Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Will Aircraft Leasing Companies Hit Turbulence?

By

Fate too closely tied to customer base.

PrintPRINT

A recent Forbes article about aircraft leasing companies names some publically traded names that at first blush look cheap -- Genesis Lease (GLS), AerCap (AER) and Aircastle (AYR) -- but that cheapness may be a bit deceiving.

Plane leasing seems like a great business. Despite headwinds for airlines -- a slowdown in the U.S and global economy and oil prices reaching all time highs -- demand for planes is still very strong.

But the more I think about it, the more I realize this business can't escape the same fate as its airline customers. I could be wrong, but the industry doesn't really have a sustainable competitive advantage.

It's basically just an arbitrage model: As lessors, they need to be able to borrow at a low rate and lease planes to airlines at a rate greater or equal to what they could borrow. For their part, airlines get to keep planes off the balance sheet and show high return on capital, but may try to renege on the lease when times get tough.

This is where things get dicey. A global slowdown coupled with a recession will do what it does every time: Send airlines into a place they visit frequently - bankruptcy.

Airlines will renege on the leases and the aircraft leasing companies will get their planes back. But unless they decided to start flying those planes themselves, demand won't be there.

Planes will make their usual pilgrimage to the desert.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE