It is a booming market for commercial aerospace sales, but AerSale (ASLE 5.47%) wasn't able to capitalize on the momentum. Shares of AerSale traded down about 11% as of 10:15 a.m. ET Thursday after the company missed on earnings and lowered full-year guidance.
A tough cargo environment weighs on results
AerSale is a seller and lessor of used aircraft, engines, and components, and also provides a range of maintenance, repair, and overhaul services to aviation customers. A strong summer for airlines has led to surging demand for aerospace supplies, but the cargo market, which is vital to AerSale's success, has not been so robust.
The company reported third-quarter adjusted earnings of $0.03 per share on revenue of $92.5 million, falling short of Wall Street expectations for a $0.21 per-share profit on sales of $115 million. CEO Nicolas Finazzo said that volumes improved in the third quarter, but the softening air cargo market is making it harder for AerSale to sell 757 airframes converted for freighter use.
"While flight equipment sales for the quarter were below our internal projections, they were notably higher compared to the year-ago period," Finazzo said. "Outside of flight equipment sales, which tend to fluctuate significantly from quarter to quarter, our core business remained strong, with increasing demand for, and increased availability of, used serviceable material."
These are not the sorts of markets that turn around overnight. AerSale now expects to generate revenue of $400 million to $420 million in 2023. Earlier in the year, the company had projected $460 million to $490 million in sales, and in August revised that estimate down to $400 million to $440 million.
Is AerSale a buy after its earnings miss?
There is another, more speculative, part of this business that has captured investor attention. AerSale has high hopes for its AerAware product, an enhanced flight vision system for older 737 models.
The company said that AerAware is making progress working through the Federal Aviation Administration (FAA) certification process, noting that the FAA has approved AerAware as providing a 50% visual advantage over what can be seen with the naked eye. The hope is the safety and reduced weather-related operating costs that the product can provide will make it a hot seller among aircraft owners, boosting AerSale's bottom line.
The opportunity remains, but investors are becoming impatient waiting for AerAware (and AerSale) to take flight. Given AerSale's recent track record, investors interested in buying in to the company today should be prepared to exercise patience as they wait for these headwinds to clear.
