Author Topic: AIM.TO - Aimia  (Read 201495 times)

LTcap

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Re: AIM.TO - Aimia
« Reply #820 on: September 21, 2020, 07:12:27 AM »
Appreciate the critical feedback – I will try to remove salesy comments and personal attacks.  I will be more direct and specific in my comments.  I would ask Wabuffo to do the same.  So Wabuffo, here are my specific questions/comments:

1.   Wabuffo: “Its clear that the global airline industry was hoping for recovery by now (ie. Sept).  They didn't get it. “
a.   Me: What airline thought the recovery would be nearing completion by now?  I don't know of any.
b.   Me: The FACT is trends have continued to improve for Aero, hence they continue to offer materially more flights. (+75% in Sept)

2.   Wabuffo: “ I'm afraid the industry business model may be broken.”
a.   Me: So the airline and loyalty industry is dead? Yet, Delta just borrowed $6.5b off their loyalty program while Apollo wants to lend $1b to Aero.

3.   Wabuffo: “AIMIA should've gotten their $100m in cash out of PLM at the same time Aeromexico did.”
a.   Me: AIM didn’t need the cash.  AIM wanted an extension in their contract and guaranteed buyout price. To obtain this, AIM agreed to allow PLM to lend $100mm to Aero as long as that was secured by Aero’s equity PLM.  That is called negotiation.  Furthermore, AIM and Aero agreed to a leverage recap as soon as practical.  AIM would’ve loved to take out another $100mm for themselves, but PLM was not yet in a position to complete a leveraged recap (necessary to take out more cash) and AIM can't offer pre-purchased tickets (50% of PLM's loan).  AIM couldn’t have its cake and eat it too.

4.   Wabuffo: “There's now going to be a very long wait and it may never come.”
a.   Me: This is the exact type of comment that I do believe is biased (pardon if you don’t like that word).  It’s not expressed as an opinion or something w/a probability attached to it. Instead, it’s presented as a complete fact.
b.   Me: My response to that is I believe the opposite.  Apollo has offered $1b to Aero so that makes it very likely they will exit BK.  Aero should then exit BK w/a stronger balance sheet, an equity partner w/very deep pockets, and an equity partner who likely ultimately wants to own 100% of the crown jewel (PLM).  That comment is based on airlines recently leveraging loyalty programs and multiples paid for loyalty programs historically. 
c.   Me: Furthermore, AIM continues to have substantial negotiating leverage.  Remember, PLM loans are secured by Aero equity.  Before exiting BK, it would seem that Aero will have to assume the amended PLM agreement. It seems Aero already accepted that it must receive PLM/AIM’s approval for excess PLM equity to become DIP collateral.

5.   Wabuffo: “ let's continue to whistle past the graveyard.”
a.   Me: Several of you attacked me for my salesy comments, yet Wabuffo has made this exact comment several times. 
b.   Me: This comment implies that AIM has a high probability of being in distress.  AIM has zero debt and substantial cash. They are led by an experienced team of investors (see their backgrounds) who are very much aligned (own 25% and bought 1mm shares in open mkt in onset of COVID when most panicking).  They have a collection of assets that on a cost basis would imply ~CAD$7 per share.  That’s a very different story than a company “whistling past its graveyard”.


wabuffo

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Re: AIM.TO - Aimia
« Reply #821 on: September 21, 2020, 08:05:07 AM »
I'm really surprised my ramblings on this stock draw such a reaction.   I actively seek out bearish takes on anything I hold as a long position if it is fact-based because I'm just always paranoid about what I don't know.

The FACT is trends have continued to improve for Aero, hence they continue to offer materially more flights. (+75% in Sept)

Ok - fair enough, we'll see. 

Opex scale in transportation is always unit-based not company-based.  Its not how many flights you are operating -- its is every airplane airplane full?  Aeromexico's domestic flights are still below break-even capacity (they are at ~70%) and make up half of ASMs (when domestic should only be a quarter of ASMs).   

