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April 18, 2024
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Air Lease reported 4Q23 EPS of $1.89, +68% above the consensus of $1.12. “Fourth quarter and full-year performance at ALC was very strong. With the exception of the benefit of tax reform in 2017, we achieved record revenues and profits for the 4th quarter, with net income increasing 56% and revenues increasing 19% over the prior year’s quarter. Similarly, for the full year 2023 we enjoyed record revenues, aircraft sales, and total assets which exceeded $30 billion for the first time. Looking forward, the commercial aircraft supply/demand backdrop remains highly favorable for our current fleet and our $22 billion forward orderbook scheduled to deliver over the next 4-5 years,” said John L. Plueger, Chief Executive Officer and President, and Steven F. Udvar-Házy, Executive Chairman of the Board.

TD Cowen notes: “The shares continue to trade at a large discount. We would be buyers here.”

OEM deliveries combined with passenger traffic growth are driving aircraft values. OEM order books are filled through 2030,  leading many operators to access aircraft via leasing or secondary asset sales.  Lease extensions are common and are undertaken at higher rates.  ALC benefitted from buying before the current upcycle and benefits from both delivery slots and bulk pricing from early orders.  We noted this last year.

TD Cowen points out: “Management estimates about 90-95% of its leases are being extended vs its historical average of 75%. Encouragingly, Air Lease is seeing the follow-on lease rate in many recent extensions exceed the rate paid on the original lease.”

ALC noted: “We have placed 100% of our committed order book on long-term leases for aircraft delivering through the end of 2025 and have placed approximately 65% of our entire order book delivering through 2028.” As a bellwether for the industry, this is a strong forward-looking signal.  Consider this statement in light of Airbus’ earnings report from yesterday. Add to that the supply constraint for MAX deliveries.  In short, operators must hold on to what they have to serve traffic.

Overall, the results are positive and appear to show strength through the decade’s end. ALC’s management are industry veterans, so this company is closely watched.  The industry parses every word its executives say for the slightest nuances.

Moreover, ALC has significant influence over Airbus and Boeing.  Witness their early rejection of the first A330 refresh. Today, we have the A330neo and the A350 – the combination powers Airbus’ widebody offerings.  The company’s influence is considerable and the basis of its bellwether status.

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Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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