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Why Fly Leasing Is Gaining Altitude Today

By Lou Whiteman – Aug 22, 2019 at 11:33AM

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The company is paying down debt from a big 2018 acquisition ahead of schedule.

What happened

Shares of Fly Leasing (FLY) traded up more than 10% on Thursday after the aircraft leasing specialist reported better-than-expected quarterly results and authorized a new share repurchase program. The company is deleveraging ahead of schedule, which gives it more financial flexibility.

So what

Before markets opened Thursday, Fly Leasing reported adjusted earnings of $1.92 per share on revenue of $147 million, beating analyst expectations of $1.43 per share on revenue of $140 million. The company, which owns a portfolio of Boeing and Airbus aircraft that it leases to commercial airlines, reported net income of $54.1 million for the quarter, compared to $24.3 million in the same quarter last year.

During the quarter, Fly announced the sale of a portfolio of 12 A320 and 737 aircraft with an average age of eight years, a deal that will lower the age of the company's overall fleet while providing about $125 million in proceeds after debt repayments.

An airplane coming in for a night landing.

Image source: Getty Images.

Fly Leasing acquired a massive portfolio of 84 aircraft as well as further orders from AirAsia in a $1.18 billion deal last year. CEO Colm Barrington said in a statement that the company is both paying down the debt it took on to do that deal and continuing to expand and return capital to shareholders.

"As a result of our deleveraging strategy following last year's major fleet acquisition, we have met our leverage target a year ahead of schedule," said Barrington. "We also have been repurchasing stock, buying back 1.47 million shares in the quarter. FLY will begin taking delivery of its $1 billion of contracted A320neo family aircraft later this year and is well positioned to add aircraft as opportunities arise."

With Thursday's jump, Fly Leasing shares are now up nearly 90% for the year. The shares got a big boost earlier in the year after reporting year-end numbers that were well ahead of what was expected, and the momentum has continued in subsequent quarters.

Now what

This is a good time to be an aircraft lessor. Continuing issues with Boeing's 737 MAX, as well as delays to Airbus' A320neo program, have airlines scrambling for lift. That gives lessors like Fly Leasing significant pricing power, at least in the near term.

Barrington, in his post-earnings comments, noted that Fly Leasing shares are still trading at a 26% discount to book value, part of the reason the board authorized a new $50 million share repurchase program. Given the quality of Fly Leasing's portfolio, coupled with the current imbalance between the supply and demand for aircraft, this company can soar higher in the quarters to come.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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