As an airplane leasing company, most investors probably envision the stock of AerCap Holdings N.V. (NYSE:AER) trading inline with the airline industry. In fact though, it typically trades more like the financials so one should not be surprised that it currently trades below book value.
The company is one of the largest airplane-leasing firms. Currently, only Air Lease Corp (NYSE:AL) trades with a larger market cap due its extremely fast growth from start up to the current level and a well respected management team that moved over from ILFC, a subsidiary of AIG. As AerCap Holdings N.V. (NYSE:AER) finally trades closer to book value, investors face the interesting dilemma of whether this stock should trade closer to historical values of multiples of book value or if a new normal exists.
With long-term lease agreements and the ability to survive the financial crisis with minimum financial impact, the prospects appear strong for an industry that continues to benefit from the increasing demand for global travel.
New planes, long-term leases
The airplane leasing business is incredibly consistent with very long-term leases especially for the newer planes. In total, AerCap Holdings N.V. (NYSE:AER) has a portfolio of 368 aircraft that it owns or manages with an owned fleet average age of 5.3 years. Due to this relatively young fleet, the company has an incredible average remaining lease term of 6.6 years. Yes, that’s a very long 78 months of continuous lease payments. The major reason for the long average age is new planes immediately lease for nearly 14 years or an extremely long 166 months.
Air Lease Corp (NYSE:AL) offers a similar fleet dynamic to AerCap Holdings N.V. (NYSE:AER), but it is achieving a younger fleet age of 3.5 years by ordering new planes. The global lessor acquired 10 aircraft during Q2 via the new order book and was a launch customer for the 787-10 Dreamliner by signing a non-binding agreement for up to 33 planes. Due to consistently adding new planes, the average remaining lease term remains relatively high at 7.1 years. As with the typical companies in the sector, the customer base is diversified over 78 airlines spread among the world with a focus of nearly 40% in both Asia and Europe.all data from Q2 report-http://finance.yahoo.com/news/air-lease-corporation-announces-second-200100689.html
Fly Leasing Ltd(ADR) (NYSE:FLY) offers a slightly different business model with older aircraft on shorter leases. The average age of the aircraft portfolio is weighted at 9.4 years with an average remaining lease term of 3.7 years. The company has a mixed diversification between Airbus and Boeing planes spread among 54 airline customers and 103 planes.
One of the major concerns in this industry has been the historically high level of airline bankruptcies that can lead to broken lease agreements. As heavily indebted firms, the cancellation of enough leases could lead to a financial disaster.