Despite the coronavirus issue and associated fall in passenger flight demand, analysts Cowen reiterated its outperform status on lessor AerCap citing the firm’s proven ability to manage through challenging environments and maintain a measured approach to capital deployment.
“AerCap has the largest aircraft leasing platform in the world with a presence, scale, and balance sheet that should allow them to act quickly no matter the backdrop. The company buys, sells or leases at least one aircraft every day which gives them deep insight into the market,” said Cowen analysts in a research note.
According to Cowen the combination of breadth and balance sheet enables AerCap to spot trends and react accordingly.
“There has been increased demand for mid-life assets due to OEM production delays on new technology aircraft. AerCap has been selling into strength, recognizing a sales premium of ~11% in 2019 (leveraged return of ~35%),” said Cowen.
The analysts said it expected AerCap to meet its $1 Bn sales estimate for 2020 as it continues to migrate its fleet to new technology aircraft, which offers the potential for further share buybacks.
“The company should use proceeds to re-purchase stock given the attractive valuation. The coronavirus caused a pullback in AerCap shares, which we expect the company to use to step in to buy back stock; we suggest investors follow their lead. AerCap may look to alleviate balance sheet stress at struggling customers by potentially purchasing aircraft and shifting assets to other parts of the world where demand remains strong,” said Cowen.
According to Cowen Currently, 58% of AerCap's fleet as measured by book value consists of new technology aircraft (A320neos, 737 MAXs, 787s, A350s) with an average age of 2.3 years. The remaining 42% of AerCap's fleet is current technology aircraft (737NGs, A320ceos, A330s and 777s) with an average age of 11.3 years.
“The opportunity over the next several years will be shifting the fleet to new technology aircraft. OEM production delays may slow the conversion but in the near-term should boost asset values and lease rates for existing technology aircraft,” said Cowen.