- Interim NAV up from £341mn to £357mn (117.5p)
- 1.75p a share quarterly dividend
- Emirates fleet accounts for 75 per cent of fleet valuation
UK aircraft leasing fund Amedeo Air Four Plus (AA4:42.5p) has provided valuable insight into the company’s prospects.
Specifically, the investment manager reports that its six Airbus A380 planes will be back in service with Emirates Airlines by the end of March. It’s hardly surprising given that international air travel has rebounded since the pandemic, while technical and supply chain issues are holding back new aircraft deliveries from both Boeing and Airbus.
The costs of return compliance, whether in the form of maintenance checks or life-limited parts used up in the engines, have been rising well above the recent inflation levels, too. This has been driven by the supply chain and commodity pricing that has created bottlenecks in limiting production rates for widebody aircraft, which look to be short of demand well into the later part of the decade. In addition, Amedeo’s Emirates A380s are better configured for profitable operations than rival airlines in terms of seat count, efficiency of the layout, and product. Importantly, at $80 per barrel, the A380 remains competitive on a seat-mile cost comparison compared with the latest technology aircraft such as the A350, B787 and B777X.
In these circumstances, the investment manager believes that Emirates will not want to return Amedeo’s A380s when the leases mature between 2026 and 2028 as it could potentially fly the planes into the late 2030s. Also, Emirates would incur significant costs complying with minimum physical life return conditions and agreeing end of lease (EOL) differences compensation.
Consequently, the investment manager believes that ongoing negotiations with Emirates for Amedeo’s A380s will, eventually, provide meaningful shareholder returns, either by a sale to Emirates, as has been the case before, or taking account to-be-agreed EOL compensation, profitably elsewhere, given the shortfall of widebody aircraft and Emirates favourable aircraft configuration.
Priced at 64 per cent below book value, and offering a 16.5 per cent dividend yield, Amedeo’s below-the-radar shares have the potential to fly high, as I noted when I initiated coverage (Alpha Research: ‘In the ascent for a profitable recovery’, 19 May 2023). Buy.
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