Gulfstream Intl (NYSE AMEX:GIA)

GIA Recently reported its 2008 financial results, which showed reduced losses when compared to 2007. However, after stripping away one time non-operating numbers, the company actually reported Positive EBITDA of $589K, a step in the right direction to reporting positive net income.

The company’s initiatives, detailed in the GeoTeam’s original report on February 5, 2009, seem to be bearing fruit as evidenced by company comments in the 2008 year end release:

• "We believe we are now positioned to benefit from lower and more stable jet fuel prices; higher average fares and excess baggage fees; and improved cost efficiency."

•  "The following factors are expected to have a significant impact on Gulfstream's 2009 operating performance, similar to the year-over-year improvement in operating income achieved during the fourth quarter of 2008:"

* After peaking in July 2008, the price of jet fuel declined dramatically during the second half of 2008. The price of jet fuel is now lower than it was a year ago.

* The sale of the fleet of Embraer aircraft will result in lower engine maintenance costs in 2009.

* Lift capacity was reduced (ASMs, or available seat miles) by 35-40% in October 2008 to enable balancing our capacity to reduced demand resulting from a rapidly declining economy.

* Average ticket prices were increased and excess baggage fees were initiated; * Aircraft were redeployed to more profitable routes.

* Substantial structural and capacity-related cost reductions were implemented during 2008.

Another factor that may benefit the company is the changing political climate that may open up travel with Cuba. GIA is one of 5 or 6 company’s that currently service Cuba. As restrictions alleviate,  GIA has an opportunity to be a direct beneficiary to the potential increase in Cuba travel volume. This development may be what had fueled the recent upward move in GIA shares.

Taking all this information in, coupled with the fact that GIA is entering their seasonally strongest months (February to July), may start to grab investor attention.

The GeoTeam® was able to locate analyst estimates (by Taglich Brothers) on GIA and is now able to provide potential valuation scenarios. It is likely safe to assume that the estimates do not include the recent Cuba travel developments and thus may be conservative.

The GeoTeam® does not limit its research to just Asia.  We will also be including some commentary on stocks based in the United States.

GIA has piqued the GeoTeam® interest. Normally, the airline industry is not one that the GeoTeam® prefers to invest in, due to its competitive nature and unpredictable energy prices. However, many stocks in this space have been performing well. The GeoTeam® has thus made an attempt to find a stock in this space that has lagged behind others. 

There are several factors that have GIA on our radar:

1.  The decline in energy prices should help profit margins.

2.  The company has resolved outstanding liquidity issues via:

• The sale of certain assets
• The issuance of debentures
• The restructuring of $6 million in creditor obligations

3. The company has been gaining a monopoly as larger competitors have opted to leave some of their markets:

"Our most significant market opportunity relates to the fact that we currently operate in and have targeted future expansion in unserved and underserved short haul markets, which is a growing opportunity for two principal reasons. Many smaller markets are being abandoned by major carriers, as they shift their focus increasingly to international markets and reduce capacity in domestic markets and hubs in response to higher fuel costs and a weakening economy. In addition, many smaller markets are also being abandoned by regional airlines, as they continue to gravitate toward larger jet aircraft in the 70-100 seat range, and away from smaller regional jets and turboprop aircraft." 

Source: SEC Form 10Q (Third Quarter page 12)

4. The company restructured its route network and eliminated city pairs that were no longer profitable in the current high fuel price environment.

Source: SEC Form 10Q (Third Quarter page 13)

5.  The third quarter of 2008 was very much a transition quarter for the Company as we implemented a revised business plan in response to rising fuel prices and a weakening economy. The quarter was primarily characterized by an immediate and substantial reduction in capacity and a corresponding decrease in operating costs. The rate of overall cost reductions during the quarter was not as immediate as our capacity and related revenue reductions, because of the complexities and delays associated with implementing extensive schedule changes and related staff reductions and retraining.

Source: SEC Form 10Q (Third Quarter page 13)

The GeoTeam® still needs to monitor the GIA story to see if the recent developments are bearing fruit.  The company has been losing money for several quarters.  The fourth quarter 2008 ended December and first quarter 2009 ending March, should shed some light into the GIA story and potential various valuation scenarios.