Air Lease Analysis

Air Lease

9/08/20

What is Air Lease?

Air Lease is an American company in the aeroplanes leasing sector. The Company is principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as Boeing and Airbus and leasing those aircraft to airlines across the world. Air Lease also provides fleet management services to investors and owners of aircraft portfolios for a management fee. 

It was founded in 2010 and it owns 301 aircrafts at the moment.

Currently, its major geographical exposure is Asia (42%), followed by Europe (29%) and Middle East (12%) of its book value.

Company data (08/08/20)
Market Cap$ 3.2 Bill 
Revenue FY19$ 2.06 Bill
EBITDA$ 1’873Mill 
Gross Debt (Jun-20)$ 14’414Mill
How does Air Lease make money?

Air Lease makes money renting its aeroplanes to airlines. It usually arranges contracts which last from 5 to 10 years. However, it also obtains revenue from selling airplanes or providing fleet management services.

The aircraft leasing model works best upon the conflux of the following: access to low-cost capital, firming aircraft values, improving lease rate factors, and robust global demand for aircraft.

Air Lease acts as a lessor of planes. It buys the planes and rent them to airlines. As its credit ratings are better than the airlines because its business is less risky than commercial airlines, it has access to cheaper finances.

Why Air Lease is an interesting company?

The air transportation industry is going through exceptional times. It has been one of the most affected sectors by the Covid-19 pandemic. Nevertheless, the share price of lessors has fallen roughly the same as the airlines. We understand the type of risk that both of them have is not the same as lessors have long-term contracts and get paid independently if the plane is used or not. The risk for lessors is the bankruptcy of the airlines. Moreover, the demand for leasing should increase as airlines will be focusing capital on paying back support. 

Air Lease has the youngest fleet within the aircraft leasing industry (3.7 years on average) 

  • Younger plane will hold value better than mid-life and older aircraft, 
  • It has less residual value risk
  • it will be less at risk of impairment. 

Air Lease has high exposure to government-backed airlines(75% of its clients). This is positive for Air Leases various global governments will likely continue to support their national carriers. 

Air Lease Fleet

The analysis of Air Lease fleet shows that it has 301 aircraft with an average age of 3.7 years. In addition to that, it has an order book of 393 aircraft until 2026.

Air Lease fleet
Current Situation and potential risks

AL should be well-positioned to weather the current volatility with limited risk to earnings. AL has over $6B in cash and undrawn revolver capacity. In the 2Q20, AL has granted 30% of payments deferrals, it expects to get paid in less than twelve months. So far, the collection rate has been 91%(annualised, which means that in the 2Q20 this figure has been around 35%). However, a worse scenario than this one has to be considered as there will be more payment deferrals in the third and fourth quarter, although the pace is expected to diminish.

There is considerable risk of a second wave during the fall. If this is the case, AL stock will suffer considerably, as in the short time, there is a strong correction between the evolution of the Covid-19 and AL. The mayor risk for AL is that the COVID-19 crisis lasts longer than expected. AL remains highly leveraged, that situation could imply a deterioration in its credit rating, raising the amount of interest that they pay and damaging its finances.

Earnings Trends*

Air Lease Earnings (trending)
Air Lease Earnings

This analysis of the Air Lease Earnings is taking into account the effect COVID-19.

*Data from Bloomberg

Conclusion of the analysis of Air Lease

Commercial flights have recovered since they reached the bottom in April. Currently, they are around 72% YoY. It is expected to continue slowly recovering the 2019 levels. It can take 3-4 years regarding IATA estimations.  However, as it is described in the air transportation industry article, the lessors are well-positioned to take advantage of this current environment of uncertainty. And among them, AL is an interesting company to continue digging into it. In the meantime, news regarding the second wave of Covid-19 or financial stimulus will affect the AL stock heavily.

Debt
Air Lease debt
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Balance sheet distribution
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Clients

Air Lease clients
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