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CAPScall of the Week: Air Lease

Sean Williams
January 22, 2013

For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why I've made it a weekly tradition to examine one seldom-followed company within the Motley Fool CAPS database, and make a CAPScall of outperform or underperform on that company.

For this week's round of "Better Know a Stock," I'm taking a closer look at Air Lease (NYSE: AL).

What Air Lease does
As the name would imply, Air Lease is a relatively new leasing company, founded in 2010, that focuses on acquiring planes and leasing them to commercial airline companies. The company's founder and CEO is Stephen Udvar-Hazy, the former CEO of AIG's (NYSE: AIG) plane leasing subsidiary, International Lease Financial Corporation, or ILFC, which recently sold an 80.1% stake to an investing consortium for $4.23 billion. 

In its most recent quarter, Air Lease reported a 90% increase in revenue, a 103% spike in net income, and a 59% jump in cash provided by operations. Do, however, take these figures with a grain of salt because, as a new company, Air Lease is relying heavily on debt to finance its fleet expansion. Air Lease ended the quarter with $2.5 billion in unsecured debt with available liquidity of $1.47 billion as it added 40 planes to its fleet, a nearly 40% increase, over the year-ago period.

Its competition
Considering how profitable plane leasing has become, there's no shortage of competitors for this recent start-up. The aforementioned ILFC and General Electric's (NYSE: GE) Capital Aviation Services, or GECAS, division are by far the largest.

As my Foolish colleague Rich Smith pointed out, ILFC has been on a money-losing streak, so AIG might be thrilled to see this division go even if it did take a loss on its investment. GECAS, on the other hand, had a fleet of 1,725 planes as of the end of 2011 and produced an operating profit of $1.2 billion. Another big plus for GECAS is that 17% of its revenue came from rapidly growing emerging market Middle Eastern and African countries in 2011. 

In addition to large players such as ILFC and GECAS, Air Lease faces off against leasing companies similar to its size in Aircastle (NYSE: AYR) and FLY Leasing (NYSE: FLY). Aircastle's most recent quarter ended in a loss primarily because of age-related routine maintenance costs for some of its older planes. FLY Leasing, which I