Stock Research: AAWW

As fuel becomes the primary cost for airlines and worldwide delivery services expand it's always a good idea to look at the air freight business. Atlas Air Worldwide Holdings (AAWW) is a company that takes the capital expenditure hit by purchasing aircrafts and leasing them out to air cargo companies. Atlas Air gets a consistent income stream and airlines get the flexibility to add/reduce capacity.

When it comes to aircraft leasing there are two specializations. One is cargo aircrafts where Atlas Air operates in and the other is passenger aircrafts through companies such as Fly Leasing. While the customer base is larger for passenger aircrafts the turnover is greater because airlines always want the most fuel efficient planes available. This means higher capital expenses and the ROI would not be as great since the aircrafts become outdated quicker than cargo planes.

Further, businesses can specialize in a particular type of leasing. Wet leasing is a lease that includes the aircraft, crew, maintenance, and insurance (ACMI) while dry leasing is just the aircraft itself. For most of Atlas's history it has been a wet lease operator but is starting to expand its dry leasing operations with six new 777 freighters in order to mitigate reduced demand for ACMI contracts. This is a good strategy if only to expand its customer base and gain more presence, especially since there is large demand for dry leasing.

I like the simplified operations of Atlas. For one they only own Boeing aircrafts which makes maintenance and crew training cost efficient and they have identified three aircraft body styles that are suitable for all their needs while retiring the one-off models. Financially Atlas Air is undervalued. It has a P/B value of 0.7 and a P/E of 10 with healthy operating margins and consistent EPS. The only downside is there is no growth catalyst for the company or in the industry right now.