To The Moon

$Air Lease(AL)$ is a global leader in the aircraft leasing industry. The company primarily focuses on acquiring, leasing, and managing a diverse fleet of commercial aircraft. It provides leasing solutions to airlines worldwide, enabling them to access new aircraft without bearing the capital expense of purchasing them. Air Lease offers both operating leases (where it retains ownership of the aircraft) and finance leases (which resemble aircraft ownership for the lessee).

The company has established strong relationships with major airlines, providing them with aircraft leasing solutions for fleet expansion, modernization, and replacement. Air Lease’s portfolio includes a wide range of aircraft from manufacturers such as Boeing and Airbus.

Earning Overview

Revenue

Air Lease Corporation reported strong financial results for Q3 2024, with revenues of $690.2 million, surpassing analyst estimates of $676.8 million and reflecting a 4.7% year-over-year increase. This growth was attributed to the expansion of its fleet and favorable lease rates despite ongoing aircraft supply challenges. The company added 20 new aircraft during the quarter, bringing its owned fleet to 485, with a total fleet value of $27.9 billion.

Earnings per share (EPS) came in at $0.82, slightly below some expectations, and represented a decline from the $1.10 reported in the same quarter last year. The drop in EPS was primarily due to increased interest expenses. Net income also fell by 24.9% year-over-year to $91.6 million for the quarter.

Fundamental Analysis

I monitor long-term changes in earnings per share (EPS) to assess whether a company's growth translates into profitability. Unfortunately for Air Lease, its EPS has decreased by an average of 2.2% per year over the past five years, despite a 7.4% increase in revenue. This indicates that as the company expanded, its profitability per share diminished.

Air Lease Trailing 12-Month EPS (Non-GAAP)

EPS Trending Down: Despite a 7.4% increase in revenue over the past five years, Air Lease’s earnings per share (EPS) have declined at an annual rate of 2.2%. This suggests that the company’s growth has not translated into improved profitability per share.

Debt and Financial Leverage:

Debt Levels: Air Lease carries a high level of debt, with total liabilities exceeding $20 billion. Its debt-to-equity ratio is significant, reflecting its reliance on debt financing for fleet expansion and operations.

Interest Coverage: The company’s ability to service its debt is under pressure, as rising interest rates increase borrowing costs. This could impact future profitability and cash flow, especially if the debt levels continue to rise without corresponding improvements in income.

Growth Potential:

Fleet Expansion: Air Lease continues to expand its fleet and diversify its aircraft portfolio, positioning itself as a leader in the leasing industry. The company has a significant order book, which promises strong future revenue streams​.

Market Demand: Despite near-term challenges, the global demand for air travel and aircraft leasing is expected to remain strong, especially as airlines continue to recover from the pandemic and expand fleets to meet growing travel demand.

Free Cash Flow

Free Cash Flow (FCF) for Air Lease Corporation (AL). The trend shows a downward movement, reflecting a potential decline in available cash for reinvestment or debt repayment. The zero line highlights periods when FCF turns negative, which could signal challenges in sustaining cash flow for operational needs.

Air Lease Trailing 12-Month Free Cash Flow Margin

Margin Dropping Air Lease's margin has decreased by 68.1 percentage points over the past five years. If this trend persists, it could indicate that the company is becoming more capital-intensive. Additionally, Air Lease's free cash flow margin for the trailing 12 months was a negative 91.2%.

Guidance

Technical Analysis

Here are the technical analysis charts for Air Lease Corporation:

1. Stock Price and Moving Averages:

   The stock price is shown in blue, while the 50-day (orange) and 200-day (green) moving averages provide insights into short-term and long-term trends.A crossover of the 50-day MA above the 200-day MA would confirm bullish momentum.

2. Relative Strength Index (RSI):

   The RSI chart helps gauge momentum. Levels above 70 indicate overbought conditions, while levels below 30 suggest oversold conditions.The RSI remains in a neutral-to-overbought zone, consistent with recent price highs.

Recent High: The stock hit an all-time high of $52.31 on November 25, 2024, indicating bullish momentum.

Trend Direction: Over the past three months, the stock has shown a consistent upward trajectory, supported by robust demand for aircraft leasing and improving market sentiment.

Short-Term (50-Day MA): The stock is trading above its 50-day moving average of $44.42, confirming short-term bullishness.

