Amedeo Air Four Plus (LSE:AA4) is an aircraft leasing company listed on the Specialist Fund Segment of the London Stock Exchange‘s main market. It established itself in 2015, raising money through debt and equity with the intention of buying planes and leasing them to airlines.
They done what they set out to do. Since inception Amedeo has raised £2,428m and bought £2.425m worth of aircraft. Just 0.14% of funds were not spent on planes. I think that is commendable. And steady returns from monthly leasing income on those flying assets probably looked like a good idea at inception. But, the airline industry looked very different in 2015 compared to today.
Flight in the time of COVID
One thing is clear from looking at Amedeo’s flight data for its planes over the last five years: COVID was devastating for the airlines industry. Amedeo’s planes were making 721 flights per year on average in the year up to March 31, 2020. The next year they averaged just 130. The year after that 282. In the six months between March 2022 and September, the annualised average number of flights is 512. So things are improving, but aviation is not back to where it was before the pandemic, at least up until September last year.
Industry bodies have been warning consistently since 2020 that it would take until 2024 until flight volumes got back to normal, particularly long-haul ones. That might even be optimistic. Two of Amedeo’s planes are still grounded by the airlines leasing them.
Just before the pandemic began, Amedeo sold two planes to Etihad for £441m. I am not sure if that was foresight—they have not claimed it as such—or fortune, but the cash certainly came in handy when the world shut down. One of Amedeo’s customers, Emirates, apparently kept up lease payments throughout. Another, Thai Airways, had to ask for assistance. The lease changed to pay by the hour for a while. It is back to monthly again but the airline is in bankruptcy proceedings in its home country. Those lease payments are at risk.
Amedeo debt holder’s are at the front of the plane
Amedeo funded its assets with more debt than equity. As it sands 73% of its assets are debt funded. Debt holders are in front of equity holders for payment. Dividends will not be paid before interest payments. If a company is liquidated, asset sale proceeds pay down debt before shareholders are made whole.
So, with those lease payments at risk what could it mean for shareholders? Amedeo has raised £656m in equity funding. Including dividends and compulsory share repurchases (yes, that’s a thing) shareholders have had £341m returned to them. Collectively, shareholders have an asset worth £138m (the market capitalisation of the company). Add this to the capital returned and its £471m. After 8 years, shareholders are still not flying, they are barely past the check in terminal.
There are some currency conversion issues, but it looks like Amedeo collects an average of £16m per year per aircraft in annual rental income. So if it lost the rental income of the four planes leased to Thai Airways, that’s something like £64m. Its last annual interest payment was £35m. But it also made principal payments of £86m. That is £121m spent in servicing debt. Total rental income in 2022 was £190m. Take away £64m and its £126. Operating expenses were £5m in 2022. Thus, there is a problem.
A high-yield flight of fantasy
Amedeo has a forward dividend yield of around 17%. That is extraordinarily high. Investors should be pilling in and bidding the stock price up and reducing it. But they are not. Probably because they are not convinced by it. The quick and dirty analysis done here hints as to why. But there is more that can be done.
Cumulative depreciation stands at £754m. Therefore the book value of the aircraft (taking account of those two sales) is around £1,230m. But, if it came to the crunch right now, could that value be realised? Remember two planes on lease are still grounded. And Amedeo is concerned enough to have taken impairment charges against its assets. All things considered it looks like a debt balance of £996m would take most of the proceeds of any aircraft sale. Equity Investors would likely get nothing.
With the airline industry still struggling, particularly long-haul, and all of Amedeo’s plane are wide-body long haulers, and one of its renters in bankruptcy proceedings, I am not keen to be an equity holder here.
DISCLAIMER: James J. McCombie does not own any of the shares mentioned. The Storied Investor does not have any beneficial position in any of the shares mentioned.
The Storied Investor 
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