AIM.TO - Aimia

[Cigarbutt]

So GOL filed that the 300M loan has been repaid, with interest. Separate 'news' seem to indicate that Delta helped refinancing suggesting a commitment of Delta towards GOL with the Smiles loyalty unit used somehow as a currency. Details of the transaction, if relevant, may help put a value range on loyalty units in this environment.

https://www.sec.gov/Archives/edgar/data/1291733/000129281420003358/gol20200831_6k.htm

https://www.reuters.com/article/us-delta-air-gol-linhas-ae-debt/delta-helped-brazils-gol-refinance-300-million-loan-memo-shows-idUSKBN25T2E7

[LTcap]

Thanks for sharing. Where do you see any mention/evidence of the loyalty program being included? I do see “additional security”, so you assume loyalty is part of new collateral.  That would make sense.

[Cigarbutt]

^i don't see enough dots at this point to make a meaningful connection but monetizing or collateralizing value embedded in loyalty units has been a recurrent theme recently. This is speculation but some airlines may be able to extract the value that they have in airport slots (transfer the pseudo-leases to other airlines) but i don't see how Delta or any airline would buy into this 'market' with the present excess capacity and low liquidity. Things are looking better but this looks like a Gordian Knot.

[wabuffo]

Some odds and ends that I'll post here:

 

1) Avianca posted a Periodic Report for its bankruptcy-remote subs (including its 70% stake in LifeMiles).  The report contains income statements and balance sheets at 12/31/19 and 3/31/20 - but no cash flow statement, unfortunately. 

 

http://www.kccllc.net/avianca/document/2011133200908000000000002

 

2) The bankruptcy judge in the LATAM case rejected parts of their DIP proposal that allowed some equity holders to participate in the DIP and then convert their junior loan to equity post re-organization, because it was a de facto sub-rosa plan (ie, violates strict Ch. 11 law's creditor priority structure for claims). See Document 1056 for judge's opinion.  I don't think this affects Aeromexico's plan since the potential DIP lenders are all senior creditors with same priority.  I'm not sure if PLM/AIMIA could participate in Aeromexico's DIP since they are kinda sorta an unsecured creditor, though.

 

https://cases.primeclerk.com/LATAM/Home-DocketInfo 

 

3)  Looking at AIMIA's repurchase activity - it looks to me like the Mittleman's stopped their repurchase activity in August once the share price went above $3.25 CAD per share.  So that has some informational value for those saying there is huge upside at current prices.  Why would they stop buying at this particular price?

 

https://www.canadianinsider.com/node/7?menu_tickersearch=aim

 

4) AIMIA is finally releasing Q2 results on Sep 15th - but no word on when they are releasing their Business Acquisition Report on the Kognitiv transaction.  Still think its weird that they couldn't close the books on a balance sheet that was basically 100% investment holdings assets at June 30th.  Maybe the Kognitiv accounting threw them a monkey wrench cause everything else should've been simple (eg PLM for which we already know its results from the Aeromexico Ch. 11 docket should not have posed any problems in consolidating its results into AIMIA's).  Feels like there is an interesting story here.....

 

https://corp.aimia.com/news/?nr=2020-09-09-Aimia-to-Report-2020-Second-Quarter-Results

 

wabuffo

 

[Dr. Aybolit]

i think they probably had to pick a price limit when they implemented the auto-pilot feature (ASPP) on the NCIB.  And if so (no price limit is mentioned, and it might be changeable, I don't know), then picking C$3.25 or roughly half of NAV seems like good discipline to me, not lack of confidence in the upside.  Nor do I see their taking advantage of the blanket relief from the CSA granting a 45 day extension on filings as some spooky omen either.  it's a small company, if given extra time, why not take it?  Then again, I thought COVID-19 would play out like SARS in 2003 so my reflex towards optimism has not always served me well.  I guess we'll know how interesting it all is in a couple of days.  TD raised their price target on Aimia from C$4.25 to C$5.50 on 9/10/20, so they don't seem bothered by the delay.

 

TORONTO, June 30, 2020 /CNW Telbec/ - Aimia Inc. (TSX: AIM) today announced

that, in connection with its previously announced normal course issuer bid

("NCIB") to purchase up to 6,980,010 of its common shares ("Shares"), it has

entered into an automatic share purchase plan ("ASPP") with a designated

broker. The ASPP allows for the purchase of Shares under the NCIB at any time,

including when Aimia would ordinarily not be permitted to purchase Shares due

to regulatory restrictions and customary self-imposed blackout restrictions.

 

The ASPP provides a set of standard instructions to the designated broker to

make purchases under the NCIB in accordance with the limits and other terms

set out in the ASPP, subject to compliance with applicable securities laws.

The ASPP has been pre-cleared by the TSX and will be implemented as of June

30, 2020. The NCIB was originally announced by Aimia on June 8, 2020. The NCIB

commenced on June 10, 2020 and ends on June 9, 2021.  All purchases made under

the ASPP will be included in computing the number of Shares purchased and

cancelled by Aimia under the NCIB.

 

[Cigarbutt]

Delta explains how it has, and will, use its loyalty unit as a cashflow vehicle.

They also report a growing deferred revenue liability that is presently mismatched by almost normal loyalty currency accumulation by credit card users which means more cash now versus later.

So, there are relevant inputs for PLM. Mexico consumer activity had already slowed in 2019 and it looks like credit card users are probably more impacted than in the US at this point.

https://www.sec.gov/ix?doc=/Archives/edgar/data/27904/000119312520244688/d27099d8k.htm

[LTcap]

Thanks, big picture...Delta leveraging its loyalty program at ~3x highlights that debt investors/capital markets open to these types of transactions so bodes well for a PLM dividend recap once Aero exits BK.

[Dr. Aybolit]

https://getyarn.io/yarn-clip/d8028e53-d36e-4090-8736-a5a4b0fdced1

 

[Cigarbutt]

Aeromexico just filed their last monthly operating report and their cash survival ratio stands at 2.8 months left, assuming steady-state conditions, which, of course, don't apply.

In the early part of September, they drew their initial 100M loan under Tranche 1 DIP and more will come, if developing conditions meet assumed ones.

An interesting part is that the airline (like other airlines) can expect growing negative cashflows as they provide additional capacity to the market (supply will have to exceed demand for a while), just like cinema operators and similar can expect due to the high fixed cost component.

i've been trying to identify sources of info related to credit card usage in Mexico and results are not forthcoming.

[LTcap]

You and wabuffo just can't help yourselves...glass always half empty.  So including $100mm from DIP 1st tranche, Aero has 5.4 mths of liquidity.  Aero’s DIP hearing is next week, so more $ should be coming.  Apollo thinks $1b is enough liquidity runway.  Call me crazy, but I think Apollo has a better handle on Aero's liquidity situation than the doomsday blog posters here. 

 

Of course, the doomsdayers failed to mention AIM's earnings report yesterday.  AIM cut cash opex guide from $15mm to $12mm and looking for more cuts.  PLM div (when resumed in Fy21) + int income + MB mgmt fees should sufficiently cover overhead.  AIM also focused on buying assets w/FCF so that will also help cover overhead.  I think assuming overhead is huge negative value is misguided and will be proven false when overhead is break-even or potentially positive.

 

I'd encourage you to research Clear Media.  Normalized EBITDA using current bus panels and avg. Rev/panel & mgns pre-trade war/China slowing economy implies ~$800mm EBITDA.  W/focus on converting to digital panels, CM should be able to grow EBITDA 20% per year (JCDecaux has grown faster as it's transitioned to digital). That implies CM will have ~$2b of EBITDA in five years.  Assuming all CM's FCF goes towards growth (which seems conservative) and valued at 10x EBITDA (which is below JCD’s historical multiple), then backs into $37/sh implying AIM would make 5x its initial investment and this stake alone is worth ~AIM’s current share price.  Perhaps my assumptions will prove too bullish, but I don't think Jack Ma would've invested if he didn't think he could earn a very high return.

[wabuffo]

You and wabuffo just can't help yourselves...glass always half empty.

 

 

Well - Aeromexico is already lagging very badly vs the DIP cash flow budget they filed....just a couple of months ago. 

 

Their projection for August:

cash receipts                    $95.2m USD

cash opex                      ($96.9m USD)

operating cash flows        ($  1.7m USD)

 

Their MOR actual cash flows for August:

cash receipts                    $50.1m USD

cash opex                      ($87.5m USD)

operating cash flows        ($37.4m USD)

 

I would also note that their cash flow projection has them resuming leases in Sept to the tune of $31.2m of cash opex which they have not been paying thru August.  So that will increase their cash opex monthly burn rate.

 

I don't know about you, but if my AIMIA thesis rests on extracting full value for PLM, which in turn rests on Aeromexico surviving, then my sphincter would be tightening right about now.  I think the bulls really underestimate the mushroom clouds going off in the worldwide commercial aviation industry.  This industry has hit the proverbial iceberg and is sinking all around the world.

 

wabuffo

[LTcap]

Again, I trust Apollo over the doomsday bloggers who seem to be short, bitter they didn't buy AIM at $3, and/or hate Mittleman.  You love to take a piece of evidence and then spin to fit your bearish story.  I wouldn't read too much into one month, as receipts and disbursements can be lumpy.  Aero also just announced they're increasing flights by 75%.  Now, do you really think Aero would be doing this if it would result in Apollo walking away from the DIP?  I don't think so.  Continue to spin things as you like and one day when AIM's at $8-10, then perhaps you'll jump on the bandwagon.

[Cigarbutt]

A look at BIGLIFE, the 20%-owned loyalty unit.

It appears that Q2 included a non-cash adjustment related to breakage (opposite direction to what happened to PLM some time ago). Overall, even if in a different stage of 'development', BIGLIFE and PLM are quite similar with a go forward vision to maintain or augment the coalition loyalty vision and in the sense that Covid has had a very significant impact on both accumulation and redemption. The bullish aspect is quite positive. The April 2020 presentation implies a 200M (USD) value in 5 years for the 20% ownership..

https://newsroom.airasia.com/news/2020/9/1/big-loyalty-announces-rebrand-and-celebrates-10-years-with-100-bonus-big-points-giveaway

https://ir.airasia.com/misc/20200410_AirAsia_BIG_Loyalty_Introduction.pdf

 

i continue to think that both loyalty units have limited value without an anchor partner. It's relevant to look at the parent. This came up recently:

https://www.docdroid.net/dEf7Vkj/airasia-presentation-200917-pdf#page=3

Taking into account some comments mentioned elsewhere in relation to this presentation, it remains very hard to chart a course here. It's between a Geico scenario and a roll the dice situation. Conclusion: if Air Asia survives through the ordeal, the asymmetric bet has very high odds for a significant recovery and more.

 

[wabuffo]

CB - your second link is broken.

 

I think the key point to the future of all of these airline loyalty programs is this - they depend heavily on business travel and international travel.  Both of these segments are dead right now.  And there's real questions about when/if they come back to 100% of pre-pandemic levels. 

 

There was a quote recently at the end of August from the Southwest CEO.  He said that business had to double from here just for his airline to break even.  And this from an airline famous for efficiency/low costs and mostly domestic point-to-point routes.

 

https://www.dallasnews.com/business/airlines/2020/08/28/southwest-airlines-needs-business-to-double-in-order-to-break-even-ceo-says/

 

Its clear that the global airline industry was hoping for recovery by now (ie. Sept).  They didn't get it.  Business travel is dead.  International travel is dead.  That's where all the high-revenue, high-marginal contribution to largely fixed-costs come from.  Just focusing on generic traffic numbers or number of flights misses the key internals to airline profitability.  Without a recovery in these high-value travel segments, these airlines can't survive by just adding more debt and burning more "furniture".  Its a runaway feedback loop.

 

These loyalty programs also depend on these very same healthy airline travel segments.  More importantly, they also depend on banks not losing their front-of-wallet, high-spending, business-travelling, credit card customers continuing to pay for a high-annual-fee credit cards in order to collect frequent flyer miles. 

 

This is not a normal 6% drop in traffic that put 75% of the US airline industry into Chapter 11 over a decade ago.  This is a depression in global business and international travel that is still 80-90% below normal levels.  At some point, adding more domestic flights that are 67% full isn't the answer.  I'm afraid the industry business model may be broken.

 

AIMIA should've gotten their $100m in cash out of PLM at the same time Aeromexico did.  There's now going to be a very long wait and it may never come.

 

But last week was a good week of price action for AIMIA's shareholders, so let's continue to whistle past the graveyard.

 

wabuffo

[Cigarbutt]

^i can't explain why but it may open if you use the Google Chrome web browser. They also need to update slide 12 (directors).

[LTcap]

Wabuffo - You continue to try to spook readers w/your bearish and biased opinions. But I have news, it isn’t working. Also, you continue to disregard facts.  Apollo has offered $1b to Aero and Delta just levered their points program for $6.5b.  At some pt (if not already), you will lose all credibility.  I hope you’re no longer short because AIM remains massively undervalued so likely headed higher.

[kab60]

Wabuffo - You continue to try to spook readers w/your bearish and biased opinions. But I have news, it isn’t working. Also, you continue to disregard facts.  Apollo has offered $1b to Aero and Delta just levered their points program for $6.5b.  At some pt (if not already), you will lose all credibility.  I hope you’re no longer short because AIM remains massively undervalued so likely headed higher.

While one can agree or disagree with wabuffo, he puts in an effort. If I was long, I'd appreciate the pushback instead of your cheerleading. I'd love for him to pick my longs apart.

[LTcap]

I manage a long/short fund so very much appreciate and respect pushback on investments.  However, wabuffo’s recent posts (such as the last one) is primarily conjecture seemingly intended to spook AIM shareholders. Also when he/she has provided evidence, he/she often spins it to fit his bearish story.  You’ll notice I never commented on this board before, I’d rather read passively.  But, I grew tired of reading wabuffo and cigarbutt to some extent, painting AIM as highly risky w/substantial downside. I posted to present the other side.  I appreciate new facts and respect different opinions, but don’t let your bias cloud your comments.  Clearly, I’m very bullish on AIM but I do recognize the risks, particularly when it comes to Aero’s BK.  But, I think the risks continue to be more than priced in.  I also truly believe that Aero’s BK will most likely accelerate the timing of Aero (and now Apollo) buying out AIM’s PLM stake.  Aero will have a stronger BS and owner w/deep pockets (Apollo). 

[KJP]

Wabuffo - You continue to try to spook readers w/your bearish and biased opinions. But I have news, it isn’t working. Also, you continue to disregard facts.  Apollo has offered $1b to Aero and Delta just levered their points program for $6.5b.  At some pt (if not already), you will lose all credibility.  I hope you’re no longer short because AIM remains massively undervalued so likely headed higher.

While one can agree or disagree with wabuffo, he puts in an effort. If I was long, I'd appreciate the pushback instead of your cheerleading. I'd love for him to pick my longs apart.

 

I second this.  A post is useful when it presents facts and then draws inferences from them.  The reader can then go confirm the facts for him/herself, look for additional facts, and decide whether the inference drawn is persuasive or not.  Likewise a response can (hopefully respectfully) challenge the facts as wrong or incomplete or challenge the inferences drawn from them (or both). But calling someone "biased" doesn't add anything and is not persuasive.  On the other hand, showing someone is likely wrong by pointing to additional (or correct) facts or explaining why they have drawn the wrong inference is useful.  In short, if you think a person is "biased" then it ought to be easy to show it with facts and more persuasive inferences. 

 

LTcap -- for whatever it's worth, it's your style of communication, not wabuffo's, that I find to be less credible; it reminds me too much of the Yahoo message boards.  You seem to have alot of useful information and thoughts about Aimia.  If you communicated them in a different way, you might foster an informative back and forth. 

[writser]

 

LTcap -- for whatever it's worth, it's your style of communication, not wabuffo's, that I find to be less credible; it reminds me too much of the Yahoo message boards.  You seem to have alot of useful information and thoughts about Aimia.  If you communicated them in a different way, you might foster an informative back and forth.

 

Bingo.

 

1. First post ends with "looking forward to hearing feedback".

2. Gets feedback, posts a couple of angry rants about "bitter doomsday blog posters spooking readers by spinning facts who will jump on the bandwagon when this stock is up 5000%".

3. Last post starts with "I very much appreciate and respect pushback on investments".

 

So regarding point 1 and 3: it seems like you don't, actually.

[LTcap]

Appreciate the critical feedback – I will try to remove salesy comments and personal attacks.  I will be more direct and specific in my comments.  I would ask Wabuffo to do the same.  So Wabuffo, here are my specific questions/comments:

 

1. Wabuffo: “Its clear that the global airline industry was hoping for recovery by now (ie. Sept).  They didn't get it. “

a. Me: What airline thought the recovery would be nearing completion by now?  I don't know of any.

b. Me: The FACT is trends have continued to improve for Aero, hence they continue to offer materially more flights. (+75% in Sept)

 

2. Wabuffo: “ I'm afraid the industry business model may be broken.”

a. Me: So the airline and loyalty industry is dead? Yet, Delta just borrowed $6.5b off their loyalty program while Apollo wants to lend $1b to Aero.

 

3. Wabuffo: “AIMIA should've gotten their $100m in cash out of PLM at the same time Aeromexico did.”

a. Me: AIM didn’t need the cash.  AIM wanted an extension in their contract and guaranteed buyout price. To obtain this, AIM agreed to allow PLM to lend $100mm to Aero as long as that was secured by Aero’s equity PLM.  That is called negotiation.  Furthermore, AIM and Aero agreed to a leverage recap as soon as practical.  AIM would’ve loved to take out another $100mm for themselves, but PLM was not yet in a position to complete a leveraged recap (necessary to take out more cash) and AIM can't offer pre-purchased tickets (50% of PLM's loan).  AIM couldn’t have its cake and eat it too.

 

4. Wabuffo: “There's now going to be a very long wait and it may never come.”

a. Me: This is the exact type of comment that I do believe is biased (pardon if you don’t like that word).  It’s not expressed as an opinion or something w/a probability attached to it. Instead, it’s presented as a complete fact.

b. Me: My response to that is I believe the opposite.  Apollo has offered $1b to Aero so that makes it very likely they will exit BK.  Aero should then exit BK w/a stronger balance sheet, an equity partner w/very deep pockets, and an equity partner who likely ultimately wants to own 100% of the crown jewel (PLM).  That comment is based on airlines recently leveraging loyalty programs and multiples paid for loyalty programs historically. 

c. Me: Furthermore, AIM continues to have substantial negotiating leverage.  Remember, PLM loans are secured by Aero equity.  Before exiting BK, it would seem that Aero will have to assume the amended PLM agreement. It seems Aero already accepted that it must receive PLM/AIM’s approval for excess PLM equity to become DIP collateral.

 

5. Wabuffo: “ let's continue to whistle past the graveyard.”

a. Me: Several of you attacked me for my salesy comments, yet Wabuffo has made this exact comment several times. 

b. Me: This comment implies that AIM has a high probability of being in distress.  AIM has zero debt and substantial cash. They are led by an experienced team of investors (see their backgrounds) who are very much aligned (own 25% and bought 1mm shares in open mkt in onset of COVID when most panicking).  They have a collection of assets that on a cost basis would imply ~CAD$7 per share.  That’s a very different story than a company “whistling past its graveyard”.

