2023-05-23 08:51:41 ET
Summary
- GlobalX is a relatively new player on the airline market offering ad-hoc and ACMI passenger and freighter services.
- The airline has big growth plans, which are a must to amortize costs and have any chance on profits.
- The company is going through a growth phase now that will see debt increasing.
My airline coverage grew significantly last year and that is set to continue this year. Covering a broad number of airlines in various geographical regions of the world allows us to get a complete picture, but also allows us to potentially detect value beyond the better-known airline stocks which might not always be valued attractively. In this report, I am initiating coverage of Global Crossing Airlines Group ( OTCQB:JETMF ).
About Global Crossing Airlines Group
GlobalX
Global Crossing Airlines Group or GlobalX is a relatively new airline offering passenger ad-hoc and ACMI (Aircraft, Crew, Maintenance & Insurance) with the intention to also start up scheduled charter services to resort destinations as well as contract flying for the Department of Defense. An example of its ACMI operations are with TUI for which the ACMI specialist will perform flights this summer and the coming two summers.
The core of the fleet is the Airbus ( OTCPK:EADSF ) A320ceo of which it had eight passenger models by the end of 2022 and the company aims to grow to 18 airplanes by the end of this year including its cargo operations using the Airbus A321P2F of which it expects another 15 to be added to the fleet. The airline was founded in 2018 and commenced operations in 2021 and from its fleet plan it can be seen that significant growth is expected in the coming years, which allows the company to amortize costs. Being a young airline focused on growth in the cargo sphere is more than a challenge at this time so investors should be aware that the growth does not come without risk and less than two years into existence this definitely is a company that still has to prove itself and achieve economies of scale which is both an opportunity and a risk.
A Look At The First Quarter Results Of GlobalX
GlobalX
Looking at the results, we see something that is typical for airlines aspiring to an aggressive growth strategy. Revenues more or less doubled by $15.77 million but costs rose by $16.5 million. Year-over-year, GlobalX grew its operations but its costs grew harder than its topline and to a major extent that is driven by pilot training for which costs rose $0.5 million and $0.24 million in lease cost for the A321PF. Besides that, non-cash costs such as depreciation and amortization grew by $0.42 million. So, some costs went into supporting growth while not directly adding to the topline and some costs were non-cash for the simple reason that the airline is bigger than a year ago. I would say that is just the way airlines have to go through the early years of operations.
The company had an operating cash flow of negative $0.7 million with $1.13 million spent in investing activities. The airline currently has $2.2 million in cash and cash equivalents as well $1.15 million in assets held for sale plus $5 million in restricted cash. The filings from Global Crossing Airlines Group don’t provide any detail on the reason for the cash to be restricted, which could be for a variety or reasons including bank loans or deposits. It is, however, clear that the company has to pace its CapEx well with its operating cash performance or its ability to secure funding and we can expect debt to increase this year and beyond to get the airline to scale.
A Low Stock Price and Market Cap
Investors should be aware that the GlobalX shares are trading below $1 per share which could be an opportunity as well as a risk as the low pricing might introduce price volatility. Furthermore, its market capitalization is above $50 million but below $100 million making it a microcap stock. Investors should at all times keep in mind the risks of microcap stocks. In case of GlobalX, the risk is amplified as its low price point as well as its market capitalization could introduce volatility.
Conclusion: Global Crossing Airlines Is A Risky Grower
The common joke about how to become a millionaire running an airline is that you should start as a billionaire and unfortunately that is a closer to the truth than many, including investors, are comfortable with. With Global Crossing Airlines we see that the company is bleeding cash as it attempts to grow. This month it received authorization from the US Department of Transportation to operate up to 16 airplanes, which will certainly help with scaling and amortizing costs, but I expect this to be a story of debt accumulation for years to come without a clear sight on profitability and while I would like in early on stocks before they grow and take off, I would pass on this growth phase as it is one that will be financed with debt as is common and with high interest rates that will bring high interest costs for years to come. The company could have a unique winning business case with the Airbus A321 for freighter services, but it is a gamble for investors. If you believe in the long-term prospects of e-commerce growth and GlobalX to be part of that then this is a buy, else it is a hold.
For further details see:
Global Crossing Airlines Group: High Risk, High Growth Airline