AIR - Air NZ.

[patrick]

Say AIR starts flying to Brisbane in October with huge demand for seats. I feel sure bookings will be “organised” so that cash buyers will get high demand seats. NOTHING has been said about holders of “credit” getting equal opportunity.

[Beagle]

The problem is every Sharesies-type buyer I know is a socialist. And a voter, in an election year.

Therefore, I could easily see some absolutely necessary and urgent decisions that need to be made now being kicked down the road as ye olde BBQ keeps on burning.

I think anyone long Air NZ is out of their mind - but there is a reason I'm not short it.

Probably the biggest disconnect between the market and the underlying economic demand for services that exists on the entire NZX. The most amazing phenomenon is this is certainly not limited to AIR on the NZX and share prices of many airlines don't make sense.

The interesting thing is AIR seem to be in conflict with almost everyone at the moment...aircraft manufacturers could be next. https://www.frequentbusinesstraveler...elivered-jets/

What do AIR do with all their new aircraft orders if 777's are still sitting around corroding away and gathering dust in late 2021 ? Massive write-down of circa $400m on 777-200's coming in FY20's financials' (some of which are quite old). Could we see all the 777-300's written down in FY21 at perhaps double the cost ?...but nobody cares because that's an extraordinary item of perhaps $800m and doesn't affect future earnings...but what earnings ?

AIR should crack on and do a massive capital raise of 2:1 at 75 cents and tap into the mad keenness of the airline recovery story before everyone wakes up and smells the coffee and realises how grim and enduring the situation really is.

[winner69]

Seems a few aviation commentators have become social media ‘influencers’ and calling for the government to step and give AIR an interest free couple a hundred million loan and just give all the punters a refund ...problem solved

[Stranger_Danger]

AIR should crack on and do a massive capital raise of 2:1 at 75 cents and tap into the mad keenness of the airline recovery story before everyone wakes up and smells the coffee and realises how grim and enduring the situation really is.

See, this is where it gets really interesting.

For the sake of argument, lets say that a lot of the upward price movement in AIR has been driven by retail investors. Lets also assume a lot of these were "one off" investments, people seeing a "once in a lifetime" chance to buy a name they know, or buying on momentum, buying because friends are, buying because they temporarily had more time and money due to lockdown etc. Assume some of this stuff is at least partially true and in the price.

Now assume that big pocketed investors and institutions are capable of doing maths, and researching pandemics, and understanding how marginal airline economics are in even a benign environment, and can think about politics, and second and third order impacts etc. They can see that not only is Air NZ not a bargain - by most definitions, it is insolvent.

So, how do you price a rights issue? Especially since you have the Government shareholding, the Government loan, a growing resentment about the refunds policy, in an election year?

The key problem you have is that the people happy to chase Air NZ upwards are NOT the people capable of providing the sort of money needed to secure the long term future of the business.

Let's say the punters manage to get it up to $2.00 (get a quote on GNUS or LK or HTZ and it is clear Air NZ is a minor insanity compared to these : $2 could happen), and no sane investor or institutional manager who wants to keep their job would touch it near that price.

How do you price the rights issue?

Price it at $1.50 to $1.75 and you might learn that the sort of people able to write huge cheques are not interested anywhere near that range.

Price it at 35 to 75 cents and you will likely get your money, but a lot of the smaller new investor/Sharesies/momentum types wouldn't see this coming and would be furious at the market price after that happens. "What? We thought this couldn't fail, it has the backing of the Government!" Even worse, if a lot of these were "one off" sort of investments/investors, they may well be unwilling or unable to buy the "cheap" shares in the rights issue.

The difficult bit is that the people paying the high price don't have the money needed to save the airline, and the people with the money to save the airline would not invest at the current price. With the clock ticking. In an election year. Oh what fun!

[Beagle]

Average analyst price target one year hence is $1. To get the massive institutional support this needs it would have to be priced at a considerable discount to that.
The company needs the money in the near future, no question about that. Makes a lot of sense to strike while the ducks are quacking, 2:1 at 75 cents underwritten by the Govt would raise about $1.6 billion and would be a smart move in my opinion but as you say, we're up for an election shortly so the Govt getting a bigger stake in AIR is not the right optics at this point in time.

[King1212]

https://www.google.com/amp/s/www.new...kdown.amp.html

Here we go. ...one of the main reason ....market is on the high now...

And AIR is also one of the top 10 shares that retail bought....

[winner69]

Email from our Cam this morning trying to explain/justify the situation. So many buzz words it was ‘eye watering sad’

The more they try to justify it the deeper the hole they are digging for themselves becomes.

Did admit they are essentially broke

PS ... couldnt bring myself to watch the video he included.

[King1212]

What broke.....Cindy will give more money...no worries

[winner69]

@thestinkmarket
In Chapter 20 of The Intelligent Investor, Ben Graham said the biggest returns come to those who pump penny stocks on Twitter.

[sb9]

Caught up with couple of mates over weekend first time since lockdown, among the chat came up shares and both of them (and their mates) have all piled into buying into AIR recently. All of these guys are first timers into share investing.

Does seem as though AIR to truly good value in their opinion in recent times.