International ASMs are still down 75% from normal and the planes are flying only 40% full.   International is where the profits are - and its also an indicator of where business travel might be.   No airline will make any money without these two segments coming back.

Apollo wants to lend $1b to Aero.
 
No - they want to lend $200m and the airline hopes most of the remaining $800b will be an equity infusion at Aeromexico's insistence in the RFP for DIP funding.  This DIP was designed in June under more optimistic fall demand and volume assumptions.  We'll see what happens if Aeromexico continues to fall behind its operating cash flow forecasts.   Bankruptcy is a notoriously capricious and unpredictable process. 

AIM didn’t need the cash.  AIM would’ve loved to take out another $100mm for themselves

I'll accept that this is where I am speculating on what was possible.  I've heard the arguments that PLM would've had to redomicile in the US, couldn't have negative equity under Mexican securities laws, etc...   But to say that the AIMIA/Aeromexico relationship is amiable and friendly is naive.   I think AIMIA has continuously refused to engage in hard negotiations, so we'll never know, I guess, what was possible.

This comment implies that AIM has a high probability of being in distress.

I think you misunderstood this comment.  The graveyard is where some members of the airline industry may find themselves in.  I have never said AIMIA will be in distress.  I have only said its going to be a ho-hum investment.  The current price in the $4s may go a bit higher but that's about it. 

But of course, I could be wrong.  I have always said that I could be wrong.   But this is no fun anymore pulling the tails of the AIMIA bulls.  So I will try to avoid anything AIMIA (I sold my last little bit this morning) and just post on other topics.

Good luck to the longs.

wabuffo

« Last Edit: September 21, 2020, 09:19:05 AM by wabuffo »

KJP

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Re: AIM.TO - Aimia
« Reply #822 on: September 21, 2020, 08:06:55 AM »
Appreciate the critical feedback – I will try to remove salesy comments and personal attacks.  I will be more direct and specific in my comments.  I would ask Wabuffo to do the same.  So Wabuffo, here are my specific questions/comments:

1.   Wabuffo: “Its clear that the global airline industry was hoping for recovery by now (ie. Sept).  They didn't get it. “
a.   Me: What airline thought the recovery would be nearing completion by now?  I don't know of any.
b.   Me: The FACT is trends have continued to improve for Aero, hence they continue to offer materially more flights. (+75% in Sept)

2.   Wabuffo: “ I'm afraid the industry business model may be broken.”
a.   Me: So the airline and loyalty industry is dead? Yet, Delta just borrowed $6.5b off their loyalty program while Apollo wants to lend $1b to Aero.

3.   Wabuffo: “AIMIA should've gotten their $100m in cash out of PLM at the same time Aeromexico did.”
a.   Me: AIM didn’t need the cash.  AIM wanted an extension in their contract and guaranteed buyout price. To obtain this, AIM agreed to allow PLM to lend $100mm to Aero as long as that was secured by Aero’s equity PLM.  That is called negotiation.  Furthermore, AIM and Aero agreed to a leverage recap as soon as practical.  AIM would’ve loved to take out another $100mm for themselves, but PLM was not yet in a position to complete a leveraged recap (necessary to take out more cash) and AIM can't offer pre-purchased tickets (50% of PLM's loan).  AIM couldn’t have its cake and eat it too.

4.   Wabuffo: “There's now going to be a very long wait and it may never come.”
a.   Me: This is the exact type of comment that I do believe is biased (pardon if you don’t like that word).  It’s not expressed as an opinion or something w/a probability attached to it. Instead, it’s presented as a complete fact.
b.   Me: My response to that is I believe the opposite.  Apollo has offered $1b to Aero so that makes it very likely they will exit BK.  Aero should then exit BK w/a stronger balance sheet, an equity partner w/very deep pockets, and an equity partner who likely ultimately wants to own 100% of the crown jewel (PLM).  That comment is based on airlines recently leveraging loyalty programs and multiples paid for loyalty programs historically. 
c.   Me: Furthermore, AIM continues to have substantial negotiating leverage.  Remember, PLM loans are secured by Aero equity.  Before exiting BK, it would seem that Aero will have to assume the amended PLM agreement. It seems Aero already accepted that it must receive PLM/AIM’s approval for excess PLM equity to become DIP collateral.

