Canada Jetlines Ltd. (TSXV:JET)

Canada Jetlines Ltd. (TSXV: JET) – $3.03 Target Price – Fundamental Research

Fundamental Research recently initiated coverage of Canada Jetlines on September 6, 2017 and placed a “Fair Value” recommendation of $3.03, or nearly ten times the value of today’s trading price of the company’s stock.  

Although the target price remains at $3.03 in the updated report posted on December 11, 2017, new highlights look at the number of things that JET has accomplished in the short time since initiating coverage including:

  • On December 5, 2017 – announced its intent to offer flights out of Halifax Stanfield International Airport (“YHZ Airport”), come summer 2018.
  • On November 2, 2017 – addition of the former CEO and president of John C. Munro Hamilton International Airport, to the company’s advisory board.
  • On October 30, 2017 – intent to offer flights out of the Abbotsford International Airport (“YXX Airport”), come summer 2018.
  • On September 11, 2017 – reached an agreement to provide ultra-low-cost air service out of both John C. Munro Hamilton International Airport (“YHM Airport”) and entered active discussions with the Region of Waterloo International Airport (“YKF”).
  • On September 7, 2017 – signed an LOI with a major US aircraft leasing firm for two Boeing 737-800NG aircraft. The agreement stipulated the delivery of the aircraft for April 2018. This is inline with the company’s expectation that they will be able to grow the fleet by four aircraft per year.

To view the report, please click here.

Canada Jetlines CEO’s New Jacket An Attention Grabber

Jetlines CEO Stan Gadek hosted a press conference today (December 5th) in Halifax, Nova Scotia, to discuss its announcement that Jetlines will be using Halifax Stanfield International Airport as its Eastern Operational Base.

Mr Gadek used his wardrobe to set up his comments about the Ultra-Low-Cost fares that Canada Jetlines will offer Canadians. His remarks on the topic start at the five-minute mark in the video which can be viewed below or by clicking here.

Canada Jetlines (TSXV: JET) Targeting European and U.S. Investors to Fund Launch

CEO Stan Gadek delivered several messages today (November 14th) at Scotiabank’s Transportation & Aerospace Conference, a key one being from where the company expects to secure its major capital commitments.

With a 49% foreign ownership exemption in hand, management has attracted interest from “significant airline investors”. JET is pursuing major European and U.S. investors because of their familiarity with successful Ultra-Low-Cost Airlines. The company is running a data room, which contains a highly detailed business plan with supporting documents that are available for review by qualified funders.

During a one-on-one discussion and Q & A with Scotiabank’s Transportation Analyst Turan Quettawala, Mr. Gadek covered a number of topics, including Westjet’s planned 2018 launch of Swoop.

The discussion is available at the following link:

Following the conference, the Canadian Press released the below story under the headline: Canada Jetlines targeting June 1 launch with foreign capital support.

BTV Video Features Canada Jetlines (TSXV: JET) and its “A-List” Board of Directors

Host Taylor Thoen and BTV – Business Television have produced a video feature which will be broadcast this coming weekend, November 4th and 5th, on BNN – Business News Network.

The seven-minute video highlights Canada Jetlines and its rollout strategy with plans to finally give Canadians a ULCC (Ultra-Low-Cost Carrier) option for inexpensive fares domestically, into the United States and southern sun destinations.

In the piece, Jetlines CEO Stan Gadek describes his hard-working team as “some of the most experienced ULCC executives in the world and we absolutely have the A-list on our board.”

The video features interviews and comments led by Executive Chairman Mark Morabito along with Independent Directors Jason Grant, John Stephenson and Saad Hammad.

View the BTV video below or click here.


Canada Jetlines (TSXV: JET) – “Fair Value” Is Ten Times Current Stock Price – Fundamental Research

The twenty-one page Fundamental Research report places “Fair Value” of $3.03 on Canada Jetlines’ stock, which is ten times the current trading price in the $0.30 range. While the report looks well into the future with forecast revenue and cash flow growth out to 2025 for Canada’s first Ultra Low Cost Carrier (ULCC), for purposes of this discussion we’ll focus on the Fundamental Research outlook for 2018 and 2019.

As the first two Boeing 737 – 800 NG aircraft are slated to be in the air as of next June, with the fleet growing to six by the end of 2018, we’ll look at the year operations kick off and the full year following start-up.

Fundamental is calling for Canada Jetlines to transport just over 240 thousand passengers in 2018 with revenues of almost $36 million, growing to close to a million passengers in 2019 and revenues of $143 million. Its assumptions call for a base fare of $115 per ticket and ancillary (baggage, food, etc.) revenues of $34 per passenger. It sees EBIT (Earnings Before Interest Taxes) of $4.4 million in 2018 and $18.9 million in 2019. The company currently has 57.6 million shares issued and 94.6 million fully diluted.

