Global Crossing Airlines (JETMF)
Not your typical airline
Global Crossing Airlines (Global X) is a profitable, under the radar, US-based charter and cargo airline that has a lot of “fur” on it. I believe a lot of this fur will be removed in the next 12-24 months and the market will begin to appreciate Global X’s truly unbelievable growth and management execution. The company trades on the NEO under JET and JET.B and on the OTC under JETMF.
I’ve talked to many investors about this idea and they’ve all shut it down because it’s an airline. That is an overly simplistic, lazy view. Rather than doing a full write-up on this company, I’m going to make a short case why this is not a typical airline, management is exceptional, and share some of the notes from a recent exchange with the CFO, Ryan Goepel.
Not Your Typical Airline
Led by airline industry veteran, Ed Wegel, Global X is positioned in a way that insulates investors from the common perils airline investors face:
Cyclicality of demand - Global X flies charter and cargo, not commercial. Charter flights fly recession-resistant clients like the Department of Defense and NCAA sports teams. Cargo flights occur regardless of economic climate.
Fuel risk - Global X operates a cost-plus business model. Fuel costs are passed onto the customer.
Scheduling risk - When Dethe most expensive person in the entire world is the customer who takes X + 1 amount of seats for the plane for all the additional fixed costs. Conversely, scheduled flights must occur regardless of how sold the flights are, resulting in unprofitable flights. Global X is scheduled flights - meaning if they can’t operate a route profitably, they won’t fly it.
I confirmed my hunch about this business model with management who confirmed Wegel intentionally set up a public airline that smoothed out the typical issues investors face when investing in airline companies.
GlobalX provides charter services through two contract structures: 1) ACMI and 2) Full service contracts (detailed below in exchange with CFO). GlobalX was spun out of Canada Jetlines in 2020 (still has a 25% interest in Jetlines), and started as an airline during Covid with zero legacy costs and debt (presently ~$6M).
Exceptional Management
Beyond having a more robust airline business model, there are clear signs of exceptional management.
Global X has competitively advantaged themselves by exclusively flying A320 planes that have lower fuel burn, increased aircraft and pilot availability, and larger cargo capacity.
At the MCC summit, CFO Ryan Goepel shared that on their first round of leases from Covid, they are securing the planes at $80-$90,000 per month versus market rate of $200-$250,000 per month.
In August 2021, Global X received a call from the government asking them to help fly evacuation flights from Afghanistan. Within 36 hours they were flying evacuation flights and used this to expedite the process for receiving international flight authorization.
Reached stated goal of profitability in 4th full quarter of operations.
Exchange with CFO
Below is an (edited) exchange I had with CFO Ryan Goepel recently. Ryan’s comments are bolded.
I know you were able to be profitable with 7 planes in Q3 and in the investor call you stated $93-94M for the year, implying $28.3-$29.3M in revenue for Q4. Is there seasonality to the business at all or is this estimate actually quite conservative with holiday NCAA bowl travel and bringing on additional aircraft?
This is conservative.
Between Q2 and Q3 was there a significant increase in revenue per block hour? Is this pricing power? From a crude calculation of revenue/block hour it looked like it increased 50% to $12,800 from $8,100 in Q2.
Revenue per block hour flown was significantly higher because we had the TUI contract for which we could not fly due to EASA regulations, but were still paid. It did skew us slightly more profitable but the planes were parked and the crews were paid while we tried to solve the issue, but looking at the run rate it does explain the big jump.
Now that cargo has started are they going to have higher rates per block hour? Are you planning to break this out in the MD&A between passenger and cargo?
