Aircastle Ltd

Ticker: AYR, Buy below $25.

Why I Would Buy

  1. Cheap– Aircastle trades at about 11x trailing earnings and 10x forward earnings.
  2. Concentrated Institutional Holdings –  More than 35% of outstanding shares are held by two large and savvy institutional investors: The Ontario Teachers’ Pension Plan Board and the Japanese conglomerate Marubeni.
  3. Dividends – AYR yield an attractive 4+%.
  4. Selling Below Book –Aircastle currently trades at 90% of its book value.

What Could Go Wrong

  1. Highly Leveraged –Aircastle like all leasing companies has a large amount of indebtedness. Greater than 70% of the company’s capital structure is debt.
  2. Significant Industry Risks – Aircastle structures it’s leases such that the cashflow from leases does not always the cover cost of their planes, Aircastle counts on being able to sell or re-lease their planes  at lease expiration. This may become difficult to accomplish if there is a prolonged downturn in air passenger or cargo demand, this can  occur due to any number of factors — higher fuel prices, global recession etc.

Disclosure: I am long AYR, please read additional disclosures here before taking any action based on this post.