[wabuffo]

I'm really surprised my ramblings on this stock draw such a reaction.  I actively seek out bearish takes on anything I hold as a long position if it is fact-based because I'm just always paranoid about what I don't know.

 

The FACT is trends have continued to improve for Aero, hence they continue to offer materially more flights. (+75% in Sept)

 

Ok - fair enough, we'll see. 

 

Opex scale in transportation is always unit-based not company-based.  Its not how many flights you are operating -- its is every airplane airplane full?  Aeromexico's domestic flights are still below break-even capacity (they are at ~70%) and make up half of ASMs (when domestic should only be a quarter of ASMs). 

 

International ASMs are still down 75% from normal and the planes are flying only 40% full.  International is where the profits are - and its also an indicator of where business travel might be.  No airline will make any money without these two segments coming back.

 

Apollo wants to lend $1b to Aero.

 

No - they want to lend $200m and the airline hopes most of the remaining $800b will be an equity infusion at Aeromexico's insistence in the RFP for DIP funding.  This DIP was designed in June under more optimistic fall demand and volume assumptions.  We'll see what happens if Aeromexico continues to fall behind its operating cash flow forecasts.  Bankruptcy is a notoriously capricious and unpredictable process. 

 

AIM didn’t need the cash.  AIM would’ve loved to take out another $100mm for themselves

 

I'll accept that this is where I am speculating on what was possible.  I've heard the arguments that PLM would've had to redomicile in the US, couldn't have negative equity under Mexican securities laws, etc...  But to say that the AIMIA/Aeromexico relationship is amiable and friendly is naive.  I think AIMIA has continuously refused to engage in hard negotiations, so we'll never know, I guess, what was possible.

 

This comment implies that AIM has a high probability of being in distress.

 

I think you misunderstood this comment.  The graveyard is where some members of the airline industry may find themselves in.  I have never said AIMIA will be in distress.  I have only said its going to be a ho-hum investment.  The current price in the $4s may go a bit higher but that's about it. 

 

But of course, I could be wrong.  I have always said that I could be wrong.  But this is no fun anymore pulling the tails of the AIMIA bulls.  So I will try to avoid anything AIMIA (I sold my last little bit this morning) and just post on other topics.

 

Good luck to the longs.

 

wabuffo

 

 

[KJP]

Appreciate the critical feedback – I will try to remove salesy comments and personal attacks.  I will be more direct and specific in my comments.  I would ask Wabuffo to do the same.  So Wabuffo, here are my specific questions/comments:

 

1. Wabuffo: “Its clear that the global airline industry was hoping for recovery by now (ie. Sept).  They didn't get it. “

a. Me: What airline thought the recovery would be nearing completion by now?  I don't know of any.

b. Me: The FACT is trends have continued to improve for Aero, hence they continue to offer materially more flights. (+75% in Sept)

 

2. Wabuffo: “ I'm afraid the industry business model may be broken.”

a. Me: So the airline and loyalty industry is dead? Yet, Delta just borrowed $6.5b off their loyalty program while Apollo wants to lend $1b to Aero.

 

3. Wabuffo: “AIMIA should've gotten their $100m in cash out of PLM at the same time Aeromexico did.”

a. Me: AIM didn’t need the cash.  AIM wanted an extension in their contract and guaranteed buyout price. To obtain this, AIM agreed to allow PLM to lend $100mm to Aero as long as that was secured by Aero’s equity PLM.  That is called negotiation.  Furthermore, AIM and Aero agreed to a leverage recap as soon as practical.  AIM would’ve loved to take out another $100mm for themselves, but PLM was not yet in a position to complete a leveraged recap (necessary to take out more cash) and AIM can't offer pre-purchased tickets (50% of PLM's loan).  AIM couldn’t have its cake and eat it too.

