What happened

The private-equity owners of AerSale (ASLE 2.09%) have sold down their stake, putting shares of the aerospace maintenance and parts distribution company under pressure. Shares of AerSale traded down as much as 11.6% on Wednesday after the secondary offering was announced.

So what

AerSale engages in the sale, lease, and exchange of used aircraft, engines, and components, as well as providing a range of maintenance, repair, and overhaul services to aviation customers. The company was founded in 2008 and was private equity owned from 2010 until going public in late 2020 via a merger with a special purpose acquisition company (SPAC).

Its private-equity owner, Leonard Green & Partners, retained part of its stake, holding 34.3% of shares and controlling two board seats as of April. But private equity by nature is not a long-term holder, and the firm is beginning to monetize its stake.

On Wednesday, AerSale announced the sale of 4 million shares offered by current holders, including affiliates of Leonard Green. The offering was priced at $15.15, below the $16.73 Tuesday close.

Secondary offerings are typically priced below the market to make sure the deal gets done. But investors tend to react poorly, at least in the near term, both due to the lower price and the introduction of new shares to the market.

Now what

Simple supply and demand would suggest that with more shares available for trading, there should be some negative impact on price. But for long-term holders, the company's performance, not a small addition to the float, will drive future performance. Leonard Green and other private-equity firms are not long-term holders, and the stock sale says little about what the company thinks of AerSale's prospects.

But even if long-term investors can ignore the temporary drop, they should brace themselves for further volatility. Leonard Green owned more than 17.5 million shares as of AerSale's most recent proxy statement, and will likely look to continue to sell down its stake in the future. Until that overhang is gone, these secondaries could continue to impact the day-to-day trading patterns of the stock.