Fundamental has listed the following risks:

  • The company is in early stages and has yet to commence operations
  • The existing Air Canada / WestJet duopoly dominates the Canadian aviation market
  • Our valuation is dependent on a 2018 launch. Delays or other changes to the operational timeline could significantly impact our valuation.
  • Access to capital and share dilution

The report looks at the success of ULCC operations in the United States for comparative purposes and a window on the future for Canada Jetlines, which is looking at costs 30% lower than the main Canadian competition.

Source: Fundamental Research – Data gathered from S&P Capital IQ

“ULCCs exhibit significantly higher margins, due to their lower costs. Furthermore, ULCC airlines also appear to be significantly more liquid and solvent than the broader market. Perhaps most important for investors is that ULCCs generate a considerably higher return than the industry average. The ULCC business model has been successful south of the border, but that same success has not yet found its way to Canada.

The competition posed by the existence of multiple ULCCs in the U.S. is noticeably absent; it is estimated that the two largest airlines in Canada control approximately 92% of the domestic aviation market, as measured by available seat miles (ASM). What little is left is held by smaller niche airlines like Porter Airlines and Air Inuit (regional airlines that service Northern Canada), where lack of dense population centers warrants less air traffic and attention from the two major Canadian carriers.”

A major question that the market has, in terms of assessing future valuations and potential returns, is the amount of possible dilution that shareholders could face, as Canada Jetlines will require a significant amount of “start-up” cash to meet the requirements of Transport Canada.

In speaking with management, it was made clear to us that all efforts are directed to securing the bulk of the required capital with a debt instrument and a portion through an equity raise to minimize dilution. The team expects to have these details finalized over the next few months.

Fundamental looked at the valuation impact as it rubbed the crystal ball on potential future dilution.

Source: Fundamental Research

It is well known that WestJet has announced its intent to launch a ULCC. On that point, Fundamental writes:

“Established air carrier WestJet is also gearing up to introduce the ULCC model. Initially aiming for a late 2017 release, WestJet has pushed back their anticipated launch date to summer 2018 (similar to Jetlines), and plans to unveil a 10 plane fleet. This poses a threat to Canada Jetlines, as a ULCC launched under the WestJet umbrella will have access to an established network of resources. However, a recent vote by WestJet pilots to unionize could jeopardize WestJet’s ability to charge ULCC air fares. This is due to common employer status regulations that transfer employment agreements to subsidiaries of parent companies.”

We encourage everyone to read the entire report, which is available by clicking here.

As a closing note, Fundamental’s Disclaimer in part contains the following:

“The analyst and Fundamental Research Corp. “FRC” does not own any shares of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject company. Fees were paid by JET to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage.

Cormark Analyst – Canada Jetlines “Could Prove a Profit Challenge to Incumbents”

Yesterday (September 11, 2017) was a busy and fruitful day for Canada Jetlines’ senior management and board of directors. The entire team assembled in Toronto and hosted its first news conference. Click here to view the news conference.

The team also met with investment advisors and Transportation Analysts, one of them being David Tyerman from Cormark Securities. He used the opportunity to feature Canada Jetlines in his team’s “Morning Meeting Notes.”

In the piece titled “Air Transport – Jetlines ULCC Announces Launch Program”, he makes the case that Canada Jetlines “could prove to be a profit challenge to incumbents.” Specifically using the United States’ Ultra Low Cost Carrier (ULCC) market as an example, “We are seeing this in the current U.S. airline price war, which was sparked by incumbent, United Continental, trying to fend off ULCC, Spirit. JET’s announcements may suggest future similar challenges in Canada.

Although, Canada Jetlines is just under a year from having planes in the air. Mr. Tyerman states, “We remain constructive on Air Canada (AC), WestJet (WJA) and Transat (TRZ) from a recommendation standpoint in the short term due to current positive market dynamics (reasonably rational competition) and the CAD tailwind and for AC, benefits from internalization of its loyalty program (probably in the 2022 timeframe). But longer term, risks are brewing from potential ULCC competition, WJA’s long-haul expansion, potential international long-haul ULCC competition and possibly from reduced competitiveness against international carriers.

Here is an excerpt from the Cormark report on how Canada Jetlines is positioning itself against West Jet, Air Canada and other Ultra Low Cost Carriers.

Yesterday’s news conference resulted in a number of media outlets featuring the company, below is a select list of articles including links.

September 11, 2017 – BNN
Canada Jetlines CEO outlines plan for summer 2018 ultra-low-cost carrier launch

September 11, 2017 – Financial Post
Canada Jetlines promises base fares below $100 out of Hamilton and Waterloo

September 11, 2017 – Global News
Canada Jetlines to offer low-cost flights from Hamilton and Waterloo

September 11, 2017 – CBC
‘A rebellion against high fares’: New low cost airline launching in Hamilton

September 11, 2017 – The Globe and Mail
Startup Canada Jetlines plans to offer base fares below $100, CEO says

September 11, 2017 – SKIES
Canada Jetlines launches low-fare ‘rebellion’

Canada Jetlines – “We’re Going To Start A Rebellion Against High Air Fares In Canada”


This was the core theme as Stan Gadek, CEO of Canada Jetlines, spoke to members of the press and media this morning (September 11) on the heels of the announcement that the new airline will offer ultra-low fare service from both John C. Munro Hamilton International Airport and Region of Waterloo International Airport when it begins flight operations in Summer 2018.

