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Market value: $6.8 billion
Forward P/E: 7.0
Dividend yield: N/A
According to the Centre for Asia Pacific Aviation (CAPA), aircraft leasing accounts for half the world’s commercial aircraft. Commercial aircraft aren’t cheap, which explains why so many airlines prefer to lease rather than buy. As air travel continues to grow, aircraft leasing also should increase.
CAPA’s fleet database suggests that aircraft leasing is higher in Latin America, Europe and Asia, and lower in North America and Africa. Of the aircraft leased by lessors, most prefer regional jets and narrowbodies; widebodies are less favorable.
Ireland-based AerCap (AER, $47.92) is the world’s largest owner of commercial aircraft with 1,421 aircraft owned, managed or on order.
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Over the past five years, AerCap purchased leased or sold more than 2,000 aircraft. Its average remaining lease term on its planes is almost seven-and-a-half years, providing investors with cash flow certainty.
AerCap is good at turning a profit – it has done so for each of the past 12 years. AerCap did see revenues shrink 4.7% year-over-year in 2018, to $4.8 billion, but it managed to keep its earnings flat at $1.02 billion. And because the company prefers stock buybacks over paying a dividend, its earnings per share grew by 6.2% to $6.83.
The company will feel the “Boeing effect,” even if just to a small extent. The company presently has only five Boeing 737 Max 8s in its fleet, but it’s supposed to take delivery of 17 in 2019, 24 in 2020 and 58 beyond that, representing approximately 30% of its aircraft on order. The coming year could require some changes to its order book to account for expected delays. Long-term, however, this should not be a material concern. Investors don’t seem worried: AER shares have rallied 21% in 2019.