Air Lease Corporation, an aircraft leasing company, engages in the purchase and leasing of commercial jet transport aircraft to airlines in Asia, the Pacific Rim, Latin America, the Middle East, Europe, Africa, and North America. The company also sells aircraft from its operating lease portfolio to third parties, including other leasing companies, financial services companies, and airlines. In addition, it provides fleet management services to investors and owners of aircraft portfolios. As of December 31, 2016, the company owned a fleet of 237 aircraft, including 188 single-aisle narrowbody jet aircraft and 49 twin-aisle widebody jet aircraft. Air Lease Corporation was founded in 2010 and is based in Los Angeles, California.
(Summary) (Company) (Chart)
2 April 2017
1yr Target $47.00
Payout Ratio 8.72%
1yr Cap Gain 21.29%
1yr Tot Return 22.06%
EPS (ttm) $3.44
EPS next yr $4.29
Forward P/E 9.03
EPS next 5yr 15.9%
1yr Price Support $68.21
Market Cap $4.01 Bil
Revenues $1.42 Bil
Earnings $374.90 Mil
Profit Margin 26.33%
Quick Ratio ---
Current Ratio ---
1yr RevGR 16.12%
3yr RevGR 18.06%
5yr RevGR 33.39%
1yr EarnGR 47.00%
3yr EarnGR 23.82%
5yr EarnGR 42.27%
1yr DivGR 32.35%
3yr DivGR 28.59%
5yr DivGR ---
Air Lease Corporation is a leading aircraft leasing company that was founded by aircraft leasing industry pioneer Steven F. Udvar-Házy. The company is principally engaged in purchasing new commercial jet transport aircraft directly from aircraft manufacturers, such as The Boeing Company and Airbus S.A.S., and then leasing those aircraft to airlines throughout the world with the intention to generate attractive returns on equity.
In addition to our leasing activities, Air Lease sells aircraft from their operating lease portfolio to third parties, including other leasing companies, financial services companies and airlines. The company also provides fleet management services to investors and owners of aircraft portfolios for a management fee. Air Lease's operating performance is driven by the growth of their fleet, the terms of their leases, the interest rates on their debt, and the aggregate amount of their indebtedness, supplemented by the gains from aircraft sales, trading activities and management fees.
Air Lease currently has relationships with over 200 airlines across 70 countries. They operate their business on a global basis, providing aircraft to airline customers in every major geographical region, including markets such as Asia, the Pacific Rim, Latin America, the Middle East, Europe, Africa and North America. Many of these markets are experiencing increased demand for passenger airline travel and have lower market saturation than more mature markets such as the United States and Western Europe. The company expects that these markets will also present significant replacement opportunities in upcoming years as many airlines look to replace aging aircraft with new, modern technology, fuel efficient jet aircraft. An important focus of our strategy is meeting the needs of this replacement market. Airlines in some of these markets have fewer financing alternatives, enabling Air Lease to command relatively higher lease rates compared to those in more mature markets.
Air Lease mitigates the risks of owning and leasing aircraft through careful management and diversification of their leases and lessees by geography, lease term, and aircraft age and type. The company believes that diversification of their operating lease portfolio reduces the risks associated with individual lessee defaults and adverse geopolitical and regional economic events. They mitigate the risks associated with cyclical variations in the airline industry by managing customer concentrations and lease maturities in their operating lease portfolio to minimize periods of concentrated lease expirations. In order to maximize residual values and minimize the risk of obsolescence, their strategy is to own an aircraft during the first third of its expected 25 year useful life.
During the year ended December 31, 2016, the net book value of the company's fleet increased by 11.4% to $12.0 billion. During 2016, Air Lease purchased 43 aircraft and sold 46 aircraft, ending the year with a total of 237 owned aircraft and 30 aircraft in their managed fleet portfolio. The company leased and managed aircraft to a globally diversified customer base comprised of 85 airlines in 51 countries. As of December 31, 2016, the weighted average lease term remaining of their operating lease portfolio was 6.9 years and the weighted average age of our fleet was 3.8 years.
During 2016, Air Lease entered into supplemental agreements and amendments to existing agreements with Airbus and Boeing to purchase 10 additional aircraft. Air Lease agreed to purchase from Airbus one A350-900 aircraft and one A321-200 aircraft. From Boeing, they agreed to purchase six additional 737-8MAX aircraft and two 787-9 aircraft. Deliveries of the 10 additional aircraft are scheduled to commence in 2017 and continue through 2021. As of December 31, 2016, the company had commitments to purchase 363 aircraft from Boeing and Airbus for delivery through 2023, with an estimate aggregate commitment of $27.9 billion, making Air Lease one of the world’s largest customers for new commercial jet aircraft.
