Amey Dargude
Rahul Gohil
Shruti Shah
Vanditha Mysore Ravindranath
Yujiang (Walter) Chen
Source: http://airleasecorp.com/
Nov 17, 2015
Agenda
 Current Holding
 Company and Business Overview
 Macroeconomic Overview
 Comparable Valuation
 Technical Analysis
 DCF Valuation
 Recommendation
Our Current Holding
 Ticker: AL
 Exchange Listed: NYSE
 Bought: 400 shares at $22.32
 Current Price: $32.71
 Return: $4156 (46.55%)
 Percentage of portfolio = 3.008%
Source: Yahoo Finance,
https://www.business.illinois.edu/finance/rcmp/Research.aspx?Cat=Portfolio
Company Overview
 Founded on February 2010
 Based out of Los Angeles, California
 No. of Offices – 2- LA & Dublin (Ireland)
 IPO – 19th April, 2011 (Raised estimated $965.6 mm)
 Founder, Chairman & CEO - Steven F. Udvar-Hazy
 Founded ILFS
 Number of Employees – 65 (Full time)
Source: http://airleasecorp.com/about/, Yahoo Finance, Wikipedia
Business Model
Purchase new
aircrafts
Sell Aircrafts
to third parties
Air Lease
Lease aircrafts
to airlines
Fleet
Management
Services
Source: 10-k 2014, Page 4, 5
Business Overview
Portfolio of aircraft
38
 Current Fleet Size
 Owned = 235
 Managed = 26
 Customers – 77 airlines across 46 countries
 Suppliers – Boeing, Airbus, Embraer, ATR
Single-aisle
narrowbody
197
Twin-aisle widebody
Aircraft Suppliers
19
26
90
100
Airbus
Source: 10-k 2014, and 10-Q Nov 2015
Boeing
Embraer
ATR
Business Overview
Revenue Segmentation (%)
 Weighted average lease term – 7.3 years
4.1
4
9
 Average age of the fleet – 3.5 years
43.2
10
29.7
Source: 10-k 2014, Page 4, 5
Asia
Europe
The Middle East & Africa
Central America, South America and Mexico
Pacific, Australia, New Zealand
U.S. and Canada
Key Statistics about Air Lease
 Announced purchase schedule of 387
aircrafts to be delivered until 2024 from
Boeing, Airbus & ATR
 Signed lease agreements for 119 aircrafts
 Purchase price = $30.7 billion
 One of the largest customers of Boeing &
Airbus
 Boeing 737 family – World’s best selling
aircraft (83)
 Airbus A320 - Currently the world's best
selling jet airliner & 2nd best in history
(39)
Source: 10-Q 3rd Quarter 2015
Leasing Schedule
120%
100%
80%
60%
40%
20%
0%
2015
2016
2017
2018
% of Aircrafts leased
2019
Thereafter
Management Philosophy
 Focus on emerging markets
 Experiencing increased demand for passenger airline travel
 Mature markets North America & Western Europe
 Replace aging aircraft with new, modern technology & more fuel efficient
aircrafts
 Fewer financing alternatives in emerging markets
 Command relatively higher lease rates compared to those in mature markets
 Diversify leases & lessees by geography, lease term, aircraft age & type
 Strategy to own an aircraft during the first third of its expected 25 year useful life
Source: 10-k 2014, page 4
Air Lease Strategy
Aircraft Leasing Strategy
Aircraft Acquisition Strategy
• Allows airlines to avoid financial risk
• Highly in demand, widely distributed,
modern technology, fuel efficient
• Strategically target the replacement of
aging aircraft with modern technology
aircraft
• Supplement order pipeline with
opportunistic purchases of aircraft in the
secondary market
• For new aircraft deliveries, source many
components separately
• Often times able to achieve lower pricing
Source: 10-k 2014 page 7, 8
• Fleet flexibility enables airlines to more
effectively operate and compete in their
respective markets
Air
Lease
• Enter into a lease agreement 18 to 36
months in advance of the delivery of a
new aircraft
• Sign a follow-on lease 6 to 12 months
ahead of the scheduled expiry of the
initial lease term
Industry & Macroeconomic Review
 Over the past 30 years, the aviation industry
has grown at 5 percent annually
 Industry traffic grew at 6% in 2014
 To carry this additional traffic,
 New aircrafts - 4 to 4.5% of the installed
fleet, approx. 900 airplanes
 Replacement Requirement - 2 to 3 %,
approx. 500 airplanes
 The two largest fleet domiciles, Europe and
North America
Source: Boeing (Traffic and market outlook)
Industry & Macroeconomic Review
 GDP is a strong indicator for the Current Market
