Republic Jet: Ready for Take Off?
Republic Jet is about to emerge from bankruptcy. The shares are skyrocketing today. Could RJETQ finally enjoy blue skies?
Republic Airways Holdings, Inc. (OTC: RJETQ), a regional airline company focused on serving domestic short-haul flights on behalf of major airline carriers, is about to formally emerge from bankruptcy some time in 1Q 2017. The Company recently announced a reorganization plan in December. An omnibus hearing was scheduled for January 18, 2017 to settle pretrial motions and questions of procedure prior to the important confirmation hearing scheduled for February 14. Despite its bankruptcy, the Company recently released operational results for October and November that suggest operational profitability and cash inflow (prior to any settlement with creditors).
RJETQ shares on January 18, 2017 were soaring over +60%, though remain down over -50% since October and -75% from a year ago (prior to the Company’s bankruptcy filing).
Possible Drivers of Future Share Price Performance
Future factors that might drive RJETQ stock performance could include:
(1) Will the confirmation hearing in US Bankruptcy Court on February 14, 2017 result in terms of the reorganization as unchanged? If not, what modifications will be made? (2) How much will current shareholders be diluted by new shares issued to creditors? To what extent does the current share price reflect dilution (or is there risk if the reorganization falls through)? How long will the new creditor shareholders hold the stock before selling? (3) Can RJETQ execute successfully on its strategy to streamline and operate profitably and effectively?
RJETQ History and Recent Developments
RJETQ is a passenger air carrier focused on short-haul domestic flights between large cities served by the major US airlines and smaller cities. Prior to the Company’s bankruptcy last February, RJETQ had served nearly 1 out of every 5 domestic flights for Delta (NYSE: DAL), UnitedContinental (NYSE: UAL), and American (NASDAQ: AAL).
The Company faced a crisis entering 2016 which ultimately led to its filing of bankruptcy in February of that year. In spite of industry profitability being the highest in years, RJETQ suffered from a number of factors that compelled it to seek shelter from creditors (including aircraft lessors and pilots’ union). Too
many old planes, pilot shortages, and disputes with pilots and large airline customers eventually took a toll on liquidity.
RJETQ negotiated a series of settlements with its major airline customers as well as lessors Embraer and Bombardier. In exchange for debt forgiveness, RJETQ is issuing shares to its creditors, who will gain control of an estimated 72% of the new Company. Additionally, RJETQ won $50 million in higher payments from its airline customers to offset the equivalent in higher wages offered to retain its pilots. RJETQ also will have consolidated its fleet solely to smaller E170 and E175 jets while breaking leases on older models.
2 major hedge funds (Axar and Man/GLG) filed 13D’s in December after their sales of major positions in RJETQ.
Review of Earnings and Operating Metrics
The Company released operational data for November 2016. In spite of the Company’s bankruptcy, operational metrics (before interest expense and restructuring charges) appeared reasonable.
Revenues amounted to $96 million in October and $94.2 million in November. Most of RJETQ’s revenues are based on fixed fees agreed to with its major airline partners.
Operating margin amounted to 17.9% in both October and November 2016. RJECT indicated that arrival completion on controllable flights amounted to over 99% for full year 2016. Operating income amounted to nearly $18 million both in October and November 2016.
Cash Flow & Balance Sheet
RJETQ had $160.1 million of unrestricted cash and marketable securities at the end of November 2016, stable compared to October. Gross debt of $2.1 billion at November 30, 2016 was stable from October and subject to downward revision pending confirmation of the reorganization plan.
Shareholders’ equity as of November 30, 2016 was a deficit of negative ($110 million), though showed a slight improvement from ($120 million) as of October 31, 2016. Cash recorded positive inflows of $24 million in October and $11 million in November 2016
As of 3:39 PM on January 18, 2017, RJETQ shares surged +68.5% to $0.58 on heavy trading volume of 10.42 million shares. Market capitalization on January 13, 2017 was $29.6 million using Fully Diluted Shares of 50.96 million. Price to Sales (Annualized October and November) is 0.3x. The current RSI is 70.0.
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