During 2016, the company signed lease agreements, letters of intent, and lease extension agreements for 122 aircraft with 39 customers across 33 countries. As a result, the minimum future rental payments that our airline customers have committed to the company have increased to $23.8 billion from $20.9 billion in the prior year. This includes $9.4 billion in contracted minimum rental payments on the 237 aircraft in their existing fleet and $14.4 billion in minimum future rental payments on the 167 aircraft that they have ordered from the manufacturers which will deliver between 2017 and 2021.
In 2016, total revenues increased by 16.0% to $1.42 billion, compared to 2015. This is comprised of rental revenues on their operating lease portfolio of $1.34 billion and aircraft sales, trading and other revenue of $80.1 million. During the year ended December 31, 2016, the company sold 46 aircraft for proceeds of $1.2 billion, recording gains on aircraft sales and trading activity of $61.5 million. During the year ended December 31, 2015, the company sold 24 aircraft for proceeds of $784.7 million, recording gains on aircraft sales and trading activity of $33.9 million.
In December 2015, the company entered into an agreement to sell their fleet of 25 ATR turboprop aircraft. As of December 31, 2016, Air Lease has completed the sale of all the ATR aircraft to Nordic Aviation Capital. In addition, in May 2016, the company entered into an agreement to sell 25 Embraer E190 and E175 aircraft to NAC. As of December 31, 2016, 20 aircraft had been transferred to NAC and the remaining five aircraft were held for sale. The company expects the sale of the five aircraft held for sale to be completed during the first quarter of 2017.
Air Lease finances the purchase of aircraft and their business with available cash balances, internally generated funds, including aircraft sales and trading activities, and debt financings. The company's debt financing strategy is focused on raising unsecured debt in the global bank and debt capital markets, with a limited utilization of export credit or secured financing. In 2016, the company issued $2.0 billion senior unsecured notes with an average interest rate of 2.875%, with maturities ranging from 2020 to 2023. In 2016, they increased their unsecured revolving credit facility capacity to $3.2 billion, representing a 14.3% increase from 2015 and extended the final maturity to May 5, 2020. Air Lease ended 2016 with total debt outstanding, net of discounts and issuance costs, of $8.7 billion, of which 83.5% was at a fixed rate and 92.4% of which was unsecured, with a composite cost of funds of 3.42%.
In October 2016, Standard and Poor’s rating services raised the company's corporate credit and senior unsecured ratings to ‘BBB’ with a stable outlook, and Kroll Bond Ratings reconfirmed their credit rating of ‘A-’ with a stable outlook in December 2016. In January 2017, Fitch Ratings, Inc. assigned an investment grade rating of ‘BBB’ to their senior unsecured debt and long-term issuer default rating with a stable outlook. This investment grade credit ratings helps them lower their cost of funds and broadens theyr access to attractively priced capital.
Net income for the year ended December 31, 2016 was $374.9 million compared to $253.4 million for the year ended December 31, 2015, an increase of $121.5 million or 48.0%. Diluted earnings per share for the year ended December 31, 2016 was $3.44 compared to $2.34 for the year ended December 31, 2015. Pre-tax profit margin for the year ended December 31, 2016 was 40.9% compared to 32.1% for the year ended December 31, 2015.
Excluding the effects of certain non-cash items, one-time or non-recurring items, such as settlement expense, net of recoveries, that are not expected to continue in the future and certain other items, the company's adjusted net income before income taxes was $622.9 million for the year ended December 31, 2016 compared to $508.0 million for the year ended December 31, 2015, an increase of $114.9 million or 22.6%. Adjusted margin before income taxes for the year ended December 31, 2016 was 44.1% compared to 41.7% for the year ended December 31, 2015. Adjusted diluted earnings per share before income taxes increased to $5.67 for the year ended December 31, 2016, compared to $4.64 for the year ended December 31, 2015.
My Path Forward
As air flight expands around the world with the increase in the middle class, Air Lease will expand along with it. I'm actually amazed that this company isn't already in my portfolio. It's similar to REITs which I like and it's similar to rental companies, which I also like. Everything about this business seems to fit in with my investing style. So I don't understand why I don't already own shares.
But I'm going to fix that situation quickly. I intend to pick up shares as soon as possible as funds become available this week. This company has a one year expected capital gain of over 20% and even it does only half that I'll be very happy. Add in a very small but growing dividend and it becomes even more appealing. Notice the payout ratio of less than 9% for a company that's growing earnings at 47% and you just know they're going to increase that dividend quickly.
I think at this point a projected stock price one year from now of $47 is very low. This stock could easily hit in the mid $60 range and not break a sweat based on its low P/E ratio and its estimated 5 year earnings growth. That's the kind of expansion in stock price that I'm looking for in all my investments.
My only regret is that I didn't start buying these shares last year as it pulled back below $30 per share and I'd already be up almost 30%, but that's water under the bridge. Finally, one word of caution. It appears that the shares may hit resistance near $40 but that should be short lived. It will, however, provide an opportunity to get in below that resistance for a few day before it pushes through it. Once that happens it should be free sailing through the 40s and higher.