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Why Shares of Air Lease Took Off in August

By Lou Whiteman - Sep 3, 2020 at 3:43PM

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The company in its quarterly earnings report made its case that it will survive the pandemic.

What happened

Shares of Air Lease (AL -0.32%) gained 18.5% in August, according to data provided by S&P Global Market Intelligence, after the company reported quarterly results that indicated the business is holding up through the COVID-19 pandemic better than investors had feared.

So what

Air Lease is in the business of buying planes and leasing them to airlines, boasting a portfolio of about 300 aircraft leased out to more than 200 airlines spread across 70 countries.

That's a tough business to be in this year, as the COVID-19 pandemic has caused demand for air travel to dry up and caused airlines to scramble to cut costs. Airlines are flying fewer planes and are going to vendors, including Air Lease, to try to get deferrals and rebates on planes they are flying.

Concern about the health of the leasing business caused Air Lease shares to fall 38.4% in the first half of 2020.

A ground worker directs a plane to the terminal.

Image source: Getty Images.

Air Lease on Aug. 6 reported second-quarter earnings that came in ahead of expectations and provided investors with reassurance it will be able to survive through the downturn. Collection rates on planes out on lease remain under pressure but did not get any worse after a difficult first quarter.

Year to date, Air Lease has agreed to accommodations with 59% of its customers to defer about $190 million in payments. Most of the deferrals are short term in nature, and Air Lease has also seen its expenses fall with the lack of aviation activity. That helps offset the loss of revenue.

Now what

Air Lease is going to struggle for as long as the airlines struggle, which could be into 2022 if not beyond. But the company at one point in March had lost more than 75% of its value year to date, implying investors were worried Air Lease would not remain solvent.

The early August earnings report put a lot of those fears to rest and has investors taking a second look at the long-term value Air Lease offers. It won't be a quick recovery, but Air Lease, after a dreadful first half of 2020, looks to be on track to make it through the downturn.

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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