We will not break out the cargo segment at this time. The reality is it will likely reduce the rates per block hour based on how they are contracted. To explain. There are two ways we contract work, ACMI (aircraft, crew, maintenance and insurance) which is usually between $4,000 - $6,000 an hour and the second way is full contract. Full contract includes fuel, ground handling, airport charges etcetera and that rate is between $11,000 - $18,000 an hour depending mainly on fuel. Different clients contract differently. NCAA tends to be full contract so in NCAA heavy months (Sept, Dec, Mar) the average rate per block hour flown will be much higher. Cargo tends to be ACMI (albeit at higher ACMI rates than Passenger) so in aggregate it will come down on average, but the margin will go up. Does that make sense?
Here is how I explained the difference between ACMI And Full to another investor:
ACMI Revenue: This is when we charge the customer for the Aircraft, Crew, Maintenance and Insurance (ACMI). All other expenses associated with the flight are the responsibility of the customer.
Charter Revenue: This is when we charge the customer for ACMI plus all third party costs such as ground handling, airport fees, navigation fees, catering and fuel. These costs are considered third party costs and we generally try to build a small 5-15% margin into those costs as we pass them on to the customer. For an order of magnitude, normally ACMI costs would represent 30-40% of the cost per hour, and the balance being 60-70% per hour. As a company we can operate under either model and do based on customer preference.
Examples of ACMI customers would be Airlines and large established brokers who have the infrastructure to source, provide and coordinate all the required 3rd party services. Traditionally Charter customers would be universities, music bands, tour operators and incentive travel for whom sourcing fuel and ground handling is beyond their capabilities.
Any updates on the FLL facility? Is it going to be completed soon? What kind of synergies can that give the business?
We expect to break ground by November 2023 at the latest. We are in the permitting stage right now. The hope is to start sooner. Once started it will take 10 months to complete. It will be a large benefit to the business for a number of reasons: 1) We can do significantly more maintenance work in house which will save money 2) we will be able to sublease out space to other airlines as a revenue stream to effectively give us a free HQ 3) we will have a cost efficient place to store spare parts which will reduce costs for repairs and speed up any unscheduled maintenance issues. 4) We will have 5 parking spaces at FLL which we can rent out as parking is at a premium there. 5) We will be the only facility at FLL that can bring an A320 or A330 (same size as a 787) in a hangar for emergency repairs which will be incredibly valuable to us when the time comes when someone needs it.
The growth is unbelievable. Who are you taking business from or are you also growing the charter market?
It is a combination. Our availability, product and struggles of the main carriers to meet demand is causing many to turn to charter options and once they fly charter, realise how cost effective it is, they are tending to stay with charter. In addition, our largest competitor (iAero) has a fleet of very old, very inefficient and unreliable 737-400’s. They have over $700m in debt and are struggling. We are crushing them in the market by providing a superior product and taking significant customers away from them. This was the opportunity Ed saw when he decided to launch Global.
As Global X grows are you going to be able to maintain a non-union workforce?
Unlikely, but that is not a bad thing. Our pilots currently operate under a handbook that works just like a union agreement and given how highly regulated the space is, there is not a ton of flexibility even as a non-union. One of the advantages of the union is that the union police themselves and ensure compliance with any agreement which can be a blessing when you get to big numbers.
It looks like a lot of warrants are going to be in the money in the next few months. Between the warrants and the $5M from Ascent are there any anticipated needs for additional working capital over the next 12 months?
IF the warrants get exercised, unlikely unless there are some opportunities to get assets at really good prices. We are still in hyper growth mode and expect to be for the next 2-3 years. Having more liquidity creates significant efficiencies. That being said, ED and I do not want to sell equity at this price as you have seen. If we got to $3-$4m a share (or were offered equity at that rate) we would consider it to pay off the debt and allow us to implement the 3 or 4 initiatives Ed is holding off on that I believe are highly accretive, but require capital.
Any progress on showing 75% of shareholders are US based to help simplify the share structure?
Getting closer. When we move to Nasdaq or NYSE I will collapse the share structure to a single class. By that time I will be able to prove the 75% as the ratio gets better everyday as the majority of buyers are US and the majority of sellers are Canadian.