The aviation industry had a rough start to 2024 with several major part failures raising serious concerns about quality control. 

In January, an Alaska Airlines Boeing 737-9 MAX made an emergency landing after a door plug failure, leading to further inspections that uncovered more issues across the fleet. 

Airlines like United (UAL) and Alaska (ALK) found loose or improperly installed parts on other 737-9 MAX planes, increasing scrutiny on Boeing (BA) and its suppliers.

The FAA responded by grounding over 170 jets, and an audit revealed significant lapses in manufacturing processes at Boeing and Spirit AeroSystems (SPR). 

These failures not only hit Boeing’s stock price but also pushed the FAA to halt the expansion of 737 MAX production.

This surge in inspections and repairs placed enormous demand on MRO providers. As airlines scrambled to fix these issues, MRO companies saw record revenues in the first half of 2024. 

Long waiting times for maintenance slots, combined with accelerated fleet inspections, pushed the global MRO industry to grow by 6%, reaching $110 billion. The industry is now set to benefit further from the increased focus on safety and reliability.

AerSale (ASLE) stands out as a company with significant growth potential, especially considering it’s trading below book value with 0.6x Uniform P/B. 

The company operates primarily in the aircraft MRO space, providing essential services to extend the operational life of aircraft for airlines and other aviation companies. 

However, AerSale’s business model extends beyond traditional MRO services. It strategically purchases aircraft that are midway through their serviceable life, refurbishes and upgrades them, and either leases or sells these aircraft to operators.

Despite the strong performance in its core MRO business, the company has faced headwinds in its aircraft purchasing and resale division. 

High interest rates have made financing deals for aircraft acquisitions and leasing more expensive, which has dampened this part of the business. These challenges, however, seem temporary, with the expected rate cuts arriving soon.

Another key potential catalyst for AerSale is its proprietary AerAware product.

AerAware is a next-generation Enhanced Flight Vision System (EFVS) recently approved by the FAA for use on Boeing 737NG aircraft, making it the first commercial EFVS to offer a 50% visual advantage. 

This advanced system provides pilots with enhanced visibility in low-visibility conditions and complete situational awareness throughout all phases of flight. 

At its core is the ClearVision camera system, which uses a network of cameras and sensors to deliver a high-resolution, multispectral view, enabling pilots to see beyond the limitations of the human eye.

Complementing this is the SkyLens Head-Wearable Display (HWD), which projects real-time aircraft data and 3D synthetic vision, offering a wide, immersive view with full visual mobility. 

Unlike traditional HUDs, SkyLens allows pilots to look freely in any direction while maintaining flight data, enhancing safety during critical moments.

AerAware is expected to receive its first orders by the end of the year, and if successful, it could unlock a significant new revenue stream for the company.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

This analysis of AerSale (ASLE)’s credit outlook is the same type of analysis that powers our macro research detailed in the member-exclusive FA Alpha Pulse.