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AerCap Holdings N.V. (NYSE:AER)
Investor and Analyst Day
November 04, 2012 11:30 AM ET
Peter Wortel - VP of IR
Aengus Kelly - CEO
Keith Helming - CFO
Peter Wortel
Good morning everyone, and welcome to the 2013 AerCap Investor Day, I would like to ask you to sit down and would like to invite my colleagues up here. We have an interesting day for you I think with lot of presentations. It's a tight schedule. Before we begin let me introduce you to my colleagues. We have Aengus Kelly the CEO, at his side Keith Helming the CFO, Paul Rofe the Group Treasurer and Anton Joiner, the Chief Risk Officer. On the logistic side lunch will be served during the first two presentations, so you can just sit back and relax and look at the presentation at the same time, we have ample time for Q&A after the first two presentations and then if there is enough time in the program we'll do short coffee break. After that two more presentations from Paul Rofe and Keith Helming and after that again a Q&A. We should end ideally around 2:30pm. And with that I would like to hand over to Aengus Kelly.
Aengus Kelly
Thanks Peter, and thanks very much to all of you for coming today. I don't know how many of you got to listen to the earnings call this morning, I won't go through it all but obviously certain points will be in the presentation that we raised today on the call. So to start off just where AerCap stands today and what's occurred over the course of the last couple of years. The year to date net income as you heard on the call today is a record level at $224 million, almost $2 a share, a $1.98 in the first nine months. That's more than we've ever made in a 12 month period on a reported basis. The ROE for the third quarter was 15% and we'll go into what's driven us over the course of the last two years, and then we've seen significant EPS growth of 41%. And something I know that's close to all of your hearts is allocation of capital. Here we show you the retained earnings level, this is true net income, the real money after tax and how much of it we return to the shareholders. We've returned almost 30% of our net income to the shareholders since we went public. So that's a very healthy payout ratio in our view. In the same time frame over the course of the last seven years going through the worst downturn we've ever seen in aviation. Where fuel was a $148m where we had the Lehmann Financial crisis.
The fleet utilization in AerCap ran at 99%, that's effectively full employment because in a portfolio of our size you'll always one or two airplanes churning through the system being off lease as they go to the next lease. They don't even really beat that but it's important to put it in context of the period we came through that we're able to generate this level of utilization. Another thing we'll talk about extensively today is growth and what are our plans. At the moment we have $3.5 billion of committed purchases. We've a number of aircraft under LOI as well but they're not firm, this is just a firm number. And the average lease term of these aircraft is over 11 years and as you know they're focused on the most attractive aircraft in the world the 350, the 787, the Neos and there's some 737-800s in there as well. And the debt equity ratio is at a very healthy 2.6 times, we're aware that there must be a balance between the requirements of our creditors and the requirements of our shareholders that's fair and 2.6 is a very low ratio and obviously resulted in us being the first company in almost 30 years to be rated investment grade in the sector by S&P or by Fitch.
[Indiscernible] we talk a lot about it, portfolio management of AerCap and the number of aircraft we sold. We sold almost 270 aircraft, it is 270 including what are committed sales as well and you can see the gain there. We'll talk a good bit about that, but the general point is if I hadn't sold those airplanes would I be a better company today, no, absolutely not. We'd be in a much more difficult position, so portfolio management is a crucial aspect of the business and we'll talk about that and why we are able to manage the portfolio so actively and what are the impediments that others face. But first of all just to step back for a second and I slightly referenced this on the call today, forget about AerCap for a second and just look at this industry, the aircraft leasing industry. On the supply side we have a duopoly - Boeing and Airbus, there is no other manufacturer that matters, on the demand side I have 600 plus airlines around the globe, who the only thing I know about this industry - it's growing. I don't know which airlines will necessarily be successful and to some extent as Anton will explain later on, we're somewhat indifferent. What we know is that the growth will be there, that there'll be more passengers traveling tomorrow than there are today and that over the course of the next 15 years it's highly likely the size of the market will double. And in the middle on the competitive side I really have seven or eight competitors. So when you put those things together you have two leases ultimately rationale on the supply side, really very few competitors and our growing industry on the far side, that's what gives you stability and durability around the cash flow and profitability of aircraft leasing companies.
And if you go back over the course of the last seven years again going through that very difficult timeframe you will see that almost with one exception there was profits all the way through the cycle for the aircraft leasing company. That's not something that many sectors can say, and it's because of those points that you have -- on the supply side that acts rationally, not many competitors and a growing industry on the far side.
And this is what I am referencing here the air traffic has doubled every two decades and is expected to continue and the operating lease industry is a growth sector within a growth industry, it's grown by a factor of ace over the last 20 years in size, when the industry itself has grown by factor 2. But to be a profitable and long term participant in this sector you have to be patient and you have to be disciplined. When it comes to growing the business there is plenty of opportunity out there, there is a tremendous amount, there is a 100 billion a year of aircraft coming down to pipe and I have eight competitors. There is loads of opportunity, take your time. It could be with the OEMs, it could be with M&A, it could be with sale lease backs. But the opportunity is there.
And we have proven that we contracted 5 billion of growth in the last 24 months, without a dollar of PDPs, without a dollar on placement risk and with an average lease term of almost 12 years and we have proven to you that we can sell those assets that we bought as you see we have sold them many of them at close to $10 million gains, on an individual shale basis.
And then on the other side of the balance sheet Paul Rofe is here our Treasurer. The reason why aircraft leasing companies get into trouble nine times out of 10 is the liability structure that you have a short term liability structure or for that matter a long term one that's perforated with covenants that get tricked in the down turn. And that is when leasing company equity comes under tremendous pressure.
And as an investor -- equity side of a leasing company the first and most important you need to ask is what are the covenants that could trick me up when the [indiscernible] gets tough. That's what really matters, because that's when equity will get destroyed and get blown away by that. That is the key, key question. On the by-side you can see it pretty clearly what are the assets you have, there are four airplanes out there, the 320, the 767 and 330 and 777. So as long as the majority of the portfolio is there the reason we're doing it in the buy side you don't need to worry about the asset side. It's the liability side is where things go wrong for you. Provided as I said the investment of those airplanes.
And as we said where do we stand, we're large independent [indiscernible] industry leader in terms of profitability and have been consistently the industry leader for a long period of time. And the first to be rated investment grade in almost 30 years.
Now looking at the global platform, it's important in this industry to have a global platform, why is that? Well it's a global business, we don't have a single -- we customer at Amsterdam but no lender. So you have to have that global presence to have the infrastructure to seal the opportunities around the world, and you see our locations. You also need a global presence of diversification; we'll talk a bit about this. But we do have a non-investment grade customer base, and one of the key risk litigants is diversification.
And we feel that at least 150 aircraft have material diversification around the globe, again that gets you into probably less or have that kind of size and you could see our split there. And then in terms of the size of the business, you have to be at certain size of course. But we're not here to be, we're here to be the best as we said to you time and again we feel very disciplined if we feel that the risk award ratio is not there, we will sell assets. But when we see the right opportunity we'll be aggressive.
And at the moment the total assets there about 15 billion, 373 aircraft. But one thing to focus on is that we generated record earnings this year so far. But you would ask yourselves what was the risk profile behind that? Did they buy loader 777 or E-Jets or something that could have material impairment risk down the road, or old equipment? No, this is one of the youngest fleets in the world, the leases are quite long as you can see here the existing portfolio is almost seven years; the new portfolio is almost 12 years.
So the returns that we have generated have been done in a relatively low risk profile. We haven't had to take outsize risk to do that, that's because you stick to the core principles of the business which are here, there is four of them. On the leasing strategy you have to recognize that your customer base is non-investment grade and that's a great thing about this business because it's a growing industry in the power side people are going to travel and the suppliers of that product the airlines are non-investment grade, its capital intensive and they'll always need me. So that's the great thing about the business why and we also -- along you can move airplanes around the world from underperforming airlines or regions to performing ones you can do very well.
But you have to manage that non-investment grade risk and you can do that through diversification of your customer base which I mentioned that's the geographical coverage. You have to make sure your collateral package is appropriate. So we look at the loss given the fall so we just say if assuming the [guide of falls] what would it cost us that's how we analyze credits, and then we look at our collateral package and say well do we think we have enough collateral given the type of credit that we're facing the jurisdiction we're facing and Anton will stick to this with some detail later on.
And then there has to be a culture and an organization you have to be paid, you can't give an inch they will take a mile that's the culture that have to pervade an organization and that's why our receivables bounce probably the most single important thing is $6 million. It's less than 48 hours of outstanding. So that's the first thing is to deal with the credit risk. The next one is portfolio management.
The only thing you know about your portfolio today is that it will de-optimize overtime. It's the same as you guys, give a portfolio of investments be it equities, bonds or whatever it is, it maybe optimal today but as friends change, technology changes, et cetera, company performance changes, you need to rebalance that portfolio. You can't sit on it [flat] down and have it. If you do you will run into trouble and that's why it has to be a core part not a hobby of an aircraft leasing company to actively manage the portfolio both on the buy side and on the sales side. And you want to focus the portfolio for the most part on the in production aircraft as I said the 737, the 320, the 330 and then some 777 exposure too they are the four to stick with.
But for the most part as I said the game is not one and last on the asset side it's one and last on the liability side. And that's why you have to have ruthless focus on your liability structure at all times never ever take any source of funding for granted. You can never take the capital markets for granted certainly they're available today but they can also shut down on you. You must have access to numerous funding sources around the globe.
And we compete for capital. Look on the leasing side we win and lose our fair share of placements. We could be in the market with the 320 or 737 today and maybe CIT or ILFC might win the deal but I win my fair share I know that. But on the funding side because there is a limited pool of large scale funding in this business for us it's much more series to foresee a competitor tap a source of funding that we are not aware of. We compete for capital and we need to make sure that we know where all the sources of capital are around the globe and on what term they're available. And you need to access them. Sometimes of course it's cheaper just to focus on one thing the whole time and certainly we could do that in the capital markets but you need to make sure you're diversified on the funding side.
