The third of my 2021 “Permanent Hold” Ides List: ... Currently at $28.43.
NOT advice; Simply what I am doing in the public markets. This joins and .
Here’s why:
First, the bear case in a sentence:
They are a levered play on air travel where their customers are running out of cash (rapidly) with very uncertain recovery timeframes.
However, trading at approximately 38% of current book value that seems priced in.
People also don’t like the relative age of their fleet (old tech vs new tech). Well, depending on how you count, something between 50-59% of the book value is in new tech aircraft. Just using the new tech aircraft book, is trading as similar levels to all of
In addition, only 1% of BV is in MAX aircraft vs 5% at . AER has 80 of them currently on order (after cancelling 5); AL has 121 of them on order.
I’d rather have less exposure (absolutely and relatively) to the MAX.
The bull case: In one word, optionality.
I’m biased, but I have flown at least 10 times in the last 4 months ... it’s actually a wonderful experience. is a cheap call option on good virus news and/or travel.
Labor Day airports were surprising active.
In addition, I believe governments globally will continue to be supportive of their domestic travel industries (generally, they are large employers with union representation).
Even as airlines fail, will they liquidate versus restructure? We’ll see.
has plenty of optionality of the financial side as well.
One example; in July they refinanced approximately $1.5 Billion of debt. The result? Later maturity date and over $43 Million of annual interest expense savings (that’s .33 a share annually).
In addition, they have dramatically cut capex over the next 18 months (over $5 Billion worth) and have substantial unencumbered assets for addition liquidity (if necessary).
Final Note: could easily be VERY choppy (subject to news flow and negative headlines). However, I believe the margin of safety is substantial and the positive optionality will make this a good hold over time.
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