To obtain income returns and a capital return for its Shareholders by acquiring, leasing and then selling aircraft.
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I'm in it for the dividends. Any growth is a welcome bonus
Also tipped by Simon T in Investors chronicle and by Liberum (target 50p)
Just in case some are wondering about the price increase ;p
https://www.emirates.com/media-centre/emirates-to-retrofit-an-additional-71-a380s-and-b777s-extending-airlines-nose-to-tail-cabin-refreshes-to-191-aircraft/
Anyone know whats going on or is it the comments below? It's rocketed up past week or so?
Update looks really positive, no sales of plance until 2026 and Thai Airways doing well, back in profit and paying off their debts! Looks like this has been reflected in the share price as well.
The last audit had NAV at circa £1 so if they pay 20p to July 26 that leaves 18p v potential 80p NAV that's an interesting difference to put fair value at 40p v NAV of £1 seems a big discount. It will play out in time worth riding it out IMHO
Thanks for the response. I thought the lease income covered running operation and the divi, otherwise there is no profit and its no better than a savings account you draw on each quarter?
From 1 January 2023, the Company now receives fixed rent from Thai until the original lease expiry dates, rather than on a power by the hour basis. The airline’s rehabilitation remains ongoing, however lease payments are sufficient to meet debt service ,and a contribution towards expenses, without recourse to the Company’s other funds.
Guitarsolo. Broadly speaking so do I-hence hanging on. I don't understand how Thai Airways filed for bankruptcy protection but is now profitable and not making payments for its leased aircraft. What am I missing here?
SK, personally I think that most (not all) of the uncertainty around income and dividends it towards the upside. Planes coming into service, possible lease extensions (if you think that's possible), even Thai paying something for their aircraft!
My point is that even from here, the Emirates income distribution covers much of the share price. Which leaves the connundrum of what is the value after the leases v the time cost of money.
I hold a reasonable number but could add if the share price drops quicker than the finite income is paid out, and I remain positive about the post-lease value.
Guitarsolo. I feel that there are too many X factors surrounding this company to make any accurate predictions. Hence the massive yield. I suspect (hope) that the dividend will be held for another 2 years then uncertainties abound. It sounds like a worst case scenario would be a scrapping of the whole fleet(unlikely) which might yield $120mill or selling some or all the aircraft for possibly 3 times as much. Maybe new leases will be drawn up. I think it's a matter of faith and trust. I'm hanging on for now.
TB, my take on this (and there are much more knowledgeable folk on here) is that AA4 has a finite amount of income due from its Emirates leases and therefore, all other things being equal, the share price should reduce by 2p per quarter as that income is paid out. Hence the drop from 40p to 38p after the recent divi, which is about where I would put fair value at the moment. FWIW, I see that finite income as something like:
2024(r): 6p
2025: 8p
2026: 6p
2027: 2p (based on warnings that once the income starts dropping it will drop quickly)
2028: 2p
So that implies 24p of dividend income over the next c. 5 years. Of course, there are things that change that:
- Another Emirate A380 due back in service soon
- Depends on overall useage of planes (trouble in the Middle East?)
- How much spare cash does AA4 have that isn't in the dividends?
- Will Thai Airways ever pay for the planes they use?!
But if we do get c.24p of dividends up to the end of the Emirates leases then it means you've got the value of the planes for 14pps! See other discussions for what they may be worth (especially comments by simonm). We should get our first indication early 2025 when news is released what DNA2 sell their A380s for (if they sell them). It will be a year later that AA4 try with their first aircraft that come off-lease.
Anyway, that's my take on why we have a gradually falling share price. It's the starter before the main course!
Guitarsolo
Why onnex divi day has the share gone down so much? I know it goes down on divi day but the share price usually rises before to reflextntje accrual of cash before it is paid to shareholders. The leases on this stock have years to run yet and its steady income, so I dont quite understand.
More rubbish...even Bluefield Solar fund got the same. Been in this and Bsif for ages.
Don’t see any problem.
It is most kind of that chocolate teapot aka the FCA to try and warn investors about AA4 whilst seemingly turning a blind eye to rampant frauds on both AIM and even the Main Market. Unbelievable!
Presumably this is because the longevity of the Company’s existence is expected to be relatively short. How short we do not know. Also unknown is the residual value of the assets to be sold (or re-leased) when the current leasing agreements expire.
However, this does not mean that AA4 is a poor investment. If the A380 leases are extended, and/or the residual value of the A380s is far higher than current estimates, then this could turn out to be quite a great buy at today’s price. It seems to me that while the dividend holds, the downside is limited whist the upside is open-ended. That the stated net asset value at the half-year exceeded £1 per share would appear to reinforce the optimistic opinion I held when I doubled my holding on the day that I too received that fatuous message.
I got this message from my SIPP provider this week any ideas? Since I got it the price has gone up?
The investment you hold that failed a fair value assessment is: AMEDEO AIR FOUR PLUS LIMITED.
This fair value assessment was carried out by the manager of the investment itself, and may mean the investment doesn’t offer you good enough value over the long term.
What’s a fair value assessment?
Price and value have been highlighted by the Financial Conduct Authority (FCA) as key factors in delivering good outcomes for customers. As part of the FCA’s Consumer Duty Regulation, financial products sold to UK retail customers are required to complete a fair value assessment, using a number of factors to assess whether the product offers value to its customers.
Off-shore funds are not required to produce a fair value assessment, however we believe it's important to still understand whether they are providing value, we have therefore worked with an independent third party called 360 Fund Insight who have carried out this analysis. A PDF is available which shows some information about the methodology which goes into assessments by 360 Fund Insight.
Hi GS,
I dont believe it is about newer planes as such , more landing slots and supply of new plane constants to market. And with the current state of affairs with Boeing's safety and production delays, there is nothing on the horizon to replace the A380`s.
