where we don't see a degradation of values on the older planes, nor do we see the new planes being out of favor.
All right, thanks very much.
You're welcome.
Thank you. And our next question comes from Jamie Baker of JPMorgan. Your line is now open.
Good afternoon, gentlemen. Follow up to one of John's prepared remarks. So the pace of airline bankruptcies and the types of aircraft that are being affected, it does appear to mark at me that the elevated failures are caused for concern so far as they potentially disrupt the equilibrium between aircraft supply and demand. Do you agree with this? Are the failures driven by any particular shared catalyst? Or is this just regular way business that does not in any way indicate that we're nearing the end of the economic cycle?
Jamie, well, I agree it does seem if you look at these things, perception is we've had a few more than one would expect. But the truth is, if you look at each one of these situations, these situations have been evolving in each case for years. Let's look at Jet Airways in India for a while. I think from a timing perspective, I would call it more coincidence than anything else that these are happening at this point in time. I don't really see any fundamental - we don't see any fundamental macro causes, which is going to precipitate a further round or rash of f airline solvency. Look, big picture you more than anybody else and the other ones who follow the airlines know that the business models are evolving and largely you're either more on the full service side or you ULCC. So airlines in the middle are kind of are stuck and really need to identify where they're going or if they have a special niche stay in that niche. Some airlines will stay in that niche some airlines will not. So I think we're going to see this continue. But I would just simply say we don't see any large macro trends that points towards multiple more or greater rates of airline failure than not. We'll see how it goes, but no, there's no fundamental global or economic matters I think that really precipitate anything like that.
Jamie we look very carefully at the failures of Air Berlin, Germania, Monarch, Jet, Avianca Brazil and WOW air and if you look at every one of those cases and the Air Berlin when even involved wide body aircraft A330s the planes were absorbed very, very quickly. That was in every one of those cases homes were found for the displaced aircraft very rapidly. And they were re-distributed and re-leased to other airlines very quickly. So we believe that the resilience of the industry and the growth of the industry actually absorbs very quickly, the aircrafts that are sort of freed up by these airline failures.
So to my comment on we and the leasing community being a buffer we are - let me just give you an example. Let's look at Jet Airways. We had nothing to Jet Airways in India. We knew the founder quite well in a rash. He's a lovable guy. And he really built a great empire, but it ended where it ended. The fact of the matter is most of that fleet was leased. And a lot of those were 737-800s. So guess what, over 50 leased 737-800s now are being held for and migrating to help, in fact, mitigate the Max grounding situation. So in an ironic sense, you have a pool a reservoir. It may be coincidence, it certainly is. But nevertheless, you have the leasing community having these aircraft available coincidentally right now to help the very, the very critical problems on the Max shortfalls of lift. So not every single lessor there, I can't speak for all of them what they're doing, but for sure, for sure, a number of those 737800s are going to be migrating to plug problems associated with a lack of Max deliveries.
We appreciate that. Second question on that Max issue and the air leases exposure. And we're obviously all in agreement that the plane is ultimately recertified, but does this situation overall make you question the duration of the 730 program? Could this end up driving a sooner rather than later replacement at Boeing? I'm just asking for your view as to what this may portend for the life cycle of the overall 730 programs since that would obviously have an impact on whatever residual value assumptions you might have initially made.
The short answer, Jamie is no because it's premature.
I love short answers.
But I could give you a long winded answer, but the short answer is it's premature and no.
I'll leave it there. Thank you, gentlemen. Take care.
Thanks, Jaime. .
Thank you. And our next question comes from Helane Becker of Cowen. Your line is now open.
Hey guys, it's actually Conor Cunningham in for Helane. How are you?
Good to see you Conor.
So just to stay on the Max and the Neo delays, just given the ongoing issues there, have you given any thought to change your long-term investment strategy? Like would it be beneficial for Air Lease to make some smaller orders and larger ones and kind of being able to navigate around like delivery mishaps or take advantage of like unique opportunities that may arise?
