Recently, Fly Leasing Ltd(ADR) (NYSE:FLY) announced that it would pay a quarterly dividend of $0.22 per share. Interestingly, shareholders of Fly Leasing have received dividends from the company uninterruptedly since the beginning of 2008. Famous hedge fund managers, including Jim Simons, David Siegel, and Steven Cohen all reported holding Fly Leasing Ltd(ADR) (NYSE:FLY) in their funds at the end of 2012. Should we be bullish on Fly Leasing at its current trading price? Let’s find out.
Fly Leasing, incorporated in 2007 in Bermuda, is in the business of purchasing commercial aircrafts, which would be leased under multi-year contracts to many airlines in the world. The company operates total 109 commercial jet aircrafts, including 103 narrow-body passenger aircraft and six wide-body passenger aircraft.
Fly Leasing Ltd(ADR) (NYSE:FLY) derived most of its operating lease revenue from Europe, with around $170.3 million, or 45.2% of total 2012 revenue. Asia and South Pacific ranked second with $110.74 million in revenue, while North America generated only $45.2 million in leasing revenue in 2012.
A cash cow with extremely high leverage
Since 2008, Fly Leasing Ltd(ADR) (NYSE:FLY) has witnessed higher revenue but widely fluctuating net income. Its revenue increased from $236 million in 2008 to $433 million in 2012, while net income has fluctuated in the range of $1 million to $113 million during the same period. In 2011, its net income came in at only $1 million. The low profit in 2011 was due to the low lease revenue and high operating expenses, including the acquisition cost of more than $18 million.
In 2012, Fly Leasing Ltd(ADR) (NYSE:FLY) generated $433 million in revenue and $48 million in profit. What I like about Fly Leasing is its consistently growing operating cash flow, which has grown from $111 million in 2008 to $180 million in 2012. Since 2009, its free cash flow has kept increasing from $74 million to $130 million.
In the leasing business, investors should expect the company to have huge leverage. Indeed, that is the case with Fly Leasing. As of December 2012, Fly Leasing had $532 million in total stockholders’ equity, $163 million in cash, $137.5 million in restricted cash, and nearly $2.3 billion in long-term debt. However, total contractual obligations have been spread out, so that the yearly contractual obligations fluctuate in the range of $236.9 million to $400 million. The debt/equity ratio is 4.3.
The Boeing Company (NYSE:BA) sells its 737-800 aircraft to Fly Leasing
Recently, Fly Leasing Ltd(ADR) (NYSE:FLY) had purchased a 2013-manufactured The Boeing Company (NYSE:BA) 737-800 aircraft to lease to Asian low-cost carrier under a 12-year lease term. Fly Leasing’s CEO, Colm Barrington, is excited about the B737-800, he said: “The B737-800 is an excellent commercial aircraft in strong global demand and this acquisition makes it the 38th B737 Next Generation aircraft in FLY’s fleet.”
Indeed, The Boeing Company (NYSE:BA) must be proud of its 737-800, as it has been the best-selling version of the 737 Family. This aircraft version is famous for its reliability fuel efficiency. Boeing described this version on its website: “The single-aisle jet, which can seat between 162 to 189 passengers, can fly 260 nautical miles farther and consume 7 percent less fuel while carrying 12 more passengers than the competing model.”
The 737 aircraft has had the highest cumulative deliveries among Boeing’s commercial airplanes. In 2012, the total cumulative deliveries of the 737 version were nearly 4,300, with deliveries in the year coming in at 415, accounting for 69% of the total deliveries in 2012.