This Aircraft Supply Company Is Soaring Under the Radar

Key Points

• The aircraft manufacturing industry is riddled with supply problems right now.

• Demand for air travel continues to grow.

• These 10 stocks could mint the next wave of millionaires ›

FTAI Aviation (NASDAQ: FTAI) is a rapidly expanding aircraft maintenance, repair, and leasing company that most investors have never heard of.

The New York City-based company has two main divisions. One owns and leases assets including aircraft and engines. The other manufactures, refurbishes, and repairs aircraft engines and other components.

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The company specializes in two particular engines: the CFM56, the best-selling commercial aircraft engine in history that powers planes like the Boeing 737 and the Airbus A320; and the V2500, another popular engine used by Airbus, McDonnell Douglas, and Embraer jets.

An industry riddled with problems

Repairing and leasing aircraft are particularly good businesses to be in right now because the airline industry is absolutely riddled with equipment supply problems. There is a severe shortage of aircraft and components due to a production halt during the pandemic, a lack of talent, and an aging global fleet of planes in need of repairs or outright retirements and replacements.

Aircraft engine maintenance and repair has become a "choke point" for commercial aviation, according to consulting firm Bain & Co, with shop turnaround times up 35% for legacy engines and 150% for new engines. Bain says these problems won't even peak until mid-2026 and should last through the end of this decade.

This year has already seen major manufacturing delays at major plane makers including Boeing, maintenance problems at engine makers Pratt & Whitey and Rolls Royce (OTC: RYCEY), and a spare parts shortage across the industry.

Those problems make FTAI a vital lifeline for the airline industry.

Adding to capacity

And FTAI has been making strategic moves to add to its capacity. In December the company launched its Strategic Capital Initiative, which teams up with third-party institutional investors to acquire and on-lease certain models of planes. FTAI recently sold the joint initiative 39 aircraft for a total of $418 million, freeing up capital for its repair business.

And last quarter FTAI acquired Pacific Aerodynamic, another engine repair shop.

The results are showing up in its financials.

Second-quarter results were strong, with revenue rising 53% year over year to $676 million and earnings per share (EPS) of $1.57 compared with a loss of $2.26 a year ago. The share price jumped higher on the July 29 results announcement and is up 47% since then.

As a result, the stock is up 19% this year, 37% over the past 52 weeks, and more than 1,100% during the past five years.

But the best may be yet to come. Wall Street expects revenue to increase 47% this year to $2.55 billion and another 19% to $3.03 billion in 2026. EPS this year are forecast to rise 160% to $4.75 a share, and another 41% next year to $6.70. That bodes well for the share price, which ultimately tracks earnings growth.

Robust demand

And while aircraft supply problems continue to compound, demand for air travel is robust. Air travel demand returned to pre-pandemic levels last year and is expected to hit a new high this year. Demand looks set to continue growing rapidly through 2040.

FTAI currently has a market cap of about $17.2 billion and a forward price-to-earnings (P/E) ratio of about 22, making it inexpensive relative to peers.

It's not rocket science why this stock is soaring. FTAI provides the engines and parts that a crippled aircraft supply chain can't deliver at the moment, while demand for flights continues to rise.

Given that those industry problems haven't even peaked, the company is extremely well positioned to benefit from ongoing and systemic problems in the aviation industry.

Investors who realize those fundamental supply and demand factors -- which currently have no end in sight -- will want to have money in FTAI.

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Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool recommends Rolls-Royce Plc. The Motley Fool has a disclosure policy.