AerCap Holdings AER
AerCap, the largest independent aircraft lessor, trades at 8.5x earnings; the equity should rerate as the credit markets already have post-ILFC deal, supported by low-teens ROE and ~10% EPS CAGR.
Thesis
In a market with few bargains, Greenlight argues AerCap Holdings (AER) is the cheapest blue-chip in aircraft leasing, having transformed itself by acquiring ILFC from AIG in 2014 at just 0.48x book and 84% of appraised fleet value. CEO Gus Kelly runs the business with discipline: 13.1% GAAP ROE between 2007 and 2013 (best of the listed lessors), a young narrowbody-heavy fleet, ~99% utilization and only 0.2% average credit losses through the financial crisis. The stock trades at 8.5x consensus 2015 EPS despite a projected ~10% EPS CAGR through 2018 from ILFC synergies, share repurchases and a 12.5% Irish tax rate. AER's 7-year unsecured bond yield has already compressed from 5.20% to 3.90% post-deal; Einhorn expects the equity multiple to follow as the company regains investment grade and continues executing.
SCQA
AerCap is the largest independent aircraft lessor after acquiring ILFC from AIG in 2014, doubling in size to ~1,320 planes; leasing now finances 40% of the global airline fleet versus less than 2% in 1980.
Despite leading peer GAAP ROE (~13%), best-in-class residual value gains, and an ILFC acquisition closed at just 0.48x book, the equity trades at only 8.5x consensus 2015 EPS while credit markets have already rerated the bonds.
Buy AER; the equity should follow the bonds higher as ILFC synergies, lower SG&A, the 12.5% Irish tax rate, ~5% fleet growth from the order book, and excess-capital buybacks drive ~10% EPS CAGR through 2018.
A rerating of the P/E from 8.5x toward levels consistent with the low-teens ROE and double-digit EPS growth, compounded by aggressive share repurchases at low prices, implies meaningful upside (specific price target not stated).
The three reasons
- 1
AerCap bought ILFC from AIG at 0.48x book and 84% of appraised fleet value
- 2
Best-in-class lessor: 13.1% ROE, 99% utilization, only 0.2% credit losses through the crisis
- 3
Credit markets rerated AER bonds 5.20% to 3.90%; equity still at 8.5x P/E will follow
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- ILFC's pre-2014 wide-body driven impairments at AIG ($5bn 2010-2013)
- AER's own 2011-2012 buyback of 24% of shares at sub-$12
Notable slides (6)
Notes
Multi-topic Grant's Interest Rate Observer Conference talk. Three sections: (1) macro 'Zero Bound Odyssey' on Fed/Solvency II distortions and gold (slides 3-33); (2) AerCap long pitch 'Lessor is More' (slides 34-55); (3) athenahealth (ATHN) short follow-up to 2014 Sohn pitch with $14 bear-case DCF and 'bubble will pop' close (slides 56-89). Filename and primary new idea is AerCap; classification reflects that target. Signature Einhorn style: pop-culture imagery (Airplane!, Snakes on a Plane, Hulk, donuts, Snoopy), witty slide titles ('Cruising altitude', 'Avoiding turbulence', 'Insolvency II'), simple PowerPoint dark-blue gradient. No explicit price target on AER; thesis is rerating + compounding. No activist demands - this is a hedge fund pitch, not a campaign.