That is very good intel @tomsmithidg

There is always a natural tension between employers and employees when it comes to pay (as there is in any trade), but too much tension is rarely good for an organization..And not great to hear about the expectations arpound the new IT systems (although in my experience people generally are never happy switching to a new system. It's a hassle to learn new processes, especially when there are a few bugs to be ironed out).

Thanks for sharing

Scott did talk about the IT systems , they are from Lufthansa Systems who a lot of major airlines use. In the meeting he talks about the fact that they have gone with a standard build ( made no modifications ) and changed their processes. This de-risks a lot of potential issues. He mentioned they had one small issue on go live

I suspect you will find this staffing viewpoint in any business that is extremely cost conscious. Walton’s and Costco staff aren’t chuffed with their employers as well (and they are major, major employers in the US.

Ive done some asking around as well - viewpoint is (a) lower wages can be balanced against a more stable work schedule (plane times and routes are very predictable) (b) good experience (c) no dealing with the rude public - the mines have a zero tolerance on crap.

Scott did say staffing was not a problem. He is known as a straight shooter, but his word is good and solid. These days he is not involved in the day to day ops. He is pursuing his passion for developing a very viable parts business.

Now, here is the (previously unknown) super value proposition: I’ve long thought the assets on the BS (listed at cost) were hugely undervalued. Scott confirmed this at this meeting. Inventory listed at $140m might actually be close to double that as when they part out an aircraft (which has some 3,000+ parts - they only account for the major items.

Ditto for the planes listed at cost but worth significantly more if marked to market - not allowable under accounting principles, but nevertheless an undeclared asset…again he inferred it might be double the asset value…go check out the BS value of our planes to see the diamonds encased in mud!

And Scott suggested that an E190 kitted out ready to fly might be around $35m…we have 60+ of the mothers! Not bad when you look at the current market cap.

Bottom line: we have a growing locked in revenue stream…a cost saving of some $5m pa on plane maintenance courtesy of the Rockhampton base and a growing plane parts division (Scott inferred this several times). Throw in a significant moat on 95% on time flights (the #1 requirement of mining customers) versus the competitor at just 83%.

So I’m a bit like Strawman - may the Warren Buffett anti God of aviation flay me with wet lettuce if I have this scenario wrong.

So I've watched the meeting now and Chris strikes me as a bloke that knows his business and is passionate about it which is a big plus. I am struggling to see where the return is to investors. AQZ hasn't paid a dividend for the last 5 years, and its shareprice has gone nowhere;

I was glad he brought up dividends, but I would like to have a more time based indication of when they'd be likely to be reintroduced rather than 'as soon as possible'. I appreciate the capital expansion as the justification for not paying dividends and the focus on the Rockhampton development and I love the P/E ratio. But...

Seems a bit like investing here is just taking a punt that investor sentiment is going to change on the business and there will be growth in the share price that just hasn't materialised over the last 5 years.

What has changed? Why would investors get excited now? Was the $4.60 price around when the QANTAS buyout was on the cards, and if so is it likely to ever get back up there again without the chance of a buyout?

I like the sound of the business and the appearance of strong profitability, but if I am not getting a return on the profitability as an investor what's the point for me?

I reckon their best chance of increased share price may well be whenever they do start paying a dividend again.

No doubt the share price performance and lack of dividends isn't what long-term shareholders want to see @tomsmithidg , but I'm more sanguine on that front.

The business has no control over its share price -- that's on investors and the market. It does have control over revenues, margins and profits. To wit:

(statutory loss in FY22 was due to heavy investment in E190 fleet expansion and setup costs, but its underlying profit of $45.3m reflected strong core operational performance)

The key thing to understand with any business is that investment always precedes production which always precedes revenue and profit. And when you're dealing with a capital intensive operation, front loaded growth CAPEX can really dampen things in the interim. Think about it; in simple terms, they have to buy the plane, recruit the workforce, secure the associated infrastructure before they can lease out their planes.

As such, fleet and infrastructure expansion is a key leading indicator for revenue/profit potential (it may be that the added assets dont see much usage and generate o low or even negative return -- but sustained growth MUST be proceeded by this investment). That’s why this chart tracking fleet build-out is so important -- it’s the precursor to future revenue.

Now, the degree of growth will ultimately be a function of the return on investment for these purchases, and that's never guaranteed. But they do have excellent form on that front, proving to be savvy buyers of aircraft, of which they have been able to generate excellent ROIs. And whenever a company can generate high returns on retained capital dividends should always take a back seat (at least to my mind).

So back to the stagnant share price. Yup, sucks for long term investors, but from my perspective, I get to buy a business that has significantly more assets and cash flows than it did 5 years ago -- but is still available at the same price. A price that represent only 7x FY25 earnings.