The hedging policy is a final one. Capital providers be it equity or debt invest in AerCap in order for us to take a few on airline credit risk and aircraft value risk. You do not invest in us for us to take a punt on interest rates. And so what we do with the business as you know it's fully hedged through a combination of fixed rates, interest rate swaps interest rate caps. This goes back to discipline. Discipline is keyword here. The discipline to sell assets at certain times the discipline to pay up a little bit for long term liability structure and the discipline as an example in 2007 to spend almost $80 million buying interest rate cap what we said to the board was look we know that this is a cyclical business generally a low interest rates environment correlates to a difficult GDP environment and difficult to add aviation environment. So what we want to do is expose the company to the falling raise environment and protect the company from a rising rate environment and interest rate capital derivative that we will do that for you we didn't sell floors to offset the comps because it's not really hedged it's only a collar. But that took a lot of discipline at the time to do things like that.
And here is the result of the 1.4 million of unadjusted GAAP net income. There can be period in a year where certain transactions that lead to certain spike in earnings or fall off in earnings but over five-six year period all that should even out because if you may have a non-cash charge that my board will assist what I was cash one day ago so you better make it back if you're going to take a charge.
And here you see the 1.4 billion of GAAP net income and it's driven by the modern portfolio of airplanes, the global customer base, the portfolio management, the funding structure, the heading policy and management team, the efficient platform and lastly but very importantly the tax, the tax is crucial in this business, you cannot run an aircraft leasing business in a high tax jurisdiction.
The leasing is that after six years you'll have tax written down in value of zero on the books. If you sell the airplane at that point in time you will have huge cash out at your liquidity position kind of [indiscernible] because in the mean time you're buying assets on the side the whole time to keep kicking current tax down the road. And you can see the examples so that I want reference from you know where they are have that how many billions of dollars builds up in DTL. Just couldn't sell them, there is just no way to do it.
So, that is a key to being able to manage your portfolio to be in the right tax jurisdiction or else you just going to lined up with the huge portfolio of airplanes. If I wasn't in the right tax jurisdiction I probably had 600 airplanes too, I just wouldn't be able to sell them. I have software on the boards that are 340s.
Now talking then about strategy in shareholder value this is timeline of what's occurred over the course of the last two half [indiscernible]. Strategically we recognized back in '11 that there was an imbalance in the book in terms of Boeing versus airbus and so obviously one way to balance that is sell air bus or buy Boeing, when talk the OEMs same store you get today were sold out through 2015 are the prices sky high and we then, we're discussion to the American airlines for the best part of the year and close the transaction just prior to bankruptcy that day was exposed to the market we want, we felt North America was going to be the way forward with the consolidation, we also were getting very attractive pricing without PDP risk, we also are getting the most in demand airplane in the world and so that tick to lot of strategic boxes.
Of course there were significant risk going into a bankruptcy but we had a lot of experience and is newly we're doing renewal structure the right way then we sold next AeroTurbine, AeroTurbine done a great job, was improving our portfolio of the over equipment and then [indiscernible] is using it for the same purpose right now, but at that time it had helped us cleanup our portfolio so we freed up a lot of capital which then came into the share buyback program and we did the first buyback program there at $10.64 that may not lead to the rating agencies the first investment grade rated less over in the world for nearly 30 years [indiscernible] issuance then we continued with the buyback program again and service fully earlier this year.
Also then as part of portfolio managing the biggest transaction we did which ship it a lot of [indiscernible] equipment of the balance sheet was the 50 plus aircraft deal we did when we sold our ALS security. And then more recently this year there is been a large capital increase in our Chinese subsidy where we sold quite of number of airplanes into our Chinese associates on a subsidiaries in associate we are now down to less than 20% shareholder. But we've brought in some very powerful new shareholders in there and as we look future acquisitions they will certainly be a source of capital there. And then you saw the very LatAm transaction this year where we did $2.6 billion of A330s, A350, 787 that's a transaction we're very happy with and then on the sales side you can see what we've sold this year was we raised almost 2 billion.
So, you can see where the business is going, this is the constant focus that we have that the right portfolio, we have value and when we spend our shareholders money we have to get value for it, the risk have to be in balance.
And here is the ROEs, again this is just a GAAP, there is a outbox or anything like that, this is just a pure net income numbers in ROEs. You can see where [indiscernible] and how being for many years and I don't see that changing.
Talking about the environment in the industry I talked about that the market itself, the one thing you know in this business that it is growing and every 15 years or so the number of people fly has doubled, we don't see any sign that trend is changing if anything had may accelerate will give you some statistics later on but one thing is that Alaska airlines carries more passengers than the national carrier of Indonesia, Indonesia is 250 million people and more island than other any other country in the world. But Alaska airlines on its own carries more passengers than the national airline of Indonesia.
So, the growth will come and then I spoke about the fact that the operating leasing business itself is growth sector within the growth industry that we have gone up by factor of it over the quarter last 20 odd years. [Indiscernible] talk about replacement and here we show you the number of aircraft that out of production that is still in service. So, this needs a side any 320, 737, 360 etcetera it's just the out of production, the 6,400 aircrafts flying in the world today that are out of production that's well over 20% of world fleets. So, over the course the next five year they will go they'll all be gone in five year utmost and well over 25 years they will be gone and that along will absorb of the OEM capacity for the next 10 years. So between the growth and the replacement, you know the replacement there, you know that the growth is there sure can be a little bit lumpy, wont' be a straight line but it's definitely going to get there and behind that 6400 there is another wave of 300 aircraft that have to go as well and where that growth going to come from obviously it's going to come primarily from the emerging markets. The replacing requirement is in the U.S. and in Europe, but there is real driver will be in South America, Asia in particular. There is [indiscernible] talks about emerging markets but another when you may have heard you say is that U.S. airways carry more passenger than the entire Russian aviation market last year that's the biggest country in the world in terms of land mass. So again it shows that the growth is definitely out there it will come and that's why you don't need to chase it just be patient but when you see value be aggressive and go after it.
Our portfolio, this is talking about the sales almost 270 airplanes and we have booked again 320 million on the sale, so not only have we recovered the retained earnings associated with these aircraft and reinvested, but we have also booked again on to that and we sold most everything Fokker, Dornier, Turboprops, AC319, 320, 321, ND80s, Classics 330, 22 are the most active traders of 330s in the world after Airbus, 75, 76 even some A340 and the up in the 10 other aircrafts. The point here about this is bolt firstly is when you look at our balance sheet as a capital provider and did equity and debt, the fact that we can sell so many aircrafts that again we're catching 270 airplanes, this is more than any aircraft making company has brought in the same timeframe. It shows you that the carrying values are very conservative.
You cannot beat the market. If you don't have very conserved values, secondly it should show you that when we go buy something we know the value of what we're buying because we know we can sell it for and that is a core part of the business, so when we do look at transactions like LATAM or American or other deal we look at now. We know the value of what we're buying, I mean, know the right price to pay know because we know we can sell it at other side that. And the average age of the aircraft we sold this 13 years this is in our brand new step, this is 13-year-old aircraft. And here this shows you know I made the point by asset you want to be in as an investor. You want to liquidity, liquidity is the key that can be timed in the cycle where the demand isn't everything you want to be but if you have a liquid asset then at least you know for us you can move it you can sell this, you can lease this.
And I reference those airplanes 330 the 737, the 320, the 777 and you see here the statistics, 80% of the backlog is in those aircraft types and look at the numbers of users, the 320 is 240 airlines, the 737 is 281 airline. First in the every airline in business uses these aircraft. The 330 and the 777 on the white body side more uptight of the rest of the market and our fleet 90 concentrate is those assets. And here is the result of that, you see the utilization, I said we have outreached this in almost in 99% asset utilization going to the worst period we've even see always with the down point. Always we came off the back of $14$ fuel that was the worst possible moment we had the financial crises towards the end of always and the most dangerous moment was when actually LIBOR and Fed fund. The dislocation between LIBOR and Fed fund with a huge issue because actually the key benchmark for a lot of our debt is LIBOR.
The assumption in the industry overall is that interest rates and lease rates moved in tandem but LIBOR blew out by several 100 basis point away from Fed fund for the first time at it ever happened and that came back under control but that was always and then we had the $148 fuel and in spite all last this was the utilization. These assets slide if you have the right airplanes they fly even in the Armageddon type scenario we kept flying and our credit cost stay less than 1% of least revenues, ultimately an airline without the right airplane doesn't go very far and here just give you an idea of the scale of the platform 2 and this timeframe we have written almost 600 leases and there were some questions about what time to least term and use the aircraft new aircraft, you can see it's pretty steady actually that if you look at the second last line, average least term for releases is just 5 years and there was one outline year on that which was 2011 where it got up 77 months.
