I would only start collecting again when it drop to something below 1.00 :) Buy queue at 1.00, 0.90, 0.80, 0.70... May be it would come before the 2017 end 2018 sound like a very bad year to me
From your table, passenger seat sales in Sept '16 Q were RM1.078 bil while total expenses, excluding Asia Aviation, were RM1.067 bil, ie ticket sales barely covered expenses. But that's not a bad state, as it makes a lot from ancillary income and leasing. Like selling newspapers at RM1.20 doesn't cover production cost. The problem the Bloomberg writer pointed out is the effect on total operating income after a sale of Asia Aviation. He did say ancillary income's growing. After all, Tony said "Don't look at us as an airline. We are a supermarket." (quoted in edgemarkets).
The bigger and more threatening accusation is that the leasing income in the PL for all these years is not leasing income but actually borrowings disguised as income.
How does it work?
AA through bulk purchases got discounted planes. It sells these planes to a lessor ( international lessors , not associates) for a profit , do a sale and lease back.
AA got financing, got cash, profits and lease commitments. ...an off Balance Sheet obligation , the profits credited as leasing income.
The accusation is that AA have been doing this for years , financing AA while it grows up. ..and more seriously, jacking up the PL to boost share price.
Now, the baby has grown up, can stand on its own feet....and time to stand on its own feet.
but really......can someone artificially propped up can really stand on its own feet....this is the real question the Bloomberg article wants asked.
As always, very insightful and technical. I had this same line of thinking on AAC disposal but in no way could I put it in such an eloquent and technical writing. Thank you indeed.
I would also think that to an extent they could still have some income from leasing by a minor leasing business of some planes if there is excess post AAC disposal and this might slowly grow in time as balance sheet becomes stronger and stronger and planes start to increase in number.
Icon, thanks for the info. Very useful insight. Interesting to noticed that ex-AAC, AA's operating lease expense is only RM19mil. Meaning that roughly about 4~5 aircrafts are leased from other lessor.
noticed that the capital commitment off interim report is about 92,000m (clause 20 of interim report) 9month profit is about 1570m, simplyfied it say 2000m profit annually, can we say it need 42years profit just to pay off the said capital committent (assume profit growth offset by debt interest increment) ? if it is, 42yeras will be scarely, can sifu out there share your knowlegde on this?
I came across Airasia stock years ago after reading a book "Airasia Story". I thought: "Wow, its really making money, amazing!" Fatt tat loh At that time, Airasia was just about to start KL - Singapore, after Tony publicly lobbying the government for a while. At that time, they book "deferred taxation" as income, and was making roughly 800m a year. I thought: " Fatt tat loh". After KL-SG, should make at least 2b a year. But it didn't. Then Airasia starts their regional expansion, i thought after AAT listed, fatt tat loh, but.... Then oil price starts falling, RM2.9x is the highest. i went to a AAX IPO, Tony said Airasia should worth RM6. Bullshxt.....
Now MYR starts to fall again, next quarter figure will look less than satisfactory.
YLR, capital commitment is not a loss by default. For example, I have a commitment with Petronas to buy 1m barrel of oil at 50usd per barrel, that's 50m USD for a guy who earn maybe 50k per year. I would need 4000 years of income to pay it. However, let say at 2020 oil price is USD1000, then actually I make profit of 50mil by selling it. So it's not a correct way to see capital commitment as loss. In AA's case, do you think Airbus will agree for the contract if they think >50% chance AA can't pay for it? 10 years ago, AA is just a small LCC have less than 20 aircrafts and they make a 150 aircrafts order. They make it today. 400 aircrafts order for a 173 aircrafts LCC today is just a merely 2 times their current size, and AA have a 3bil population market to grow.
VLR, to add, 1. your 42 years is base on AA has a fixed annual avenue of 2000m and will never grow. In actual fact, AA's revenue is growing at CAGR rate of 10%, at this rate it will take 18 years. 2. when AA take delivery of an aircraft, they will recognise the asset and borrowing in Balance Sheet, but in Income Statement, they will recognise this cost as depreciation, probably over 20 years. 3. For AA, Tony Fernandes prefer to sell the aircraft when it reach about 12 year old, before maintenance cost start to raise dramatically. At this time, there will be a one-time gain. (note that AA get a big discount for their aircraft purchase, which mean even if they sell an aircraft even at delivery, they will actually make a few million USD gain.) Hope above help for your study.
Hi VLR, my appologise, please ignore #1 above which is a mistake. AA is taking aircraft delivery as borrowing and they are repaying it with cash flow. In other word, net profit we get from IR is inclusive of those repayment.
I ran through the numbers again. Looks like next quarter is still going to be fine. I think the real problem with Airasia is the ticket price too low, i would suggest management to increase the lowest fare by 10-20% but i know they won't listen. I.e. if you book early, charge RM85 lah, doesn't have to be RM49.90, stupid!
You need a lot of big brains to be able to maximum revenue, or else they need something else (say, big data). Also, they did a few things to correct the past management mistakes which is really superb.
I checked Southwest has gross margin of 50-70%, Airasia just selling too cheap, with gross margin of 20-30%.
Calvin, you did raise an interesting question. But if only 70+ airplanes on book, cost less than 400m each, 12 years straight line depreciation, the figure (2000m +-) is correct then.
say 75*400m/12= 2500m+-. Some planes are done depreciation, plus the some discount on purchases, ngam bah.
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