Outlook
 GDP to grow at 3.1 percent over the next 20 years
 Industry net profit doubled to US$20 billion in 2014
over 2013
 Airlines continue to focus on reducing costs and
boosting revenues
 Over the past decade, the airline industry has
achieved 7% CAGR
 Fuel averages 25 percent of airline cost
 Oil prices are expected to remain below $70 per
barrel until 2018
Source: Boeing (Traffic and market outlook, Business and Market Environment), Airbus
Risk Factors
Risk of
Default on
lease
Payment
Unable to sell
old aircrafts
Increase in
Interest Rate
Undiversified
type of
aircraft
models
SWOT Analysis
Strengths
-Own youngest & fuel efficient fleet
- Low cost Financing Options
- Skilled management and small number of employees
-Diverse customer base
Weakness
-Highly dependent on few suppliers
-Fixed rental income vs floating interest rate
SWOT
Analysis
Opportunities
-Growing demand in the emerging market
-Emergence of small player increasing demand for
leased fleets
Threat
-Volatile interest environment leading to volatile cost
of borrowing
-Technology innovation obsoleting current fleets
-Sensitive to economic volatility (mainly oil prices
and exchange rate fluctuation)
Porter’s Five Forces
Supplier Bargaining Power (High)
- Very few big suppliers in the industry
Threat of new
entrants (Low)
- Huge capital
investment
- Requires expertise
and customer
relation
- Stringent
government
regulations
-
Rivalry among existing competitors
(Moderate)
Industry leader but competition from other
leasing companies & brokers
Fragmented market and internationalized
Similar product and less differentiation
Buyer’s Bargaining Power (Low)
- Large customer base and only few top
companies lead 95% of the market
Threat from
substitutes (Low)
- Only big airline
companies can own
aircrafts
- Many small players
in the industry,
hence prefer
leasing
Air lease Competitors
Business
Model
Fleet Size
International
presence
AVOLON HOLDINGS
Based out of Dublin, Ireland, Avolon Holdings Limited acquires, manages, leases, and sells commercial
jet aircraft to various airlines and lessees in the United States and internationally
Operates a portfolio of 235 aircraft, including 126 owned, 11 managed, and 98 committed aircraft
FLY LEASING
Based out of Ireland, FLY Leasing engages in purchasing and leasing commercial aircraft under multi-year
contracts to various airlines worldwide
Has international presence, and its aircraft portfolio consisted of 127 commercial jet aircraft, including 116
narrow-body passenger aircraft and 11 wide-body passenger aircraft.
AIR CASTLE
Based out of Connecticut, Air Castle acquires, leases, and sells commercial jet aircraft to airlines
worldwide
Has international presence and it’s current aircraft portfolio comprised 148 aircraft that were leased to 54
lessees located in 34 countries
Source: 10K Report
Valuation – Comparable Analysis
Financials – Ratio Analysis
Profitability Ratios
Activity Ratios
30.00%
0.1400
25.00%
0.1200
Financial Leverage
3.5000
3.0000
2.5000
2.0000
1.5000
1.0000
0.5000
0.0000
0.1000
20.00%
0.0800
15.00%
0.0600
10.00%
0.0400
5.00%
0.0200
0.00%
2011
2012
2013
2014
2015
0.0000
2011
2012
2013
2014
2015
Net profit margin 15.81% 20.12% 22.17% 24.37% 27.30%
Asset Turnover 0.0905 0.1048 0.1029 0.1045 0.1104
ROA
Fixed asset
Turnoveer
ROE
1.43%
2.11%
3.13%
5.85% 7.84% 9.67% 12.07%
Net profit margin
10-K Reports (2011 – 2014)
2.28%
ROA
2.55%
ROE
3.01%
2011
2012
2013
2014
2015
Longterm Debt to
Asset
0.5213
0.5582
0.6136
0.6250
0.5865
Interest coverage
ratio
2.4359
2.3837
2.5254
2.7896
3.1394
Solvency ratio
0.0820
0.0869
0.0795
0.0800
0.0748
0.1148 0.1250 0.1239 0.1268 0.1306
Asset Turnover
Longterm Debt to Asset
Fixed asset Turnoveer
Solvency ratio
Interest coverage ratio
Financials – Ratio Analysis
10-K Report (2011-2014)
Financials – Ratio Analysis
10-K Reports (2011 – 2014)
Technical Analysis
Source: Yahoo Finance
Assumptions (in ‘000)
Discounted Cash Flow Valuation
Recommendation
DCF
Valuation
Current
Price
$32.71
Comparable
Valuation
$30.76
$32.89
SELL 200 shares
at Market Price
Thank You
Q&A