The reason for that was actually we had repossession in Kuwait and they were nearly new airplanes, so they went back out on the second lease at much longer leases than normal, there were three of them. So that drove that 77 months, but you can see how steady it is, back in '07 it was 60 months this year to date it's 56 months, last year was 62 months, so there's still plenty of demand for the existing technology aircraft, I was in Barcelona recently at the European and ISAT conference which is one of the big industry shows and we met with a lot of airlines. If we had more 320s specifically today we could certainly move a lot more of them in the used market if we had them. The 767-800 goes without saying; it's been a stellar performer. The 737-800 has been the standout airplane through the downturner to be fair, you know the lease rental has never really fallen more than the interest rate impact so you're kind of neutral from a spread contribution standpoint. And then on the new stuff you see the lease term that we're generating, obviously a lot of this is being generated by some of the recent deals that have very long leases and you see that right, a 131 months. So as we look forward at AerCap you can see a fair bit of stability on the revenue line, you know what the interest expense line is going to be for the most part and SG&A you have a fair idea as well, so you can see, you get a fairly good visibility into the cash flow capability and profitability of this business. So on the leasing side we lease an airplane every five days. That's been the average for the last seven years, that goes through the platform. Here's the delivery schedule and the aircraft types I mentioned, most of the focus is on the 737-800, the 330s the 350s, the Neos, again it's discipline there's plenty of opportunity out there, there's a 100 billion a year coming down the pike, there is plenty of opportunity but you have to have a global presence to find it and then when you find it be aggressive. Here's our remarketing task for next year, there's eight aircraft left to place and as an overall platform we buy, sell or lease an airplane every three days. We lease one every five but historically we've bought, sold or leased one every three days. So placing 8 airplanes is a pretty [indiscernible] task, and so the platform on the marketing side can cope with an awful lot more than is currently there, that's for sure, and next year we've already started making some indentations into next year, six of the airplanes are spoken for, I'd expect that by middle of the first quarter next year all of 2014 will be placed and then we'll be making inroads into 2015 as well. Now I want to talk a bit about portfolio management, how we invest in aircraft. We are long term fundament investors, we never come in the morning and say right, let's buy an airplane with the hope of selling it a few days later. Everything is underwritten buy and hold, we know the assets we want to buy, we're very focused on this, [indiscernible] and the 320sm the 73s, the 330sm the 777, they're the assets we bid on all the time, and sometimes of course you'll buy a portfolio and there'll be a mix of assets, but the vast majority by value will be focused on those aircraft types. See, it's always done on a buy and hold, never ever do we assume that there's some upside from selling the aircraft. And how do we source these opportunities, well first of well, you've got the global reach around the world, our portfolio team will evaluate on average 200 aircraft trades a year, that excludes OEM discussions, you know, we'll always be talking to the OEMs as well, we have ordered a lot in the past, we would certainly do so again if we felt that there was appropriate risk award for our shareholders and of course any of the sale leaseback market. and the most important things will be analyzed the deal, it's the aircraft types, the price, they're the key things, the aircraft types and the price, we will of course look at the credits but on the credit perspective, Anton will talk about, we just look at the last given default and we know with our platform and our experience we can rapidly take airplanes and move them from A to B, so the key is what are we buying it at, that's the most important thing, and the right aircraft type and of course then you've got, when you got the value right the ROEs will tend to look after themselves as we've proved on and there you are some of our approval limits there at the board is over $500 million.
Then on the other side of the equation, the portfolio, the asset management side of the business, we talked about the number of airplanes we've sold, so what drives the decision to sell an asset, when we look we're always looking at the portfolio saying is it optimized, you see you look at aircraft where we have large LSE concentrations, that would have been the case with Virgin, with Aeroflot, with American and we sold down those exposures consistently, we're very disciplined in this. We sold quite a number of the 330s to Virgin, the aeroplanes the Aeroflot the aircraft with American. So that's a discipline. They are good aeroplanes, but you've got to manage your exposure as well.
Then you look at technology, what technology do we feel is under pressure. So obviously we sold a lot of Fokkers, we sold also a lot of 737 classic, 757, 767 you don't make up today to sell Fokkers, you have got to be ahead of it, you better see what's coming down the pipe. And then we also of course -- someone just walks in and pays a big number and if they pay four years of net income even have them. But the way we try and look at the price we charge, we put ourselves in their shoes and say okay but what are their objectives? What are their targets? And they can be very different depending on the buyer around the world.
You have the Miami crown who are interested in the part out business, their model says well if I add maintenance reserves and lease revenue together I get a great running cash yield and if return conditions are okay at the end then things will work out. The Japanese, Chinese bank market will say I want brand new aircraft on leased to premium names, and that's what I will pay up for.
Then you go Dublin at somewhere in between the Dublin market, they look at all different types of things, there are different types buyers in that market too. But you can't just wake up -- it's just like a bank, or an underwriter of equity, you can't wake up one morning and say well I am going to start syndicating some of my risk. And then say okay well it's a hobby. So why don't we appoint a few people to do it. You need a team of people who are around the globe all the time understanding what are the demands of this different aircraft buyers in the world? What are they trying to target? Is it ROE? Is it cash flow driven? What is it?
And that's something that can't be a hobby; it has to be a core part of the platform. And in AerCap we have a team of 12 people that's all we're doing everyday as around the world looking at the market, where are the different buyers and sellers of aircraft? And here again we give you some of execution point to going through the deal.
And here on the buyer side you see what we have done; we have been through this before but some of these airplanes as you know as an investor you know that we're booked very big [indiscernible] and selling parts of these aircrafts already before we have even taken delivery, that gives you an idea of how we buy.
Cash deployment and we generated 650 million from sales. And what do we do? You know obviously the buyback are now with the price of less than 12 bucks. But at the same time in the last two years we have bought 2.8 billion of airplanes. So you have seen 70% that we invested in the business of our retained earnings, 30% come back to the shareholders.
This leads me now to capital allocation. There is plenty of growth out there, in fact I could probably do 20 billion by the end of the year if I really want to, if you put the hammer down there is no end of opportunity to grow the business. You just have to make sure that when I spend your money I am spending it wisely. And are getting the appropriate return on it. So we have done 5 billion over the last two years.
Now the allocation of capital is critical, we have shown that over the course of the last seven years since we went public there is a 30% payout ratio, 70% has been reinvested in the business. We're not saying that's necessarily guidance for the future, but it's indicative of how we think of things. We're not here to be big -- for the sake of being big, but certainly be big if we see the right deals. But there has to be a very disciplined approach when it comes to allocating capital. And if the opportunity isn't right we will give it back to you, and that's what we have done in the past. And that's management of all shareholders in the business, it's all think about the business.
Many opportunities again this is on the growth side of the business just how much is out there. It is at an all-time high in terms of the backlog. But again just to put it in context what we spoke about. I mentioned the Alaska Airlines. It carries more passengers than the biggest airline in India; it carries more passengers than the biggest airline in Russia or the national carrier of Indonesia. That's Alaska Airlines on its own. So there is plenty of growth out there as again.
And you can see where it's coming from. Of course a lot of with the order book is heavily focused on Asia, but there is a fair bit of it in Europe and North America as well and much to do with the leasing requirement.
How are we positioned against that backlog? So here are our customers and how many airplanes they have in order. So our 94 customers have 4,200 aircraft around the world on order. So we're extremely well positioned to partner with these airlines to grow the business and on terms to make sense for our shareholders. Now over the next five years we'll generate north of $1 billion, I am not giving the exact numbers but you can see the results today.
We'll generate well over $1 billion in net income. We have already committed for to buy 3.5 billion, number of aircrafts under LOI as I mentioned too. So at the end of 2016, let's assume that we don't pay anything back to the shareholders, we look somewhere around $3.25 billion of equity. Now if we have very attractive acquisition opportunities we would go and lever up things up to four times, we have been as high as five times levers in the past and we have brought that back effectively. So we know how to bring down the leverage. But if we find the right deals this is a one book and we go up to four times which means you could add up to another $7 billion of purchases on top of the 3.5 billion. So this would give you if we were to go down this road and reinvest everything in the business this would give you a compounded growth rate of around 20%.
But again to the other side let's say for example we don't find any opportunities we will pay out over $1 billion to our shareholders. So there is a two book-ends if you will at the balance sheet you set up today without any further equity issuance whatsoever. One end you have the business going up to 17 billion at 20% per annum growth rate at the other end you say we stay at the same size and we give you everything back. So there is a two ends of the business. Over the course of the last, since we went public, it's been a 70-30 split, 70% has being reinvested 30% has being given back to you.
Again we're not saying that as what we're going to do in the future if we see the right fields that we could be even more aggressive it's a really attractive deal on the buy side. As I said we have gone for five times leverage in the past and brought it back down very quickly. But then if we don't see the right deals more will go back to you guys. So we are very focused on shareholder value and then if we don't find the right deals that the shareholders are entitled to the money.
So we would -- but we would expect to see growth opportunities maybe we may not see the full amount that I just referenced but we're able to come from the purchase leaseback market is being very liquid for us recently speed and size are key there to be effective there [indiscernible] guys to say to be their alliance hey we would have done it if we've known. While of course they knew they were available but no one was in Dallas two years ago. And no one is willing to -- have the experience of the 330s that we have as being the most active trader of the master Airbus on the [indiscernible] deal OEM orders has done an awful lot of those on 320s, 330s, 737s, and then of course the other option is the M&A where we've been involved with Genesis and AeroTurbine as well.
But overall no matter what way we deploy your money, it has to be on a basis that will give you a fair return for the risks that you're taking in investing in this business. So that is the end from me ladies and gentlemen we're going to do Q&A session now. So why don't we start fast. Elaine?
Question-and-Answer Session
Unidentified Analyst
Aengus Kelly
Elaine so what we meant there is as the world looks today the four airplanes are the 777, the 320, the 737 and the 330, so they are the four of the in production aircraft today, the 78s really only getting going. Now if we're sitting here in five or six years' time, you're going to see my portfolio will be heavily focused on 787s, 330s, the NEOs and then the much will be starting quite be with us. But that's how the portfolio will evolve over time. The 787 will be a fantastic airplane. We're a big fan and a big believer in it and we're working on a lot of 787 campaigns and the airlines that have us are very happy with the results that it's producing. So that's more as we look forward where the balance sheet will be focused.
Unidentified Analyst
Unidentified Company Representative
Why isn't the high end of your capital ratios more like a goal given the consistent performance for as long as he's been public?
Unidentified Company Representative
Sorry, you mean in terms of the old lease or just the Genesis
Unidentified Company Representative
I mean look we look at it on just equity to assets level we bought 25%, why isn't the lower end of where you've been on norm rather than the exception. It's given the consistent performance of earnings of lease visibility why wouldn't that be the norm rather than the exception?
