This is really an interest rate spread play. The company buys new planes, floats a security backed by these planes at a favorable rate, and then leases the planes to airlines and freight carriers at a higher rate of return. Excess cash flow over the amount needed for fleet expansion are then payed back to investors as a large dividend, similar to the dry bulk shipping sector. Visibility is great as basically all their planes are spoken for long term deals. They already expected to expand fleet again in 2008 and the fed rate cuts have gauraunteed favorable terms.
Because this company deals in asset backed securites it has taken a beating in the last 6 mos over fears the securities might be risky. Also, averarge investors are confused at the high dividend when looking at net income, not factoring in the total operating cash flow as a basis for the safety of the dividend. Growth is expected to be 8% on top of the 10% dividend!
There is some concern over the fact that they had a second offering of stock in 2007 to finance fleet expansion and if they decide to vastly expand the shares in 08 I will re-examine my take. Also see GLS
$25.02 (02/04/08)
