RE:Planes, Trains and .... Wonderful illustration of the comparison between the rail and ailine industries AI. If I could pile-on (from the AC perspective)...
airlineinvestor wrote: Free Cash Flow
Air Canada’s estimated weighted average cost of capital today is 7 percent and this will drop when the Airline is assigned an investment grade rating in the coming months.
From the earnings call transcript:
https://seekingalpha.com/article/4325025-air-canadas-acdvf-ceo-calin-rovinescu-on-q4-2019-results-earnings-call-transcript "return on invested capital was 15.5% at year-end, in line with our guidance provided in the third quarter news release and significantly higher than our weighted average cost of capital of 7%."
and:
"Excess cash amounted to almost $2.7 billion at the end of 2019. As discussed in prior earnings calls, we expect to deploy this excess cash over the next several years to purchase aircraft, make strategic investments and reduce existing gross debt levels. Shareholder buyback programs will be funded by annual free cash flows." One of the oft-repeated concerns for investing in AC was the significant debt-load. Why would AC not use more of the excess cash to pay down the debt? If you have an 800 pt spread between ROIC and WACC, it makes sense to keep a cushion of unrestricted liquidity (currently $7.4 billion) for unexpected events (black swan).
"Net debt of $2.8 billion in 2019 decreased $2.4 billion from December 31, 2018, reflecting an increase in cash, cash equivalents and short- and long-term investment balances of almost $1.7 billion and a decrease in long-term debt and lease liabilities of $679 million." To me, this appears to be a very intelligent management practice, which will get the company through the COVID-19 crisis, as well as the short-term effects of the B737 MAX grounding. I say "short-term" as you have eloquently illustrated how the Boeing compensation for this crisis will play out over the short to medium term.
Keep up the great work - it is very much appreciated!