We are short AerSale Corporation (Nasdaq: ASLE) because, in our opinion, the company has been misleading shareholders since going public. AerSale boasted about its AerAware product and the “near-term” product launch but has failed to deliver on this promise. The stock is detached from fundamentals, hinging upon a near-term FAA approval for AerAware and a large order from a domestic airline. Based on our research, we are confident our diligence debunks the dream of a large order. Our analysis of government records, flight data, and social media posts indicates that AerAware is a nonstarter.
In addition, a direct competitor is seeking an injunction and millions of dollars in damages in an undisclosed patent infringement lawsuit regarding the company’s Aersafe product.
In our opinion,
- AerSale is a defendant in an undisclosed IP lawsuit. The plaintiff, Jetaire Aerospace, alleges that AerSale’s Aersafe product infringes multiple of their patents. This lawsuit remains undisclosed despite AerSale accruing almost a million dollars in legal fees just year-to-date and changing its risk factors regarding IP litigation in its SEC filings.
- Jetaire has made a strong case and is seeking an injunction. The court-appointed leading patent expert appears to support Jetaire’s claims. While the plaintiffs sought at least $20 million in damages in their initial complaint in 2020, we estimate the damages will exceed $41 million, with the potential to rise above $100 million.
- Can management be trusted? The company moved the goal post on AerAware ten different times and issued several interim press releases to pump AerSale’s stock. But to date, AerAware has not been approved by the FAA.
- Some investors have held through these delays in hopes of massive orders from United, Alaska, or Southwest Airlines. We see these hopes as misguided. Management’s statements, flight data, and government records do not support these hopes.
- AerSale’s executives highlighted several disadvantages for the airlines to adopt AerAware, like equipping 50% of all aircraft with AerAware, training all pilots, revising the training manuals, changing the multi-million dollar flight simulators, and getting regulatory approval from the FAA for all of that. In addition to buying AerAware, airlines would have to invest millions of dollars, making any purchase of AerAware unlikely.
- AerAware is not superior to current technologies. The AerAware images have been photoshopped to make AerAware’s capabilities appear better than they are, as indicated by a forensic analysis.
- AerAware is redundant because – as noted in the FAA’s report to Congress – there are several cheaper and more reliable alternatives providing the same functionality of a HUD system and EFVS, some available ex-factory.
- AerAware is a late contender competing against major players like Collins Aerospace, Thales, Elbit, and Kollsman. The recently boasted 50% visual advantage was awarded to its supplier’s product and not to AerAware.
- An STC for the Airbus A320 family is unlikely. Since 2019, AerSale has been boasting about this and the 737NG but neither has materialized.
- AerSale will be required to apply for a separate STC for the 737Max family because of the FAA’s recertification process for the Boeing 737Max.
- Elbit Systems is selling the technology to AerSale competitors for implementation in smaller business airplanes, further limiting the market opportunities for AerAware.
- Products like Aersafe and AerAware are supposed to generate recurring revenue to offset lumpiness in AerSale’s core business. However, due to injunction risk for Aersafe and AerAware’s tiny addressable market, the company’s value should be based on its volatile core business.