Hawaiian Holdings, Inc (HA, Financial) (“Hawaiian”) – Hawaiian operates Hawaiian Airlines and does so very competently. During the last five years, Hawaiian has produced earnings of $4.53 per share, on average. Over the last twelve months that figure was $4.71 per share. Today the stock price is $10.38, meaning 2.2x trailing earnings. One could think of this multiple as suggesting a 60% chance that the stock will be worthless and 40% chance that the company will recover, produce average earnings in the medium-term and be valued at only 8x earnings. To be clear, our view is that the highest probability scenario is that the company will not only recover, but will grow its earnings into the future, and that the earnings stream is worth more than a multiple of 8x. The company is well-capitalized and owns (rather than leases) a large majority of its aircraft, which has several implications. First, the capital structure and relative absence of fixed lease payments offers substantial runway to navigate this unprecedented shutdown. It is estimated that Hawaiian has enough liquidity to sustain a complete shutdown of all flying for approximately 10 months (without government support, which appears to be available if needed). Second, the company has a highly desirable and saleable aircraft fleet, which could be sold or otherwise used to obtain more financing, in the event that proved necessary. And yet, today the company is currently trading at less than half of tangible book value, while book value may be a decent approximation of the liquidation value of the business. We would note that it took U.S. domestic air travel a matter of only 24 months to fully recover following the September 11th, 2001 terror attacks, an event that unleashed extraordinary fear of air travel specifically. We would also note that as of late March, Chinese domestic air travel had already begun a meaningful recovery.
From the Third Avenue Value Fund (Trades, Portfolio)'s first-quarter 2020 commentary.
