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Andreas in Andrey,

Investment idea - AL

Recently, Air Lease Corp. has published a very positive financial report for 1H2013, according to which the net profit of the company increased by 50% yoy, the rental revenues increased by 38% yoy, EBITDA - by 40% yoy. Growth of financial indicators is associated with the rapid growth of the fleet of the company which amounted to 174 of the aircrafts (in the second quarter was purchased 12 aircrafts). In addition, the order book of the company includes 346 aircrafts, of which 33 - latest Boeing 787. The fleet of the company is one of the youngest in the industry: the average age of the aircrafts is 3.5 years. The average lease term is 7.1 years. Client diversification is very wide: the company leases its aircrafts to 78 airlines in 44 countries. The company's debt increased by 19%, due to the leverage reached level 2.17x. Interest coverage also fell to 3.9x from 4.2x a year earlier. Deterioration in debt ratios associated with rapid growth of the aircraft fleet. Secured debt of the company amounts to 31% of total debt that is due to the fact that the company prefers to finance their activities by issuing unsecured debt, which gives more freedom to the debtor. Also the positive aspects include the reduction of the cost of borrowing for the company from 3.94% in December 2012 to 3.74% in June 2013. In addition, the company recently received a BBB – rating from S&P (before this Air Lease Corp. had A - rating from the company Kroll), which also contributes to further decrease the cost of borrowing. Although Air Lease Corp. started its activities recently (in 2010) it is headed by industry veteran Steven Udvar-Hazy, who headed the industry giant ILFC. Wide connections to allow him to find cheap funding and negotiate the most advantageous leasing contracts. One of the key growth drivers of the company is a significant potential associated with tendency of mass replacement of the fleet of the airlines on the latest models of aircrafts which have higher fuel efficiency. In addition, in the next two years, world airline traffic is expected to grow at a rate of 5.1%, which will also contribute to the company's business. Our medium-term fundamental valuation of Air Lease Corp. (AL) shares is $35.
Short-term goal is $33.