5.   Wabuffo: “ let's continue to whistle past the graveyard.”
a.   Me: Several of you attacked me for my salesy comments, yet Wabuffo has made this exact comment several times. 
b.   Me: This comment implies that AIM has a high probability of being in distress.  AIM has zero debt and substantial cash. They are led by an experienced team of investors (see their backgrounds) who are very much aligned (own 25% and bought 1mm shares in open mkt in onset of COVID when most panicking).  They have a collection of assets that on a cost basis would imply ~CAD$7 per share.  That’s a very different story than a company “whistling past its graveyard”.

Thanks for the post; it's very helpful.  I hope you took my prior post more as feedback (my intent) than attack. 

LTcap

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Re: AIM.TO - Aimia
« Reply #823 on: September 25, 2020, 09:31:39 AM »
Wabuffo - I enjoyed reading and appreciated the thoughts. I agree it seems something could be going on w/PLM negotiation.

wabuffo

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Re: AIM.TO - Aimia
« Reply #824 on: September 25, 2020, 09:38:57 AM »
Oops - I removed my post because I wanted to reword it and now your response is ahead of my post.  But here's my post (corrected):
-----------------------------------------------------------------------

Ok - I know I said I wouldn't post about AIMIA anymore but I couldn't help but notice that Aeromexico keeps rescheduling its hearing in front of the Bankruptcy judge to finalize its DIP loan.  It was scheduled a few times this week, then cancelled and rescheduled to this morning - and now, cancelled again with no new date set.

Could it be there's some pushing and tugging going on behind the scenes between Aeromexico, Apollo, senior creditors and AIMIA about PLM Premier being part of the collateral pool for the DIP?

What we know is:
- creditors to airlines have quickly figured out that the best assets the airlines own in terms of collateral value is their ownership of their loyalty programs.  United and Delta have validated this recently and made headlines doing it.
- the recovery in airline global demand is way behind where the industry was hoping it would be right now - particularly in the profitable segments of business travel and international travel.  This is putting more pressure on airlines' cash flows and long-term viability.  The creditors know this, too.
- Aeromexico has not formally assumed its various contracts with PLM (ie, in theory, they could reject them in bankruptcy, though that would damage the airline). We know this because there have been no filings to that effect.  Also, AIMIA mgmt mentioned that Aeromexico had not assumed them yet in their recent Q2 conference call.
- the PLM DIP collateral question has not been settled.  In fact, there was an interesting filing two days ago by Aeromexico going into the DIP hearing with the Judge. (Doc 458 - I'm attaching the relevant page dealing with PLM as an attachment)
Quote
"Not withstanding to the contrary in the DIP credit Documents, ... (a) the Debtors and PLM Premier ... reserve all rights as to whether the shares of PLM... currently held in trust pursuant to the Irrevocable Guarantee Trust Agreement ... are (or are not) property of the Debtors' estates; and (b) if the PLM shares are ultimately determined by a final order of this Court and/or stipulation of PLM to be property of the Debtors' estates, (i) the PLM Shares shall not be pledged as DIP Collateral without PLM's prior written consent (which consent the Debtors are seeking, but, as of the date of this Order, have not been obtained")    [Wabuffo's Emphasis]

I wonder if Apollo/Aeromexico was having trouble with the airline's pre-petition senior creditors.  Aeromexico is trying to get them to accept most of the second Tranche $800m USD DIP loan as equity in the reorganized airline - but perhaps the lenders were balking if PLM isn't fully part of the DIP collateral package (since its total value is probably north of $1B USD).  The rest of the collateral that Aeromexico is offering (landing slots, head office real estate, etc) is just not that valuable.

