Will Selling Aircraft Really Help Air Lease?

When companies sell assets it can greatly help their position. The flip side is that the company is shrinking its asset base and then has to allocate cash. An announcement right before Christmas from Air Lease Corp. (NYSE: AL) signaled that the air leasing outfit was selling 25 ATR aircraft in its fleet to Nordic Aviation Capital.

The company noted that the planes have served it well, but the business has matured and Air Lease has focused more on its mainline jet aircraft operations. To prove the point, the shorter-distance turboprop planes now account for less than 5% of its current fleet. Most of aircraft transfers are expected to occur during the first half of 2016.

So, is this deal good or bad for Air Lease? According to Credit Suisse, the sale is rather good. The firm reiterated its Air Lease rating as Outperform, along with a $45.00 price target. This was substantially higher than Air Lease’s prior $33.78 closing price. Still, Credit Suisse’s team is not even the most bullish of the analysts who follow the stock.

Air Lease has a $3.4 billion market cap. Credit Suisse estimates $300 million to $400 million of book value from the deal. They believe it is possible that the portfolio sold at solid gains, given the recent transaction price paid elsewhere. Credit Suisse said:

The sale does not suggest a change in Air Lease’s business model as Air Lease must sell significant amounts of aircraft to remain below their 2.5x debt to equity target. This will allow Air Lease to deploy capital into its forward orderbook. … We believe that EQT paid approximately 8-15% over the book value of NAC’s aircraft assets, equating to approximately 1.7-times to 2.0-times book value, based on numbers provided by private equity publication Argentum.

Credit Suisse further continues to favor shares of Air Lease as valuation is attractive and Air Lease’s operating platform and strategy continue to work well. The report noted that Air Lease has virtually 100% utilization, strong fleet expansion and attractive purchase prices as well as lease rates.

Air Lease shares were actually lower on the day, likely due to a weak market on Monday. Late morning trading had the shares down about 1.3% at $33.35. Air Lease has a consensus analyst price target of $46.15 and a 52-week range of $28.12 to $40.49.

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