Long-Term (200-Day MA): Trading above the 200-day moving average of $46.20 reinforces a positive long-term trend

Support and Resistance Levels:

• Resistance: The all-time high of $52.31 is a key resistance level; a break above this could lead to further upside potential.

• Support: Strong support is observed near $48, aligning with recent consolidation levels.

Volatility:

• The stock’s beta of 1.59 suggests it is more volatile than the overall market, offering potential for higher returns but also greater risk during market downturns.

Air Lease is currently in a strong technical position, with bullish signals dominating. However, traders should watch for potential overbought conditions and monitor macroeconomic factors, such as interest rate trends, which could impact sentiment.

Risks and Challenges

As a long-term investors, my primary concern is the risk of permanent capital loss, which can occur when a company goes bankrupt or is forced to raise funds under unfavorable conditions. This is distinct from short-term stock price fluctuations, which are less concerning to us.

Air Lease Net Cash Position

Air Lease consumed $2.50 billion in cash over the past year, with $21.92 billion in debt far outweighing its $460.8 million in cash reserves. This is a red flag for us, as heavily indebted, loss-making companies present significant risks. If Air Lease’s fundamentals don’t improve quickly, it may need to raise capital to sustain operations, potentially under unfavorable terms. Such dilution would pose a challenge to shareholder returns. We remain cautious about Air Lease until it demonstrates consistent free cash flow or reflects its announced financing plans on its balance sheet.

Slow Growth Indicators for Air Lease Corporation

Air Lease has demonstrated moderate revenue growth, with Q3 2024 revenues rising by 4.7% year-over-year to $690.2 million.

Decline in Earnings Per Share (EPS): EPS fell to $0.82 in Q3 2024 from $1.10 a year earlier, reflecting higher interest expenses and borrowing costs.

Debt Load: The company’s total debt increased to $20.2 billion, amplifying financial pressure despite 81% of it being fixed-rate financing.

Net Income Drop: Net income decreased by 24.9% year-over-year to $91.6 million, highlighting the impact of rising costs on its bottom line.

While Air Lease has been growing its fleet and maintaining solid revenue figures, the combination of increased costs, declining profitability metrics, and reliance on debt financing suggests a slower trajectory for sustainable growth.

Valuation

Air Lease's trailing 12-month P/E ratio has declined, reflecting weaker earnings due to higher costs. Comparisons with industry peers can highlight whether the company is undervalued or overvalued relative to the leasing sector.

Given Air Lease's high asset base (aircraft fleet valued at $27.9 billion), its P/B ratio provides insights into how the market values its assets. A low P/B may suggest undervaluation, but this could also signal investor concerns about profitability and debt.

With $20.2 billion in debt, Air Lease has a high debt-to-equity ratio, which increases financial risk and impacts valuation negatively, especially in a rising interest rate environment.

Market sentiment

Positive

Strategic Fleet Expansion: Delivering 20 new aircraft and selling nine, ALC's fleet development and diversification have bolstered its position in a competitive market. The company also highlights a young fleet with an average age of 4.6 years.

Orderbook Strength: ALC reported $29.7 billion in committed future rental revenues, emphasizing strong demand and positioning for sustained growth​

Negative

Profitability Pressures: Despite revenue growth, net income dropped 24.9% due to higher operating and interest expenses, which rose 13.3% and significantly impacted margins​.

Rising Costs: The cost of financing increased as composite funding rates rose, compressing pre-tax margins from 25% to 18.9%, signaling profitability challenges.

EPS Decline: Earnings per share decreased by 25.5%, reflecting weaker per-share profitability despite strategic initiatives.

Conclusion

Air Lease Corporation is a major player in the aircraft leasing industry, with a large and growing fleet of modern aircraft. While the company faces financial challenges, including high debt levels and negative free cash flow, its long-term growth prospects are supported by strong demand for new aircraft and its position in the global aviation market.. The Stock reached an all-time high of $52.31 on November 25, 2024. This milestone reflects positive market sentiment, driven by factors like strong aircraft leasing demand, improved financial performance, and optimistic analyst outlooks.

I would suggest to closely watching its ability to manage costs effectively and maintain profitability. If the Stock pullback to $30 range it will be a good entry point.

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