2. COMPANY LOGO
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Agenda
Company Overview
Annotated Price Chart & Market Profile
Subsector Review
Catalysts
Relative Valuation with Analysis
Discounted Cash Flow Model
Potential Risks
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3. COMPANY LOGO
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Company Overview
AerCap Holdings N.V is an independent aircraft leasing company with total assets of $44.1 billion, consisting of 1,300 owned
aircraft. AER leases its fleet of high demand, fuel efficient aircraft to 200+ airlines in ~90 countries.
Currently the largest independent aircraft lessor in the world
– ~20% market share
– 2nd in revenues behind GECAS
– Very Diversified
No lessee accounts for more than 10% of revenue, only two countries make up more than 10% (US 13.5%, China 12.7%)
Youngest fleet of competitors (Average 7.6 years old)
– Fleet to grow 15% by 2018 (Commitments to purchase 461 new aircraft)
– Selling off old, fuel inefficient planes while jet fuel prices at six year low
AerCap is well positioned to benefit from growth in emerging markets
– Largest exposure of competitors to China at 12-13%
– Sustained mid teens traffic growth in Chinese market
ILFC acquisition has been a success
– Expanded fleet to ~1100 planes; paid 84% of appraised value
– Maintained asset utilization of 99%
Management has proven track record
2015 third quarter and earnings call scheduled for November 10, 2015
Strong and predictable free cash flow provides flexibility for accretive capital deployment
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4. COMPANY LOGO
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Annotated Price Chart & Market Profile
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Market Profile
Ticker AER Beta 2.02
Share Price $40.03 Shares Outstanding 197.41 MM
% of 52 Week High 78% Market Cap 7.89 B
Dec- Waha
sells stake
April-
Einhorn
Conference
June- AIG
reduces stake
August- AIG sells
remainder/Market
sell-off
October- Aircraft
sales announced,
rating reaffirmed
February-
Moody’s
positive outlook
AER LTM Price Chart
5. COMPANY LOGO
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Aircraft Leasing
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Industry projected to keep growing on the back of accelerating demand for leased aircraft
Aircraft Leasing: Companies lease commercial aircraft to scheduled airlines and other commercial carriers. Lease rates vary from a few years to
over a decade
Industry competition: Competition is high and increasing. External competition from large airlines is diminishing as leasing offers several
advantages for airlines, including flexible fleets, risk mitigation and greater liquidity for daily operations
Key Industry Drivers:
Air travel demand in emerging markets
Domestic trips by US residents
Preference of leasing v. ownership for airlines
Aging airline fleet
Macro Factors:
Yield on 10- year Treasury Note
Strong Dollar
Corporate Profit
Oil and natural gas price index
6. COMPANY LOGO
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Catalysts
Declining Cost of Debt
– AerCap was downgraded to below investment grade following their highly leveraged acquisition of ILFC
– Interest Expense makes up ~28% of their Total Expenses
– Fitch revised AerCap’s credit rating outlook to positive
IFLC acquisition/integration risk mitigated & further deleveraging expected
– Current Debt to Equity ratio of 3.3 as of June 30th, down from 3.6 at FY2014 end
Management has set a target ratio of 2.9 to 3.0
Revamped Fleet
– Orders to purchase 461 new, fuel-efficient aircrafts scheduled for delivery through 2022 from Boeing, Airbus & Embraer
– Jet fuel prices being at their six-year low is creating a large market for older model planes
AerCap is taking advantage by selling planes for capital gains to book value when the lease is up
− $1.2 Billion of old aircrafts have been sold so far in 2015, with the proceeds going towards revamping their fleet
− Net gain on sale of assets (30 aircrafts) was $88.3 million during the six months ended June 30, 2015 (892% YoY increase)
Global Airlines Growth
– Worldwide air travel expected to grow at a healthy pace, supported by stronger global economic conditions & globalization
