AIR LEASE CORPORATION (AL)
By Xiaoya Xiong (Carrie), Zichao Wang (Zich) and Hari Vijayan.
Presented November 13, 2014
Macroeconomic and Industry Overview
The aircraft leasing industry is highly correlated with the global economic outlook and growth
in consumption patterns. Overall, we find that the economic trends are positive and that the
industry is poised to grow, especially in the emerging markets. Competition is strong, and the
power of suppliers is high in air-leasing industry.
Company Overview
Air Lease Corporation’s principle line of business is in leasing commercial airplanes globally.
The company is headed by Steven F. Udvár-Hazy, a pioneer in air-leasing industry. It is
relatively new, has an employee strength of 63, and is head-quartered in Los Angeles, CA. Its
customers are large commercial airline companies. It has a market cap of $3.82 billion and is
trading as AL at $37.28 as of 12th Nov 14. It owns 193 planes, all of which are currently
leased.
Financial Analysis
We measured Profitability, Short-Term Liquidity and Long-Term Solvency. Then we
used Five Multiple DuPont Analysis and concluded that the main reason of growing ROE is
the growth in leverage.
Revenue Projection: We projected revenue on the two major revenue generators of AL:
1. Rental of Flight Equipment and Aircrafts sales, 2. Trading & Others.
The Rental revenue takes about 97% of total revenue, we projected the future rental revenue
based on the number of the future aircrafts that are probably leased and the future average
revenue generated from each aircraft. We assumed a growth rate of the rest business revenues.
Financial Valuation
1. DCF: We generated a WACC based on the Cost of Debt and Cost of Equity and used
it as the discount rate. For the CAPM model, the risk-free rate and market premium
are from Bloomberg. We regressed the historical 1-year and 2-year daily returns
including dividends and generated two Betas. We also considered Yahoo Finance
Beta and Bloomberg Beta and averaged all of four Betas. For the adjusted annual
historical return, we averaged annual return based on the 1-year daily returns and
2-year daily returns. After that, we calculated FCFF in the five future years and
terminal value, discounted and added them to as the present value, and minus debt to
get the fair enterprise value. Divided by the shares outstanding, we generated the fair
current stock price.
2. Comparables: We compared with its competitors, AerCap Holdings N.V., Aircastle
LTD and FLY Leasing Limited. We valued Air Lease fair price based on the both
the mean and median from those multiples and Graham’s g.
RECOMMENDATION
Based on our valuation, we believe that the stock is over-valued right now. Even though the
economic and industrial outlook is positive, we are concerned about the very high and
increasing debt in the company’s capital structure. We recommend selling 200 shares of
company at the market price, and locking down profit from the over-valued stock.