Well, in fact, we in fact we have been doing that. In 2017 and even in '18, we did purchase some additional used aircraft in the marketplace just to cover these CapEx timing delays. But the answer is no, even if we ordered less quantity of aircraft, we're still subject to any delivery delays and we would not get nearly the pricing that we get. So overall this has absolutely no impact and we have intend whatsoever to change our business model. Going forward, we believe in its long term resilience. And we believe that the residual value that we're able to achieve when we sell aircraft, you see our gains. And we do so I'll point to the bigger picture that for us, the new aircraft model remains the way to go and will continue to remain the main focus of our capital allocation.
I think there's a misconception on Wall Street, that when Air Lease orders a group of new airplanes from Airbus and Boeing, that that's somehow casting concrete forever. The truth is that we enter into these multi-year contracts and almost on a weekly and monthly basis, we evolve and modify and change and update and fine tune these agreements to meet the needs of our customers, to meet the needs of our own circumstances. So please don't look at these purchase agreements as some kind of a set of concrete things that cannot be amended. We're continually evolving, changing, fine tuning these to sort of optimize the ability to meet our customers' needs.
So Steve gave an example of that earlier on when we're trying to accelerate forward some wide body aircraft that are fact are on time, just to help mitigate that. So that's just one example. So in the big scheme of thing again, if we go from 6.5 billion this year to 5.8 or 5.7 or 5.5, it's still a heck a lot more than the 3.4 we did last year, any prior year. So we're pretty confident ongoing in the large picture here.
And we also regularly convert wide body aircraft into single-aisle aircraft. We change delivery dates. We convert wide body aircraft into single-aisle aircraft, we go the other way, we're continually modifying and updating the portfolio composition so that it best suits our own requirements and those are our customers.
Appreciate that detail and just on the sales proceed guidance. I appreciate why you're doing it. I understand why you're slowing the sales. But isn't this the type of environment that you should actually be selling a lot of aircraft into just given elevated demand for used planes? And then like you relying more so on your order book in prefer growth in the future? Thanks guys for the time.
Yeah, the point is just that we just don't have that many aircraft that are to sales candidate, right. So that gives us the ability to be more selective when it comes to actually exiting these airplanes. With our average age under four, I mean, and the growth pipeline that we have coming our fleet age will stay quite low even though we sell no aircraft. And I think we earn a great deal of profits by harvesting the rentals over our whole period. So we are going to continue to sell and I think it's important to do so. But I think John's comments earlier point the fact that we have a lot more flexibility now as when we do - to make sure that we maximize value for our shareholders.
Look, we're always looking to optimize our financial results. And the aircraft sales as the lever, but they're very profitable leases as well. So it's a good dynamic and it's a good lever for us to have. I think the key is that we forecast this demand to continue for - I think I comment in my remarks. We have a lot of buyers that continue to come to us to buy these aircraft. And we just see that continuing on, so we don't see a change in demand environment, et cetera, et cetera.
Thanks again.
So last year we sold more than $850 million worth of used aircraft. So we are very focused on selecting those airplanes from our fleet that are good candidates for sale and will yield a good profitable result of selling versus keeping them.
Thank you. And our next question comes from Catherine O'Brien of Goldman Sachs. Your line is now open.
Good afternoon gentlemen, thanks for the time. So maybe a quick follow up to that last question, has there been any shift in who you're selling these aircraft to over the last six to 12 months? Is there any one category of buyers, it's driving the lion's share of demand for your current fleet? Like between other leasing companies?
No, no, I think if you look back Catherine, let me put it clear, the majority of our sales have been into the structured products that we've actually innovated, Thunderbolt I, Thunderbolt II, that's the largest thing and Blackbird Capital I before that. So that continues to be the largest single avenue of aircraft sales, and then we pursue third party buyers as well, so no real change from that platform. We like the managed platforms. We like selling TBolts the Blackbirds because we continue to manage those assets and we've retained - really importantly, we've retained all those customer contact points that's extremely important for us as well as the ongoing management fees.
