PabloLafortune wrote: My dear BBDB, of course they made 3 mistakes with C series (development costs, selling below cost, 50/50 with Airbus), and did it again with BT (partnership with CDPQ, absentee landlord management, sell to Alstom). But its over now and there's absolutely nothing we can do about it. We are not management, we are investors.
Right now, this is the situation I believe:
#1 family - they've decided to focus on pure play business aviation and letting EM manage. Good.
#2 EM - looks to me that he knows exactly what to do with business aviation. He's in his element. You mentioned AMD, he gives me the same vibe as Lisa Su. Like the CEO of a somewhat famous tech company told me once, once a pig farmer, always a pig farmer. Very good.
#3 BT - deal will go thru. $4B in the coffers pretty much guaranteed. Alstom won't back away and even if they did, we know that its worth at least that (worth more than those oil pipelines and they've traded anywhere up to 20X DCF (10-12X now) with loads of debt) now that legacy issues are being fixed and some decent management is in place. GOOD.
#4 BT balance sheet upside - you can divide the balance sheet into 3 now: legacy aviation (mostly CRJ), core business aviation, and BT. The BT balance sheet is actually much stronger than it was on December 31 2019. That's because BBD and CDPQ put more money in. So maybe $500M upside there cashflow wise. Small question mark.
#5 Miscellaneous balance sheet (excluding pensions) - everything other than BA inventory, BA receivables, cash on the asset side and Payables, contract liability and current portion of long term debt. Fairly significant #s here. The net current (1 year or less) is negative $500M. Probably some more in year 2 then stabilize? Small question mark.
#5 Business Aviation balance sheet. Incl. cash and current portion of long term debt, its positive but negative if we include long term contract liability. backlog might drop some (a $2B drop in backlog negatively impacts cash (short and long) by $600M or so is my guess) but then it could come back later - these backlog fluctuations would ideally be funded by a govt LOC (like EM said, $2B is their covid19 shortfall). They seem to have 1 year of current assets (as I said exclude misc) ie cash on hand, receivables, inventory and the piddling of contract asset. That seems long (competition is 6 months). The current portion of long term debt will obviously go at some point. Could the net of those 2 (inventory less current portion of long term debt) be $1B? Big question mark.
#6 govt loan - they need $2B I believe (at least that's what EM suggested). Question mark.
#7 Backlog - dropping. A little concerned about this short term but if they can get a govt loan, they'll be fine. Gulfstream and others don't want to get into a price war, doesn't benefit anybody long term. Question mark.
#8 Debt buyback. Suggested a few months ago, bond prices are firming up now esp this past week, don't see much there. $300M? Question mark.
#9. Long term debt and interest cost. If they get $4B from Alstom, $500M extra for BT, pay out $500M in other liabilities, lose $1B due to dropping backlog, recover $1B from inventory and AR management net of current debt (tall task) + another $2B from government loan, $300M from debt buyback, the long term debt would drop to $3B. @ 6-7% its about $200M. Not ideal but within reason. I believe Martel will be able to work with this interest cost and eke out a profit.
Long story short, I feel like I have upside from here (31 cents) IMO.
Good luck and take care.
BBDB859 wrote: It sounds like there is room for more cost cutting within the remaining company, to increase margins. In my estimation, they will take at least 2 years from today to stablize this company's overcapacity in PP&E. By that I mean to maximize margins, and see some healthy Q and Y earnings. This debt has been the Bombers downfall. Covid may have caused some exasperation to the tune of $2.25B. But the $9.3 B, debt they've accumulated with the CSeries was just too big, not to end up with something, from the CSeries sale. The other was the continuation of investing in the JV for something they are giving away. Bellamare and whoever negotiated that deal should all be ashamed of themselves. I have never seen any negotiation go this stupidly in my lifetime.
They will have $4.5B to pay 7.75% on from now on. Thats $350 M. The BA FCF, at 7% margins will be roughly $390 with todays numbers and revenue of BA projections for the next year. This is not a good negotiating position with the rest of the Junk Bond debt holders. They don't care about the common shareholder, because they're secured. So if BA can pay it's debt? The JB holders are fine. Why discount the rate for the remaining $4.5B JB debt? Martel has to come up with a plan to pay off the debt. I don't think it can be done otherwise. If they can't reduce the rate of the debt? They'll just be working to pay the interest on it, for years to come.
Pablo, and I have come to this conclusion a long time ago.
I would also suggest that they aproach each individual JB holder secretly that wants out and renegotiate. Especially when they have $5.5B, in hand NOW to play with, before they retire old debt. Or maybe give/offer lower interest rates to maturing JB holders debt in the next year, or two, instead of paying it off. Rates are 0% now, so even 4% to renew existing debt that's maturing, will be good. Where would the JB holders find 7.75% to put any of of their (Billions) they get from the Bomber into?
That's the most logical avenue.The other is put about 50% down on maturing debt now, and renegotiate the rest at the 4% rate with new or existing Bond Holders. They'll be fine to do that for all maturing debt for the next 3 years. The only problem is. This has to be done in 2021. They can't drag on or carry the $9.3 Billion for more than 1 year, because the 7.75% will kill them.
So as I say if Martel wants put this company back on its tracks real soon? Then I suggest take this approach to all existing debt that's about to be renewed or paid off in the next 2 to 3 years.
Plus when talking to JB holders. Just say or threaten them. We only have $5.5 B to spend on existing debt paydown. You choose if you want to
decrease your interest rate or not. One way or another, we will get rid of your 7.75% rate soon even if we have to pay penalties.
The other avenue is to go to other/new Bond Holders that would want to do new bonds at 3% to 4% lower interest rates, today, to the Bomber, and Bombardier can discharge the higher procentage existing JB debt by paying early penalties. This avenue may be just as efective. Martel has to do the math here. Discharge penalties can be heavy sometimes.
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clubhouse19 wrote: "After conducting extensive deep dives into BA's operation, the opportunity and path forward is clear. While the company has undertaken a number of restructuring action over the past few years. The truth is we still have an infrastructure design to support twice the capacity of the current market."