Eye on Plane Leasing Sector

Includes: CAI, FLY, GLS, WLFC
by: Roger Nusbaum

The plane leasing segment has gotten crushed in the last few months.

I've written about these a few times with a combination of hope and skepticism. Most of them are scheduled to pay huge dividends (in the sevens and eights before the declines).

The primary business would seem to be simple. They own and service planes and they lease them to airlines. I wrote about them for TSCM quite a while ago and back then the client rosters were very geographically diverse, but the complexity comes from the balance sheet leverage and those high yields.

One point I have tried to make (and this has been echoed by some readers) is that when something yields 8% in a 3% world there is risk -- you either understand the risk or you don't. The context that I have talked about in terms of ever buying something like this (the hydro funds in Canada would be another example) has been to go small, like maybe 2%, into something like this and know that there is risk.

There has been a dislocation in the market and it has hit a lot of these levered products very hard. For some of them it is probably justified, and some of them are just going along for the ride. The dislocation will end at some point and the ones that have just gone along for the ride will be safer relative to themselves at that point.

The plane leasers are the type of thing that if they had done better for longer they would have been more popular, more people would have owned too much (like the Canadian Trusts when they got hit a year and a half ago) and we'd be hearing more about this.

Owning one of these (to be clear I do not) is not the worst thing but owning too much might be.

Disclosure: No positions