APAC And Middle East Markets Will Drive Future Aircraft Leasing

Key Takeaways

• Tight aircraft supply and strong demand for newer models are driving higher lease rates, asset values, and net margins for AerCap.
  
• Diversification into ancillary services and disciplined capital management are fueling earnings growth and positioning the company for further expansion.
  
• Market oversupply, slower growth post-expansion, leverage risks, client concentration, and potential weakening industry conditions all threaten AerCap's long-term cash flow and profitability.

Catalysts

Engages in the lease, financing, sale, and management of commercial flight equipment in the United States, China, and internationally.

• Robust, broad-based growth in global passenger and especially international air travel, led by APAC and the Middle East, continues to drive high aircraft utilization (99%) and lease extension rates (97%), supporting stable and accelerating lease revenues.
  
• Sustained supply chain constraints and OEM production delays are keeping aircraft and engine supply tight, pushing lease rates higher and boosting asset values, thereby expanding AerCap's net margins and supporting gains on asset sales.
  
• Accelerated airline fleet renewal and persistent customer demand for newer, fuel-efficient aircraft (evidenced by high lease extensions, especially for widebodies and new-technology narrowbodies) underpin long-term visibility into future lease revenue streams and higher average lease rate factors.
  
• Expansion of ancillary services, particularly AerCap's spare engine leasing and new engine/MRO partnerships such as the Air France-KLM JV, diversify revenue sources and add higher-margin income streams, positively impacting overall earnings growth.
  
• Prudent capital allocation, supported by a strong balance sheet and ongoing deleveraging, positions AerCap to capture opportunities in sale-leasebacks and organic fleet growth as OEM deliveries ramp up, driving revenue and earnings upside while containing interest expense.

AerCap Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AerCap Holdings's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 36.9% today to 16.9% in 3 years time.
• Analysts expect earnings to reach $1.4 billion (and earnings per share of $8.89) by about August 2028, down from $2.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, up from 6.8x today. This future PE is lower than the current PE for the US Trade Distributors industry at 22.7x.
• Analysts expect the number of shares outstanding to decline by 5.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.28%, as per the Simply Wall St company report.

AerCap Holdings Future Earnings Per Share Growth

Risks

• The ramp-up of OEM aircraft deliveries over the next few years could lead to an oversupply in the leasing market, increasing competition and potentially compressing lease rates, which would pressure AerCap's revenue growth and asset values.
  
• AerCap's forward order book and contracted CapEx begin to decelerate after 2027, indicating that the company may face challenges in maintaining long-term, double-digit earnings growth as organic fleet expansion opportunities slow, potentially impacting future revenue and EPS growth.
  
• The company's continued deployment of large amounts of capital into new equipment and share repurchases, while leverage remains below historical targets, raises the risk that higher leverage or market downturns could increase debt-servicing costs and negatively affect net margins and profitability during downcycles.
  
• Customer concentration risk remains a concern, particularly as some airline clients (e.g., Azul) face financial distress or bankruptcy; this increases the risk of credit losses or asset impairments, which could impact AerCap's earnings reliability.
  
• The eventual easing of today's strong market conditions (e.g., high lease extension rates, supply constraints, robust engine demand) due to broader macroeconomic shifts, industry cycles, or changing secular trends (like suppressed business travel due to remote work or new environmental regulations) could undermine long-term predictable cash flows and profitability.

Valuation

• The analysts have a consensus price target of $132.0 for AerCap Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.4 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 13.3%.
• Given the current share price of $115.19, the analyst price target of $132.0 is 12.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.