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sand castles in the air
Posted by: batbeer2 (IP Logged)
Date: June 22, 2008 05:53PM

50 ct dollars !

AYR IMHO is worth at least 1.5 times book value.

AYR owns a fleet of A320 and 737s. These planes have become more valuable lately. With the airlines putting the dc9s and 727s to rest demand for 737s and a320 is growing. Not incidentally AYR has been able to lease of their aircraft till 2010.

The planes now being built by boeing and airbus are obviously more efficient but it will take a decade to saturate the market with these new planes. In the mean time AYR has ordered some of the new planes and are among the first to take delivery.

As allways there is risk:

1) Oil drops to a level where DC9s etc. are profitable once more.
2) People stop flying. and demand for any type of aircraft stops alltogether.
3) Clients default on their payment and they have to reposes and lease out to new clients.

Happy investing to All!

P.S. the dividend has allready been cut this year. The current 11% dividend yeild is AFTER the cut. Management is saving some money to pay for the new planes.



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Re: sand castles in the air
Posted by: alanb9 (IP Logged)
Date: June 22, 2008 06:54PM

I'd add another risk to your 3: Another wave of airline bankrupcies occur putting large numbers of new aircraft on the market decreasing the value of their fleet and decreasing the price they can get on leases as they renew.






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Re: sand castles in the air
Posted by: batbeer2 (IP Logged)
Date: June 22, 2008 07:32PM

You have a point there i think that is the reason why the stock is trading below book now.

but....
The airlines that have gone belly up are somehow still flying one way or the other. Many have gone and i for one won't be surprised if many follow. But the planes of those that went out of business are still flying. This to me means AYR has pricing power. For now.

Also these planes trade on the international market. The entire world wil have to stop wanting a320s before they run into trouble. Embraer is scaling up to fill this demand but they are not there yet.

Management by the way has comented that if this scenario is realised they will cease the opportunity to upgrade/expand their fleet. Needless to say they feel the long-term prospedts of this business is great. How they will raise the capital to do that is another question and that was precisely the reason they gave when they cut dividend.

Happy investing to All!



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Re: sand castles in the air
Posted by: alanb9 (IP Logged)
Date: June 22, 2008 09:13PM

it is an intriguing idea, lets see if I can poke another hole in it.

GE is a very large aircraft leasing business also. What can AYR do for their customers that GE can't?



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Re: sand castles in the air
Posted by: Dr. Paul Price (IP Logged)
Date: June 22, 2008 10:40PM

The biggest risk here is their huge debt load. If the credit markets 'freeze up' again it doesn't matter how good the business might be, they will be toast.

Just as with the mortgage companies, if lenders refuse to roll over their debt they can be forced out of business.



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Re: sand castles in the air
Posted by: batbeer2 (IP Logged)
Date: June 23, 2008 12:37AM

GE is a very large aircraft leasing business also. What can AYR do for their customers that GE can't?


Yes This is a case of a no moat business or more acurately a commodity business. Anyone and everyone can start leasing out aircraft. Some allready do. But you will need to get your hands on planes first. Somehow unlike silver, copper, oil and gold etc. paper planes just won't do.

To answer your question... nothing. Then again the guys at AYR used to work at GE and they have taken their contacts and credibility to the new company.

Good things can happen tomorrow, bad things can happen tomorrow. But the fact remains they can probably sell all their planes and even their "pipeline" today and end up with a pile of cash twice their market cap. The assets are quite liquid. If this is really the case they are a target for GE. Then again i hear GE also has some debt.

Happy investing to All!



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Re: sand castles in the air
Posted by: alanb9 (IP Logged)
Date: June 23, 2008 07:07AM

batbeer2 Wrote:
-------------------------------------------------------

> Somehow unlike silver, copper,
> oil and gold etc. paper planes just won't do.

LOL. quite right!


> To answer your question... nothing. Then again the
> guys at AYR used to work at GE and they have taken
> their contacts and credibility to the new
> company.

Didn't know that. Skimming the latest 10k, I didn't see that either. Do you have a link?

> Good things can happen tomorrow, bad things can
> happen tomorrow. But the fact remains they can
> probably sell all their planes and even their
> "pipeline" today and end up with a pile of cash
> twice their market cap. The assets are quite
> liquid. If this is really the case they are a
> target for GE. Then again i hear GE also has some
> debt.
>
> Happy investing to All!

Thanks to you also.



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Re: sand castles in the air
Posted by: batbeer2 (IP Logged)
Date: June 23, 2008 08:00AM

Ron Wainshaw of Aircastle by businessweek:

[investing.businessweek.com]

I'm very much not a fan of GE. But for all i know they do train their managers very well.

Happy investing to All!



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Re: sand castles in the air
Posted by: batbeer2 (IP Logged)
Date: June 23, 2008 08:28AM

if lenders refuse to roll over their debt they can be forced out of business.

I totally agree. If lenders refuse to roll over the debt the lenders will certainly be out of business.

Happy investing to All!



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Re: sand castles in the air
Posted by: DaveinHackensack (IP Logged)
Date: June 23, 2008 08:47AM

Batbeer,

This line of yours,

"I totally agree. If lenders refuse to roll over the debt the lenders will certainly be out of business."

is clever, but it suggests you are not getting the full value of this forum. It's a helpful thing (for you) when you mention a stock idea here and others point out potential risks. Alan and Stockdoxc have done that here. It's your money at risk in AYR, but if it were mine, I would respond seriously to these objections, if for no other reason than to convince myself I hadn't missed anything.

Separately, since you like Air Castle, you may want to consider looking at Fortress Investments. At these prices, an investment in Fortress may give you a lower-risk way to participate in potential profits from Air Castle. Do your own due diligence though -- I recommended it here last year, at a higher price, so my crystal ball on Fortress is a little cloudy. But if the choice is between Fortress and Air Castle, I think there's a better combination of risk and reward with Fortress.



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