What happened
The majority owner of aircraft maintenance and part supplier AerSale (ASLE +3.71%) is selling down its stake. The stock is falling on the news, down more than 11% on Wednesday morning.
NASDAQ: ASLE
Key Data Points
So what
AerSale maintains planes and engines, is a distributor of spare parts, and provides aircraft and engine sales and leasing services. The company had been owned by private equity firm Leonard Green & Partners but went public in late 2020 via a merger with special purpose acquisition company (SPAC) Monocle Acquisition.
Leonard Green kept a substantial interest in AerSale after the merger but is now moving to monetize some of that stake. Late Tuesday, AerSale announced the pricing of a 4.25-million share secondary offering, with the private equity giant as the primary seller.
The offering price is $17.25 per share, a discount to AerSale's Tuesday close of $19.83. Secondary offerings are often priced at a discount to help the market absorb an influx of new shares. In this case, the 4.25 million shares hitting the market would swamp AerSale's average daily volume of about 104,000 shares traded.
Now what
The offering will reduce Leonard Green's ownership from 54.1% to about 45.6%, assuming all of the shares made available are sold. That means the private equity firm will still have significant influence over AerSale, and also that additional sales are likely in AerSale's future.
These private equity overhangs can weigh on a stock, but long-term focused investors should not be dissuaded from owning a stock simply because a financial sponsor is selling. The private equity model is to hold an asset for a limited amount of time and then monetize it, so Leonard Green's selling should not be viewed as a sign that the firm has lost faith in AerSale.
With airlines and private jet operators grappling with high fuel and labor costs, there is a market for reliable outsourced maintenance. AerSale can gain altitude from here, but in the near term, investors need to understand that as long as Leonard Green is still heavily invested, additional secondary offerings are likely in this company's future.
