If Buffett ever set up his help-line for Airlines Anonymous, I should probably call it.. I just cant help but see a lot of positives with Alliance.

The recording of the meeting is on the Meetings page, and I attach the transcript here (AQZ Transcript.pdf) if anyone wants to interrogate it with AI. But the high level thoughts are:

> Scott is obviously keenly tuned into what matters most (customer satisfaction -- ie, reliable, on-time, safe flights) and they have structured the balance sheet in a way that optimises for resilience over efficiency. He knows what blows airlines up, and isnt about to try and get cute with financial engineering to juice earnings at the expense of existential robustness.

> The other north star is return on capital. Be it debt financed or equity financed, that's all that matters, and their track record is exemplary here. Speaking of debt, it's very modest relative to operating earnings, and well under their covenants. Not trying to suggest there isnt risk here -- debt ALWAYS enhances risk -- but it's far from reckless, and for a capital intensive business that is steadily expanding, a very useful tool if used judiciously.

> Carrying value of assets is extremely conservative, be it with parts inventory (he reckons the market value is double the carrying value) or the aircraft itself (mandated by accounting rules).

> He is a big shareholder (aligned) and recently bought more on market. He explained off air they only have a 3 day window to buy shares, and almost always do when they can.

> was surprised by the share price performance given everything they have delivered was in line with what they told the market and, more to the point, results reveal a healthy and growing business.

> his knowledge of the industry and aircraft is clearly very deep.

> The head office is extraordinarily modest. He even quoted Rob Milner "the thicker the carpet, the thinner the dividends". Love it.

> The implementation of the new IT system, and how they went about it, also reveals how keenly they are aware of return on investment. He reckons they'll get a 12 month pay back on that investment! Also, after going live a couple weeks ago, only one small issue (anyone who follows ERP implementations knows that they usually dont go smoothly)

I bet I'm forgetting a lot of things, but I just have a soft spot for hands on management teams that are ROC focused and long term oriented. Especially when they have a long and impressive track record.

Anyway, the forward PE is 7x based on their guidance which he strongly hinted they were on track for -- which represents 7% PBT growth. Insanely cheap *if* they can sustain even modest growth.

Now.. they have all kinds of counterparty risk, and key customers could take a hit with all the global issues taking place. So it's not a slam dunk (nothing is). But it just strikes me as a well run business trading at a cheap price -- which is always a good combination.

I hold a rather small position, but may add some more if i can get my hands on some cash. I'll buy some on SM today

I never thought i'd find myself saying this about an airline but.. wow, Alliance is super impressive.

MD Scott McMillan clearly has a deep understanding of the industry and knows better than most the struggles most airlines face. He also struck me as a straight shooter -- even emphasizing some mistakes and negatives (entirely unprompted).

So the usual problem with airlines are all the variable costs, most of which are beyond your control, paired up with huge CAPEX requirements and uncertain/variable demand in a hyper-competitive (and often irrational and distorted) market.

AQZ mitigates this as such:

• extremely astute buying of assets, most of which are picked up opportunistically from the hands of forced sellers. pennies on the dollar type stuff.
• contracts which allow for regular (monthly) repricing to accommodate things like fuel, FX and cost inflation
• contracts (be that for FIFO or wet leasing) that are volume agnostic. ie. they dont care if the plane is empty or full
• work only with sound counterparties that have strong balance sheets
• diversity of exposure in terms of minerals and geography.
• bringing key services in house and, impressively, turning some of these into their own profit centers.
• A clear understanding of their strengths and a resolute focus only on areas where they have an edge (eg. zero interest in carrying regular passengers)

Like I said in the intro -- this company has never reported a FY operating loss since listing and generates ~10% net margins and ROE. Revenue has CAGR'd at 13%pa since the float and net profit has tripled. Clearly they are doing something right.

I dont believe any specific guidance has been given, but clearly they are expecting further growth. The 'north star' here, as revealed in the chat, was the size of the fleet. A bigger fleet = more revenue, and (in theory) better shareholder returns assuming a continuation of cost discipline and ongoing attractive return on capital.

And the PE is ~8 after they just reported a 66% lift in per share earnings!

Anyway, some highlights from the chat:

• They will only pay out dividends when there is no more opportunity to reinvest at high rates of return and after some debt has been pared back
• On debt, Scott clearly sees it as advantageous -- vanilla debt that is amortized over a long time frame, at low rates helps avoid dilution, juice returns and allow for further opportunistic purchases. It'll be wound back a bit down the track, but for now they are expanding the fleet.
• I really got the sense this is an MD who isn't worried about building an empire. He clearly sees little opportunity outside of AUS/NZ and even in those places its the regional routes they care about. I suspect at maturity you will see them payout a significant majority of free cash flows.
• What really matters with aircraft is engines -- the board spends 60% of their time thinking about this. And being able to service things in house is a huge edge and cost advantage (the new facility in Rocky should start to enhance things in the coming years)
• no budget on marketing, he considers AQZ a wholesaler
• He didnt quantify it, but suggested AQZ is by far the largest player in its chosen niche
• "Wet leasing" (where they provide the aircraft, crew, maintenance, and insurance to another airline, who then handle all the operational components) is, in effect, the same in nature to the FIFO work. These contracts are very long term in nature and essentially help 'solve' the capital investment requirements for customers, and allowing them to manage capacity better.
• no capital raises since 2020, where $100m was raised to bolster the fleet
• Qantas has a 19.9% stake, which it acquired without the board's say-so when they picked it up from Luthansa (who sold planes to Alliance, at bargain basement rates, for shares). Scott wasnt happy about that at first, but Qantas does not have a directorship or exert any control over Alliance’s operations, and they are now their largest customer. (I wonder if we see a takeover offer at some point?)
• There is a good amount of insider ownership, including from the original founding shareholders. Scott himself owns about 2.4% of the company.
• Scott expressed surprise by the market's reaction to the latest set of results -- despite the record numbers across the group, shares are essentially back at where they were in 2020.

I am going to initiate a small watching position here on Strawman, and (as always) keen for someone to throw some cold water on this. But I was very impressed with Scott.