Author Topic: AIM.TO - Aimia  (Read 173575 times)

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #610 on: January 08, 2020, 10:30:26 AM »
Somebody reached out for some info (that deals with potential downside).
So, to balance what is being prepared to deal with the upside (I guess), here:
https://research-doc.credit-suisse.com/docView?language=ENG&format=PDF&sourceid=csplusresearchcp&document_id=1076077661&serialid=bEgJTK6cGryWMbHjGREee83G%2FENa1dsABciWj4Yx34w%3D
https://hbk.bb.com.br/hbkDocs/MPLUFR.pdf


Homestead31

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Re: AIM.TO - Aimia
« Reply #611 on: January 14, 2020, 06:04:58 AM »
Delta reported today - i haven't gone through it, but quick highlights are $4.1 billion in free cash flow, and leverage at the low end of their targets.

I still think that if Aimia wanted to sell PLM - and I don't think they do in the near term - Delta would be the best buyer, and Delta could pay a fair and full price with no problem at all.

Aeromexico's original bid was a joke - but a completely rational joke.  The old board had already demonstrated through the "sale" of Nectar that they were completely incompetent and did not understand the value of loyalty businesses, so why not just lob in a bid and try to take advantage of the incompetence?  Similarly, i think there is a credible case to be made that the Alexander capital valuation is flawed - perhaps intentionally so.

Time will tell.
« Last Edit: January 16, 2020, 08:10:52 AM by Homestead31 »

Homestead31

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Re: AIM.TO - Aimia
« Reply #612 on: January 16, 2020, 06:26:55 AM »
Interesting pitch on Delta from the Manual of Ideas (MOI) best ideas conference: https://moiglobal.com/adam-j-schwartz-202001/

the key takeaway from the pitch is that credit card fees that Delta gets from American Express justify the entire purchase price of the stock, meaning you get the planes etc. for free.

I don't have a strong opinion of this view, but I'd be willing to bet that the people at Delta do, and it seems likely they realize that the cash flows from credit cards are more valuable than the planes.

Hard to believe Delta wouldn't pay a fair price for Aimia's stake in PLM if Aimia did indeed want to sell it.

Homestead31

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Re: AIM.TO - Aimia
« Reply #613 on: January 16, 2020, 06:32:22 AM »
.......aaaaaaand credit suisse out with a research piece also suggesting that the cash stream from american express justifies the entire market cap of Delta.  just showing that the folks at black bear value fund aren't completely crazy or anything.  other people get it too.

Dr. Aybolit

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Re: AIM.TO - Aimia
« Reply #614 on: January 16, 2020, 08:17:15 AM »
Yep, and imagine if you could invest in the best part of an airline, without the heavy cyclicality of an airline attached, oh wait...

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #615 on: February 05, 2020, 04:07:07 PM »
Just in case Aeromexico is going after Aimia, as there seems to be a window of opportunity that would constitute a reasonable compromise, here are some relevant inputs.

The most relevant comparable is what is going on with GOL buying back the 47% it doesn’t already own in Smiles. The recent offer would put the market cap for Smiles at around 5.2B. With the trailing last four quarters’ EBITDA at 762M, this would imply a multiple of 6.8.

Applying this multiple to the trailing last four quarters’ EBITDA for PLM (85.2M USD) results in a total enterprise value of 377M CDN for the 48.9% interest held by Aimia.

Assuming negative drag from ongoing loyalty operations, tax issues, severance and liquidation costs being balanced by inflows from the last Cardlytics sale and potential upside on BIGLIFE and others.

If Aeromexico is going for a purchase of Aimia, here’s the consideration per share they should pay:
572M (equity at end of Q3 2019) -125M (cash used for buybacks in Q4) -236M (value of residual prefs at par) + 324M (value of PLM interest-53.2M recorded on balance sheet)= 535M. Given 93.84M shares after the buybacks ----)    = 5.70 per share.

MIM needs a win and a reasonable win now is better than an uncertain win later.

For the largest holder of the stranded equity, there seems to be pressure (self-imposed) to liquidate and start anew but there are clearly potential misaligned interests between the OPM’s manager with the reported positions (stuck) and performance (in limbo) and the typical investor who should expect full par value realization in the context of, essentially, a liquidation scenario. This raises question along the ethical, regulatory and even legal spectrum in the context of fiduciary duty and fair dealings.

GOL has recently produced some documents and has just signed a codeshare agreement with American Airlines and Aeromexico is testing the debt market.

https://www.sec.gov/Archives/edgar/data/1291733/000129281420000252/gol20200203_6k.htm

https://www.moodys.com/research/Moodys-assigns-B1-CFR-to-Aeromxico-B2-to-proposed-notes--PR_416715?WT.mc_id=AM%7eWWFob29fRmluYW5jZV9TQl9SYXRpbmcgTmV3c19BbGxfRW5n%7e20200126_PR_416715&yptr=yahoo


Homestead31

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Re: AIM.TO - Aimia
« Reply #616 on: February 08, 2020, 02:16:23 PM »
Aeromexico has $260M of the $400M debt raise ear marked to repay existing debt and revamp their short haul fleet.... seems unlikely they would raise even more debt to go after Aimia.  I suppose Delta is another story, but it seems less likely that Delta would try to get cute and buy all of Aimia in pursuit of PLM. Thoughts?

