Shares of Fly Leasing (NYSE:FLY) fell more than 8% on Thursday after the aircraft leasing company reported weaker-than-expected earnings. The COVID-19 pandemic is weighing on airlines, making life difficult for companies that rely on aviation for revenue and profits.
Before markets opened on Thursday, Fly Leasing reported second-quarter earnings of $0.37 per share on revenue of $79.1 million, falling short of analyst expectations for $0.45 per share on revenue of $83 million.
The company is in the business of buying aircraft and leasing them to airlines. With travel demand plummeting due to the pandemic, the airlines need fewer planes, and are flying the ones they have less often.
Fly reported lease revenue down 21% year over year, and sold no aircraft during the quarter after booking $16 million in plane sales in the same three months of 2019. The company is deferring payments owed by customers and extending payback periods to try to help the airlines through the crisis.
"Our second-quarter results reflect the challenges of the COVID-19 pandemic, but FLY remains in a strong position to meet its financial and operating commitments with unrestricted cash of $289 million and nearly $600 million of unencumbered aircraft," CEO Colm Barrington said. "We are working closely with our airline customers and now expect to agree to defer rents representing approximately 20% of contracted rental revenue for the second half of the year."
Fly Leasing remains well diversified, with aircraft and engines on lease to 41 airlines spread across 25 countries. As Barrington notes, the company has the wherewithal to survive the downturn, but until aviation shows signs of a recovery, it is going to be hard for Fly Leasing to soar.
I think the air lease companies are some of the safest ways to play a recovery, but investors buying in now should be warned not to expect a turnaround overnight.