My airline coverage expanded dramatically last year, and this trend is expected to continue this year. Covering a diverse range of airlines in various geographical parts of the world not only provides us with a comprehensive perspective but also allows us to potentially find value beyond the more well-known airline companies, which may not always be priced advantageously. I’m starting coverage of Global Crossing Airlines Group (OTCQB:JETMF) in this article.
About the Company
Global Crossing Airlines Group, often known as GlobalX, is a relatively young airline that offers ad-hoc passenger service as well as ACMI (Aircraft, Crew, Maintenance, and Insurance), with plans to launch scheduled charter services to resort areas as well as a contract flying for the Department of Defense. One of its ACMI operations is with TUI, for whom the ACMI specialist will fly this summer and the next two summers.
The backbone of the fleet is the Airbus (OTCPK:EADSF) A320ceo, with eight-passenger models by the end of 2022, and the firm wants to grow to 18 airplanes by the end of this year, including cargo operations on the Airbus A321P2F, with another 15 expected to be added to the fleet. The airline was created in 2018 and began operations in 2021, and based on its fleet plan, significant expansion is predicted in the next few years, allowing the company to amortize expenditures. Being a young airline focused on cargo growth is more than a challenge at this time, so investors should be aware that growth does not come without risk, and with less than two years in operation, this 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 GlobalX’s First Quarter Results
When we look at the data, we notice something that is typical of airlines pursuing ambitious expansion strategies. Revenue more than quadrupled to $15.77 million, but costs increased by $16.5 million. GlobalX increased its operations year over year, but its costs grew faster than its revenue, owing mostly to $0.5 million in pilot training costs and $0.24 million in aircraft leasing fees for the A321PF. Aside from that, non-cash costs like depreciation and amortization increased by $0.42 million. As a result, certain costs went toward supporting growth while not immediately contributing to the bottom line, while others were non-cash for the simple reason that the airline is larger than it was a year ago. That is, in my opinion, the way airlines must operate in their early years.
The company’s operating cash flow was negative $0.7 million, with $1.13 million spent on investing. Currently, the airline has $2.2 million in cash and cash equivalents, $1.15 million in assets held for sale, and $5 million in restricted cash. Global Crossing Airlines Group’s papers do not offer any information about the basis for the cash restriction, which could be for a variety of reasons such as bank loans or deposits. It is evident, however, that the company must align its CapEx with its operating cash performance or risk losing its ability to source capital, and we can expect debt to rise this year and beyond in order for the airline to scale.
A Low Stock Price and Market Capitalization
Investors should be aware that GlobalX shares are trading for less than $1 a share, which might be both an opportunity and a risk because the low pricing may introduce price volatility. Furthermore, its market capitalization is greater than $50 million but less than $100 million, classifying it as a microcap stock. Investors should always keep the dangers of microcap companies in mind. The danger is heightened in the case of GlobalX since its low price point and market capitalization may induce instability.
Global Crossing Airlines Is A Dangerous Grower
The typical joke about how to become a millionaire running an airline is that you should start as a billionaire, and sadly, it is closer to the truth than many people, including investors, are willing to accept. We can see that Global Crossing Airlines is losing money as it tries to expand. This month, it received permission 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 view on profitability, and while I would like to get in early on stocks before they grow and take off, I would pass on this growth phase as it will be financed with debt, which is common, and with high-interest rates. The company may have a unique winning business case for freighter services with the Airbus A321, but it is a risk for investors. If you believe in the long-term possibilities of e-commerce expansion and GlobalX’s role in it, this is a buy; otherwise, it is a hold.
Featured Image: Freepik @ den-belitsky