It wasn't so long ago
that many companies were getting into the aircraft leasing space and
Wall Street was cheering them along. After all, emerging market demand
was supposedly going to have customers rushing to airports and buying
tickets hand over fist to travel, and airlines were going to enjoy a
prolonged period of blemish-free prosperity. Along the way, established
operators like AerCap (NYSE:AER), Fly Leasing (NYSE:FLY), and Aircastle (NYSE:AYR)
enjoyed a solid run as the likely beneficiaries of more airlines
turning to leasing and an attractive spread between lease rates and debt
costs.
And then along came reality.
Weaker
economic conditions in Latin America, China, and Russia have certainly
had an impact on emerging market air travel demand and there are now
valid concerns about the impact of a glut of widebody aircraft. What's
more, the low oil prices that once looked like a boon for airlines and
air travel have become a challenge in their own right as they reduce the
value of more modern, more fuel-efficient aircraft for lessees.
With
all that, AerCap is off about 25% from its 2015 peak and has been
trading below book value for some time. There are certainly valid
concerns remaining in the leasing industry - will long-term air travel
demand growth projections of around 5% hold up, will higher debt costs
materialize and shrink margins, will the company continue to be able to
successfully turn over its fleet? Even so, I believe that AerCap could
liquidate its fleet for 20% to 40% more than today's share price, and I
think that underpins a value call for risk-tolerant investors.
Amid Multiple Market Worries, AerCap Holdings Seems Too Cheap
No comments:
Post a Comment