Aircastle's Secondary Offering Presents Mild Opportunity

| About: Aircastle Limited (AYR)

Fortress (NYSE:FIG) is selling down its stake in Aircastle (NYSE:AYR) by 5 million shares, or approximately 7% of AYR's shares outstanding. This is a secondary offering, so Aircastle is not raising any cash. The transaction just represents a large investor selling down part of its stake, presumably taking them a step closer to a complete exit for their ownership of AYR.

This is important because a company raising cash generally has clear negative signaling effects, whereas a shareholder selling down their stake does not carry the same weight.

We should also note that after the sale FIG still has a substantial stake in AYR. So further weakness given these sales is a possibility.

Date Fortress ownership of Aircastle stock
March '12 16.2% (est.)
Feb '12 23.2%
Feb '11 38.4%
Feb '10 38.6%
Feb '09 38.9%
Feb;08 60.2%
source: SEC filings

However, I continue to view Aircastle as cheap on just about all metrics (4.6% yield, 0.7x p/b, 8x p/e) and to the extent the price falls without any change in company fundamentals that represents an opportunity.

I've written on Seeking Alpha here and here in some detail about Aircastle and the aircraft leasing sector and I am positive on both. The secondary doesn't change that analysis. However, the recent rise in the price of oil is a slight negative for the stock, given that their planes are generally older and less fuel efficient, a rising cost of oil makes that difference more pronounced.

I am not adding more simply because AYR already represents a significant part of my portfolio, but this may present an attractive entry point if you are not currently invested.

Disclosure: I am long AYR.