Amedeo Air Four Plus Share Discussion Threads

[idyllic76] 26/8/2024 13:42

September 30 2023 Half-Yearly (published December 2023)

“More specifically relating to the Company’s A380 aircraft, Amedeo has been briefing the board about our expectations for the end of lease scenarios and ongoing discussions with Emirates. As is publicly known from other investment funds’ announcements, Emirates chose to purchase MSN 16, 17, 77, 83, 90 for $30 million to $35 million rather than return the aircraft to their respective lessors, with the prices paid being at the lower end of the range for 2022 lease ends, higher for lease ends in 2023. There have been other partly-disclosed outcomes with Singapore Airline and Air France returning A380s at the ends of their operating leases, however due to the different specific lease return conditions simple inferences cannot be made in respect of these cases. In the latter, in 2021 and 2022, for MSNs 49, 52, and 67 end of lease compensation ranged from $25 million to $40 million and the airframes were returned to the lessors. Some lessors then sold these A380s airframes for less than $1 million, to financial buyers who made significant proceeds from subsequent part out sales. There have been further trades with some aircraft returned to Airbus in exchange for new orders, dispositions of MAS and Thai A380s, which were not under an operating lease structure and therefore are not guiding here, and a partly-disclosed purchase by Emirates from an operating lease structure of MSNs 23 and 25, again with a different and unique set of conditions.

Our messaging to the Board about AA4P’s A380 aircraft, which have later maturities between 2026 and 2028, and which could potentially fly with Emirates into the late 2030s, is that Emirates in these circumstances would not want to return these aircraft to the lessors, as they would incur significant costs complying with minimum physical life return conditions and agreeing end of lease differences compensation, and giving up aircraft that they may like to keep, but could so do if the right deal cannot be agreed. It is relevant to note that the costs of return compliance, whether in the form of maintenance checks to fulfil MRC requirements or life limited parts used up in the engines have been rising well above the recent inflation levels, driven by the supply chain and commodity pricing that has also created bottlenecks in limiting widebody production rates, which look to be short of demand well into the later part of the decade. Additionally, unlike, for example, Singapore Airlines and Air France, AA4P’s Emirates A380 aircraft are better configured for profitable operations, in terms of overall seat count, efficiency of the layout, and product. At $80 per barrel, configured in an apples-to-apples layout, in a seat mile cost comparison with the latest technology aircraft like A350 and B787, and B777X to come, the A380 remains competitive and offers a unique product for customers. No wonder then that, even with low seat count and less efficient layouts, the likes of Etihad, Qatar, and Lufthansa, who all to different degrees
professed never to return their A380s back to service post pandemic, have reversed and returned A380s to flying.
Consequently, our messaging to the Board has been that ongoing negotiations with Emirates for a value for AA4P A380s will eventually, provide meaningful shareholder returns…..R21;

[grahamg8] 23/8/2024 17:05

We get a useful update next year when the DNA3 planes end their leases in August to November 2025. I'm holding on AA4, sold out of DNA2, and topped up DNA3. Each to their own.

[scrwal] 23/8/2024 15:52

@BRYNOS
Correct but that's why I said at least four as the first of those leases expires 03/08/2027 with the leases expiring in 2026 likely to be left as original.

[andyandyoj] 23/8/2024 14:27

Best of luck - onwards and upwards. It has been a wonderful run for a couple of years. I'm hanging in all three (dna2, 3 and AA4) as it still seems there is good institutional interest and the cash position / divis still to come give a good baseline. But it is not without risk. As they say, no pain, no gain - or in Germany "no risk no fun".

[brynos] 23/8/2024 14:22

@Scrwal The AA4 380's have not been upgraded yet and given the current speed of the Emirates rollout it will be touch and go as to whether they will have been upgraded.

At the moment they appear to be able to upgrade two aircraft simultaneously and are taking an average of about 40 days each to upgrade. They have retrofitted 24 A380 aircraft so far. They have announced plans to do 100+ so 76+ aircraft to go with two popping out every 40 days or so then that's about 4 years work. They have also now started retrofitting the 777 aircraft ( not ours) with one done so far and another in progress.

Of course a lot depends on the order in which they select the A380's for the retrofit. If they select the aircraft in a strict order of youngest first for retrofit, which is close to what they are doing then our aircraft would be 46th, 48th, 53rd, 57th, 69th and 73rd in line. The 73rd aircraft will be the first off lease and so on.