Unidentified Company Representative
By facing value wouldn't drive that directly higher?
Unidentified Company Representative
Yes, the debt equity has been extremely high in the past we've got up to five times and could we see ourselves going back for sure for the right deal we would as a shareholder like you there is a limit to how low that equity ratio can go. And we certainly don't want to see it slipping much below where it is right now and we're very focused on that. There has to be a balance between the creditors' needs and the shareholder's needs. And I would agree with you that at these levels it is certainly at the lower end of where we'd be.
Now it is below as it's even being to be fair but that speaks to; A, the profit generation of the business; B, the discipline in investing in airplanes. I could make it a lot higher but when I bought 100 A320s in 2011 but would you thank me for it, no. You want to buy now with the right price for sure. The debt equity ratio is something we do focus on because it is an indicator of whether we're being fair to our shareholders and not in terms of ROEs. And as I said, it is at a low point now; we certainly don't want to see it go any lower we will drive substantially higher when we see the right transaction that's given. But you have to be -- you have to make sure that it is for the right deals and that's where the discipline comes in but certainly it's a thing we are very focused on.
Unidentified Analyst
And the few order return share of the capital back to shareholders -- special dividend or how do you think about that.
Unidentified Company Representative
With something the Boards looks at all the time is how would you return capital for the shareholders, that's the other way of course to drive the debt equity to higher number. What we've done in the past with 30% payout ratio. The mechanism we use that time was the buyback; if anyone is [indiscernible] we can have the conversation that define. But that opportunity is probably passed at this point I guess and to be realistic future distributions of capital whenever it be through a special dividends or all dividends but it's something that board looks at all the time.
Unidentified Analyst
On the 4 to 1 leverage ratio basically be able to keep your rating for they are currently.
Unidentified Company Representative
4 to 1 will be a start off keeping that but what I'm saying to investors is there the book end for the outcomes, don't necessarily think that we're going to go there tomorrow. But also the investment grade rating is very important strategic aspect of the business but also then again when you come to a transaction that could potentially be transformational for the business, there is a price to have which you have and so we have been above that level before, we accessed $3 billion of cap, $4 billion of capital in '08 and '09 as a nonrated business. So we know that we can continue to access the markets but it would have to be something that is a fantastic deal for our shareholders to drive it into that territory.
Unidentified Analyst
And then the second question is on the AMR transaction, looks like it was expanded from the original I think 36 point including options can you give an update as where that stands.
Unidentified Company Representative
That was part of the option that we had attached to the transaction actually the extra six we did. We had a number of options built into the transaction to near around the same terms the original deal. Everything is approved.
Unidentified Analyst
You had an interesting comment in your presentation; you said if you had more A320s, you could definitely move them. I was hoping you could just kind of elaborate on that little bit, give us a little more color on what the conversations are like with customers on the margin and is that demand today that sort of surprised demand coming from growth or replacement. If you could just kind of give us some color would be helpful.
Unidentified Company Representative
Sure. There is been few things that impacted the A320 market over the course of the last three years. It is [indiscernible] aircraft and more than us or anything else. But the things that held it back were there were two large bankruptcies of A320 operators, Mexicana and Kingfisher. Between the two of them they put about a 100 plus airplanes on the market in a short timeframe. That's a big chunk that come on to the market. So, they needed to get moved, at the same time [indiscernible] backlogs have to be placed, so the less of backlog that were order say in 2010, 2011 they were delivering 2013, 2014 and there was a lot of pressure on the leasing companies to move and place those backlogs. And so, they were structural things that were impacting the 320 market and necessarily visible but there were a lot of pressures coming from those two points.
So, Kingfisher, Mexicana have been [indiscernible] the less backlogs now more lesser places in that many of them avoidable. We have an ordered A320 since December 2005 we didn't have the backlog issue to deal with but the, what I was reference to specifically was used aircraft where we had a number of conversations in Barcelona from airlines around the world saying look if you had somewhere between 6 to 10 year old 320s there will be plenty of demand and we shift the good few more of them, that's for sure. It's not at all structural issues, there out of the way, it is as said you pick with aircraft in the world itself from the 737 there is no short of the users but there was pressure, you can always place one. So, you have never seen any leasing company take [indiscernible] 320 ever.
No leasing company has ever taken a [indiscernible] is where rolls off the production line without a customer. That has never happened, so that gives you the confidence that you know the big leasing companies can always move them but of course where you have supply dynamics to drive down the lease rate then of course that could have an impact but those supply dynamics have even out of it now I am not saying it's on fire the market but we can certainly move a good feel with them and that's why it comes back to buying at the right price, you buy A320 at they along today if we got them at the right price with no issue. We buy them in size. We buy 737 in size that it has to be at appropriate price because we know where the market is I mean like us and as I said the eight or so other competitors we have, we're out there every day moving machines, so we know what they go for, we know what our work.
Unidentified Analyst
Given we just said that at 737-800, when do you have to make a decision on your option access this for the 2014 delivering, I think there are five that are subject to option or might you try to parlay that into a conversion into max or some other sort of the economic consideration?
Unidentified Company Representative
We will see, we have few months left to decide whether or not we do anything on that. It is only five airplanes. For someone like us that's not really moving the needle. If we sell that there was a good home for reasonable lease rentals, we certainly exercise them, but they have to wait against the price of the asset to and we will make up our mind in the next few months but there could be more attractive things out there than exercising the option.
Unidentified Analyst
Unidentified Company Representative
So the question is when would exact transitioning into NEO etc. Well, we have always targeted to some extent. The 320 can be around for a long-long time to come I mean the NEO wont' really be any kind of serious production and certainly won't be in the releasing market until the mid of the next decade say 2025 but it gets actually into the releasing market and start impacting leasing activity because the airline will take it for 10 years and there has only few been delivered in 2015, so 2026, 2027 when they actually been relieved. So the 320 and the 737-800 will show their massive user base. No aircraft before has ever had the user base penetration of these aircraft types so we know from historical experience that's along you have that big user base you will always move the airplane.
The example would be 737, 300 and 400 and it's tougher to place since day but you know you could place those airplane easily for the last four or five years and their competitor into production 15 years ago, that's when the 737-800 was came into production, 15 years ago. So it's all as a question of the price that owned these airplanes at, but directionally though you are right that we will see the balance sheet focus more toward the NEO, the 330, the 78 and the direction that will take we will see in the past obviously we have done at least they give us and what will happen with the OEM order book, you've done a lot there or there will be MNA etc., but there will be opportunity to add that you have to get in there but for the main and we think the portfolio is in pretty good shape but definitely for here in few years' time you will see the balance sheet more focused in terms of value toward those newer asset Classics.
Unidentified Analyst
How one will use as for [Indiscernible] not to include the delivery payment and you think any of the airline would be grade placing such large orders rather than the line on the leasing market?
Unidentified Company Representative
Given the first that's easier part of it. The firs on, some say at least back to [indiscernible] PDPs, it was a pen on the overall transaction and who the airline is and other one won't so if you look at the time American and Singapore, we didn't do any PDPs. Those guys will LATAM for example on Singapore but then into a separate bucket. They didn't need to catch. They were doing it for other reason. They needed it for strategic reason. LATAM has done the merge, the merge has completed. They needed to make some progress on fleets so the benefit for them in that transaction was getting off to take 10A330 and white body relatively shorter term leases, we can see it could three years in change.
So that was a trade for them and they don't really concern about the cash given their ability to raise capital that wasn't a big drive for them, Singapore is the same obviously needless to say and Singapore offering people could do it from the ATM in Singapore, if you were an investor you could actually do it at your ATM that's the level of cash that chasing Singapore. American with different proposition, why there were PDPs in American is that the U.S. major and people like Ryanair those big-big names have PDP profile that huge drain on cash because they order in such scale because they're so strategic to the OEM and the OEMs would be very reluctant to allow the terms of those PDP contracts to come into a more public arena.
Unidentified analyst
So that's, that's that one and there're other sale leasebacks where it's imperative for the airline, and they say look you know I need to do the sale leaseback and the second question and it's more difficult but the second question is, when you're an airline ordering airplanes, many airlines have ordered airplanes and there's been the first go round.
Unidentified company representative
They, they think we're getting a great deal on the entry price that's great, that's great, you know today interest rates are on the floor, cost of funding is that high, seems to be a lot of liquidity in the market, you know we'll worry about the PDPs later on. That [indiscernible] can change very-very rapidly. If there is a rise in interest rates or you know the leasing companies take a dim view of a particular airline all of a sudden there's a huge cash requirement on those airlines, and one thing that airlines to the first go round don't have tremendous experience about is how to negotiate the financibility of your PDPs, even banks for the most part aren't that keen to get involved in backing PDPs to single B credits in Indonesia, just not what they're interested in for the most part, international banks, their view of the world we'd much prefer someone like AerCap to show up and do it and we'll give AerCap the money to go and lend the PDPs because we know that if anything goes wrong here, AerCap can move into the contract and really see airplanes and deal with it, we at the bank could never do that.
Unidentified company representative
But in order to have someone like AerCap come in and you need a well negotiated contract with the OEMs that allows you to assign delivery price to the leasing company, that's a lot of technical speak [indiscernible] if you've got a house or if you're buying it and I'm the financier and you got to make stage payments, you come to me and say Gus I want you to finance the stage payments for the house, I'll say fair enough, you're buying it for a 100 grand but the developer says look Gus, if Cameron defaults you have to pay a 120 grands for it and then I'll say no way I should be paying a 100 grand, that needs to be negotiated up front not after the fact when you need the cash and that's one of the issues that some of the airlines are facing. Andrew.
Unidentified analyst
Are you concerned about the increasing activity of the Chinese vessels, they've been around for a while, the ICPC and I think CDB [indiscernible] business not just outside of China but also outside of Asia, are they rational would you say.
