Thread by @puppyeh1

30 min delay takeoff to Honolulu so why not do a single stock thread.

$HRBR - Air Wisconsin (harbor diversified)

No screenshots as on a ✈️. How appropriate 😹.

This is prob the most asymmetric name in my book. 40% IRR w (I think) zero downside over 1.5yrs…

As always - DYODD

$HRBR is a regional airline with 5.5qtrs left on a capacity purchase agreement w $UAL. They are making boatloads of 💰 now and B/S is super clean but chances are reasonably high post Mar23 (end of contract) the biz will be either zeroed or much much much smaller…

…bec $UAL is moving away from the CRJ200 regional jet and all of $HRBR fleet is this plane (64 planes).

Still here’s the trade. Even if you burn it all down now and get NOTHING for the fleet, adjusted NCAV (treating LT receivables as cash which it is) is $1.9 a share. No loss.

Reality is tho $HRBR is printing cash: last Q block hours were only -8% vs 3Q’19, they earnt $19mm clean EBITDAR (removing deferred revs). Today the EV - depending on how you calculate - is somewhere around $30-40mm…🤔🤔

There were a no of little signs in 3Q suggesting this is a pseudo liquidation. Maintenance expense - normally correlated w flight activity - looked weirdly low. Only reason for that is if owners are running biz to max cash flow…

Mgmt owns 52% of lookthrouigh equity (combo of common and prefs) so is totally aligned. Debt is being rapidly repaid and in any case $HRBR is massively net cash, today, as described.

If you simply think regional air travel muddles along at current or slightly lower they should do $12-14 clean EBITDAR per qtr for next 5.5qtrs.

Tax that, less maint capex and gross up int income and you get another 85c of value per share - taking you to $2.8/shr in early ‘23

This assumes ZERO scrap value on the residual 64 planes. No doubt there may be a limited market for 64 CRJ200s when all major carriers have moved away. But they could be repurposed to PJ or cargo, perhaps. In any case a few traded at >$400k per during height of Covid…

So just penciling in a v low number, day $300k per, adds another 30c to the burn down value.

Again - you don’t need that to win big. Anything more than zero is a win.

Basically in a 1.5yr wind down I still think you get something around $3+ a share.

But wait…there’s more

$UAL has said they’re transitioning away from the CRJ200 totally only by 2026. $HRBR is a solid operator and has been a strong partner. New CFO came from United less than 12mos ago. Decent chance they maintain some kind of ongoing agreement even if much reduced…

…but point is even if it’s 1/3 the planes or 1/4 the economics it’s not worth nothing. And all that excess capital will be dividended or repurchase share…I believe.

There are other ways to win. There is a big pilot shortage in the US and $HRBR could well be in-housed…

…by $UAL to secure the staff, labor, brand, and route continuity. United owns many other regionals. They have already ordered the newer larger planes. $HRBR pilots can easily retrain a few hrs and fly the slightly larger CRJ700s…

A few hundy mm is meaningless to $UAL but provides for a double from here (slight premium to liquidation value, is $3.6). Seems eminently possible and soemthing $HRBR mgmt is prob pushing for.

Meanwhile they have started buying stock. Not in huge size (prob bec they don’t want to make US govt angry since they got so much assistance during Covid) but they paid as high as $2.37 last qtr.

Only reason to do that is if you think stock is worth much much more…

So that’s about it. Heads you don’t lose. Tails you win a lot. Double tails you clean up. Find out in 6-12mos.

Again DYODD. I have a vvv large long position. I dig these kinds of trades but this is a semi-dark, illiquid stock. 👊🏻👊🏻