1. Air Lease Corporation (NYSE:AL)
Honglin Diao
Jeffrey Joe
Nicolas Villarreal Daza
February 23, 2017

2. Agenda Snapshot Macroeconomic and Industry Analysis Business Analysis
Financial Analysis
Firm Valuation
Recommendation

3. Air Lease Snapshot Air Lease (AL) Headquarters – Los Angeles, CA
Current Price $39.57 (February 15, 2017)
IPO Price $26.50 (April 19, 2011) Offer amount $803M
P/E 11.64x
52 weeks high $40.20
We own 300 shares, Gain: +78% since our purchase of 400 shares on at $ (sold 100 at $29.80 on )
Air Lease VS S&P 500 cumulative return
It underperforms in 2016, however, it right now go back and now the present price is extremely close to the 52 weeks high at 40.2
Although it underperform the S&P 500 in 201its return is decent in the past 5 years. However, it yearly return is lower than other air leasing companies

4. Airline Industry is Growing
Air leasing is a sector of airline industry
The estimated return of investment return in air leasing is 5% per year1
Airline industry growth is strongly correlated to world economy growth
Emerging market shows outperformance in aircraft demand
APAC
China
Source: IATA
Source: Ascend Flightglobal Forcast
More middle class who desire to pay for their flights
In fact 36 air leasing companies have their headquarters in Asia to
Passenger almost double in the past 15 years
China is a large market. However, as its growth slow down, this factor might shadow the fast growth in demand.
Source: World Banks

5. Average price of different types of plane
Strong Demand For Air Leasing
Number of future aircraft needed
Increasing demand for new planes and replacement of old planes
Better to rent than to hold, operation leasing expense is 3.8% of overall revenues and plane prices increase by 2% per year
More cash and resources can be assigned to marketing and expansion
The ratio of operating leasing aircrafts to total aircrafts is expected to be nearly 53% in 2025
In 2016, around 7,900 planes are owned by air lessors
Source: Boeing, current market look
Source: IATA
Average price of different types of plane
(Million)
2012
2013
2014
2015
2016
% change per year
Boeing
74.8 76
78.3
80*
80.6
1.6%
Boeing
89.1
90.5
93.3
95* 96
1.5%
Boeing ER
315
320.2
330
335*
339.6
Airbus A
88.8 92
94.4
97.5
98.5
2.2%
Airbus A
96.7
100.2
102.8
106.2
107.3
Airbus A
208.6
216.1
221.7
229
231.5
Average
1.9%
* Estimate price
Operating leasing
Operating leasing
Source: Boeing & Airbus
Source: Flightglobal Fleet Analyzer

6. Competitors In Air Leasing70
158
Source: Flightglobal Fleet Analyzer
Moody’s
S&P
Fitch
BOC Aviation NA A-
Aercap
Ba2
BB+
Aircastle
Air Lease
BBB
AWAS
Ba3
Avolon
ACG
BBB-
By December 2015, 158 operating lessors managed commercial aircraft with 100 seats and more
Merger transactions occur among air leasing companies in order to acquire larger market share
Air leasing is highly dependent on external financing such as loans
P85 20
Avalon CIT with 10 Billion,
2013, Macquarie Group Limited (ASX; MQG; ADR: MQBKY) announced today that a Macquarie Bank Limited subsidiary has entered into an agreement to acquire an aircraft operating lease portfolio from AWAS Aviation Capital Limited. 
More competitors join the game. By December 2015, 158 operating lessors manage commercial aircrafts with 100 seats and more
Air leasing companies usually own the aircrafts less than 8 years and then replace with new ones
Source: Moody’s, Standard &Poor’s, Fitch

7. Market Risk Interest rate risk Fuel price risk Business cycle risk
Average debt to assets ratio in air leasing industry is about 60-70%
Slight changes in interest rate will add extra burden and reduce profit margin
Interest rate has been relatively low since 2008 and it has been rising since 2015
Oil expense is about 6.8% of overall revenues
If oil prices go down, airline companies will prefer not to replace the old and less fuel efficient planes, leading to less demand for air leasing
Air leasing companies gain revenues from the increasing demand of aircraft rental
Number of new aircraft purchased decreases as the economy slows down
Change in interest rate
Change in oil prices
Oil price and debt
Oil although decreasing price will increase the demand, but airline companies has stronger incentives to store old planes
Source: FRED
Source: WTI Crude Oil
Source: IATA

8. Company Analysis

9. Management Overview Steven Udvar-Házy, Executive Chairman
John Plueger, CEO and President

10. Business Model BUY LEASE Boeing and Airbus Air Lease Corporation
Airlines Worldwide
BUY
LEASE
SELL
Own new aircraft for 1/3 of
25 year useful life
Negotiate long-term lease
from order book
Enter lease agreement
18-36 months in advance
3.7 years of weighted
average fleet age
6.9 years of weighted
average remaining
lease term
Airlines Worldwide

11. Growth of Aircraft Fleet
Air Lease Aircraft
Growth of Aircraft Fleet
2017
2018
2019
2020
>2020
Total
Airbus 320/A 1 -
Airbus 320/321neo 14 17 27 26 55
139
Airbus /900neo 5 10 25
Airbus /1000 2 4 8 24
Boeing 9
Boeing 737-8/9MAX 11 19 30 56
118
Boeing ER
Boeing 787-9/10 7 6 20 44 34 60 75
149
362
Source: Air Lease Q financial report