The next best thing would be a more economical engine upgrade, to really push the life out on the A380`s.
The first off hire confirmation comes in 2025 for AA4, this will hopefully lead to a sale of the first pair of A380`s in 2026 to Emirates. There should then be some form of capital return back to shareholders, maybe they only pay partial and withhold some funds.
Alternatives to AA4,DNA2,DNA3, nothing that i have found of interest... The Uk stock market has taken a back seat for me, I see more rewards on the US and BDC, Reit companies and like.
I will keep an eye out :)
Regards
Thanks simonm,
OK, I see your point. If Emirates have certain half-life costs to pay anyway, why not return the aircraft and get your hands on some newer ones.
I did look at DNA a while back, but opted for AA4 in the end as I thought it had more possibilities to boost shareholder payouts. It's my first foray into this type of company so still a learning experience. Out of interest, are there "younger" versions of DNA and AA4 out there with longer-term leases.......But to airlines that actually pay, so not to Thai Airways!
"Im just a general Joe investor, with limited knowledge :D".....I suspect you're not, but grateful for your input either way!
Guitarsolo
Evening GS,
The previous history against the DNA,DNA2, shares points to the planes being purchased.
With the next real dump of planes being DNA2, with 5 more A380 planes off hiring by the end of November 2024, which will set the tone for AA4.
I do hold DNA2,3, which i wouldn't chase these now as AA4 looks nicer. Worth a check out against DNA2 to see the process of funds returned and such.
The retrofit is really the Cabin layouts to help gain more capacity and reduced operating costs, which is why they are swapping out the boeings on routes previously like Frankfurt and BHX and such as they have limited landing slots.
The lease provisions require notice to return the planes, to open up bidding and settlement of purchase.
If they extend, the half life and minimum life payments + other costs are still payable = No benefit in extending the lease.
At this stage i can only base on the A380`s against the DNA share planes purchase prices and $12m Minimum life payment and such, and so suspect $40m per plane is achievable .
In relation to the 777-300ER planes, these off hire in the July/ Aug time 2028 after the A380`s. I see these as a bonus along with the A350 planes.
Im just a general Joe investor, with limited knowledge :D
Regards.
Simonm, why do you say you don't think the Emirates leases will be extended (your post 17 Feb)?
You (correctly) mention below that Emirates wants to keep operating the A380 into the 2030s and beyond. They are paying to retrofit half their A380 fleet, including 5 of AA4's planes with the leases on those planes terminating in 2026-28. How long does a retrofit last? Another one is coming back into service very soon. Emirates would prefer to operate a plane they "know".
Are you saying that the lease provisions make it cheaper for Emirates to return the planes and pay the contractual dues? If that could be $40m+ per plane, that would be over $320m (treating 777s as similar to A380s for now) or about $1 a share.
I haven't been in an aircraft leasing company as it goes through the process to return an aircraft, so I am interested to see how it plays out.
Guitarsolo
Afternoon Candid,
All information is in the public domain, you just need to read through the historic Company news releases for a start ;p
We know Emirates are refitting and aiming to fly the A380`s into the late 2030`s-early 2040`s, general press information from emirates (aviation news).
They have 119 A380`s with 67 slated for full cabin refurbishment, of which MSNs 187,201,206,208 are to undergo premium refit.
Five of the Company’s A380s are in service, and it is expected that the remaining aircraft (MSN 201) is anticipated to return during Q1’2024.
Full life and half life terms are stated back in the previous prospectus news releases. The funny thing here is AA4 did make a point of saying we had different terms after the DNA plane sold for $30m, and then changed the comments to limited market options to sell on the A380`s.
My conviction is 200k shares +, small to some and large to others with continued accumulating :)
Candid. Depreciation doesn't apply to planes? Of course it does. They either become obsolete or worn out. (downward revaluation). The planes are leased to Emirates and Thai Airways but revenues might be paid in dollars. We are fortunate to have the capacity to invest in euro or dollar earning investment trusts . One of mine is EAT which is wholly invested in European companies yet the share price performance has been poor over the last 3 years. I agree that the UK is in a dismal situation but there are pockets of light and not everything is rosy overseas
Silver night ..depreciation doesn't apply to planes or income earning assets , these are based on revaluations
In my view it is market uncertainty which is surprising the share price , plus a lack of liquidity ..the majority of investors both retail and institutional are switching their investments overseas and who can blame them
It isn't to do with the demise of the stock market as this is just an investment platform . The problem is and always has been that UK companies no longer make money apart from a few , over any period of 3 years or more
Think about it ..US has Google and Meta ..we have BT . US has Amazon , we have the post office ..
Britain is in terminal decline and nothing is going to change that ...Boards of Directors collect salaries and bonuses for as long as they are able to ..they all know the companies they work for are loss making with no reason prospects ..they gjve investors a false sense of security , until the cash runs out and then they sell their assets
UK Boards are run by inferior people , anyone who is good moves overseas
Point to more that 3 investment trusts in the FTSE 350 that have made any capital gains over the past 5 years
Pretty soon it will be a case of turn off the light switch for UK industry ..they had the chance to take the lead with EV and high tech ...they persisted with oil and gas , pharmaceuticals , banks and tobacco and set up lots of investment trusts investing in same behemoth assets
Sorry to sound so pessimistic but wake up and smell the coffee ...any good companies are stolen and taken either overseas or to private equity
I have a stake in AA4 I am not that sure that it will be a prosperous one
DYOR
Simonm...how do you know all of this information you have shared. I don't think it is in the public domain is it?
Also is your post supportive of a buy , advice to hold , or suggestion to sell , and what is your conviction for either ?
Good for you. I'm doing the same today. There's clearly scepticism about the sustainability of the divi and asset depreciation