American Airlines last night confirmed our analysis of late 2011 when we awarded an Aviation 100 Award to American Airlines and of last November/December when we again rewarded American Airlines. American distributed the last big chunk of its payout to its bankrupt predecessor's shareholders yesterday as shares closed at $35.98, up 46% from the start of trading, in the process American delivered a windfall right on the target range we stated would be the case some eight months ago 2014. Yesterday’s payout was based on the formula that awards shares in the new American Airline Group to holders of old AMR shares based in no small part on the share performance of the new group part on the new company's stock performance. As those shares have risen, those who followed our lead eight months ago would have earned a return of 13% return on investment. Anyone buying-in in late 2011 when we first stated to do so would have today seen a 135% return – Not bad.
AAMRQ shareholders will get another 0.1864 shares of AAL for each share of AAMRQ they held on Dec. 6. That means that one share of AAMRQ has brought 0.744 shares of AAL. Based on Yesterday’s AAL closing price of $35.98, each share of AAMRQ has brought $26.77 in AAL shares. New distributions now include American’s labor unions who are receiving another 11,662,800 shares. The remaining 17,230,082 shares of Convertible Preferred Stock will be converted into shares of Common Stock in AAL as of the close of business yesterday.
But wait, we may be seeing the beginning of a significant attack to the AAL core Miami market. That other airline stock that we have been telling you about for three years, and which is running some 150% up, is Spirit Airlines and it is looking to gain slots out of Miami International right now (refer to Airline Economics issue 16 for more on this matter). Spirit has been in talks with Miami International Airport and Miami-Dade county officials for months about moving a significant number of aircraft to Miami International (MIA) whilst keeping the Fort Lauderdale-Hollywood International Airport (FFL) operation going.
Spirit knows well, as do you and I, that if you wish to really attack the Latin American market then you must have operations running in and out of Miami, which just happens to be the main American Airlines cash cow at this time. Therefore if, and it is an if, Spirit Airlines gets slots at MIA then you can expect the new American to have a serious fight on its hands right on the door of its core growth market.
Meanwhile the Waha Capital has sold its stake in AerLift Leasing to a newly-established US-based aircraft leasing platform - Echelon Aviation. AerLift Leasing was established in 2010, with Waha Capital owning a 60.7% shareholding of the portfolio of 11 Aircraft operated by a number of international airlines. So who is Echelon Aviation?
Well Prospect Capital Corporation is behind the venture and it announced yesterday an investment of $92 million of debt and equity in Echelon Aviation with Prospect being the controlling shareholder. Echelon has acquired the majority stake of the Waha Capital diversified portfolio of 11 commercial aircraft, including narrow-body, wide-body, and regional jets. With a weighted average five year lease term, the aircraft lessees include six global and regional airlines that are well positioned in their respective markets to capitalize on high air traffic growth trends. One of the largest full-service aircraft leasing companies in the world acts as the servicer of this portfolio, and this servicing company has made a significant minority co-investment in the portfolio.
Echelon is led by Marc Cho, previously of Bank of America Merrill Lynch, DVB Bank, GE Capital Aviation Services, and Heller Financial. “Our initial acquisition creates an asset base with highly marketable aircraft body types with a strong focus on downside protection through leases to credit worthy global carriers,” said Marc Cho, President of Echelon. “We look forward to growing Echelon with the capital backing of Prospect, which brings to bear a rigorous underwriting approach, access to scale-driven capital, and time-sensitive decision making as significant differentiators in the aircraft leasing marketplace.”
“The aircraft leasing sector presents attractive return opportunities due to cash flow consistency from long-lived assets coupled with hard asset collateral,” said Sachin Sarnobat, Principal of Prospect Capital Management. “We are pleased to support the growth of Echelon Aviation and are delighted to have Marc on board as an industry veteran to lead the business.”
Currently with over $6 billion of capital under management, Prospect closed approximately $3.3 billion of new originations during the year ended March 2014.
Goldman Sachs served as advisors to Waha Capital on this deal.