Rising Global Air Travel Will Spark Aircraft Modernization Surge

Key Takeaways

• Accelerated monetization of assets, digital transformation, and regulatory tailwinds are set to drive significant recurring high-margin revenue and market share gains.
  
• Industry shifts toward consolidation and outsourcing position AerSale as a leading integrated provider, unlocking expanded cross-selling and durable margin growth.
  
• Rapid industry modernization, client concentration, intensifying OEM competition, regulatory hurdles, and skilled labor shortages threaten long-term revenue, margins, and growth prospects.

Catalysts

Provides aftermarket commercial aircraft, engines, and its parts to passenger and cargo airlines, leasing companies, original equipment manufacturers, government and defense contractors, and maintenance, repair, and overhaul service providers worldwide.

• Analysts broadly agree that expanded lease pool assets and new MRO capacity will steadily raise recurring revenue and net margins, but this likely understates the step-change possible as AerSale is set to immediately monetize its full pipeline of ready-to-sell engines and flight equipment, accelerating recurring earnings and margin leverage as MRO and leasing utilization quickly reach new highs.
  
• Analyst consensus anticipates the 757 P2F conversions and AerSafe regulatory tailwinds will incrementally lift revenue, yet sudden surges in demand from resurging cargo and pre-deadline safety compliance could drive far greater-than-expected order flow and bookings, multiplying backlog and pushing high-margin engineered solutions revenue to record levels.
  
• AerSale's unrivaled expertise and niche dominance in wide-body aircraft and engine feedstock is poised to capture explosive growth from the global aircraft fleet renewal cycle, as rising international travel and emerging market airline expansion fuels sustained long-term demand for USM parts, asset sales, and aftermarket services, expanding top-line revenue and supporting market share gains.
  
• Digital transformation and data-driven compliance requirements across global aviation are set to unlock new, recurring, technology-enabled service channels for AerSale-including predictive maintenance, regulatory digitalization, and integrated asset management-enabling scalable high-margin revenue streams as fleets modernize.
  
• Intensifying industry consolidation and outsourcing pressures among airlines are driving structural shifts toward third-party providers, positioning AerSale as a primary beneficiary and enabling it to become a fully integrated one-stop solution, yielding enhanced cross-selling opportunities, customer lock-in, and sustained net margin expansion.

AerSale Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on AerSale compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming AerSale's revenue will grow by 15.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.9% today to 7.5% in 3 years time.
• The bullish analysts expect earnings to reach $40.6 million (and earnings per share of $1.39) by about August 2028, up from $6.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 63.9x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 33.5x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.4%, as per the Simply Wall St company report.

AerSale Future Earnings Per Share Growth

Risks

• The rapid fleet modernization by global airlines and regulatory push for greener, more fuel-efficient models could lead to AerSale's core inventory of older wide-body and narrow-body aircraft and engines becoming technologically obsolete, reducing the pricing power and sales volume of its Used Serviceable Material (USM) and flight equipment, ultimately pressuring long-term revenue and gross margins.
  
• AerSale's heavy reliance on US-based customers and a handful of major contracts exposes it to concentration risk such that the loss of a key client or reduction in US demand could result in significant revenue volatility and earnings instability in the years ahead.
  
• Increasing entrance of original equipment manufacturers like Boeing and Airbus into aftermarket parts and maintenance services is likely to intensify competition, causing independent providers such as AerSale to face price compression and potential margin erosion, thereby negatively impacting future net margins and market share.
  
• The slow and uncertain regulatory approval process for new engineered solutions such as AerAware, combined with lengthy customer adoption timelines and complex airline integration requirements, may delay or limit the contribution from these new offerings, constraining hoped-for earnings diversification and long-term growth.
  
• Ongoing skilled labor shortages in aerospace MRO and component refurbishment, along with rising wage pressures, risk undermining AerSale's ability to fully utilize expanded MRO capacity and control operational costs, raising the possibility of higher labor expenses that could adversely affect future profitability and net margins.

Valuation

• The assumed bullish price target for AerSale is $8.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of AerSale's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $540.9 million, earnings will come to $40.6 million, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 8.4%.
• Given the current share price of $8.81, the bullish analyst price target of $8.0 is 10.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.