Air Lease Corporation AL is bolstered by an upbeat air travel demand scenario. The company’s proactive efforts to expand its fleet are commendable. However, elevated operating expenses and supply-chain disruptions are adversely impacting AL’s bottom line.

Factors Favoring AL

The uptick in air travel demand bodes well for Air Lease. In the second quarter of 2024, the airline’s traffic volumes remained robust globally, increasing 9% year over year. Total international traffic surged by a strong 12% year-over-year increase, with all major markets showing double-digit or high-single-digit growth rates.

Latin America, Africa and Europe also demonstrated significant international traffic growth during this period. Domestic traffic rose 4% year over year in the same time frame, driven by strong performances in Brazil, China, India and the United States. The passenger load factors continued to climb, reaching the mid-80% range.

The company's efforts to expand and modernize its fleet are impressive as it boasts one of the youngest fleets among aircraft lessors, featuring some of the most fuel-efficient commercial jets. As of June 30, 2024, the fleet's net book value increased by 2.1%, reaching $26.8 billion, up from $26.2 billion on Dec. 31, 2023.

In the June end quarter of 2024, Air Lease added 13 new aircraft from Airbus and Boeing while selling 11, bringing the total fleet to 474 aircraft. The weighted average fleet age stands at 4.7 years, with a remaining lease term of 6.9 years. The company managed 67 aircraft as of June 30, 2024.

Air Lease’s shareholder-friendly initiatives are also encouraging. In the second quarter of 2024, the company declared dividends worth 21 cents per share, respectively. Such initiatives boost investors’ confidence and positively impact the company’s prospects.

AL: Key Risks to Watch

Air Lease’s financial stability is challenged by high operating expenses and weak liquidity. The northward movement in operating expenses is adversely impacting the company’s bottom line. In the second quarter of 2024, total operating expenses rose by 6% year over year. This surge in operating expenses was driven by an increase in interest expenses.

In the second quarter of 2024, interest expenses, accounting for 37.7% of the total operating expenses, rose 9.4% year over year. The company’s high debt levels are concerning. 

Air Lease exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.5. A current ratio of less than 1 is not desirable as it implies that the company has insufficient capital to pay off its short-term debt.

Shares of AL have declined 13.7% in the past six months compared to its industry’s growth of 13.7% in the same period.

Image Source: Zacks Investment Research

AL’s Zacks Rank

AL currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide CHRW and Westinghouse Air Brake Technologies WAB.

C.H. Robinson Worldwide currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  CHRW has an expected earnings growth rate of 25.2% for the current year.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 23.6% in the past year.

WAB carries a Zacks Rank #2 at present and has an expected earnings growth rate of 26% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missing once. The average beat is 11.8%. Shares of WAB have surged 77.3% in the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report

Air Lease Corporation (AL) : Free Stock Analysis Report

Westinghouse Air Brake Technologies Corporation (WAB) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research