Not that this is a slam dunk by any means. A lot of capital has been deployed to build out the capacity of Alliance, and a reasonable chunk of debt has been used to this end. If the larger fleet doesnt see the usage management expect, we'll see a lower ROI and in turn lower growth. If the usage is low enough, we'll see losses.

But the risk reward seems interesting to me. Scott also seemed to suggest that a Qantas takeover could still be on the cards at some stage -- and we know Qantas are keen, and a major shareholder. The only impediment is a regulatory one (which is not insignificant by the way). Not that i'd buy on that alone

Anyway, not trying to convince anyone of anything (other than, perhaps, myself). But I think the share price performance to date and the lack of dividends isnt a negative for prospective buyers.

Full disclosure, I bought a small parcel on SM and IRL yesterday, so I am biased. And probably wrong.

How do you fit the demoralised and underpaid workforce into the equation @Strawman ?

Should this just be considered part of running a lean and efficient company or does this inevitably lead to a degregation in performance with lower quality employees and potential industrial action?

Not great on Glassdoor but I don't know how to weight that:

Yeah it's a great question @Shapeshifter

I tend to align with @PortfolioPlus (see further up this thread). Amazon is another example where the employee base isnt super happy, but that doesnt mean investors have done badly.

Now, let me hasten to add, there is a BIG difference between "unhappy" and "exploited", and on ethical grounds alone I would avoid an investment in a company that was egregiously exploiting workers. But I think we're a mile away from that here.

Management job is to get the best bang for their buck for labour costs, and employees incentive is to advocate for the highest pay possible -- there's always a tension. But I dont believe Scott et al would push things so far as to undermine the smooth functioning of operations (on-time performance is a key metric).

The other thing I remind myself of when looking at businesses to invest in is that there are ALWAYS negatives. Look closely enough, and you'll find a few undesirable qualities of any business. As an investor, perfection really can be the enemy of the good. So you have to strike a balance between the pros and cons and hope the former outweighs the latter.

Anyway, that's how I see it.

The CAPEX is another area I'm worried about @Strawman. Planes are going to have to be replaced into perpetuity, so CAPEX will be never ending. They had some big wins obtaining planes from distressed vendors in the past but that may not be able to be replicated into the future. Also, being the biggest player, how much more growth is there in their business model? I want to like it, but I really liked FBR and we've all seen how that's gone for me (very different businesses obviously - just talking personal sentiment).

@tomsmithidg, perhaps AQZ isn't to your specific liking, that's no problem, investing is like fishing, there's multitudes of choices.

You are correct, aviation is a very capital-intensive industry and D&A to recognize that fact is a significant expense. Like most things, companies make profits from managing their assets well and so, Return on Assets (RoA) is a good measure. Currently the RoA for AQZ is 6.1% which well & truly beats the industry average of a woeful 2.74% and is slightly behind QAN at 6.35%. Southwest Airlines in the Sates, which is touted as the best in the US, has 6.2% and the average return in US is a miserly 1.3% - no wonder Uncle Warren passes on this an investment.

The direction of RoA going forward is a significant measure of future profitability and for AQZ there are substantial tailwinds.

The current large acquisition program, which is giving the company mild indigestion via top of cycle debt, was a deliberate move to take advantage of bottom of cycle prices and with full intent of replacing the aging & less efficient Fokker fleet by 2030 (confirmed by Scott in his presentation). This, of itself, will lead to an improved RoA as will extra flying hours as they kit out and deploy more of the efficient E190’s.

The new Rockhampton service centre will save some $5m a year on heavy maintenance where previously (every 3 years) the planes were flown overseas to UK and Singapore for such overhauls.

My expectation is that as the E190’s takeover the AQZ fleet, efficiencies will improve & I wouldn’t be surprised if the RoA moved up to 9%+

But, here’s yet another take – AQZ isn’t just an airline selling bums on seats to make a bob – though that is possible as Ryanair (surprisingly) has a RoA of 15% & Singapore are doing 9%+.

No, in cricket terminology, AQZ is a valuable allrounder – it doesn’t rely on bums on seats to make its runs, because it has contractual arrangements for the entire plane regardless of passengers. It’s also an aircraft parts dealer (and much of its inventory has a zero-cost value on the Balance Sheet), a financier/lessor of planes. Heck, they even make money leasing aircraft to their opposition. Scott confirmed 5 planes are now leased to Air North.

 I feel reasonably confident in the underlying value of AQZ, the question is how that value will get monetized. Yes, the commencement of dividends will tweak the retail shareholders. Yes, QAN is still plugging along with its takeover ambitions (they did offer $4.75 some years ago and since then AQZ has hit its strips). Privatization is a possibility, afterall Virgin appears to be doing well under such arrangements and is likely to float at some future date.

• But probably Scott alluded to the best measure of profitability - $2.5m EBITDA per plane. More planes more EBITDA – more EBITDA – more cash – more dividends.

@PortfolioPlus you make a compelling pitch.