40% of global airline fleet is leased, up from 2% in 1980
Emerging market airlines have trouble finding financing for fleet growth. Leasing allows them access to newer planes without
taking on residual value
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Comparable Companies
% of 52 Week
High
Market
Cap (m)
USD Net Debt Debt / EBIDTA Debt / Equity EBITDA Net 2015 2016 2015 2016 2015 2016 2015 2016
AIR LEASE CORP -18% 3,411 6,432 7.3x 242.2 85.2 20.2 8.7x 7.5x 9.7x 8.2x 12.4x 10.1x 1.1x 1.0x
AVOLON HOLDINGS LTD -4% 2,470 4,437 - 317.4 - 20.6 10.1x 9.0x 11.0x 9.7x 10.4x 9.4x 1.5x 1.3x
FLY LEASING LTD-ADR -18% 551 2,687 7.7x 398.6 75.8 - 6.9x 7.1x 8.1x 8.1x 7.8x 8.2x 0.8x 0.7x
AIRCASTLE LTD -16% 1,742 3,520 5.8x 220.7 83.2 21.7 7.2x 6.7x 7.8x 7.3x 10.3x 9.8x 0.9x 0.9x
AERCAP HOLDINGS NV -22% 7,948 28,912 6.7x 382.8 83.8 24.1 7.2x 7.2x 8.4x 8.2x 6.6x 6.6x 1.0x 0.8x
High 7.7x 398.6 85.2 24.1 10.1x 9.0x 11.0x 9.7x 12.4x 10.1x 1.5x 1.3x
Low 5.8x 220.7 75.8 20.2 6.9x 6.7x 7.8x 7.3x 6.6x 6.6x 0.8x 0.7x
Median (Ex- AER) 7.3x 279.8 83.2 20.6 8.0x 7.3x 8.9x 8.2x 10.3x 9.6x 1.0x 1.0x
Average (Ex- AER) 6.9x 294.7 81.4 20.8 8.2x 7.6x 9.2x 8.3x 10.2x 9.4x 1.1x 1.0x
AER vs. Peer Group Median -9% 37% 1% 17% -9% -2% -5% 1% -36% -31% -8% -13%
Liquidity Margins (LTM) P/BVEV / Sales EV / EBITDA P / E
With a market cap of nearly $8B, AerCap is by far the dominant pure play competitor in the space
Trading at 36% P/E discount to peers and 31% discount on forward P/E
AerCap’s net margin exceeds peer average by 17%
With over 200 clients in 90 countries, AerCap has the largest and most geographically diverse client base
Leasing revenue accounts for around 90% of every company’s total sales
Relative Valuation
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Intrinsic Valuation
Assumptions
Company: AER US Equity
Last Q: Q22015
Tax Rate: 22%
WACC: 5.30%
NWC % Sales 18%
Exit Multiple (EBITDA): 8.0x
Mid Year Convention: YES
Discounted Cash Flow Analysis
2015 Stub 2016 2017 2018 2019
Sales $2,515.1 $5,512.3 $5,858.5 $6,151.4 $6,428.2
% growth 40.5% 7.2% 6.3% 5.0% 4.5%0
EBITDA 2,240.1 4,535.7 4,760.0 5,149.7 5,381.5
% margin 85.7% 82.3% 81.2% 83.7% 83.7%0
Depreciation & Amortization 1,027.1 2,661.0 3,558.0 4,071.2 4,754.90
EBIT 1,214.0 2,506.4 2,696.0 2,882.3 3,012.0
% margin 48.0% 45.5% 46.0% 46.9% 46.9%0
NOPAT 946.9 1,955.0 2,102.9 2,248.2 2,349.3
Less: Capital Expenditures (1,753.0) (4,292.0) (4,561.6) (4,789.6) (5,005.2)
Less: Change in Net Working Capital (133.7) (66.8) (62.3) (52.7) (49.8)
Plus: Depreciation & Amortization 1,027.1 2,661.0 3,558.0 4,071.2 4,754.9
Free Cash Flow 87.4 257.2 1,037.0 1,477.0 2,049.2
Discount Factor 0.99 0.96 0.92 0.87 0.83
PV of FCF 86.5 248.1 949.9 1,284.8 1,692.8
PV of Terminal Value 34,657.0
Enterprise Value Equity Value
Present Value of Cash Flows $4,434.1 Enterprise Value $39,091.1
Terminal Value 34,657.0 Net Debt 28,912.0
Enterprise Value $39,091.1 Equity Value $10,179.1
FDSO 197.4
Share Price $51.56
Prem / (Disc) 28.1%
9. COMPANY LOGO
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Risks to the Trade
Aircraft leasing requires significant capital to fund business
AerCap has a large order book for new planes that will require additional indebtedness
Sharp increase in interest rates would not allow Aercap to increase lease rates quick enough to maintain margins
– Leases averaging a few years in length with fixed rates over length of the lease
Potential lack of future cash flows could force failures in aircraft purchase agreements
Forfeiting of deposits and progress payments as well as costs due to legal expenses
Would make it more difficult to purchase and lease aircrafts in the future
Factors that could lead to a decline in customer demand
Drop in jet fuel prices has decreased the urgency to switch over to more fuel-efficient planes in which AerCap specializes in
– Would decrease the value of leases for fuel-efficient aircrafts
Introduction of new aircrafts could lead to decline in demand for older models
Foreign Exposure
Approximately 50% of aircrafts leased in emerging markets
– Slowdown in emerging markets could hurt sales growth targets
Expected growth in overseas markets increases exposure to currency fluctuations
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