Before everyone accuses me of scare-mongering again.  I think there's a small possibility that a deal is being negotiated between Aeromexico and AIMIA to give AIMIA a "liquidity event" and have it, in effect, give up its 48.9% of PLM Premier so that Aeromexico can pledge the entirety of PLM into the DIP loan as collateral.  Perhaps it's already mostly a done deal.  They are close enough to schedule the hearing but keep falling short at the last minute because of some details and having to cancel the hearing in front of the judge.

There was a very interesting filing in the Avianca Ch 11 case that gave some background into its Chapter 11 DIP Loan negotiations as they pertained to LifeMiles.  We know that Advent (who owns 30% of LifeMiles while Avianca owns the other 70%) entered into a transaction where it sold 19.9% of it ownership stake plus a paid call option on its remaining 10.1%.  The filing is Document 966 in the Avianca Court Docket and it is a background description document of how the DIP loan came together in Avianca's case as a prelude to that BK Court approving Avianca's DIP.

In short, Avianca also is going the Tranche A/Tranche B route with a smaller up-front Tranche that must be paid back by the airline and a larger back-end Tranche that the airline wants badly to be turned into post-reorg equity.   Apparently - the guaranteed tranche had no problem getting commitments from lenders but there was low interest in the larger back-end DIP loan-to-reorg equity.   The whole read is fascinating for its insights into the arm-twisting that goes on in this process.  But the main issue was a demand by the DIP lenders for more collateral and specifically that the loyalty program be thrown into the collateral pool.

So here's my speculation - I think the same thing might be happening in Aeromexico's case.  The DIP lenders are putting pressure for more collateral.  They've seen the other airlines pledge their loyalty programs and want that unencumbered value as a backstop to their DIP loan/post-reorg equity.  If I was being asked to provide DIP financing, I know I would be demanding it.

This could be a good thing for AIMIA.  It all depends on how they structure a possible deal.
- One way might be to put a legal carve out for just Aeromexico's 51% piece and a put a collateral legal firewall around just that 51% equity piece.   
- Another way might be for a deal to be struck in which Aeromexico "buys out" AIMIA's 48.9%.  But Aeromexico is short of cash, so there could be a small cash component and the rest is AIMIA taking its proceeds initially in the second tranche DIP loan and then converting it to post-reorg Aeromexico equity (like Advent is doing with Avianca).
- Or it could be some up-front cash to solidify the put option already in place to have Aeromexico buy out Aimia's ownership of PLM which would also be convertible to a DIP Loan and then equity in the airline after Aeromexico emerges from Ch. 11.

The keys from the Advent Avianca negotiations is that there would be some immediate cash but most of the value AIMIA would receive would be in the form of DIP loan proceeds.  Its also clear that Advent didn't get full value because its getting $200m for 20% of $1.6B-$2.6B of estimated LifeMiles value (less $400m of Lifemiles loans o/s) so there was obviously some threats from the Avianca side (probably due to threats from Avianca about rejecting the LifeMiles agreements and contracts).

The good news for AIMIA could be a liquidity event, the bad news most of the liquidity would be for less than full value and mostly in post-reorg Aeromexico common shares.

Obviously - I could be reading way too much here and am probably wrong about all of this.  But its fun to speculate in what is a very fascinating business story.  It will be interesting to see how the PLM DIP collateral question is ultimately resolved.

wabuffo
« Last Edit: September 25, 2020, 09:41:22 AM by wabuffo »

LTcap

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Re: AIM.TO - Aimia
« Reply #825 on: September 25, 2020, 09:39:25 AM »
Thoughtful, good post.  Thank you

wabuffo

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Re: AIM.TO - Aimia
« Reply #826 on: September 25, 2020, 09:44:33 AM »
Thoughtful, good post.  Thank you

Look - I may be reading too much into the rescheduling and cancellation.  The Judge could just be having a scheduling conflict and its nothing more than that.

wabuffo
« Last Edit: September 25, 2020, 10:07:03 AM by wabuffo »