Mr. Gadek said the target date to be in the air is June 1st, 2018, starting with two Boeing 737-800NG aircraft, then adding two more by August, and another two aircraft by November. Below are the route maps that will expand in conjunction with the addition of aircraft.

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He spoke at length about cost control to ensure that “we will always have the lowest airfare” and that the company’s modeling is looking for a Cost Per Seat Mile of 9.5 cents, which is lower than any of the Ultra-Low Cost Carriers in the United States and considerably under Westjet’s 12.5 cents.

To view the news conference and follow-up questions, see below or click here.

Mr. Gadek was asked about Westjet’s plans to launch a low cost airline in the summer of 2018, which he addressed in detail and also cited the example of how American Airlines tried to go head to head with Jet Blue when it launched its initial operations in the United States. His answer starts at the 21 minute mark.

Further to the entire issue of cost control, the new arrangements with Hamilton and Waterloo airports are important components of the business case and certainly so in comparison to basing operations at Toronto’s Pearson International airport. Of note is the fact that there is a “catch basin” of four million people within a 90 minute drive from John C. Munro Hamilton International Airport and Region of Waterloo International Airport.

A promotional video that Hamilton produced covers all of its advantages, with these points reflecting Canada Jetlines’ decision to base operations from there as well as Waterloo Regional.

Following the news conference and a round of interviews, Mr. Gadek was off to BNN TV where he sat down with Michael Hainsworth and told him that Canada Jetlines’ airfares would be as “low as the cost of a pair of jeans”.  

To view BNN interview, please click here

Canada Jetlines CEO Significantly Increases Share Position


Stan Gadek only stepped into his role as CEO on June 1st of this year, and he’s wasting little time in building a material position in what will be Canada’s first Ultra Low-Cost Carrier airline.

In a clear affirmation of his belief in the future, during July Mr. Gadek purchased 500 thousand shares at $0.20 each and has just acquired an additional 1.9 million shares in a private purchase from the company’s former CEO. Mr. Gadek now owns 2.4 million shares and has made a significant capital investment.

He is now the single biggest insider shareholder right behind Executive Chairman Mark Morabito who owns just over 2.6 million shares. Dixon Lawson who is VP of Strategic Planning and Cost Control also owns a healthy position of 1.22 million shares.

To review Mr. Gadek’s previous highly successful career in the U.S. airline industry as well as  view his interview on BNN TV the day after his official appointment, please click here.


Insiders Buying Canada Jetlines (TSXV: JET)

New Jetlines CEO Stan Gadek has been buying JET in the $0.20 range and so far has accumulated 500,000 shares since his first transaction the week of July 11/17.

Chairman Mark Morabito had purchased an additional 246,000 shares in June at an average cost of $0.21.

Two other directors of the Company have also been in the market purchasing JET since early this month and accumulated 50,000 shares between them.

Canada Jetlines – Wheels Up In 2018


Although the new CEO of Canada Jetlines (TSXV:JET) has only been in the Captain’s seat for one day, his role in leading what will be Canada’s first ULCC (Ultra Low Cost Carrier) has caught the quick attention of the media and press.

Stan Gadek, who is also a director of JET, has a very successful career in the aviation industry south of the border including a major turnaround (Sun Country) as well as Senior VP Finance with NYSE listed AirTrans, which was sold to Southwest for $1.3 billion in cash and stock.

As was noted in a March 2013 article in Minnesota newspaper the StarTribune: “Gadek, who ran the airline for nearly five years, took over as CEO in 2008 just as it was tail-spinning into bankruptcy. Gadek is credited with turning Sun Country into a solid money ­making operation within two years of his arrival.”

Mr. Gadek was a guest on BNN’s The Business News with Michael Hainsworth today where he noted that JET will take to the skies in 2018.

In the interview, Michael Hainsworth stated that Jetlines was 65% foreign owned and 35% domestically owned. By way of correction, here are the actual numbers as of March 31, 2017:

Canada:                49,941,715 shares –  5,039 shareholders – 86.6%
US:                          4,101,499 shares –  3,513 shareholders  – 7.2%
Foreign:                   3,593,195 shares –      69 shareholders  –  6.2%

Source – Computershare Investor Services Inc., Broadridge Canada and Broadridge US.

Interview highlights include:

  • ULCC’s have been very successful in markets that have high airfares and Canada’s fares are 16th highest in the world.
  • Jetlines will have the lowest costs in the industry and will offer fares at a significantly lower price point than the incumbent carriers thus stimulating demand and driving profitability.
  • Lower costs start with productivity.

To watch the BNN interview, please click here.