Unidentified company representative
Certainly I think they're rational, they're very good customers of our and we have a joint venture in China ourselves, with the Chinese Government, the advent of the new leasing companies, it remains to be seen how many of them will make it into the top tier if you will, as I said they're say nine global franchises in the world today.
Unidentified company representative
That hasn't changed much over the course of the last 20 years, there's different names in the doors but for the most part that hasn't changed and you've seen big banks come into the sector and go out of the sector, what we've observed the banks having been owned by them at one point, is that they love the space when they see a net interest margin that's very healthy, so let's say you're a bank lending in Japan or China and your net interest margin is 50 basis points, then you've got this other business that comes along over here and you look at AerCap, okay AerCap's doing 875 but that's what you can do you can find a business that can do 600, it's still 12X what you're doing in your home market. So to generate the net interest margin that 10 billion of airplanes will get you need to buy a 120 billion of houses and hotels in China or Japan, so it's very attractive to a point but then what we've always seen is that banks will say well this is not our core business particularly Europe and the United States where the regulator will say we'll just be very definite about it and look Citibank you're not going to hold a $40 billion aircraft leasing business AIG is a case in point for example, just not going to happen, we don't care how profitable it is, yes you can hold a certain amount and the banks themselves internally will say there's a limit on how much of this asset that we want to hold, it's not our core business it's not something that we necessarily really understand. We can't step into these guys shoes and move over to doubling your ICBC CDB, SNBC role in Dublin. Are they all going to move over to Dublin, start running this business, no is the answer. So there's limitations I think there's plenty of room, you know there's a 100 billion a year coming down the pipe and there's only eight of nine of us right now, so maybe one of them will make it but I think that I would have a hard time seeing more than one of making it into the very top bracket and being a big player permanently through the cycle, Bank of China's different, Bank of China is a totally different example, you know that is a franchise that is one of the leading global franchises and it's very different but it's a very-very rational participant in this space. To be fair to them too Andrew you are growing the business and you are growing the platform, you got to make -- you got to buy something too, you can't say no to everything. You've got to pay at some point to get going to be fair to them.
Great, well thank you very much. So Next is Anton Joiner our head of credits
Anton Joiner
I want to take this opportunity to give you a little bit more detail and clarity on the risk operations within AerCap. I would like to explain to you some of the areas which we place special emphasis. And some of the areas where we're able to protect the shareholder value that our marketing team and our trading team have created.
As Gus said the portion of our portfolio is sub-investment grade and they are based in countries which can be from time to time particularly challenging, it's therefore absolutely central. But we take a very proactive approach in monitoring and managing our credit risk.
The first line here really just a reminder of where our principle protection mechanisms are as an aircraft lessors. Broadly they can be split into two categories, we have the contractual protection and the operational protections. Personal security deposits, these would typically be on average around multiple of three -- multiple of three the monthly contracted rent.
On these designs you cover any down time in the event of any unscheduled return. We have maintenance reserves payments typically cash and you only have relief from this lessor exceptional credit. And maintenance reserves will accrue on a monthly basis, that to essentially cash collector -- the maintenance value which is being used off on a monthly basis for that aircraft.
And to the lifecycle of an aircraft that can equate to a significant percentage of the economic value of the aircraft any given time. We're also being paid in advance. One of the interesting statistics is that over the last five years AerCap has seen that its average downtime in the events of repossession is less than four months, so taking together with your security deposits and the fact that you have paid in advance, you are always seeing sufficient coverage to protect you against unscheduled events.
Lastly on the contractual side, we use the UK and the U.S. as the choice of legal jurisdiction for our documents is 250 page lease contract traditionally. And what we have here is a very stable a very transparent and dependable forum for resolving dispute. On the operational side as Gus mentioned, there is a principle [indiscernible] concentration risk is customer base, and very diverse regional base.
We keep it that way through very active trading philosophy in our portfolio management team. Our global marketing team is able to move aircraft very, very quickly at very, very short notice. And as importantly it's able to generate choice in that remarketing program. So we're not being pushed into a situation where un -- credits are being post on us and we're looking at a particularly high concentration risk as a result of our unscheduled marketing.
And over two decades of presence in the aircraft leasing sector has given us above [indiscernible] base in terms of the legal and technical aspects of leasing. Just a word on the outlook, it's been a relatively stable period over the last few years for lessors credit and we see that continuing. We see favorable growth forecast in established economies and emerging markets. We see that the general forecast at the moment is 2% to 3% expansion in GDP over the coming years. And that translates to around about 6% increase in global in the same period. And that multiplier effect is generating great opportunities for us with great credits to expand our business.
Business confidence remains strong and we're not just agitating what IATA is saying to us here. We have 94 airlines based in nearly 50 countries around the world, not all those companies are public, they are private companies which give us quarterly management accounts, which give is forecast and which we have conversations with on a daily basis on the [indiscernible] it's Boeing. Well, bring about this as will there is a structure improvement over the last few years in terms of airline performance so this is driven by consolidation and lot of this is driven by capacity discipline. And that translates to an ongoing profit within the industry which is expected to reach 11 billion for this year and at the next year. And also all threat we're seeing has been retreating as well. It's very difficult to forecast this with any degree of accuracy but the consensus forecast seems to be indicating towards a weakening through 2014 and beyond. And for the vast majority of all of these that translates to of course good EBIT performance.
So just to run through some of the day-to-day aspects of risk management at AerCap and one of the points to emphasize here at the staff is that the loss given defaults in our business isn't variably determined by the speed and preparedness when distress situation arises. We need to know our customers business inside out. We plan meticulously for our bus events. So on a daily basis we are spending a lot of time with our customers every time we sign up a letter of intent with a new airline we'll be spending three to four days with the senior management of that team. We'll be tailoring the lease agreement to reflect the individual risks of that credit.
And as a result of those early maintains we'll be populating our internal credit rating data base with a rating. And let's see below a certain rating we'll obviously be subject to ongoing visits the frequency will be dictated by the ratings we're giving them. From time to time we have to deal with difficult situations. As I said we're dealing with no investment grade products some of them are heavily non-investment grade. So we have a system much like many of the companies that you work with. We have a system which we call the watch list and the watch list essentially comprise with airlines where we believe the probability of an economic loss to where cap exists.
Moving to the watch list triggers are much over side of the airlines operation. We will have a technical team onsite sometimes 24 hours round the clock will up audits on the records. We will begin during this phase to prepare ourselves for a plan of enforcement under the lease contract and a plan of repossession if necessary. Just to give you some idea of where the watch list stand today it's not a particularly extensive list because of the improvement in credit quality that we've seen in AerCap over the years. We have on the watch list four owned aircraft the age of those aircraft is most are the young with the three separate lassies and with two of those lassies there is a heavy software involved with that. So most situations when we're talking about a watch list customer we expect those watch list customers to trending back into a normal credit rating. Less frequently than the watch list we are faced with repossession situations.
This isn't a common place activity but it's something that we have to plan for nonetheless. When we're looking at repossessions it's a critical importance to secure the aircraft, to secure the records if you register the aircraft and repatriate all our properties as quickly as possible aircraft can quickly become compromised by means by the interest of the serving work groups within the airline. Along the living aircraft in a difficult situation the highs are likelihood that you'll see a higher number of [indiscernible].
I mentioned on the previous side that we spend a lot of time rating our airlines and maintaining a credit database. This side gives you a feeling for where we'd see the composition of our portfolio at the moment. So the left hand side we have our strong investment grade credits to the right hand side you see the default. The weighted average credit score is around about 5.9 as of today. There has been a steady improvement of that over the last few quarters. That's been driven by increasing lease back activity with strong credits and with trading activity as well away from some of the risk your names.
Just mentioned one of the points within the business which is of absolute critical importance to us and where we place very significant amount of emphasis and that's on receivables management. This is the first to [indiscernible] every Monday when we have our all operations meeting or customer facing then cap team beyond that will run through each airlines data balance, we'll discuss whether there is any normal lease within that account, we will see to address balances which are accruing will establish an actual plan to reach balance where we think immediate action needs to be taken. There is a live feed through this data base into all senior management officers in real time. So, we know what's happening on the daily basis.
Why is this? Because the loss given default is obviously a big function of how much you earned that kind of bankruptcy [indiscernible]. We need to maintain that minimize that in all time typically recovery rates and on bankruptcies haven't been that good. So particularly EBITDA or balances in line is obviously critical important here.
And just the way to straight the point a little bit further, the next slide shows you our plus 30 day balances, this table today actually won't look much different than if we're showing you the plus 15 days balances. It's a primary measure of our success in the managing credit risk.
There were no differed balances here. What are the key elements in maintain this leverage to develop multiple strategies in payment? We do not want to be repossessing our aircraft every time as a default, we need to consider ways are which it can (higher) up payment opportunity.
And the next point here is one of the most important points the default under restructuring later challenges have run less than half of 1% of annual lease revenues over the last five years. During that period we've had oil prices close to $150 above, we've had a global financial crises, we've multiple several crises but at best time when we repossessed 23 aircraft in 18 different countries most to keep our debt cost -- restructuring cost less than half of 1%.
In 2013 so far we've only had to repossess one aircraft and that compares to eight aircraft in 2012. The repossession time on the last aircraft that we have to take out was less than two months. And during this period we've, over the last five years maintained average utilization as Aengus had mentioned were over 99%.
We'd like to, we want [indiscernible].
So is there any question on this section.
Unidentified Analyst
Given what you said about the current watch list being only sales to the customers for aircraft, it sounds like [indiscernible] will not beyond that watch those but from the outside it looks like that's an airline, that's really struggling with treating prospects of making any money anytime soon. So, can you maybe explain how airline like that is not on the watch list.