Maybe 2 or 3 of the aircraft will get upgraded before the lease expiry. Emirates need to get the program speeded up.

The information quoted was correct from the source I have on the 18th August.

[gary1966] 23/8/2024 14:00

Well I decided to sell out today on the good run that they have had, having held them a long time and received some fantastic dividends and a good capital gain. Can't get my head around what value is left when leases expire and get the impression from the factsheets that the management can't be sure either. Trust me I will miss the income as there isn't anything out there to compare. Uncertainty won through on this occasion.

Good luck everyone.

[scrwal] 23/8/2024 12:53

The Doric 380s were the bog standard version and not the upgraded version which may well attract a premium, this will apply to at least four of ours.

[brynos] 23/8/2024 09:30

@clive7878 Given the recent prices achieved for the DNA2 planes by selling to Emirates, the money obtained by selling AA4's A380 planes would pay off the "Balloon Loans" that are outstanding on each of the A380's.
There may be a few $M left for distribution to shareholders but as for buying new planes, AA4 will have to ask for new money from new or existing shareholders. I somehow don't think that will happen.

[nicholasblake] 23/8/2024 09:10

@clive7878 I’d say based on company communications it is no more than a remote possibility that more purchases will be made.

[clive7878] 23/8/2024 09:00

$64 question is if the 6 or 8 planes are sold what would be the return to shareholders, or would AA4 consider - which I believe is unlikely - to purchase other planes to lease out. This could have quite an impact on share price at the time.

Determining net asset value per share could difficult - as it is much easier to assess the value of a 2016 Ford Focus than an A380 - to say what the sale price would be.

Looks like the share price may start to level out after the recent rise, and may struggle for a while to go above 50p/

[lonrho] 23/8/2024 07:18

Debt net of cash was 680m at march 24.

[grahamg8] 23/8/2024 06:48

Sorry to disappoint you clive. The Mcap is £152m not your £104m which is good news. Unfortunately the debt is a whopping £889m, as Annual Report to 31/4/24. Which rather illustrates how difficult it is to work out whether these shares are a steal or not.

I do rather agree with scrwal that more distributions are likely, as each plane/cluster of planes come off lease and are sold or re-leased.

The cherry on the cake is that repeated statements about being alert to market prices, and being ready to do a deal to off load some or all of the planes might reap a premium in the short term rather than having to wait until possibly 2036 when the last extended Thai lease ends.

Lots of moving parts.

[scrwal] 22/8/2024 22:03

I think dividends will be paid from July 2026 but will be significantly reduced when the leases expire 04/09/2026, 03/11/2026, 03/08/2027, 27/11/2027, 19/02/2028, 13/04/2028.
However there will hopefully be some share redemption money which will hit the share price.

[scrwal] 22/8/2024 21:24

This was in the 2024 Chairman's Report

Your Company continues to show strong financial performance with the cash flows from Emirates supporting the dividend payments to Shareholders. We have been advised by Amedeo Limited that our 4 aircraft leased to Thai Airways have an aggregate surplus value in excess of debt of at least US$ 100m. Aggregate outstanding debt across these 4 aircraft is, as at 31 March 2024, US$ 343,905,025. Whilst the lease rentals from Thai Airways do not provide dividend income to the Company, nevertheless, due to the lower interest rates achieved by the existence of highly favourable derivatives, they act to reduce outstanding debt.

This was in the webinar 29 Aug 2023

Thai Airways
▌ The airline continues to perform in accordance with the Amended and Restated Lease Agreements.
▌ The Company’s A350 aircraft are in active service and the Power by the Hour (PBH) rental income generated revenues in excess of
the corresponding debt service and operating expenses, with surplus cash being applied to repay loan principal as per the
restructured loan agreements. Since January 2023, the Aircraft have transitioned to the monthly fixed rental, which have been paid in
a timely manner.
▌ The Company has also benefited from gains on loan hedges, previously entered into during the restructuring of the loans, and has
used these gains for additional principal repayment.

So my interpretation is that there will not be any dividends from the Thai leases as surplus cash must be used to pay down the loan principal, so until that is fully repaid there is no cash available for distributions.
The upside is there is $100m of surplus value which may well increase as surplus cash/ hedging gains reduces the loans. The surplus is 33c per share, about 25p.

