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Bizworld: Aircraft leasing business appears to be high-flying growth opportunity

Ron Walter looks at four aircraft leasing companies
stock market chart
Stock market chart (Shutterstock)

The aircraft leasing business offers lucrative opportunities for investors in what is essentially a finance business where the operator buys and leases planes.

Leasing aircraft takes less cash up front, less financing hassle, allows easier fleet expansion, and earlier acquisition than placing orders and full ownership when the 10-year lease expires. Sudden higher interest rates might change the leasing outlook.

This week, Bizworld looks briefly at four aircraft leasing companies offering investors a chance to share in global air travel growth.

The International Civil Aviation Organization (ICAO) estimates 42,000 new commercial aircraft will be needed by 2037. Five per cent will be regional jets, 73 per cent will be single aisle with 19 per cent wide bodied.

Highest rate of growth will be in Asia, China, Middle East and Africa.

Another ICAO statistic: forty per cent of the 29,000-commercial aircrafts in-use are leased.

Aircraft life is 20 years before maintenance costs and new design makes them outdated.

Irish-based Aercap Holdings has been around 40 years with 1,058 aircraft worth $42 billion US. New orders total 434 with Europe’s Airbus and Boeing models.

Business is 36 per cent from Asia/Pacific/Russia with 30 per cent from Europe, 14 per cent America and 10 per cent Africa/Middle East.

Debt is a low three times equity.

Smaller Fly Leasing of Ireland, 30 years old, has 112 Boeing and Airbus craft in the fleet worth $3.5 billion with $2 billion new deliveries on option.

Fly leases 73 per cent of its fleet in Asia and China, with India the best customer at 17 per cent. Debt is leveraged to four times equity and 82 per cent of market value.

Los Angeles-based Air Lease Corporation with 268 aircraft worth $7 billion has scheduled 90 deliveries in 2019 to build the fleet by 34 per cent.

Air Lease craft are split between Airbus, Boeing and regional jet Embraer.

Eighteen per cent of aircraft are in China with 25 per cent in the rest of Asia, 30 per cent in Europe. Debt is a more reasonable 2.5 times equity.

Canadian aircraft company Chorus Aviation entered the aircraft leasing business in 2017, quickly building the fleet of Bombardier narrow-bodied jet and turboprop to 117 craft.

With equity/debt injections by billionaire Canadian investor Prem Watsa and a recent $97 million from Air Canada, Chorus plans growth of leasing from current 10 per cent of revenues.

Ninety-per cent of Chorus revenues come from the airline flying and maintenance business. The company has a contract with Air Canada to operate connecting regional feeder routes through Voyageur Air and operates contracted and charter flights with Jazz Air.

Debt is 4.7 times equity and 4.7 times cash flow. The dividend yields seven per cent.

The only other dividend payer is Air Lease with a 1.4 per cent yield.

All four – Chorus, $6.80; Air Lease, $37.51US; Aercap, $46.64US; and Fly Leasing, $10.99US – are well off their high price of the last year.                 

Substantial prices drops came with the stock market pain from September to year end, although Chorus stock has been drifting down since last March.
 
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
 
Ron Walter can be reached at ronjoy@sasktel.net

 

The views expressed in this column are solely those of the author and do not necessarily reflect those of Moose Jaw Today, the Moose Jaw Express, its management, or its subsidiaries.