Lease the Friendly Skies With Air Lease

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Over the last ten years, several aircraft leasing companies have gone public in an attempt to raise money to pay for additional aircraft. Several of those companies pay out high dividends to woo investors. Others are now facing growth concerns as their aircraft age. The aircraft leasing company that I believe has a bright future is Air Lease (NYSE: AL).

Air Lease was founded by Steven Udvar-Hazy, one of the original founders of International Lease Finance, one of the biggest leasing companies in the game. Air Lease is a company with exciting growth prospects through a young fleet of aircraft and a huge backlog of orders.

In the most recent quarter, Air Lease reported a huge 46% increase in earnings per share to $0.41. Revenue grew 31% to $207.9 million. In the past six months, revenue has increased 37.5%. Earnings per share have also increased 46% in the first six months of the fiscal year to $0.79.

Air Lease continues to rack up huge orders for new aircraft. The company signed a deal for 30 new Boeing 787-10s. Air Lease also added an order for three more Boeing 787-9 planes. In the second quarter, Air Lease added 12 aircraft and now has a fleet of 174 airplanes used by 78 different airlines.

The biggest thing that sets Air Lease Corporation apart from rivals is its fleet. At the end of the second quarter, Air Lease’s average fleet age was 3.5 years. The company’s strong partnership with airlines also has given it long-term contracts. At the end of the second quarter, Air Lease’s average remaining lease stood at 7.1 years.

Fly Leasing (NYSE: FLY) is another option for investors in the aircraft leasing industry. The company has 103 aircraft and serves 54 airlines. However, Fly Leasing has an older fleet with an average age of 9.4 years. Fly Leasing also signs smaller contracts and holds an average remaining lease of 3.7 years. While these negatives may hold investors back from buying shares, Fly Leasing does offer a nice 5% dividend yield. Air Lease on the other hand, has only paid out three quarterly dividends and pays less than 1% in dividend yield.

Rival Aircastle Limited (NYSE: AYR) has a similar problem in its fleet. Aircastle has an average aircraft age of 10.8 years. Its average remaining contract length is 4.7 years. Both of these numbers appear negative compared to Air Lease. Aircastle does offer a stronger dividend yield of 3.7%. However, it appears Aircastle will continue to have to sell old aircraft and replace them, possibly eating into its revenue growth. Analysts see revenue growing less than 1% in fiscal 2013 for Aircastle.

Going forward, Air Lease has commitments from several large airlines to lease its new aircraft. As Air Lease acquires new planes, they are almost immediately leased out to customers. Recent deals were signed with Air Berlin, Saudi Arabian NAS Air, and British Airways. All of these deals will help Air Lease continue its tremendous growth.

Analysts currently expect Air Lease to post earnings per share of $1.72 for fiscal 2013. Revenue is expected to climb 30.4% to $855.0 million. In fiscal 2014, earnings per share are expected to climb to $2.21. Revenue is also expected to grow 27.8% in fiscal 2014. These numbers appear to support the huge growth at Air Lease. However, with two straight quarters of 30% revenue growth and new plane deliveries happening in 2014, those numbers could be surpassed.

While there are several aircraft leasing companies that investors can put their money into, Air Lease is the one that offers the best investment. It has a small dividend that can easily be raised as the company goes forward.It has huge growth with new aircraft deliveries and new contracts to be executed in 2014 and forward. It also has the youngest fleet and huge long-term contracts that will keep consistent revenue streams coming to the company. Air Lease shares should be bought, as they trade under the 2011 IPO price and seem ready for a breakout. 

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Chris Katje has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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