[btgman] 22/8/2024 21:17

NAV ia after debt.
AIMHO
GLA
BTG

[clive7878] 22/8/2024 21:04

The good points is that the 16% yield is virtually guaranteed up to mid 2026, and based on a sale value of 6 No A380s at $40m that could raise £185m with a capitalisation of £148m. Say the other 6 planes are worth the same - and they are probably worth less - then the total asset value is worth £370m. If the asset value is 110p per share then that is worth £326m, but then it is said that AA4 has debts of 70% - against share price £104m. In 2026 - 2018 with only 2 - 777s left and 4 with Thai Airlines - could there be a share price correction one way or another ? Surely some dividend should be paid after 2026. It does to me appear to be unclear what to expect going forward after 2026. Some of my assumptions and calculations may be incorrect, but is at this stage is there an element of guess work going forward.

[btgman] 22/8/2024 19:11

Funny I see the share yielding 16% and Audited Accounts with a NAV over £1.05. AA4 is ripe for a takeover at a much higher price IMHO

[grahamg8] 22/8/2024 17:47

reddirish, I agree that fathoming out what the AA4 accounts actually mean is hard work. We have no sight of what the lease terms are for Thailand going forward, so don't know whether to expect dividends to continue or not. The balloon payments are straightforward for the Emirates planes, but have the terms for the Thai planes been amended or not? If not then once the original lease term has completed then all the rental income will be available for dividends. The high yield (and low share price) is justified because I see these shares as high risk due to lack of reliable information. Shame on the Directors.

[reddirish] 22/8/2024 12:30

I spent a bit of time this morning revisiting the published accounts, but they raised a few more questions - anyone have a view on the following? By my reading, it would appear that the quoted NPV relates only to the discounted value of the aircraft assets (using a discount rate of around 8%), and makes no reference to the projected flow of dividends. The terminal values of the aircraft at lease end are not specified, but (for the 380s) would be lower than the $40m just established by Doric. So it would appear that the only thing now holding the share price so far below NPV is uncertainty regarding the security of the Thai operated craft, over the now-extended lease period. There is a hint that the Thai rental values (and so income) could be increased in time, allowing for some dividend payments as well as the implied capital appreciation, but both towards the end of the lease periods as risk falls away. I've got this in my portfolio for income, but can see myself holding on to it for capital growth once the Emirates leases terminate.

[clive7878] 22/8/2024 09:53

The sale of the A380's and maybe the 777s could be quite likely,
but presumably there would be a return to the share holders,
but what then would happen to the share price,
as the dividend yield at present is going somewhat in holding up the current share price.

[andyandyoj] 22/8/2024 06:00

hxxps://citywire.com/investment-trust-insider/news/doric-nimrod-plane-fund-soars-as-emirates-buys-back-five-airbus-jets/a2448569

[scrwal] 21/8/2024 19:13

If the 380s are bought and the 777s then after Aug 2028 there will be no dividends as the Thai leases do not currently provide funds to pay dividends. There would only be capital appreciation if the Thai residuals are good enough in 2035/6.

[mattjos] 21/8/2024 17:34

new 4-Year daily closing high. Looks very likely to now rattle on and close that exhaustion gap down from March 2020 at 62p. Two further exhaustion gaps to fill from earlier at 82 & 99p

[andyandyoj] 21/8/2024 14:14

There are balloon payments on the A380s (like on a lease car). The good news is the 40m more than covers those giving some headroom to play with. The other aircraft should sell more easily. Hence the 60p target from Simon T last year.

[clive7878] 21/8/2024 13:19

How does that stack up if Emirates did buy 6 380's at $40m each or £30.75m each which equals £185m for the 6 in 2 years time, against a capitalisation of £148m?
There remains the question of debt owed and the other 6 planes left - 2 - 777's Emirates and 4 others with Thai Airlines.

2 basic things to look at when buying shares in my view are the pe ratio and debt as a percentage to capitalisation. eg. I notice IAG was recommended in the IC last week - pe ratio 5 - looks a bargain, but the debt ratio I believe was 125% - so indicates a high risk if the profits did go pear shape. VOD I believe has the same factors. Sometimes in the IC we hear about the plus factors, but the negative factors appear to be over looked.