AeroCentury Corp.: The real friendly skies

The airline business is a confounding business; profits are often as ephemeral as the contrails from a Boeing (NYSE: BA) 737 — a year in the black can easily be vaporized by a subsequent year in the red. Then again, profits are often transitory when business economics couple high-fixed costs (airplanes and legacy liabilities) with high-variable costs (employees and fuel).

That's not to say money can't be made moving people through flight; it can if you either run a more efficient traditional transportation operation, like Southwest Airlines Co. (NYSE: LUV), or eschew tradition all together, and focus on the airlines themselves, like AeroCentury Corp. (AMEX: ACY) of  Burlingame, Calif.

AeroCentury leases used regional aircraft and engines — purchase prices of $1 million to $10 million — to various airlines around the globe. At Sept. 30, 2007, the company owned eight deHavilland DHC-8-300s, three deHavilland DHC-8-100s, three deHavilland DHC-6s, fourteen Fokker 50s, two Saab 340As, six Saab 340Bs, four Fokker 100s and one turboprop engine. Most of AeroCentury's business is conducted overseas: Europe and the United Kingdom accounted for 39% of 2006 revenue, Asia for 25% and the Caribbean for 21%. The remainder is spread equally among the United States, Canada, Africa and South America.

Lease terms on AeroCentury's aircraft panoply are typically five years or less. To improve the marketability of an aircraft after the lease expires, AeroCentury includes lease provisions that provide for maintenance and return conditions. These provisions ensure the company receives its property back in salable or lease condition, or it receives sufficient recompense from the lessee to cover any maintenance or overhaul required to make it so.

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