Unidentified Company Representative
Well, we're already seeing the money to support Alitalia flowing from the government. It's obviously a situation that we've maintained very close surviving zone. And the money which is flowing into Alitalia now will obviously be tie to restructuring process. So, we think that there is post that restructuring process the need and clear business case for a flight carrying initially. So, you're quite right, the financial performances at Alitalia has been particularly impressive over the years but the crucial fact here is that money to support the business, not just in the short term but in the medium term is flowing.
Unidentified Analyst
It's on page 42 that looks like the credit distribution as of October, how's that changed over time make up your portfolio for your internal credit. So you got cost section here, how to look on time series.
Unidentified Company Representative
I think when we showed this slide to some banks recently, the weighted average credit score was in excess of 6.5. The consistent move to the left here that is been driven by our [indiscernible] back to activity we're bringing in those strong credits such LATAM receiving enhancement on some of the U.S. stuff that we've been doing as well, so it's constantly improving.
Unidentified Analyst
And on to that, on page 44 the improvement that you've seen, are there specific actions that you have taken to do or it's actually more of kind of industry performance to the performance with your client?
Unidentified Company Representative
Well, again with the improvement in underline credit you see improvement in [indiscernible] balances of less but there is remedial action that you can't use to reduce the amount of time that it takes for an airline to pay it and over the last five years we have become progressively more that employees various strategies to reduce payment delay.
Unidentified Analyst
Thank you for taking my question. I was hoping Anton could talk a little bit about the view on the cycle of global airline profitability and what I am getting at here is those of us that look at airline and aerospace stock, I mean, there is a lot of focus placed on how many more years of good trends we have before we have really start to worry that the cycle turning and happen to think that there is more to go but that's probably what I would think right before things get worse, I am just curious what the internal view is on the cycle given that we have had now few years of very good trends?
Unidentified Company Representative
Well, let's not to say the good trends onto continue and we know we're picking up a lot before we have been making. The forecast with GDP, from GDP growth is still looking good it is a very difficult aspect of the business to predict. I think I can only answer that by saying it's [indiscernible] anticipated change with the meeting. We see no particular events out there. They're going to slowing down although we all aware that there is number variable this business could do but nothing seems to be presenting themselves this particular likely to occur.
Unidentified Analyst
I believe there are only two legal cases highlighted in your financial statements that relate to leasing transactions in Brazil 1990, is there anything specific about result that makes it difficult to operator it lesser and has been environment changed since those transactions done?
Unidentified Company Representative
I think there hasn't been any material changed in the legal code in Brazil that's made the life of the lesser and easier down there, what has changed is the credit quality of the customers that we're doing business with.
Unidentified Company Representative
Thanks very much at this time. We are just going to take a break for five minutes. Guys if you want to restroom make a few call and we will come back in then and say it's before [indiscernible] trying to get started again at 1 clock and then get through the Treasury and the results section in the outlook for 2014 and beyond, thank you.
Paul Rofe
Good afternoon everybody my name is Paul Rofe. This next section is the financing update. And what I'd like to get out of this section now is I am going to talk a bit about the development of our financing structure our capital structure; discuss our observations in the market at the moment; our access to capital; and also give you some confirmation of some year-to-date Q3 statistics which you may or may not have seen.
The first part here really is this transformation of the financing market for [indiscernible] it's been a huge change since the crisis started in 2008 to where we are today at 2013. And saw it down the list significantly look at the unsecured market extremely deep four years ago there was nothing today $21 billion has been issued by the [indiscernible]. The U.S. lenders are now significant and the U.S. lenders can play very big as we've seen; Wells Fargo, Bank of America, J.P. Morgan, some big names out there putting money to work in this sector. There is a large agent bank participation as well and we're talking a little bit further about that. ECA is still there and the European banks are quick returning here.
But in fact the Germans never went away anyway. The Germans had stayed and we're always very active in this. But what we have seen particularly in France is the likes of [indiscernible], BNP returning and interestingly saying in Europe as well host the sale of our BS aviation obviously with [indiscernible] now starting to participate in place is also.
Beside here looks at AerCap's diversification from our 60 banking lenders, we've isolated to one aside the capital markets there. Capital markets forms around 20% of our total debt but we now have 60 banking relationships around the globe and significantly almost a quarter now 24% of our debt is coming out of the Asia-Pacific region that's a massive change. North America I've spoken about the USA but let's not forget the Canadians are also putting money to work there as well. We have two very good Canadian banking relationships.
Here we try to talk a little bit about how things have evolved in AerCap's financing structure since we listed in 2006. Back in 2006 we had around 20 lenders concentrated with a small number of key lenders today 60 lending relationships. We were working with the European ECA's today we've included U.S. Ex-Im Bank and EDC of [indiscernible] in our relationships also. No one secured financings and today several unsecured financings including our recent some revolvers which we closed out in Asia just a couple of weeks ago.
And if you look at the charts on the bottom here you'll see the left hand chart shows that significant diversity, so it's been a really big change here. as Gus mentioned early our job is to find the sources of capital with constantly working to find those sources of capita around the globe reach out to the people, discuss what their needs are, what the availability is and make sure that we're accessing those sources. Continuing on that theme you'll see our revolving warehouse it was a $1 billion initial close was really with one major lender. Today we have 11 lenders in that revolver.
The flexibility in our structures; we've structured our debt in different ways as well and we now have 37% of our debt is fixed rate. We've taken the most of the market that we found ourselves in and we've been fixing on debt to make sure that we protect the margin in the business as we go forward. On significant lenders you see in 2006 some of the key names in a particular order. But today our significant lenders are truly global.
So some of the observations in the funding of banking market is we have seen significant capital markets activity really significant. It WTCs, Hawaiian had amazing pricing levels with us, British Airways and Virgin, foreign issuers, numerous unsecured issuances and a return of the ABS market as well with both GCAS and Avalon doing aircraft and then [indiscernible] about the engine deals as well.
The banking market itself here is for the most part recovered from some of the challenge that faced as a result of several in downgrades and the Eurozone crisis. Lenders are indeed very selected and very credit focused. If lenders are understanding today the key role that leasing companies play and insulating them from that customer base that's out there.
Pricing in today's market is very competitive, it's not yet back to 2007, 2008 levels but it's very, very competitive at the moment. And the bank that have excess idea, [indiscernible] have been some for the most part really have been replaced by other who are by the returned or have started for the first time. There is also a trend some senior lenders out there who're looking for yield and terms coming in, there are like some pension funds or insurances companies financings on some large corporate as well and some of those are not necessarily subject to records that the banking community owes.
Here it is very quickly running through worlds here in most American and more and more regional banks are starting to appear as well. AerCap has spent some time working with the U.S. regional banks trying to memorize them how we do our business and why it's good be lending to leasing company as well. In Europe, most of the German as I say remained pretty active and in fact some [indiscernible] gaps during that times, stepping up their levels and activity, the French banks as I said pretty much back that the [indiscernible] shift from Europe to other regions, I think the U.S. and picked up quite a large amount of that Asia and we are seeing that the middle eastern banks as well while remaining very credit focused and regional focused the middle eastern banks comparatively yen coming bank into dollar funding as well.
Couple of other things [indiscernible] more lenders now are willing to accept the balloon risk that's something which is changed from now a few years ago as well where lenders wanted the debt to fully amortize, they don't necessarily want to go for a long, long term so they're more willing to take the certain element of balloon risk during the period of lending. The aircraft age at the peak time of the crisis there it was new aircraft, new aircraft, new aircraft but the markets being very competitive right now, some lenders have adopted that policies slightly enabled fund less than new aircraft if needed. That's good for the financing market, it's also good for the secondary market as well and keeps the capital flowing when they're trying to sell aircraft it's for the other buyers.
There are niche lenders out there as well for the some of the older assets. You have to find them but there are niche lenders if you need financing for some of the older assets there are some lenders out there who are prepared to do that.
So quick summaries of those until recently there was nothing coming out of the unsecured markets and now we're seeing 21 billion driven to the aircraft leasing companies and not really as evidencing, this is a really deep source of funding.
Return of the ABS market. Closer the export credit agencies are still there and interesting I spoke to the one of the European ECA's just last week and they were expecting very similar levels during 2014 despite the new aircraft sector on some, they were expecting very similar levels to 2014. There were some A380 dollar impact on that of course because they're more expensive.
And Asia and across the Pacific, the Australian, Japanese, Chinese banks have really stepped up significantly. As of half year of 2013, they had actually achieved the same levels of funding that they had in full prior year. So, my message there is that there remain very good options at the moment to financing and current availability in the market is very strong.
The slide here just confirms the strong cash position which we find ourselves and again at the end of the third quarter. And operating cash flow for the full year 2013, we're expecting it to be around 700 million range something at that nature which would be a record for us.
This one confirms debt equity ratios, looking back a few years how that debt equity ratio has developed. And here on the cost of debt, this is something just refereed to you little bit earlier bank in 2007, we stepped out the swaps from the broken both the caps. So you can see the benefit to the company where the company was exposed to the falling interest rate environment.
As interest rate came down got to a very low levels, we then went through a process of trying to lock in debt where we could trying to protect the margin of the business going forward. We did take a little negative carry at the time to do that but we felt that was worth it and evidence is emerging that indeed that was the right decision as we see rate start to tick back up in the long term. But you see there as of the third quarter, our cost of debt is 3.9%. [indiscernible] that includes all of the debt amortization fees as well that's weighting of the amortization during the period of that as well.
So AerCap has a very strong track record of raising debt. If you look at the box of the bottom of this chart here, 2008 and 2009 during the peak of crises we've raised $5 billion of debt during the particular time. It was evidencing the strong credit quality that was flight of quality at that time as well and it was evidencing the strong credit quality of the AerCap that we were able to do that. We have developed our lender base around the globe and we worked with European, U.S. and Asian institutions including number of relationships banks now in China, Singapore, Taiwan, Japan and Australia. We recently added Hong Kong onto that list as well. Our next facility maturity is until 2015, so we have got relatively minor maturities coming until then and sort of that we have raised about 1.9 billion of debt in 2013 up to the end of October that includes the Asian unsecured revolvers as we called that here, which did carry some unique features compares to other out there that [indiscernible] turned out.
