Aerospace supplier AerSale (ASLE 5.47%) has secured government clearance to market its highly anticipated enhanced cockpit vision product. As a result, the stock is gaining altitude, up as much as 17% at the open on Thursday and about 11% higher as of 10:30 ET.
A long-awaited product is finally cleared for takeoff
AerSale is primarily known as a seller and lessor of used aircraft, engines, and components. However, investors have been more focused on its fledgling "AerAware" system as a catalyst for growth. AerAware is an enhanced flight vision system designed to add modern safety features to older airframes.
This could be a boost for AerSale in two ways. First, AerAware is likely to be a much higher-margin product than AerSale's core business to date. And by modernizing older cockpits, AerSale could see more demand for used aircraft.
Late Wednesday, the company said that AerAware has received Federal Aviation Administration approval to be used in-flight with the Boeing 737NG product line. The company says AerAware offers a 50% visual advantage over unaided natural vision, which should improve cockpit awareness of surroundings and make flights safer.
AerSale has said previously it expects AerAware to sell for about $400,000 per installation at a 60% gross margin. By comparison, AerSale's core business is expected by Wall Street to generate about $40 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) this year on sales of about $400 million.
Is AerSale stock a buy after its big regulatory win?
Shares of AerSale could use the boost. The stock came into trading Thursday down about 30% from its highs for the year due to weak demand for used aircraft and economic uncertainty. The approval of AerAware, if nothing else, gives investors something else to get excited about.
The question now becomes how soon until AerSale gets an order. There have been rumors that United Airlines Holdings has an interest, which would be a sizable order that would immediately move the revenue needle for AerSale. But it is also possible that the initial sales will come from smaller airlines or cargo carriers.
Long term, it is unclear how long AerAware will have this market for itself. Potential competitors include deep-pocketed aerospace giants RTX and Honeywell International.
AerSale remains a speculative stock, but the outlook for the company is brighter today than it was yesterday. Investors are understandably excited about the potential.
