Air Lease Stock Analysis

Air Lease Company Logo

Air Lease (WKN: A1H92R / ISIN: US00912X3026, Industry: Travel, Country: USA) Stock Analysis 02/21/21.

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When life is grounded but the world starts flying.

When the COVID-19 pandemic was one of the largest pandemics to hit planet earth in a century. True we have had pandemics before like SARS and Swine Flu but none on the scale of this one in terms of damage and destruction.

The whole world was shut down and not only were everybody grounded and stranded but also confined to their homes. For those in love with nature and the environment, who enjoy travelling and adventures and those who have a mandatory annual vacation, this lockdown was nothing short of a frustrating hell.

A spring when compressed can only be compressed to a certain limit before it explodes from all the pent up pressure. Similarly this confinement has built up a tremendous pressure in people longing for the open air and the first signs of the end of the pandemic will see a boom in travel like never before.

The biggest beneficiaries of this shall be the Airlines. The lockdown had almost destroyed the airlines industry with flights grounded for months to end.

This has also led to a depression in the stock prices of these airlines. While the whole limelight has been on the airline stocks with recovery coming in them in anticipation of economic recovery, an opportunity lurks on the power behind this limelight.

When the city goes on a dessert binge, you don’t invest in patisseries, you invest in the sugar manufacturers. Similarly, the biggest beneficiary of the travel boom won’t be any one single airline but the company which provides the aircraft to the airlines in the first place. One such market leader, quietly hidden behind the scenes, chugging along even in the pandemic and poised to benefit from the travel boom is Air Lease Corporation.

Air Lease Corporation is an Aircraft leasing company that purchases new aircraft directly from the manufacturers like Boeing and Airbus and leases them out to Airlines.

They have relationships with 200 airlines over 70 countries (Source: Company 10k). As of December 2019 they owned 292 aircraft with additional commitment of 94 more from Boeing and Airbus (Source: Company 10k).

Revenue Growth Air Lease:

revenue growth air lease

With an outstanding yearly revenue growth rate of more than 20% Air Lease shows promising growth and a stable business. 

Its revenue in particular has not experienced any hit during this pandemic with its nine month revenue in 2020 exceeding its revenue in 2017 and in line with its revenue in 2019. The reason for that is while the airlines were grounded (thus leading to no new leases and identical revenue as 2019), the leases signed were long term and not dependent on airlines being operational. Thus despite the airlines being grounded, Air Lease Corp still got paid. This is a surprising display of pandemic proof traits which adds to the value of the company.

revenue chart air lease

Its margins have been relatively steady as is evident from its operating income which too has experienced the same steady growth.

Air LEase EBIT

Leasing is the future of Airlines:

The boom in travel however is yet to begin and the fortunes of Air Lease are tied to that in a positive way. Airlines around the world are leasing more aircraft than ever before and the trend is rising steadily with currently 49% of the world’s fleet being leased . Here are the trends of leased aircraft vs owned aircraft in few major airlines around the world:

Comparison Airlines Aircrafts leasing and ownership

The travel boom will lead to an increased demand for aircraft by the airlines who will prefer to preserve their liquidity and go for leasing the new aircraft instead of purchasing them. Leasing not only allows them to handle the additional demand without having to commit capital to longer term ventures that aircraft purchase often entails but also provides them aircraft in a fast and efficient manner which otherwise would take years in outright purchases.

Air Lease is a market leader in the space with a large fleet, excellent asset strategy in the form of young, fuel efficient aircraft and a strong balance sheet. Even those airlines looking to purchase aircraft instead of leasing them will be in for a surprise. Monthly production plans for Boeing and Airbus show a cut in output.

Aircraft cut after Corona

Airlines looking to buy will see years of delay in receiving their aircraft by which time the demand aberration about to be experienced in travel will have played itself out thus costing the company the opportunity to make money which would not be acceptable leading to leasing.

As an added benefit, a lot of older planes are about to be retired as the demand for younger, fuel efficient planes rises which Air Lease can provide. This market leadership can be observed freely but is yet to reflect in the valuations thus providing a wonderful opportunity to invest. 

It is trading at half the industry P/E ratio and a simple rerating of the price earning multiple will see the stock doubling.

Add increased earnings and one is looking at a multibagger. Even on a price/book, an important ratio for an aircraft leasing company, the company is highly undervalued in the face of steady revenue growth and increasingly bright prospects.

P/E Ratio Air Lease

Momentum & Relative Strength Analysis

Momentum short term and long term wise too Air Lease stands tall above the industry:

Momentum Air Lease 3 months
Relative strength 1 year

Fair Value Analysis of Air Lease

Using our fair value calculator, one can see that the stock is severely undervalued:

Fair Value Air Lease Corporation


People are going to travel. Freedom is addictive and the freedom of travel which has been curtailed so far even more so. This curtailment has led to a withdrawal in the people and the moment the restriction is lifted, people are going to rush to get their desired hit. When the world is running and everybody wants shoes, one invests in leather and canvas and not shoe companies and the same principle applies here. The travel boom will work on the same principle. While the airlines take off, the one providing the vehicle for takeoff in the first place will fly the highest.

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