The civil aviation and defense industries are doing well, helped by the ongoing recovery of travel and defense spending.
However, top companies in the industry are not doing well. Boeing (BA) stock price has dropped by over 41% this year as it moved from one crisis to the other. Just recently, the company suffered a major setback as some of its workers went on strike.
Airbus stock has dropped by over 3% this year even as it continued to take market share in the civil aviation industry. Its most recent financial results showed that its backlog continued rising.
Airbus stock has dropped by over 3% this year because of the supply chain issues that have affected its plane manufacturing process.
Arline stocks have had a mixed performance this year. Southwest (LUV) stock has risen by 2.35% because of the activist pressure from Elliot Management. Delta and United Airlines have risen by 17% and 26%, respectively. However, airline stocks tends to be more cyclical.
Aercap seems like a better bet
Aercap, a company that most people outside of the aviation industry, is doing much better than airlines, Boeing, and Airbus.
Its stock has risen by 31% this year and by 76% in the past five years. In this period, Boeing has dropped by 60% while Airbus has jumped by just 14%. Airlines like Southwest, United, Delta, and American have all dropped by over 20%.
Aercap operates in the aircraft leasing industry, where it buys aircraft and then provides them to other airlines. It provides most of its aircraft to companies like American Airlines, China Southern, Azul Airlines, Hainan, and Ethiopian Airlines. It owns 1,556 aircraft and has placed an order of 338.
These companies opt for leasing aircraft instead of buying because it is a more cost-efficient model.
In addition to aircraft leasing, Aercap has over 1,000 aircraft engines, which it leases to companies. Most of its engines are manufactured by General Electric and CFM International, a joint venture between Safran and GE. Aercap is also a big player in the helicopter and aviation leasing industries.
Read more: Forget Airbus, Boeing stocks: Embraer and Bombardier are cruising
Aercap has been growing
Aercap’s business has been growing in the past few years. It has done that organically and through acquisitions. Its biggest acquisition was General Electric’s aviation business in a $30 billion deal.
That acquisition, which was mostly through stock, gave GE a big stake in the combined company. GE has continued to reduce its stake in the firm as it continues with its transformation.
The deal solidified Aercap’s role as the biggest aircraft leasing company in the world. It also saddled it with substantial debt, which has risen from over $29.34 billion in 2019 to over $45 billion today.
Aercap’s financials shows that the company was still growing. Its total revenue has grown from about $4.9 billion in 2019 to over $7.5 billion in 2023.
The most recent financial results showed that Sercap’s revenue rose to over $1.74 billion, a 2% increase from the $1.95 billion it made in the same period in 2023. For the first half of the year, revenue rose by 5% to over $3.9 billion.
Analysts expect that its revenue for this year will be $7.85 billion a 3.5% increase from last year’s $7.58 billion. This revenue will be followed by $8.06 billion in the next financial year.
Plane shortage and pricing
Aercap’s main benefit is that it has a long relationship with Airbus and Boeing since it is one of the biggest buyers.
It also has a large inventory of over 2,000 planes at a time when Boeing and Airbus are going through major challenges. The implication is that it can now charge more money for its aircraft.
Additionally, the company has received a series of credit rating upgrade, with Moody’s moving its rating to Baa1 and S&P raising it to BBB+. Fitch has revised its rating to positive.
Aercap credit ratings | Source: Aercap
Also, the company has increased its share repurchases after it bought 3.9 million shares in the second quarter.
Aercap stock price analysis
Aercap stock by TradingView
The weekly chart shows that the Aercap share price has been in a strong bull run in the past few years. It recently jumped above the key resistance point at $70.95, its highest point in November 2021.
The stock has also remained above the 50-week and 200-week Exponential Moving Averages, which formed a golden cross pattern in 2023. In price action analysis, this is one of the most bullish signs in the market.
Most oscillators have continued pointing upwards. Therefore, the stock will likely continue rising as bulls target the next psychological point at $120. This view will only become valid when the stock rises above the key resistance point at $98.56, its highest point this year.
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