A new COVID-19 variant has airline stocks under pressure today, and companies that rely on airlines for revenue are also taking a hit. Shares of aircraft lessor AerCap Holdings (NYSE:AER) traded down as much as 12% on Friday as investors brace for another round of bad news for the travel sector.
Airlines are among the sectors hit hardest by the pandemic. Global travel ground to a halt as the virus spread, causing airlines to cut costs and scale back their pre-pandemic growth plans. AerCap, which buys planes directly from manufacturers like Boeing (NYSE:BA) and Airbus (OTC:EADSY) and leases them to carriers, took it on the chin as investors feared airlines would be unable to pay their bills.
We're seeing a repeat of that pattern on Friday morning. Airline stocks are down big, and AerCap is falling with them, following an announcement out of South Africa that a new COVID variant has been discovered. The variant has an unusually high number of mutations, raising concerns that current vaccines and treatments might not work on it.
If so, that could mean a new wave of travel restrictions and cut into what had been an airline recovery. In 2020, AerCap was forced to defer hundreds of millions of dollars in airplane rent payments for customers that might otherwise have defaulted. Should things get bad again, AerCap could be facing a fresh round of losses, causing investors to head for the sidelines.
Investors should note that AerCap made it through the initial crisis a lot better than feared. The stock lost more than 75% of its value in the early days of the pandemic, only to recover all of that and more over the year that followed.
AerCap has changed since that initial shock. The company earlier this year closed a $30 billion deal with General Electric (NYSE:GE) that established it as the clear market leader in global leasing. Granted, the last thing management needs while integrating a major acquisition is a fresh crisis to navigate, but AerCap today is even larger and more stable than it was when the initial COVID cases were reported.
Post-crisis, airlines will need to repair their own damaged balance sheets, and leasing planes instead of buying them should be an even more attractive option. AerCap has good geographic balance and dozens of customers, making the stock a good way to invest in an eventual aviation recovery without having to bet on a single airline.
The next few quarters could be ugly, and the new variant does threaten to delay a recovery. But for those with a long time horizon, AerCap's Friday sell-off looks like one of the better Black Friday deals out there.