![]() Although AerCap has not used dividends as a way to distribute cash to shareholders, perhaps this could be considered as well in addition to buybacks. The potential to use proceeds from lease rentals and sales of aircraft at a premium to book value to buy back shares at a meaningful discount to book value adds significant value and was a hallmark of AerCap's strategy following the acquisition of ILFC from AIG. Reading between the lines, comments by management seem to suggest that absent a dramatic change in performance of the business, an announcement of renewed share repurchases is likely coming in the first quarter, if not sooner. Level of share buybacksīased on excess capital forecast to be generated by the business, it is not a reach to see buybacks materially exceed expectations. Given how much the book has grown with the GECAS acquisition, it seems reasonable to assume that asset sales could be materially higher, with similar or higher profits than assumed. AerCap was closing nearly $2 billion in annual sales in the years before the GECAS acquisition, when its portfolio was roughly 40% smaller than it current is. We assume that aircraft sales normalize in the $2-2.5 billion per year range going forward, with sales margins in the mid-to-high single digits. Indeed, our quarterly lease rentals don't exceed current levels until December 2023 despite significant acquisitions of new aircraft, and even when they do rise, they do so by less than 5% in the aggregate. ![]() We believe our forecast of future earnings and book value is on the conservative side for numerous reasons: Interest cost and lease rentalsįirstly, we assume incremental debt issuance through 2024 taking place at current market rates without a commensurate increase in lease rentals. This implies that shares are currently trading at approximately 70% of 2023 book value and approximately 6.5-7 times adjusted EPS (9 times GAAP EPS). AerCap financials and projectionsĪerCap raised its guidance for the full-year 2022 to a range of $8.00 - $8.50 of adjusted earnings per share, which adds back the non-cash lease premium and maintenance rights amortization items related to the acquisition of GECAS. Their core business, however, has been and will continue to be the leasing of commercial aircraft.ĪerCap shares are down around 25% from the highs reached in late 2021 as equity markets have softened however, this decline does not reflect multiple material positive changes that should be supportive of higher prices in the future. The above league table excludes AerCap's dominant position in the commercial aircraft engine and helicopter leasing markets with over 900 engines and 300 helicopters in its portfolio. Source: Airfinance Journal 2021, various company websites and filings. It is, by all accounts, the biggest player in the space, with a portfolio value that greatly exceeds any of its competitors in the space: Rank However, the undisputed market leader in this business is AerCap Holdings.ĪerCap is the world leader in commercial aircraft leasing, with a fleet of over 1,700 owned and managed commercial aircraft on lease to airlines worldwide along with 460 orders of commercial aircraft. There are dozens of lessors globally with different strategies that focus on certain types or ages of equipment and ownership by public equity investors, banks, insurance companies, and private equity and hedge funds. From its beginning roughly 40 years ago, the volume of aircraft owned by the aircraft leasing community has grown from 1% of the in-service fleet to approximately 50% today. Company and industry overviewĬommercial aircraft leasing has been on a growth trajectory for decades. Third quarter asset sale margins above 20% were well above their normal run-rate in recent years in the high single digits, although we only assume a 7% sale margin to arrive at 2023 projected earnings. They've de-levered the business substantially and have reached their target leverage ratio post-GECAS acquisition ahead of schedule, leaving them in a position to start to buy back stock in the near future. ![]() The company delivered strong third-quarter results and struck an upbeat tone on their earnings call. We are recommending a Buy rating on the shares of AerCap Holdings ( NYSE: AER), with a price target of $75 per share, approximately equal to projected year-end 2023 book value and roughly 8.5 times forecast adjusted 2023 earnings per share. Active contributors also get free access to SA Premium. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Editor's note: Seeking Alpha is proud to welcome Grey Ghost Capital as a new contributor.
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