Shares of Fly Leasing (NYSE:FLY) climbed more than 25% on Wednesday following a report saying the company is considering a sale. It has been a tough year for Fly and other aircraft leasing companies, but management could be hoping a buyer sees long-term value in its portfolio.
It’s been a turbulent year for airlines, and companies that rely on airlines for revenue have been caught in the downdraft. The pandemic has led to less demand for flying, and Fly Leasing and other companies that buy planes from manufacturers and then lease them to airlines have seen their businesses bruised.
Fly Leasing’s third-quarter revenue was down 56.8% year over year, and the company lost a lot more money than analysts had anticipated. The company’s shares are down more than 50% year to date, performing worse than many of the company’s airline customers.
The company apparently is now considering exiting public markets. Airfinance Journal reported Wednesday that Fly Leasing is considering a sale, citing unnamed sources.
It’s worth noting there are a lot of deal rumors that don’t turn into actual transactions. Even if Fly Lease is exploring options, it might not find a suitor worth selling to. Investors need to be careful about buying in on merger speculation.
That said, there is some logic to it. These aircraft leasing businesses historically have found good homes inside large global insurance operations that need reliable ways to invest funds and earn a good return. With a vaccine in hand the worst should be over for the airlines, meaning they should be better able to pay their bills in the quarters to come. That in turn should make the businesses of Fly Lease and other lessors more stable and predictable.
In fact, I’ll go so far as to say I think buying aircraft lessors is the best way to invest in a potential airline recovery. So I wouldn’t be surprised if some large buyer isn’t at least kicking the tires on Fly Lease right now.
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