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>​Early three-month and six-month fare levels largely remain above prior year for the full service carriers (FSCs) and low cost carriers (LCCs)</li>
<li>EasyJet’s 2024 PBT can reach £600m, Ryanair FY25 net income can near-€2.5bn following €2.0bn in FY24, while Wizz Air can exceed €500m net income in FY25.</li>
<li>Wizz has the strongest potential to demonstrate its ability to improve EBITDAR/ASK by managing capacity, which may provide insight into future prospects as operations normalize/developmental routes mature.</li>
</ul>


​Early three-month and six-month fare levels largely remain above prior year for the full service carriers (FSCs) and low cost carriers (LCCs)
EasyJet’s 2024 PBT can reach £600m, Ryanair FY25 net income can near-€2.5bn following €2.0bn in FY24, while Wizz Air can exceed €500m net income in FY25.
Wizz has the strongest potential to demonstrate its ability to improve EBITDAR/ASK by managing capacity, which may provide insight into future prospects as operations normalize/developmental routes mature.


European Airlines - LCCs Unlikely to Pass Through Fuel Tailwinds in 2024

Controladora Vuela Cia De-A / Equity Bottom-Up

<ul>
<li>Mexico's Volaris has announced its 1Q24 and FY24 capacity is likely to be down 16-18% yoy due to GTF engine inspections grounding aircraft.</li>
<li>However, on this reduced capacity, management anticipates a 31-33% EBITDAR margin, up from 26% in 2023, helped by fuel costs down c.9%. We model $1bn EBITDAR in 2024 (2023 $840m).</li>
<li>This dynamic has read across for many short/medium haul markets around the world has capacity constraints are likely to drive up pricing/earnings for affected carriers and also competitors.</li>
</ul>


Mexico's Volaris has announced its 1Q24 and FY24 capacity is likely to be down 16-18% yoy due to GTF engine inspections grounding aircraft.
However, on this reduced capacity, management anticipates a 31-33% EBITDAR margin, up from 26% in 2023, helped by fuel costs down c.9%. We model $1bn EBITDAR in 2024 (2023 $840m).
This dynamic has read across for many short/medium haul markets around the world has capacity constraints are likely to drive up pricing/earnings for affected carriers and also competitors.


Global Airlines: Mexico's Volaris Shows GTF Groundings Can Drive Higher Pricing

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>On 9 September, in a <strong>defensive move</strong>, <a href="https://www.smartkarma.com/entities/easyjet-plc" target="_blank" data-smartkarma-citation="entities:21929:1" rel="noopener">easyJet PLC (EZJ LN)</a> first rejected a takeover approach from <a href="https://www.smartkarma.com/entities/wizz-air-holdings-plc" target="_blank" data-smartkarma-citation="entities:22208:1" rel="noopener">Wizz Air Holdings (WIZZ LN)</a> that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.</p>
<p>EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.</p>
<p>EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".</p>
<div>
<p><strong>47 rights are needed to subscribe for 31 new shares</strong>. The issue price is <strong>410p/new share</strong> and represents a 48.0% discount to the closing price prior to announcement (789p) and a <strong>35.8% discount to TERP</strong>. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.</p>
<div>
<p>This is akin to a <strong>placing by market volume</strong>. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.</p>
</div>
</div>
<div>
<div>
<div>
<p>My <strong>fair value estimate</strong> (adjusted for the rights issue) is <strong>728p</strong>, which represents <strong>5.3x EV/2023e EBITDA</strong>.</p>
</div>
</div>
</div>

On 9 September, in a defensive move, easyJet PLC (EZJ LN) first rejected a takeover approach from Wizz Air Holdings (WIZZ LN) that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.
EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.
EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".

47 rights are needed to subscribe for 31 new shares. The issue price is 410p/new share and represents a 48.0% discount to the closing price prior to announcement (789p) and a 35.8% discount to TERP. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.

This is akin to a placing by market volume. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.





My fair value estimate (adjusted for the rights issue) is 728p, which represents 5.3x EV/2023e EBITDA.




EasyJet to Launch £1.2 Bn Rights Issue After Rejecting Hostile Takeover Approach

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.</p>

Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.

Global Equity Strategy: Stick With Reflation & Reopening Theme

TSE Tokyo Price Index TOPIX / Technical Analysis

<p style="text-align: justify;">In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the most attractive Sectors globally -- overweight. These two Sectors account for half of today’s individual recommendations Countries that are (1) developing positively in terms of price and RS and (2) have significant representation in this report include: Japan (<strong>TOPIX</strong>), Switzerland (<strong>SMI</strong>), and France (<strong>CAC 40</strong>).</p><p style="text-align: justify;">Outside of the above themes, a bottoms-up approach is required to uncover attractive and actionable stocks. On page 4 we include a table of all stocks highlighted in this report<em>. </em></p>

In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the most attractive Sectors globally -- overweight. These two Sectors account for half of today’s individual recommendations Countries that are (1) developing positively in terms of price and RS and (2) have significant representation in this report include: Japan (TOPIX), Switzerland (SMI), and France (CAC 40).Outside of the above themes, a bottoms-up approach is required to uncover attractive and actionable stocks. On page 4 we include a table of all stocks highlighted in this report. 