 

4. Wabuffo: “There's now going to be a very long wait and it may never come.”

a. Me: This is the exact type of comment that I do believe is biased (pardon if you don’t like that word).  It’s not expressed as an opinion or something w/a probability attached to it. Instead, it’s presented as a complete fact.

b. Me: My response to that is I believe the opposite.  Apollo has offered $1b to Aero so that makes it very likely they will exit BK.  Aero should then exit BK w/a stronger balance sheet, an equity partner w/very deep pockets, and an equity partner who likely ultimately wants to own 100% of the crown jewel (PLM).  That comment is based on airlines recently leveraging loyalty programs and multiples paid for loyalty programs historically. 

c. Me: Furthermore, AIM continues to have substantial negotiating leverage.  Remember, PLM loans are secured by Aero equity.  Before exiting BK, it would seem that Aero will have to assume the amended PLM agreement. It seems Aero already accepted that it must receive PLM/AIM’s approval for excess PLM equity to become DIP collateral.

 

5. Wabuffo: “ let's continue to whistle past the graveyard.”

a. Me: Several of you attacked me for my salesy comments, yet Wabuffo has made this exact comment several times. 

b. Me: This comment implies that AIM has a high probability of being in distress.  AIM has zero debt and substantial cash. They are led by an experienced team of investors (see their backgrounds) who are very much aligned (own 25% and bought 1mm shares in open mkt in onset of COVID when most panicking).  They have a collection of assets that on a cost basis would imply ~CAD$7 per share.  That’s a very different story than a company “whistling past its graveyard”.

 

Thanks for the post; it's very helpful.  I hope you took my prior post more as feedback (my intent) than attack. 

[LTcap]

Wabuffo - I enjoyed reading and appreciated the thoughts. I agree it seems something could be going on w/PLM negotiation.

[wabuffo]

Oops - I removed my post because I wanted to reword it and now your response is ahead of my post.  But here's my post (corrected):

-----------------------------------------------------------------------

 

Ok - I know I said I wouldn't post about AIMIA anymore but I couldn't help but notice that Aeromexico keeps rescheduling its hearing in front of the Bankruptcy judge to finalize its DIP loan.  It was scheduled a few times this week, then cancelled and rescheduled to this morning - and now, cancelled again with no new date set.

 

Could it be there's some pushing and tugging going on behind the scenes between Aeromexico, Apollo, senior creditors and AIMIA about PLM Premier being part of the collateral pool for the DIP?

 

What we know is:

- creditors to airlines have quickly figured out that the best assets the airlines own in terms of collateral value is their ownership of their loyalty programs.  United and Delta have validated this recently and made headlines doing it.

- the recovery in airline global demand is way behind where the industry was hoping it would be right now - particularly in the profitable segments of business travel and international travel.  This is putting more pressure on airlines' cash flows and long-term viability.  The creditors know this, too.

- Aeromexico has not formally assumed its various contracts with PLM (ie, in theory, they could reject them in bankruptcy, though that would damage the airline). We know this because there have been no filings to that effect.  Also, AIMIA mgmt mentioned that Aeromexico had not assumed them yet in their recent Q2 conference call.

- the PLM DIP collateral question has not been settled.  In fact, there was an interesting filing two days ago by Aeromexico going into the DIP hearing with the Judge. (Doc 458 - I'm attaching the relevant page dealing with PLM as an attachment)

"Not withstanding to the contrary in the DIP credit Documents, ... (a) the Debtors and PLM Premier ... reserve all rights as to whether the shares of PLM... currently held in trust pursuant to the Irrevocable Guarantee Trust Agreement ... are (or are not) property of the Debtors' estates; and (b) if the PLM shares are ultimately determined by a final order of this Court and/or stipulation of PLM to be property of the Debtors' estates, (i) the PLM Shares shall not be pledged as DIP Collateral without PLM's prior written consent (which consent the Debtors are seeking, but, as of the date of this Order, have not been obtained")    [Wabuffo's Emphasis]

 

I wonder if Apollo/Aeromexico was having trouble with the airline's pre-petition senior creditors.  Aeromexico is trying to get them to accept most of the second Tranche $800m USD DIP loan as equity in the reorganized airline - but perhaps the lenders were balking if PLM isn't fully part of the DIP collateral package (since its total value is probably north of $1B USD).  The rest of the collateral that Aeromexico is offering (landing slots, head office real estate, etc) is just not that valuable.

