Description

Market Cap: $40m
Debt: $60m
Cash: $1m
Enterprise: $101m

Airnet operates in three businesses:

Banking Services (paper check transportation)
Special Services (package delivery)
Passenger Charter Services

The stock trades at $4 and is worth $10-$12/share. It is down because the company’s paper check transportation business will become obsolete with the recent enactment of Check 21, a new law that allows banks to use electronic images. However, given the time it takes and capital expenditures that a bank would need to make to set up the necessary infrastructure, the segment will continue to operate for at least another 2-3 years, generating $20m in cash/yr or $40-$60m total. In addition, the salvage value of the fleet used for the check services fleet worth at least another $10m. So now we are at $50m-$70m total.

The president of the company recently purchased 6 Lear 60s at $5m each for the passenger charter segment. This is a bad idea given the low margins and having to compete with NetJets, Bombardier, etc. A large shareholder, with a history of activism, has got a plan in the works to get the president ousted and replace him with a former executive of the company, who would immediately sell off the new jets. So an additional $30m gets us to between $80m-$100m.

Lastly, the Special Services business is a good business, generating $5m in cash/yr. As a going concern, at 10x cash flow, investors are left holding a $50m entity.

It doesn’t get more inside the box than this.

Catalyst

The catalyst is in progress. A large shareholder, with a successful history of activism, is in the process to oust the president, replace him, and begin to unlock the value.