12. Air Lease Suppliers

13. Air Lease Customers Market allocation
Source: Air Lease Q financial report

14. Air Lease Competitors AER Dublin, Ireland Market cap 8.66B
Owns 1,109 aircraft, serves 200 lessees in 80 countries, manages 141 aircraft
Leasing and sales of aircraft, also provides aircraft services and engine leasing
AYR
Stamford, CT
Market cap 1.94B
Owns 206 aircraft, serves 71 lessees in 36 countries
Leasing and sales of aircraft, also provides aircraft maintenance and financing
FLY
Dun Laoghaire, Ireland
Market cap 459.5M
Owns 80 aircraft, serves 44 lessees in 28 countries
Leasing and sales of aircraft

15. Bargaining power of suppliers Bargaining power of buyers
Porter’s Five Forces Analysis
Suppliers are more concentrated
Main suppliers are Airbus and Boeing
Limited annual production of aircraft
Suppliers may receive government benefits
Requires large capital costs
Strict regulatory environment
High operating costs
Experienced management required
Bargaining power of suppliers
High
Threat of new entrants
Low
Competitive Rivalry
High
Threat of substitutes
Low
Bargaining power of buyers
Moderate
Industry concentrated
Growing demand for aircraft leasing
Customers are able to switch companies
Competitors may receive tax benefits
No real substitute for jet aircraft
Increasing reliance on air travel
More airlines using leasing
Emerging markets utilize leasing
Buyers are less concentrated
Buyers can purchase new or used
Advanced orders required
Buyers may receive tax benefits

16. SWOT Analysis Strengths Experienced executive management
Investment grade credit rating
Excellent aircraft placement rate
Customer diversification
Weaknesses
High leverage ratio
Dependence on new aircraft demand
Requires ordering aircraft in advance
Long-term planning involves risk
Opportunities
Booming growth in emerging market
Increasing leased aircraft growth rate
Increasing growth in middle class
Tighter environmental regulation
Threats
Competition within the industry
Exposure to debt liquidity risk
Interest rate volatility
Business cycle volatility

17. Financial Analysis

18. It’s a Capital-Intensive Business
Airplanes life expectancy: 25 Years
Air Lease sells the plane in a bundle (plane + lease) after 8 years
Lease contracts are negotiated months prior to acquisition of a new plane
Operating leases
Triple net leases (operation, insurance and maintenance)

19. Leverage Means Risk Exposure
2011A
2013A
2015A
2016P
2017P
2018P
2019P
2020P
2021P
Fleet
102
193
240
279
310
348
392
438
450
Breakeven Point 59
116
139
152
159
187
218
250
256
Breakeven Point (% of fleet)
58%
60%
55%
52%
54%
56%
57%
Leased Fleet 96
183
228
265
295
331
372
416
427
Degree of operational leverage
1.62
1.55
1.53
1.50
1.47
1.52
Degree of financial leverage
2.17
1.73
1.90
1.49
1.40
1.44
1.48
Degree of total leverage (DTL)
3.52
2.68
2.92
2.24
2.06
2.16
2.26
2.33
2.32

20. ROE/ROIIC May Not Meet Expectations
DUPONT Analysis (2016)
64%
67%
63%
10%
419%
11.5% X X X X =
Interest Burden
EBIT Margin
Asset Turnover
Tax Burden
Leverage
ROE

21. AL is a Commitment to Long Term Value
2016P
2017P
2021P
Current ratio
0.73x
0.10x
0.06x
0.04x
Acid ratio
Gearing
50.4%
62.5%
63.3%
63.5%
Int. Coverage
3.12x
3.16x
3.50x
2.89x
EBIT Margin
53.4%
62.8%
63.1%
61.1%
Net Margin
15.8%
27.2%
29.1%
25.8%
ROE
2.5%
11.5%
14.1%
12.7%
Both liquidity and investment needs have been supplied by debt (LT debt or WK debt)
High profit margins don’t translate into excess cash, as the company is investing heavily in asset acquisition
Given the management’s investment plan, we don’t expect to see positive cash flows for the upcoming 4 years

22. We Believe Markets Will Mean-Reverse
Historic Triple BBB Yields
6.5
5.7
4.8
Scenario 1: Long-Term Mean Reversion
Scenario 2: Recent History
S&P P/E Ratio: x
Dow Trans P/E Ratio: 19.2x
Market Implied Cost of Equity
6.7 – 7.7%
Historic S&P Return
10% Kd
6.3% Kd
4.7% Ke
14.0% Ke
12.7%

23. Three Different Valuation Approaches
DCF
Over 100%
CAPEX for growth
70% debt financing
5% revenue CAGR
Current Price:
$40
Target One-Year Price:
$36
Capital Gains:
-9%
Dividend Yield:
0.8%
2016
2017
2018
EBITDA
1,362
1,762
2,080
EV/EBITDA
9.6x
8.1x
7.2x
Price Per Share 38 36 35
EPS
3.6
5.0
5.6
P/E
10.7x
7.3x 40 41
DCF
$33
Residual Income
$34
EV/EBITDA
$36
P/E
$40
Target 2017 Price

24. Scenarios: Markets Will Mean-Reverse?
Target one year price
Current price

25. Our Recommendation:
To Sell 300 market price

26. We Recommend Selling at Market Price
High degree of leverage (2.5x)
High gearing (>60% debt to assets)
Capital-intensive business
Long-term value
Intensive financing risk
We believe market is going to mean-reverse
Strong experienced management
Stable industry and growing sector
Young company investing to grow
Excellent lease placement rate (>95%)
Operational risk-free
Best credit rating when compared to peers
87%
-5%