 

Before everyone accuses me of scare-mongering again.  I think there's a small possibility that a deal is being negotiated between Aeromexico and AIMIA to give AIMIA a "liquidity event" and have it, in effect, give up its 48.9% of PLM Premier so that Aeromexico can pledge the entirety of PLM into the DIP loan as collateral.  Perhaps it's already mostly a done deal.  They are close enough to schedule the hearing but keep falling short at the last minute because of some details and having to cancel the hearing in front of the judge.

 

There was a very interesting filing in the Avianca Ch 11 case that gave some background into its Chapter 11 DIP Loan negotiations as they pertained to LifeMiles.  We know that Advent (who owns 30% of LifeMiles while Avianca owns the other 70%) entered into a transaction where it sold 19.9% of it ownership stake plus a paid call option on its remaining 10.1%.  The filing is Document 966 in the Avianca Court Docket and it is a background description document of how the DIP loan came together in Avianca's case as a prelude to that BK Court approving Avianca's DIP.

 

In short, Avianca also is going the Tranche A/Tranche B route with a smaller up-front Tranche that must be paid back by the airline and a larger back-end Tranche that the airline wants badly to be turned into post-reorg equity.  Apparently - the guaranteed tranche had no problem getting commitments from lenders but there was low interest in the larger back-end DIP loan-to-reorg equity.  The whole read is fascinating for its insights into the arm-twisting that goes on in this process.  But the main issue was a demand by the DIP lenders for more collateral and specifically that the loyalty program be thrown into the collateral pool.

 

So here's my speculation - I think the same thing might be happening in Aeromexico's case.  The DIP lenders are putting pressure for more collateral.  They've seen the other airlines pledge their loyalty programs and want that unencumbered value as a backstop to their DIP loan/post-reorg equity.  If I was being asked to provide DIP financing, I know I would be demanding it.

 

This could be a good thing for AIMIA.  It all depends on how they structure a possible deal.

- One way might be to put a legal carve out for just Aeromexico's 51% piece and a put a collateral legal firewall around just that 51% equity piece. 

- Another way might be for a deal to be struck in which Aeromexico "buys out" AIMIA's 48.9%.  But Aeromexico is short of cash, so there could be a small cash component and the rest is AIMIA taking its proceeds initially in the second tranche DIP loan and then converting it to post-reorg Aeromexico equity (like Advent is doing with Avianca).

- Or it could be some up-front cash to solidify the put option already in place to have Aeromexico buy out Aimia's ownership of PLM which would also be convertible to a DIP Loan and then equity in the airline after Aeromexico emerges from Ch. 11.

 

The keys from the Advent Avianca negotiations is that there would be some immediate cash but most of the value AIMIA would receive would be in the form of DIP loan proceeds.  Its also clear that Advent didn't get full value because its getting $200m for 20% of $1.6B-$2.6B of estimated LifeMiles value (less $400m of Lifemiles loans o/s) so there was obviously some threats from the Avianca side (probably due to threats from Avianca about rejecting the LifeMiles agreements and contracts).

 

The good news for AIMIA could be a liquidity event, the bad news most of the liquidity would be for less than full value and mostly in post-reorg Aeromexico common shares.

 

Obviously - I could be reading way too much here and am probably wrong about all of this.  But its fun to speculate in what is a very fascinating business story.  It will be interesting to see how the PLM DIP collateral question is ultimately resolved.

 

wabuffo

458_-_Notice_of_Proposed_Order_Notice_of_Filing_of_Proposed_Final__PLM_Page.pdf