Great. And then last quarter, you noted on the call that you hadn't seen any large new entrant carriers in the sale-leaseback space coming out of China. Does that continue to be the case today and then are you seeing any changes to existing leftward growth outlooks that give you any optimism about where sale-leaseback rates might be headed over the medium term? Thanks.
We do not - we continue to not see additional Chinese entrants into the marketplace in our business or in the sale-leaseback side. I think it looks pretty well that's been tempered, but the new entrance part has very much been tempered. The sale-leaseback market is as it is, I do believe we continue to see - although it's still a good environment for airlines who wish to finance that way, I think lease rates are still low. But I do think we have seen a tempering and continue seeing a temping and the appetite of investors and other lesssors in sale-leaseback. The rates in some cases gotten so low, I think it is tempered a little bit the enthusiasm by the investor community for that product.
And one thing I want to point out is the lease rate factors that you're hearing is a two part equation, right. It's the rental as well as the underlying purchase price. So both those variables, it's difficult to know what's actually driving a little lease rate factor, but those are two variables that drive that lower.
Totally makes sense. But do you think it'd be fair to say that we could be seeing the bottom here in this market and maybe over the medium term it could be something that Air Lease would explore?
Yes, we think so.
Yeah, we think the least three trends are now going in the in the northern direction.
Thank you very much for the time.
Sure.
Thank you. [Operator Instructions] Our next question comes from Rajeev Lalwani of Morgan Stanley. Your line is now open.
Hi, good afternoon.
Hi, Rajeev.
First question for John, Steve, in terms of the Max getting certified, obviously lots of uncertainty out there. But how concerned are you that trade issues, global tensions, things like that can maybe drag on the process and maybe not lead to some sort of uniform or global lifting of the grounding IE politics essentially getting involved?
I would like to think and actually I do believe - you may think this an IE, but I don't think so. Look, I think safety is safety and I think most country's regulatory authorities this associate and don't either in a backdoor or other way try and make this a part of the global trade equation. I think the major regulatory agencies; I would say the FAA and the ASA and others. I think they take their mandate for safety quite seriously. And I think that they're pretty well insulated. And you can make sort of that common sort of - or maybe it's a Wall Street leap for that concern, but I don't think so. I think our regulatory agencies are pretty dedicated to their primary mission of safety.
Okay. And, Greg, actually a question for you in terms of tapping the preferred market and some of the comments you made earlier. Can you tell us a bit more about what that does in terms of your ability to maybe move your debt to equity numbers around? Does it open up an opportunity to get more aggressive as the market normalizes in terms of CapEx? Just trying to understand where that fits into your overall commitments on balance sheet and investment opportunities, et cetera.
Yeah, sure, I think it provides us with a lot of financial flexibility. It comes with 50% equity credit from S&P and 75% from Fitch. I think it's very attractively priced, if you look at it relative to our 10 year financing costs. So I think that was very positive. I think it opens up another source of capital. And frankly, having that extra cushion for rating agency that I think has a lot of flexibility is when we sell or when we buy more aircraft.
Okay, I'll leave it there. Thank you.
Thank you.
Thank you. And we do have a follow up question Scott Valentine of Compass Point. Your line is now open.
Thanks for taking my follow up. Just Steve you mentioned that lease rate factors now or you believe the trend is now moving higher? Is that materially changed from where it was a couple quarters ago?
No, I think saw the lease rates kind of bottom out. And this is very general because there are differences between different types of aircraft. But I think we saw things sort of hit their low point after the summer season last year in the fourth quarter of '18. I think this year what we're seeing is demand for aircraft is so robust and so strong that there's actually shortages of certain aircraft types. And we are seeing positive signs of elevation on lease rates in general. We're also not seeing some of the irrational sale-leaseback rates that we saw in 2017 and '18.
Okay, alright. Thanks very much.
You're welcome.
Thank you. And this does conclude our question-answer-session. I would now like to turn the call back over to Jason Arnold for any closing remark.
Thank you, Sonia. And thank you very much everyone for taking the time to join our call today. Please don't hesitate to reach out after the call, if you want us answer any further questions. Otherwise we look forward to speaking to you all again next quarter. Operator, please disconnect the line. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.