Fly Leasing Looks Undervalued, But Value Creation Will Take Time

Aircraft leasing companies have done okay over the last few years (excluding Aircastle (AYR)) relative to the S&P 500, but there’s still a certain frustrating “watching paint dry” feeling with many of these stocks as they still often seem not to get their full due in terms of valuation. While AerCap (AER) and Air Lease (AL) have done a little better in that regard, Fly Leasing’s (FLY) weaker returns on assets, equity, and capital, remains a constraining factor to valuation.

The acquisition of AirAsia’s aircraft portfolio should allow Fly Leasing to start generating better results, with the influx of aircraft and revenue boosting operating efficiency and the nature of the portfolio and leases supporting a better return on equity. Successfully executing on the AirAsia transaction could support a fair value in the high teens, but a more modest set of expectations would still support a fair value 15% higher than today’s price.

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Fly Leasing Looks Undervalued, But Value Creation Will Take Time