We have reduced the five risks to the company by terming this out a convertible loan after a period of time and we were the first one who used to do them. This chart here shows you that cap structure of the Company. The amount of spending and these are the drawn amounts as of September 30th and maturity days and you will see the ABS market and it's covered on the first two lines of the slide here very late debt with maturities in our structure there, very-very debt of maturities. I guess I have talked a bit about this before. We have continued with a very conservative and disciplined management of interest rate hedging as well. We don't take interest rate risk so you will see here how our entire book is hedged. We have 37% of our debt which is fixed rate debt which the latest of those as go up to into 2020s. Debt covered by interest rate caps the latest debt of those go into the 2020 as well. So we are very well hedged on the book. We do have swaps in the Genesis portfolio as well and then a serious of announced debt related to floating rate as well. We do have some offset items in the book also. So that was a quick sit through, but I think we will hand over the key [indiscernible] would you want to take any questions there? Okay.
Unidentified Analyst
Could you talk about how the global regulators view banks and solutions holding planes and how the risk waiting recently changed or do you view unchanging, that's my question and the second question is the your cost of debt of assuming interest rates don't go anywhere couple year, what is your assumption around there? Thanks.
Unidentified Company Representative
I think in terms of regulation. My observation is on regulation of that different parts of the world are responding at different times and reacting it different times and there are several institutions. The bulk of institutions right here in the United State a very well advanced and how they're preparing for that, they're preparing the balance sheet [indiscernible] for it. You move to other parts of the world and occasionally the reaction is almost [indiscernible] they're not quite sure where [indiscernible] on the map [indiscernible] they're much further behind and how they're preparing for it. So there are different areas around the globe where people are much more advanced for it as well. I think the regulators are going through a regular shake down of the U.S. banks and the European banks at the moment.
I think in Asia its little focusing regions, I don't think it's easy to talk about Asia as a whole but I think the regulations are working in certain parts of that region and I think Australia is pretty focused on that as well.
Unidentified Analyst
Unidentified Company Representative
I think some of it was waiting of change for – I can't speak of CIT for example. I think it's edged around very slightly as well. I don't know the specifics at the moment but I think it's edged around very slightly. I think there has been some movement there as well. There is a lot of banker in the room who will know far better than me in that particular institution since today.
Unidentified Analyst
Maybe one thing to add that, since we have seen the U.S. bank they have been in the last 24 months. So that's maybe the best answer to your question they are the most effort banks in the world right now.
Very few [indiscernible]
That's different.
Yes, we'd be [indiscernible] a little differently.
We're talking about Wells Fargo and Willback Canada.
(Multiple speakers)
Unidentified company representative
I think traditional windmills that we're working with, we don't tend them to see them holding, a lot of them would rather avoid it. You're other question I think was on interest cost as well and I think we issue guidance on interest as well for the year and Keith will talk about that well for you.
Unidentified analyst
Hi, I was hoping that you could talk a little bit about how you think about the sensitivity of your cost of debt to your leverage ratio, I know that it's hard to have perfect precision here but are there breakpoints where you feel like your cost of debt would materially change if you passed a certain leverage ratio, your thought process there would be helpful, particularly any commentary going above 3 times debt to equity.
Unidentified company representative
We tend to look at our average cost of debt at the moment as well, we'll look at where the cost of the likely funding is that we're trying to achieve at the time and [indiscernible] there have been times during the middle of this year particularly after the Feds made their announcements where rates went some, went haywire for a period of time. If we are prepared and adequately prepared and we have the facilities in place where you do not have to run out and finance yourself, we're less exposed to some of the volatility, the short term volatility which occurs in the market there, so I think we're very conscious of the rates that we use, the all leasing companies are sensitive to the amount of leverage they get, to some degree the banking market is working out itself how much leverage it can afford to give and wants to give right now, and today it's very different back in 2006, 2007 we could have got extremely leverage way up in the 80% level something like that as well, today we can find ways to get the adequate leverage that we're trying to look for. I'll keep an eye on work pretty closely on how much debt do we take and when do we take it and the appropriate times to be able to take that and the leverage levels that we're putting the company up to as well, we're also conscious of the fact that the company is de levering quickly as well.
On both charge you saw how the leverage ratio and the compass on the move to [indiscernible] the ability of the company to extract extremely well priced debt hasn't really changed that much over the course of the last three or four years and you can see that on the prior chart when equity is much higher [indiscernible] the funding costs, [indiscernible] So back to the ALS transaction at the end of last year. I think one of the conclusions is that there may be a growing appetite amongst asset managers to hold the equity of these portfolios is that a trend that continued and if so how might AerCap take advantage of that on an ongoing basis.
We should see more people like that interested in the sector, there's no question about it, the ALS portfolio was something that was very attractive because of the mix of new technology assets albeit they were old or so, they primarily composed of 220s and 737s and there's certainly good appetite for that as I mentioned around the world the different pockets you're in and we're seeing more and more people coming into the space looking to buy smaller packages of assets trying to juice up their portfolios with some yield, but they're not huge players, Guggenheim is an exception it's a very big player but the a lot of the guys that we sell ones and twos and threes and fours of airplanes they might have a pocket of $500-600 million. The number of people who have multibillion dollar pockets for older aircraft is still quite limited.
Unidentified analyst
Hi, there's an argument out there that as the financing market opens up it might in a perverse way reduce some opportunities for the [indiscernible] because airlines might choose to buy more airplanes and put them on their books, it might be seen as a more economical option for them, can you speak to that and how you seeing that and any comments you could provide would be helpful.
You know the lessors will rise we correlate the risks of the airlines around the world and bringing to the banks and say look we're [indiscernible] the risk very much safer than lending to the startup airline or single B rated airline in emerging market because we have 94 different credits and all are going to the same time, it's not a binary event, that's the basis of the leasing company doesn't like you to change anytime soon.
The ability of airline to access capital I think the best example of what's happening in the financing market is what Boeing capital put out, I think one of the research analysts also produced it, which shows how financing is moving away generally from airlines towards the back, towards the -- because the banks say we get it about emerging market growth, but really we don't know what airline and what emerging market is going to make it.
So rather than have a binary event financing airline Exim to India I would prefer to have AerCap or someone like them finance the airplane and we will lend directly to them, and that is a shift we have seen pronounced over the course of the five years. There has been the exception recently with the double ATC that have been done here, Virgin Australia and particularly a great success obviously it wouldn't have the same kind of brand name recognition of British Airways which is no surprise, but they wouldn't be a traditional leasing customer.
I think we're pretty safe with the leasing product is going to be in strong demand for a long time to come. I can see the number of airlines moving to investment grade be material there is five of them in the world at the moment, maybe they can get to 10 in 10 years I don't know. But I think the need of leasing companies will be around for a long time.
Unidentified Analyst
Can you talk a little bit about how you think about mix between unsecured and secured going forward?
Aengus Kelly
I think generally we have taken a view that the business requires a layer of unsecured within our structure. And you have seen us putting unsecured in, we did bonds about 18 months ago and about 12 months ago we put a revolver in place and then just put another one in place as well. And I think the original intent behind the revolvers were we would use the revolvers and then take them out at some point. We won't changing to a full unsecured structure, I think we made that clear several times in the past, that's not the intent there we like secured debt in the way it amortizes. But we do see a very useful place in managing our capital structure where unsecured should be playing a role in there for us as well.
Unidentified Analyst
[indiscernible] the export import financing that Exim financing has been quite cheap to get for people who need it. Have you seen any tightening in that which would help to make lessors more competitive with OEM?
Aengus Kelly
The Exim and the European ECA of course one true amending the sector aircraft sector and the fees they charge in doing that. So some of the higher credit quality uses of that are going to be required to take in lower advance rates. But generally the premiums for all of those companies have gone up significantly as well. At the moment there hasn't been a material change in the usage of it, they have been the last resort financing for a period of time. We haven't seen a change from that neither of the two agent -- excuse me I couldn't speak to Exim because they were closed for a period of time just recently but having spoken to the European ECA, they are expecting the same kind of levels in 2014 as they previously have had.
I guess if it's happening at the European ECA I would guess it's the same for Exim. So all of the costs as well just got to be factored in, the fact that you have to pay a slightly higher premium to get there in the first place. I think that will differ some, but I think others will continue to use it if they need to.
There are no more question, I am going to pass it over to Keith Helming.
Keith Helming
I am going to finish up our presentation today with just a few slides on the financial results and the financial outlook. We went through these numbers this morning, so I really won't go through these again, Paul did make comments about operating cash flow -- operating cash flows are very strong for the first nine months, operating cash flows have been almost 500 million. During this year we'll generate approximately 700 million of operating cash flows, and our run rate is now I think approaching more like 800 million, you should see that in future periods. You have seen our historical results; I don't need to go through that.
We have done another portfolio evaluation as of September, you know we do this every six months. The cost basis of our assets including the aircrafts yet to be delivered is at 10 billion, that's the first column you see here. Based on information from three appraisals the current market value on a maintenance adjusted basis of those aircraft is $11.1 billion. We do our own analysis on top of that where we look at contracted rents and cash flows and do an NTV analysis that analysis that internal analysis also comes up very close to what the appraisals we've seen on 11 billion. And the 10% to 11% differential that you see here is very close to the actual results you see on the aircraft sales so the aircraft sales as Gus talked about is 270 aircraft. Again the actual results support this sort of analysis. And when you combine this differential above book value there is equity value above book value it gives an economic equity position in the company in well excess of $3 billion.
