Air Lease Corporation (AL) benefits from the continuous growth in its fleet, profits earned from aircraft sales and the higher end-of-lease revenues. Shareholder-friendly initiatives also bode well for the company. However, production delays at Boeing, higher interest expenses and rising operating expenses are adversely impacting AL’s prospects.
Factors Favoring AL
Air Lease has a globally diversified customer base of 116 airlines in 58 different countries. More than 95% of AL's business revenues originate from airlines located outside of the United States. Passenger traffic volume has historically expanded at a higher rate than global GDP growth, in part due to the expansion of the global middle class and the affordability of air travel. The International Air Transport Association (IATA) reported that passenger traffic in 2024 was up 10% year over year, owing to solid growth in international traffic and healthy continued expansion of domestic traffic globally. International traffic in 2024 rose 14% relative to the prior year, benefiting from solid, continued international travel expansion in the Asia Pacific region and other major markets reported by IATA.
Steady growth in the fleet, profits earned from aircraft sales and higher end-of-lease revenues contribute to AL's top-line growth. During 2024, AL earned $169.7 million in gains from the sale of 39 aircraft, compared with $146.4 million gained from the sale of 25 aircraft in 2023.
Consistent shareholder-friendly moves in the form of dividend payments look encouraging and positively impact the company's bottom line. With the quarterly dividend of 22 cents per share (annualized 88 cents per share), AL’s dividend yield is currently pegged at 1.95%. Dividend-paying stocks like AL are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty, which characterizes current times.
AL: Key Risks to Watch
Production delays at Boeing have been hurting the fleet-related plans of not only the airline companies but also of aircraft leasing companies like Air Lease. Since Air Lease operates by purchasing the latest fuel-efficient commercial jet aircraft directly from aircraft manufacturers like Airbus and Boeing, it has to abide by the contractual delivery dates for each aircraft ordered. Due to the continued manufacturing delays and supply-chain constraints, AL expects its aircraft delivery schedules to be affected and delayed for at least the next three to four years.
AL continues to witness higher interest expense due to an increase in the composite cost of funds and overall outstanding debt balance (AL ended 2024 with a total debt outstanding of $20.4 billion). AL anticipates its interest expenses to continue to increase as its average debt balance outstanding increases with the growth of its fleet. This is likely to keep the bottom line under pressure going forward.
Rising operating expenses (up 13.9% year over year in 2024) due to higher selling, general and administrative expenses and depreciation of flight equipment costs might weigh on the bottom line.
Stocks to Consider
Investors interested in the Zacks Transportation sector may consider SkyWest SKYW and Allegiant Travel Company (ALGT). While SkyWest sports a Zacks Rank #1 (Strong Buy) at present, Allegiant carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SkyWest
SkyWest, founded in 1972, is based in St. George and operates regional jets for major U.S. airlines. SKYW’s track record of successfully meeting the requirements of each of its airline heavyweight partners bodes well for the company. Revenues from flying agreements (which account for the bulk of the top line) are impressive owing to SKYW’s above ability. Owing to an uptick in air travel demand, passenger volumes have been upbeat and are likely to increase going forward as well. This is likely to keep SKYW's top line in good shape.
SKYW has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 16.71%. The Zacks Consensus Estimate for 2025 earnings per share has been revised 7.9% upward in the past 60 days.
Shares of SKYW have surged 32.1% in the past year. The company has an expected earnings growth rate of 15.96% for the current year.
Allegian
Allegiant has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for ALGT’s 2025 earnings per share has been revised 36% upward in the past 60 days.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 22.93%. Shares of ALGT have lost 21.4% in the past year.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Air Lease Corporation (AL) : Free Stock Analysis Report
Allegiant Travel Company (ALGT) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
