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Faisal Humayun
Faisal Humayun
Articles (681)  | Author's Website |

Aircastle: Stable Growth And Healthy Dividends

June 30, 2014 | About:

Aircastle Limited (NYSE:AYR) acquires, leases, and sells commercial jet aircraft to airlines worldwide. As of March 31, 2014, the company’s portfolio consisted of 164 aircraft leased to 65 lessees located in 37 countries. This article discusses the reasons for believing that the company’s growth will remain stable along with a healthy dividend payout.

Strong Revenue Visibility

Aircastle has increased the number of aircraft on lease from 136 in 2010 to 164 by the first quarter of 2014. Further, on global demand and long-term lease, the weighted average utilization for the company’s fleet over the last few years has been 99%.

As of 1Q14, the company’s weighted average lease term for aircraft was 4.8 years. The minimum future lease rental from the contracts is expected at $3.3 billion.

This implies that the company has a strong revenue visibility from leased aircraft over the next few years. Revenue of $176 million for 1Q14 and annualized revenue of $704 million for FY14 translates into a revenue visibility of 4.7 years.

Therefore, Aircastle will have a steady cash inflow over the next few years and this ensures that the current dividend yield of 4.5% sustains. AerCap Holdings (NYSE:AER), which is in the same industry, does not pay dividends and this fact makes Aircastle relatively attractive even if both companies have a revenue visibility.

Robust EBITDA Growth

To sustain dividends and growth, a strong cash generation capacity is essential. Aircastle has performed exceptionally well on this front with the company’s adjusted EBITDA increasing from $339 million in 2007 to $718 million in 2013.

During the same period, the company’s operating cash flow has increased from $243 million to $433 million. Therefore, the company has been efficiently translating top-line growth into EBITDA growth and cash flow increase. Should this trend continue, Aircastle will be well positioned to pay higher dividends and comfortably service debt.

Aircraft Acquisition And Sales

Aircastle has a strong aircraft acquisition and sale strategy. This has helped the company reduce the aircraft age over time. The weighted average age of the company’s fleet has declined from 11 years in 2010 to 9.1 years in the first quarter of 2014.

In 2014, Aircastle has invested in eight aircraft for $714.9 million with six aircrafts being less than five years in age. Further, the company has commitments to acquire five more aircraft for $407 million. Further, the company sold four 737 freighters and two 737 classics in 1Q14 and these aircrafts had an average age of over 25 years.

The point I am trying to make here is that the company’s growth strategy is aggressive and is associated with fleet modernization, which will help the company garner higher lease rentals and improved EBITDA margin over the next few years.

Leverage In Control

With an aggressive growth strategy, it is important to consider the leverage metrics as fast growing companies can easily fall in the debt trap. As of March 2014, Aircastle had a total debt of $4.2 billion, which seems significant. However, considering the annualized EBITDA for 1Q14, the debt to EBITDA (leverage) works out to 6.3, which is not a concern considering the debt servicing metric.

For the first quarter of 2014, Aircastle paid cash interest of $36 million. The EBITDA interest coverage works out to 4.7 considering an adjusted EBITDA of $170 million for the first quarter of 2014. Therefore, Aircastle has no concerns related to servicing of debt. The EBITDA interest coverage also points to the fact that the company has financial flexibility to take further debt for expansion.


Aircastle is a good stock to consider for the medium to long-term. With a stable lease pipeline, the company will continue to generate robust cash flows. The current dividend payout is therefore sustainable and the dividend yield of 4.5% attractive.

In addition, the company has been doing well in its long-term strategy of lowering the fleet age. As this process continues, the company’s fleet will command a higher rental.

On the industry front, there is significant growth impending in Asia and the demand for aircraft is likely to be robust over the next few years. Aircastle, being one of the major industry players, is well positioned to capitalize on this growth opportunity.

In conclusion, investors can consider Aircastle for the medium to long-term. Dividends will keep flowing and the stock is likely to trend higher as incremental revenue and EBITDA growth comes from fleet additions.

About the author:

Faisal Humayun
Faisal is a Senior Research Analyst with eight years of experience in equity research, credit research, economic research and financial modeling.

Visit Faisal Humayun's Website

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