Overweight Global Technology & Industrials

Switzerland

The Jungfraubahn Holding AG founded in 1994, was the result of a merger between two primary railways, the Jungfraubahn and the Wengernalpbahn. These railways provide transportation for vacationers to the mountains of the Jungfrau region of the Swiss alps. The Group also holds participations in smaller railways and in related businesses such as parking facilities and restaurants.

Burckhardt Compression Holding AG manufactures reciprocating compressors.  The Company produces compressors for oil refining, the chemical and petrochemical industries, industrial gases, and gas transport and storage.

Daetwyler Holding AG manufactures rubber components and sealing solutions for the automotive, pharmaceutical and civil engineering industries. The company also distributes electronic, automation, engineering and IT components and accessories.

dormakaba Holding AG provides mechanical and electronic security systems. The Company offers door closer systems, electronic access, master key, safe locks, and movable walls. dormakaba Holding markets its products worldwide.

Interroll Holding AG, through its subsidiaries, produces components and systems for the storage and distribution of goods.  The Company's products include conveyor rollers, bulk storage, dynamic storage, and automation equipment. Interroll's products provide solutions for storage, distribution, and commissioning of goods.

IWG PLC operates as a holding company. The company owns and provides office space.

Bossard Holding AG supplies fastening devices, industrial adhesives, and tools. The Company offers its customers engineering assistance in solving fastening problems.  Bossard markets its products in Europe, the United States, and Asia.

Bucher Industries AG manufactures food processing machinery, vehicles, and hydraulic components. The Company produces fruit and vegetable juice processing machinery, fodder harvesters, plows, seed drills, feed mixers, plant sprayers, spreaders, street sweepers, and snow blowers. Bucher operates worldwide.

Kardex AG provides products and services in the logistics of dynamic storage and retrieval systems, static storage systems and automated warehouse and materials handling systems. The company offers its products and services in Euro countries, other European countries, the Americas, Asia, and the Pacific Rim. Kardex AG is headquartered in Zurich, Switzerland.

OC Oerlikon Corporation AG manufactures industrial equipment. The Company produces vacuum pumps, equipment to supply PVD coatings for tools and precision components, man-made textile machines, and transmission driveline equipment.

SkyWest, Inc. operates regional airlines that offer scheduled passenger service to destinations in the United States, Canada, Mexico, and the Caribbean.

Hanjin KAL Corporation is a holding company. The Company, through its subsidiaries, engages in airline, hotel, and travel related services. Hanjin also invests in real estates.

Air France-KLM provides air transportation services. The Company operates airlines and offers travel booking, catering, freight transportation, aircraft maintenance, and pilot training services. Air France-KLM serves customers worldwide.

Vietjet Aviation Joint Stock Company provides air transportation services. The Company offers flight and booking information, in-flight, cargo, and baggage services. Vietjet Aviation operates flights to various destinations in Southeast Asia.

PAL Holdings, Inc., through its subsidiaries, engages in the air transportation of passengers and cargo in the Philippines and internationally. As of December 31, 2014, its route network covered 32 points in the Philippines and 35 international destinations. The company was formerly known as Baguio Gold Holdings Corporation and changed its name to PAL Holdings, Inc. in January 2007. The company was incorporated in 1930 and is based in Makati, the Philippines. PAL Holdings, Inc. is a subsidiary of Trustmark Holdings Corporation.

Vietnam Airlines JSC operates as an airline. The Company provides air transportation services for passengers, baggage, and cargos on domestic and international routes. Vietnam Airlines serves customers worldwide.

Pegasus Hava Tasimaciligi AS offers scheduled air passenger transportation services. The Company offers air transport services within Turkey and between Turkey and other European destinations.

Juneyao Airlines Co. Ltd. supplies air transportation services. The Company provides domestic and international routes for passengers and cargoes. Juneyao Airlines also offers ticket home delivery and electronic ticketing services.

Air France-KLM offers air transportation services.  The Company operates airlines and offers travel booking, catering, freight transportation, aircraft maintenance, and pilot training services.

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.

Wizz Air Holdings Plc provides passenger and cargo air transportation services. The Company offers flight and connection programs in Central and Eastern Europe.

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Wizz Air Holdings (WIZZ LN)

European Airlines - LCCs Unlikely to Pass Through Fuel Tailwinds in 2024

Deep dive on early 2024 pricing developments and the prospect of the major European low cost carriers retaining fuel price tailwinds in 2024

Neil Glynn

Global Airlines: Mexico's Volaris Shows GTF Groundings Can Drive Higher Pricing

Valuable read across from Mexico's Volaris for all airlines impacted by GTF engine inspections - as well as their closest competitors - as capacity...

Neil Glynn

EasyJet to Launch £1.2 Bn Rights Issue After Rejecting Hostile Takeover Approach

Fully underwritten 31 for 47 at 35.8% discount to TERP. Gross proceeds of c. £1.2 bn, a placing by market volume, 40% dilution. Potential arbitrage...

Jesus Rodriguez Aguilar

Global Equity Strategy: Stick With Reflation & Reopening Theme

Our bullish outlook remains intact supported by the absence of breakdowns across major global indexes. Until this changes, we believe global...

Vermilion Research

Overweight Global Technology & Industrials

In this report we highlight attractive and actionable themes within developed int’l markets: Technology and Industrials continue to be two of the...

Vermilion Research

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