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Air Transport Group Holdings, Inc. (OTCBB: AITG) is New to TheSUBWAY
Company Overview: Air Transport Group Holdings, Inc. (OTCBB: AITG)
Air Transport Group Holdings was incorporated last October for the purpose of
acquiring small-to-medium sized businesses in the airline, airline services and
leisure-time industries. Letters-of-Intent to acquire its first two companies, Tech Aero and General Aviation, have been executed, and it is expected that these business combinations will be finalized in January 2009. These are established companies, with excellent industry reputations, having been in business since 1986 and 1992 respectively.
By combining separate companies under one corporate umbrella, it is
management’s intention to improve the revenue and earnings growth outlook to
levels that would be unattainable if that company were left on its own. Moreover, the currently restrained credit environment has left a number of otherwise promising small / medium sized businesses stranded…with growth prospects materially constrained due to an absence of credit.
ATG seeks to fill this void by improving upon expense and overhead management,
providing additional credit and by generating better sales growth…given that
the existing business unit’s management will be unfettered by such delays or distractions.
Next year (2009) represents ATG’s first full year of operation as a
corporate entity. Revenues are forecast in excess of $14 million (versus $11 million
in 2008) and Earnings Per Share are projected at $0.20 (versus $0.12). Beyond, management projects EPS to increase 50% to 60% annually.
Using the Price-Earnings-to-Growth Valuation Method, a multiple of 25 times
earnings suggests a stock price of $4 per share by the middle to end of 2009. Nearer
term, a more conservative valuation multiple of 10 times earnings generates a price of $1.20 to $2.00 per share.
Mission
The Mission Objective at ATG is to produce a consolidated enterprise that can
generate higher rates of profitability, as an ATG member, than the acquired business
could achieve on its own, pre-acquisition. ATG can do this by:
· consolidating overhead
and administrative expenses within ATG’s Atlanta offices, where these
functions already exist;
· providing access to
capital (small-to-medium sized companies have been the sector of the economy most
negatively impacted by the current credit crunch); and
· enabling acquired
company managements the time to develop revenue growth streams and garner market
share, having been freed of the non-revenue demands of running a business day-to-day.
Acquisitions
Tech Aero is an aircraft parts and supply company, having been in business since
1986. Tech Aero also provides inventory management services and aircraft support on
a worldwide basis. It also has its own Aircraft Dismantling and Avionics Retrofit facility in Roswell, New Mexico. The company began business as an aircraft aftermarket parts and supply company. Over the past 20 years, Tech Aero now generates revenues from clients on a worldwide basis. Revenues in 2008 are preliminarily estimated at $3 million, with operating income of $1.5 million.
General Aviation is in the business of leasing small aircraft to aviation
schools. Currently, General Aviation leases small aircraft to eleven schools, an
infinitesimal market share in relation to the 900 aviation schools worldwide. There has been an unprecedented surge in demand for flying certifications, not only from individuals seeking to attain an alternative to commercial air travel but from individuals seeking to retool their line of work (due to the economy) into a pilot’s license.
Operating Results and Management Forecasts
The three year forecast of Consolidated Operating Results appears below, by
Operating Business Unit, Tech Aero and General Aviation . These two units are
complimentary --- with Tech Aero’s revenues from aircraft parts and services representing low volume / high margins and General Aviation’s revenues from aircraft leasing to aviation schools being higher volume / lower margin.
From a revenue base of $3 million in annual revenues (preliminary estimate for
2008), Tech Aero’s top-line growth is projected to increase 50%-60% annually.
This accelerated rate of annual growth reflects (i) industry consolidation; (ii) an improved balance sheet as an Air Transport Group company; and (iii) a more intensified focus on sales growth under ATG’s management.
Revenues at General Aviation are expected to advance 25%-30% annually over the
next three years, again, reflecting industry consolidation in the current economic
climate, and new ownership. As a private company, there were limited incentives to maximize earnings since this increased income tax liability, however, as a member of ATG Holdings, Operating Earnings (and profit margins) are expected to increase sharply in 2009, to $2 million; beyond next year, management is guiding toward annual increases in earnings at General Aviation of more than 50% per annum.
The Consolidated figures below are based upon 9,750,000 shares issued, and
include the Tech Aero and General Aviation acquisitions. This reflects 5,250,000 in
shares currently issued, plus 4,500,000 additional shares issued to consummate the Tech Aero and General Aviation business combinations.
An unadjusted, early raw cut of consolidated earnings expectations comes in at a
progression of $0.30, $0.51 and $0.72 over the next three years. However, allotting
for time to digest the business combination, and other delays that inevitably occur, the earnings progression has been smoothed-out to $0.20, $0.30 and $0.50 --- for an EPS growth forecast of 50% - 60% per year.
The PEG Valuation ( P rice- E arnings-ratio-to- G rowth) Method derives an earnings
multiple based upon a company’s fundamental EPS growth rate. Given an EPS
growth outlook of 50% - 60% for ATG Holdings over the next three years, a PEG of 1.0 would equate to a P/E of 50. Cutting this in half, for conservative purposes, produces a P/E of 25… which based on 2009 guidance EPS of $0.20 would translate into a stock price of $4 per share.
This is admittedly higher than the earnings multiple longer-established
conglomerates have been accorded --- however, given the 10-15 year hiatus in newer,
smaller conglomerates being formed, along with higher growth rates, a richer multiple would appear justified.
Management
Arnold B. Leonora is the founder, Chairman & Chief Executive of Air
Transport Group Holdings since incorporation last October. Before bringing ATG
public, Mr. Leonora was the principal shareholder in a private company, ATG LLC (see ) whose business is aircraft leasing & finance and aircraft management. Based in Atlanta, the private company, which began operations in 1989, has offices in Fort Lauderdale, Madrid, South Africa and Curacao. Atlanta will also serve as the Corporate Headquarters of ATG Holdings.
Before 1989, Mr. Leonora was an investment banker with Bank of Boston and
Merrill Lynch. He accumulated extensive capital markets experience with public
companies, serving in various management capacities with client-companies. These positions included Managing Director of regional commuter airlines in the Caribbean and South America.
ATG Holdings, in public-company format, is ideally suited to make use of Mr.
Leonora’s business accomplishments and professional connections not only
within the airline & leisure-time industries, but also in non-bank financial intermediary circles. A primary acquisition criterion for ATG is identifying companies with above average top-line growth potential, yet which have been negatively-impacted by the currently constrained credit climate.
Darrell Richardson is President of Air Transport Group Holdings. Prior to ATG,
Mr. Richardson had been President and CEO of Pace Airlines for five years. Pace is a
for-charter airline operator. Mr. Richardson was instrumental in
· Increasing the fleet from
four 737’s to seventeen 737’s and four 757’s (which have a totally
different certification process)
· Increasing Revenues to
$65 million from $12 million, with commensurate increase in profitability.
· Expanding the licensed
geographical service area from USA-only to numerous foreign countries and
jurisdictions.
After Pace was acquired in 2005, Mr. Richardson worked as an independent
consultant…which is how he and Mr. Leonora connected several years ago. Prior
to Pace Airlines, Mr. Richardson was Chief Operating Officer at Mesaba Airlines (1995-2000).
Significantly, the Market Value of Mesaba increased from $90 million to $600
million during those five years…an increase of 6.7 times. This compares with
an increase in the American Stock Exchange Airlines Index of 2.5 times during the same timeframe. This is also significant and lends confidence that Mr. Richardson’s street-savvy and proven accomplishment in running a public-company will ably complement the profit-generation capabilities of ATG Holdings.
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