Founder & Managing Director, AIR Control Tower, AIR Control Tower

Neil Glynn

Founder & Managing Director, AIR Control Tower

AIR Control Tower

AIR Control Tower is an independent research and analysis platform. Its mission is to provide impactful insight and analysis across the global airline industry at a company and market level via detailed financial models to aid decision making for key stake holders at a time when risks have seldom, if ever, been higher and the global sector grapples with the imperative of funding de-carbonisation. Unique analysis forecasting global carrier-level earnings/cash flows, and restructuring/de-leveraging prospects, is designed to dynamically assess the health of the industry, predict surprises and identify potential requirements for third party support.

Insights on the global airline industry

Equity Bottom-Up

<ul>
<li>Spirit Airlines finished 2023 as expected and highlights improving pricing momentum in early 2024 which should drive some margin recovery.</li>
<li>However, we still expect EBITDAR/ASM to finish 2024 down 72% on 2019, with a maximum 50% deficit required to avoid escalating debt. This drives a focus on Chapter 11 risk.</li>
<li>Management is adamant liquidity is sufficient to allow it to recover but significant margin gains, led by pricing expansion despite aggressive growth plans, are required for financial sustainability.</li>
</ul>


Spirit Airlines finished 2023 as expected and highlights improving pricing momentum in early 2024 which should drive some margin recovery.
However, we still expect EBITDAR/ASM to finish 2024 down 72% on 2019, with a maximum 50% deficit required to avoid escalating debt. This drives a focus on Chapter 11 risk.
Management is adamant liquidity is sufficient to allow it to recover but significant margin gains, led by pricing expansion despite aggressive growth plans, are required for financial sustainability.


Spirit Airlines - Summer 2024 a Critical Test of Organic Recovery Prospects

Frontier Group Holdings / Equity Bottom-Up

<ul>
<li>Frontier Airlines, having suffered a highly challenged 2023, is set to see a significant inflection point for pricing and margins in 2Q24.</li>
<li>Management aims to deliver 3-6% PBT margins in 2024 building to 10-14% in 2025, representing a reversion to pre-pandemic levels. Read across for LCCs globally.</li>
<li>We now expect a small positive FCF in 2024, building to &gt;$200m in 2025, which should help inspire confidence in the ULCC's ability to thrive with higher costs.</li>
</ul>


Frontier Airlines, having suffered a highly challenged 2023, is set to see a significant inflection point for pricing and margins in 2Q24.
Management aims to deliver 3-6% PBT margins in 2024 building to 10-14% in 2025, representing a reversion to pre-pandemic levels. Read across for LCCs globally.
We now expect a small positive FCF in 2024, building to &gt;$200m in 2025, which should help inspire confidence in the ULCC's ability to thrive with higher costs.


Frontier Airlines - 2024 Momentum Buys Time to Deliver on 2025 Targets

<ul>
<li>Coverage launch on Frontier Airlines, JetBlue and Spirit Airlines following the rejection of the JetBlue/Spirit deal by the US.</li>
<li>High leverage and above-sector cost inflation put each carrier in a difficult competitive position, driving the need for significant structural earnings improvements to achieve financial sustainability</li>
<li>We are 10% above consensus 2024 EBITDAR for Frontier, narrowly above for JetBlue but 17% below consensus for Spirit.</li>
</ul>


Coverage launch on Frontier Airlines, JetBlue and Spirit Airlines following the rejection of the JetBlue/Spirit deal by the US.
High leverage and above-sector cost inflation put each carrier in a difficult competitive position, driving the need for significant structural earnings improvements to achieve financial sustainability
We are 10% above consensus 2024 EBITDAR for Frontier, narrowly above for JetBlue but 17% below consensus for Spirit.


US Airlines - Second Tier Strives for Financial Sustainability

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> selling its <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (9618 HK)</a> shares was expected. The beginning of an open-ended share repurchase programme of Prosus and <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> shares was a welcome surprise.</li>
<li>Dye &amp; Durham has reduced its Offer price for <a href="https://www.smartkarma.com/entities/link-administration-holdings-ltd" target="_blank" data-smartkarma-citation="entities:970:1" rel="noopener">Link Administration (LNK AU)</a> to $4.30/share, down from $5.50/share. It still may get board support.</li>
<li>A 40-45% discount is about the narrowest <a href="https://www.smartkarma.com/entities/bank-of-kyoto" target="_blank" data-smartkarma-citation="entities:5248:1" rel="noopener">Bank of Kyoto (8369 JP)</a> should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.</li>
</ul>



Prosus (PRX NA) selling its JD.com (9618 HK) shares was expected. The beginning of an open-ended share repurchase programme of Prosus and Naspers (NPN SJ) shares was a welcome surprise.
Dye &amp; Durham has reduced its Offer price for Link Administration (LNK AU) to $4.30/share, down from $5.50/share. It still may get board support.
A 40-45% discount is about the narrowest Bank of Kyoto (8369 JP) should get to. For that, there is probably 15-20% upside. But like all holdco trades, trade the range.


Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba

AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

<ul>
<li>Frontier Airlines (ULCC US)'s improved terms for <a href="https://www.smartkarma.com/entities/spirit-airlines-inc" target="_blank" data-smartkarma-citation="entities:3389:1" rel="noopener">Spirit Airlines (SAVE US)</a>  still falls well short of the <a href="https://www.smartkarma.com/entities/jetblue-airways-corp" target="_blank" data-smartkarma-citation="entities:1516:1" rel="noopener">Jetblue Airways (JBLU US)</a> offer</li>
<li>ULCC's enhanced downside protection matching JBLU's reverse termination fee and bettering its prepayment proposal is the key swing factor where the regulatory path to approval is challenging for either transaction</li>
<li>Given its vigorous pursuit of SAVE so far, we expect JBLU will quickly respond with another counter offer in order to regain the initiative which should keep arbs interested </li>
</ul>


Frontier Airlines (ULCC US)'s improved terms for Spirit Airlines (SAVE US)  still falls well short of the Jetblue Airways (JBLU US) offer
ULCC's enhanced downside protection matching JBLU's reverse termination fee and bettering its prepayment proposal is the key swing factor where the regulatory path to approval is challenging for either transaction
Given its vigorous pursuit of SAVE so far, we expect JBLU will quickly respond with another counter offer in order to regain the initiative which should keep arbs interested 


United States

JetBlue Airways Corporation provides nonstop passenger flight service through its Airbus A320 aircraft.  The Company's airline is based in New York's John F. Kennedy Airport and currently flies to various destinations in the United States.

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Jetblue Airways (JBLU US)

Spirit Airlines - Summer 2024 a Critical Test of Organic Recovery Prospects

Detailed analysis of Spirit's recovery prospects as the market questions if it may need to file for Chapter 11 bankruptcy protection if...

Neil Glynn

Frontier Airlines - 2024 Momentum Buys Time to Deliver on 2025 Targets

The US ULCC sector has struggled through 2023, but we highlight that Frontier Airlines can demonstrate it is possible to recover margins and...

Neil Glynn

US Airlines - Second Tier Strives for Financial Sustainability

Deep dive on the quest for financial sustainability of Frontier Airlines, JetBlue and Spirit Airlines, each with a deteriorated competitive...

Neil Glynn

Last Week in Event SPACE: Prosus/Naspers, Link Admin, Bank of Kyoto, Tassel, Toshiba

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

MergerTalk: Over To You, JetBlue!

Given its vigorous pursuit of Spirit Airlines so far, we expect Jetblue will quickly respond to Frontier's improved terms in an effort to regain...

Robert Sassoon

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