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #617 on: February 09, 2020, 05:43:00 AM »
Aeromexico has $260M of the $400M debt raise ear marked to repay existing debt and revamp their short haul fleet.... seems unlikely they would raise even more debt to go after Aimia.  I suppose Delta is another story, but it seems less likely that Delta would try to get cute and buy all of Aimia in pursuit of PLM. Thoughts?
If your question is:
Assuming Aeromexico is aiming to acquire Aimia, how would the deal be financed?
Here is a potential answer (simply a copy and paste of previous comments made by others):
-as mentioned above, Aeromexico has access to the debt market. The last 400M USD raised, as described, included a significant extra for general corporate purposes. It was the first time in years that a Mexican airline accessed the international unsecured bond market, the coupon was 7% and the issue was almost 3x oversubscribed.
-in reply #573, Dr. Aybolit suggested that PLM could complete a leveraged recap giving rise to a dividend capacity of 300M USD for the entity(ies) owning the loyalty sub.
-as mentioned, outside credit card 'partners' will be asked to participate, most likely through after-the-fact transactions.
-Delta could somehow provide bridge financing or some kind of support in the interim.

Note: This context reminds me of the time when Fairfax acquired Zenith in 2010. Fairfax had 8% of the shares and paid a premium to book value (34.5%) but the acquisition was done in a depressed valuation phase and both Fairfax and Zenith had excess capital. Fairfax paid the 1.3B purchase consideration for the shares not owned by issuing 200M of equity but most of the capital came from upstream dividends (insurance legacy subs) and a 259.6M dividend from Zenith, subsequent to the acquisition. I always thought this was a great transaction apart from the equity issue which seemed to be associated to a low price (IMO then). Post-acquisition and after the dividend to the parent, the net premium to statutory surplus at Zenith was 0.5 and Zenith still had regulatory dividend capacity.
« Last Edit: February 09, 2020, 05:51:19 AM by Cigarbutt »

Cigarbutt

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Re: AIM.TO - Aimia
« Reply #618 on: February 13, 2020, 10:12:46 AM »
Aeromexico reported.

From the knowns to the unknowns:

-It’s hard to dissect what’s happening at PLM from the parent numbers (true for all airlines who tend to bury the loyalty numbers within the morass) and the Q4 2018’s breakage adjustment doesn’t help but in 2019 Q4 numbers show what appears to be a growing and healthy 21M USD* “effect from associated companies” and a 2019 year number at 81M USD*, corroborating the “adusted EBITDA” label (I would carefully say that Mr. Munger’s characterization of intellectual dishonesty does not really apply here for the loyalty units in airlines) that Aimia has consistently used over the years for loyalty cash flow generation.

-The narrative that PLM is broken has changed completely.
From their end of year release: “Associated company equity income totaled $200 million pesos during the quarter, a $587 million peso increase year-over-year.  It is important to mention that during the fourth quarter of 2018 a non recurring accounting adjustment was made, having no cash impact, resulting from the reduction in ‘breakage’ in the Club Premier loyalty program.  This resulted from greater engagement of Club Premier customers in the loyalty program, which increases point redemption and strengthens overall loyalty to the airline.”

From the conference call: “Well, just as you might remember, a few months ago, we did an offer to IEMEA (sic) and it was not accepted. So we have continued to work on the program. And basically, there has not been any new events related to that. We continue to work with IEMEA (sic) on PLM, trying to strengthen the program. And that's how we expect it going forward. I think if something comes up, of course, we will let you know. But at this point, given that there was no interest in doing something, our approach has been to strengthen the program as much as possible. We believe that if the program is strengthened, that would be good for Aeromexico. Will be good also for Club Premier, and that's our target now.”

-As far as when something comes, PLM strong it has been and still is and now seems reasonable but the story here hasn’t always been reasonable so who knows?

-----

On a related note, MIM disclosed their more recent "performance". An annualized performance graph is worth a thousand words:
http://www.mittlemanbrothers.com/performance/


Edit: * numbers estimated above are for the whole PLM, not only for AEROMEX's 51.1% interest
« Last Edit: February 13, 2020, 10:22:40 AM by Cigarbutt »

wabuffo

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Re: AIM.TO - Aimia
« Reply #619 on: February 13, 2020, 12:24:26 PM »
a bit of a tangential note - but it seems airline loyalty programs are drawing a lot of interest in the annual audit. 

The Delta Airlines 10-K has "Loyalty Program - American Express Contract Value" and "Loyalty Program - Mileage Breakage" as critical audit matters.  I guess it speaks to the growing importance of these programs to the economics of airlines as well as the fact that the accounting for these loyalty programs is tricky and full of assumptions.

wabuffo