The liquidity profile and position for the company is very strong. We've gone through the calculations here on this page probably more detail than you want. But on the top left shows our obligations our contracted principle and interest payments, our purchase commitments for the upcoming years. On the bottom left the highlights are available liquidity. Of course our available liquidity and our operating cash flows, our unrestricted cash balance our unsecured revolvers and committed bank funding.
So for the next 12 months the available liquidity that we have is approximately $1.8 billion and for the next 18 months it's $2.2 billion taking into consideration all of those sources. So on the top right a comparison of the available liquidity to the obligations. So in the sources are in excess of about $660 million above the committed CapEx and the contracted P&I payments. And the relationship between sources and uses here is 1.3:1 for the next 12 months, and for the next 18 months there is excess coverage as we're calling it of about $350 million and the ratio here of sources to be used is 1.15 times.
Not factored into any of this analysis is our ability to refinance the debt equity ratio as you know is 2.6 likely to drop to around 2.5 in the coming periods. Obviously there is a lot of opportunity there to refinance and additional asset sales of course but also generate more liquidity above these levels. So the company is in the very strong liquidity position.
Now outlay on the few slights here and just for financial outlook to help you with your forecasting and your modeling; the committed purchases I think you've seen this is at $3.5 billion current of which $2.5 billion is through 2016. In this slide here we show the committed purchases for 2014 of 600 million you've heard on the call today we do expect that amount to increase before the end of 2014. For the analysis in the upcoming pages I've assumed purchases and additional $1.5 billion through 2016 and this more or less represents the pipeline of business we're currently working on.
So balance sheet is expected to be around 9.4 billion at the end of 2013. The balance sheet is actually grow to just under 10 billion in 2014. And with the 4 billion of CapEx I just went through the balance sheet would grow to roughly 12 billion by 2016, and that's an annual growth rate of around 8% per annum.
The capital structure I think the question is really so Paul here is the outlook for our capital structure security debt at the moment is around 5.8 billion and expected to be around that same level for the next couple of years but then growing in excess of 6 billion by 2016. The loan to value ratio for that secured debt is around 67% to 68% for the lease an equity value in the assets of around 2.8 billion as of now growing to over 3 billion by 2016. So a lot of -- out of value that is effectively not finance if you will.
The unsecured debt; we currently have 500 million of unsecured debt including the unsecured revolver and we expect to do a deal probably one per year in 2014, '15 and '16 so you can see the unsecured debt growing to 1.2 billion by 2016. The next spread outlook this year is around 660 million is the expectation in the forecast period here you see it growing to 800 million. Now in this forecast we have probably led out relatively conservative scenario here. We do have interest rates increasing about 200 basis points by 2016, so the net spread does get squeezed a little bit by that increase in interest rate if that doesn't happen I think you'll see the margin increase even further than what we're forecasting here.
Sales and other revenues again the primary purpose behind our portfolio of sales as you saw with the ALS sales at the end of last year is to keep our portfolio optimized. We're going to continue doing that in the upcoming years of course there will be opportunistic sales where we generate quite a bit of profit in some of the recent A330 sales that we'll also likely happen to some degree. The management fees and interest income per annum is around 25 million that's expected to continue, the lease revenues on the maintenance side should average around 65 million per year, again that amount on a quarter basis is not even but it should average over the timeframe around 65 million and of course we'll have other revenues as it materialize.
Depreciation rates, 4.3% growing to 4.7% during the forecast period. On the cost side of maintenance is about 65 million and also on the leasing expenses again will not be evenly spread but you can expect it to be around that level over the forecast period.
SG&A is running around -- will running around 90 million per annum. Tax rates should be around 8% through the upcoming periods, the investments that we currently have are generating around 8 million of income for year and the share count stay relatively constant growing to around 115 million.
So, hopefully those goal post will help you with your modeling which is forecasting [indiscernible] questions you can let us know, but in term so growth you seeing on [indiscernible] is tripped since we've been public and as Aengus went through with his slide were significant growth potential may exist, potentially up to 10 billion, the profit outlook to turn assets have been highest in the industry over the last six years, we do expect that rate of return to continue and as we also mentioned we have return 30% of our earnings to shareholders and for their capital distributions in the future are very likely.
So, that's the end of the financial section, I'll open up any questions in that and if not Aengus will ramp up the day.
Unidentified Analyst
On slide 72, on your spread outlook. Just in terms of you said 200 increasingly, is that a with the slope of the [indiscernible] parallel shift tie or how does that work.
Unidentified Company Representative
Its relatively flat subside increase in 2014 with about 100 basis point increased then in '15 another 10 basis point in '16. It's one of the recent [indiscernible] forecast from external sources that we used but obviously that continues to change and as we've seen in the past it continuously pushing out but purposes of bit forecast we've used.
Unidentified Analyst
And does the bump in rates in the basic lease rents, is that a function of higher interest rates is that a function of just contractual escalators that are want your services.
Unidentified Company Representative
What you see here is primarily growth oriented because we do place our aircraft well advance of the redelivery little bit of lag on the basic lease rent and relative to increase in interest rate. So you'll see a little bit more of the interest rate increase in this short term forecast period but then you'll eventually see the basic lease rent start to fall as they do correlate to advance interest line.
Unidentified Analyst
If I could ask that little bit differently, let just say rates went up only 50 bits or 100 bits, what would your net interest margin do?
Unidentified Company Representative
The interest expense would effectively go down and you would see the basic lease rents relatively constant.
Unidentified Analyst
So, there would an expansion relative your expectations.
Unidentified Company Representative
Yes, absolutely.
Unidentified Analyst
Couple of questions, one on -- you made a couple of comments on, during your presentation which is you expect the oil price to remain relatively to subdued and you also mentioned that the appetite for -- the question being the appetite for newer aircraft is that going to be strong as it seems in the backlog because with the oil prices actually expectations that you have is it going to make sense to pay the premium on those newer aircrafts and is it going to be better of thing would the current generation on the narrow body space and then I'll come back for the second one.
Unidentified Company Representative
On the oil price what we're referring to is airline credit that at these current levels we feel that the airline credit picture is quite benign and the reference was do we feel there will be increasing oil prices what we observe at the moment is it doesn't seem to be any indication oil prices come down little bit but there is still levels where the requirement for new airplanes is still definitely there. Don't forget as one of our slide showed you over 20% of the work fleeted out of production at 20 year of age. So there are several technology shifts behind the new technology. So, we're not saying, I mean oil would have to go down materially lower before airlines would start reconsidering the decision to switch into 787 and the 350.
Unidentified Company Representative
The first option that the out of production aircraft will actually start losing value. It seems like if the oil price remains between let's call it $75 to $95 then there is place for brought all the new aircraft in the fleet, so basically the older aircrafts may not lose value as quickly as some people expect, is that something that means as a lesser you could make either gains on some of these sales down the line or you could potentially hold these assets longer than what you would typically hold for example the active management through trading of this aircraft? You have to probably do less of it or book again, is that something that can be factored in given your oil price expectation?
Unidentified Company Representative
We never factor in, we're not traders, and we're here for the fundamental long term. We don't buy anything or trade. The point you raised about fuel 75 to 95, the point I made earlier around is that the 320 and 737 are so ubiquitous that you can buy them along today. You don't need to worry about your ability to face and they will be here for a very-very long time to come. You just need to buy them at the appropriate price whether oil is at 120 or at 55 to 320 and 737 will still be fine and just like virtue of the fact the NEO and MAX won't be with us until in any side at all until the next decade. So, there is no other airplane. It is bit more different you dealt into different aircraft types of side of those the mainstream aircraft.
Unidentified Analyst
And the second question on the WTC market. I understand that when comes to emerging market airline you can probably add value to the banks in managing the extra share, but any brand name even emerging market airline is able to place, its seem WTC today, so what is your value proposition going forward if the WTC market expand especially when it comes to developed market airlines? For example, we have seen many successful placement in the United States, Australia and British Airways, so what is value proposition going to be in the broader content, is it only going to be where the airlines can't greatly access credit?
Unidentified Company Representative
Let just me stop you there, I understand the point of the question. The answer is, there is only the one airline outside of the United States who has ever issued the WTC, that is a household brand name globally and that is most recent one Virgin Australia, so when the history of WTC market as went into $500, I am not going to get too excited about it, and I think it's highly unlikely that we will see some emerging market airline start issuing the WTC market at competitive pricing. I just don't see it happening.
For them to come here comply with U.S. GAAP, get rated that's highly-highly unlikely to expose themselves that level of rigor. I don't see it happening and furthermore I think investor will say well a Virgin Australia is a very developed market, it is little bit different, it's all 737-800, 737-900, and I would be surprised. I think we can be quite confident that the leasing company model is here for a long-long time to come. The best entry in the airline sectors are just to go even airlines that [indiscernible] so you know look I have eight or nine competitors of reference to 600 plus airlines out there and only five of the 600 plus are rated investment grade, so I don't see any material change in the value proposition of what we were offering anytime soon.
Unidentified Analyst
Going back to apprise that you guys gave because it take your book value from roughly 21 bucks close to 30 bucks on an economic basis, the questions are, what is the distribution of the value across the newer versus all the planes, and the secondly, what's your sense on the ability to transact it at those appraised value in this environment?
Unidentified Company Representative
The largest part of our portfolio still is the existing technology, so that's where is the large portion of that access in fact exist obviously we did the recent LATAM transaction there was about $200 million benefit with that particular transaction but again the largest part of that billion dollars or so still is with existing technology.
Unidentified Analyst
And the ability to transact those pricing, you those appraisal are fairly close to market prices?
Unidentified Company Representative
Yes, if you look at results showed in the chart where we sell 377 aircraft over the past year and again that differential is around 10% to 11%, so we are continuously proving that differential can be monetized actively.
Unidentified Company Representative
Okay, thank you all so much for coming today. We really appreciate this and if you have any further follow-up questions, please get in touch with Peter Wortel, the Head of IR. Thank you very much.
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