Aircastle Fears Appear Unfounded

A couple of days ago, Aircastle Ltd. (AYR) gave a presentation at the Credit Suisse Capital Goods Finance Symposium and they have posted the slide show to their website. The link below is a PDF presentation of the slide show.CSPresentationJune2008Final.pdf (application/pdf Object)

Going through the slides, it is apparent that Aircastle is in fine shape with their leased aircraft. From what information I could find about the recent share price drop, there are two fears driving investors away from AYR. First, the general profitability problems for airlines with the recent fuel price increases and indication by many airlines to reduce flights. Second, a specific claim by one of Aircastle’s customers, US Airways, to turn in some leased aircraft. From the presentation it appears that the company will not have a problem keeping their aircraft leased and the US Airways jets are on noncancelable leases.

The financials for Aircastle appear strong. Their debt load is less than 75% of the book value of their jets and the book value understates the market value. They are able to get their aircraft that are coming off lease released at higher rates and already have over half of the jets coming off in 2009 committed with letters of intent. Finally, Aircastle is projected to earn over $4.00 in free cash flow per share (earnings + depreciation) in 2008, easily covering the $1.00 dividend. It looks like the company is conserving their cash, but I hope they start increasing the dividend soon.

I believe Aircastle has been hammered along with almost every stock I can think of that is in a financial business. At this time the market is not discriminating between companies in good shape and those that have problems. It is having a sell-off of all of them. I cannot predict when the carnage will end, but I added to my position in AYR yesterday.

Note: I have a long position in AYR.

Posted in Categories: Contributor, External Research, Stocks.

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