Yet Another Value Podcast - $ELAL: El Al is a wartime monopoly at 2x EBITDA. Is that a trap? | ASB Partners

Episode Date: August 20, 2026

El Al ($ELAL), Israel's flag carrier, has spent three years as close to a monopoly on flying in and out of Ben Gurion as an airline ever gets. Turkish and Pegasus left and aren't coming back, Ryanair lost its Terminal 1 slots, Delta and United keep pushing their return, and El Al has used the windfall to go from a levered balance sheet to net cash, buy nine planes off lease, and start returning capital. It trades at about 2x EBITDA. Adam Buckstein of ASB Partners (back after his Stride episode) thinks you're buying a hard-asset-backed airline (roughly $1.3B net cash, $1B+ of owned planes, a $700M-ish loyalty program valuation) for less than the parts, with two more quarters of gushing profits still to come.My pushbacks: every "delevered on wartime profits" story I can remember (steel, energy after 2022) didn't work as a stock; a chunk of the cash is customer float that vanishes if flights get canceled; the $40M competition-authority fine for wartime pricing plus the state's right to make them fly uneconomically looks like the worst of both worlds; and El Al flies 24/6 (no Sabbath, no holidays), so should you haircut the EBITDA, or does that create a moat nobody else can copy? We close with a Stride ($LRN) update: the abrupt CEO exit, the Canvas LMS disaster, the lost Texas school, why fall enrollments are the fulcrum, and whether AI is a real threat to virtual public schools.Adam's El Al write-up: https://adambuckstein.substack.com/p/el-al-israel-airlines-ltd-elal-writeThis episode is sponsored by Fiscal.ai: https://fiscal.ai/yav. Fiscal.ai is the modern financial data provider for global equities, and it's what I actually use: their fund-letter database is wired into their API, so the first thing my AI does when I prep a podcast is pull every recent letter on the name, and every line in the models it builds links back to the source filing. Use fiscal.ai/yav for 15% off their AI connector.Chapters:(00:00) Intro and Fiscal.ai sponsor read(02:33) Adam Buckstein / ASB Partners joins(03:38) What is El Al: flag carrier, October 7, a monopoly on Ben Gurion(05:52) What the market is missing: underfollowed, delevered, Turkish and Ryanair gone(09:36) My pushback: delevering on wartime profits, and the customer-float problem(11:48) The balance sheet: $2B liquidity, air traffic liability, 2023 as the clean year(14:22) Valuation: net cash, owned planes, loyalty program vs a $2B EV(16:49) Slots: the New York City analogy for Tel Aviv(19:28) State of Israel risk: golden share, the $40M pricing fine, mandated security(24:23) The right comps: Wizz, Jet2, United at 6x vs El Al at 2x(26:12) Flying 24/6: should you haircut EBITDA, or is it a moat?(30:38) Stride ($LRN) update: the CEO exit and the prelim guide(34:01) Fall enrollments as the fulcrum, Canvas LMS, the lost Texas school(37:47) Pearson's read-through and in-year enrollment(40:16) The new CEO's contract and expert-call feedback on the old one(41:32) AI risk to virtual public schools, Alpha School(46:02) Long school choice; would Stride get taken private?(49:29) DisclaimerLinks:Yet Another Value Blog - https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

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Today we've got a great one. We've got Adam Buxton from ASB partners on the podcast. This is the second time on the first time he was on. We talked about Stride. The ticker there is LRN. And we're going to actually end this podcast with a 10 or 15 minutes discussion on Stride. But to give you an idea, I mean, I put out that Shriott podcast. And the number of value investors, focus, concentrated value investors who had inbound

asking questions, wanting me to connect to Adam on the heels of that podcast was awesome. So I think that just really speaks. to the quality of Adam's work and the interesting thought process. And he's got another one. We're talking about LL Airlines. I hope I said that right. It's the Israeli National Airlines is basically what it is. And he's got a thesis, you know, downside protection, lots of assets,

the interesting pricing structure, interesting competitive dynamics, all that type of stuff. He has a full write-up on his sub-sac, which I will include a link to the Insosch, if you want to go kind of check that out. But we're going to get to the full L-L pitch in one second. But first, forward from our sponsors. Today's podcast is sponsored by Fiscal. fiscal.AI is the modern financial data provider for global equities. Look, that's what they have me tell you, but let me tell you how I've been using fiscal.com. And I'll remind you, I'm a customer.

I paid with my own money to connect to the fiscal.com. There's two things that I've really found it useful for. Number one, this is something super unique. They've got a huge database of fund letters, and the fund letters are connected by the API. So whenever I'm researching a company, whether it's researching the company because I'm interested in them or looking up an event or prepping for a podcast, the first thing I have my AI do is I say, hey, I'm prepping for a podcast on, what are we, I'm prepping for a podcast on HIMS. Go to, and the first thing it does is it says, hey, here's all the recent letters on Fiscal.a.I of people talking about HIMS and here's their thesis, here's their bare thesis, all that sort of stuff. So that's the first thing. And that is really unique and that is really

fun. And then the second thing I do is I use it for edited financials, right? I've got my model and I say, hey, I'm looking at Hymns. Go build me model. And it says, sure, I'll build you a model. and every line in that model has a link. So I can see, oh, they're pulling this eBDOT number, they're pulling this segment number, they're pulling this number from three years ago. I click on it takes me right to Fiscal.com. And it says, hey, here's these company-specific KPIs.

Here's these ratios. And I can see exactly where they're getting in, and exactly where they're kind of here. So it is a super-reliable data provider that can connect to your AI. I found it super helpful. I'm a big fan of the podcast. If you want to try it out,

you can use my link at Fiscal.a.i. slash YAV to get 15% off their AI connector. That's fiscal. dot AI slash YAV and there'll be a link in the show notes. All right, hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. With me today, I'm happy to have on for the second time. Adam Bucksine from ASV partners.

Adam, how's it going? Good and yourselves? Doing good. As you said, I'm excited for today's podcast, but as you said, I'm always excited. But we'll get there one second. Just disclaimer, remind everyone, nothing on this podcast is investing advice.

that's always true, maybe particularly true today because we're going to an international stock so people should remember there's extra risks, tax consequences, all that. We're not tax advisors. We're not giving any investing advice. So full disclaimer at the end of the podcast and in the show notes. Adam, I think at the end of this podcast, we might do a quick little update on Stride. The ticker there is LRN, which was the first podcast that we did that people actually, I was getting rave reviews. I got lots of calls from some pretty big funds who are like, hey, this is super interesting. I think I put you in touch with a few of them. before we get to that, the company we want to talk about today is L. Al. This is Israeli Airlines

is what I think of that I'm in my head, but I'll stop rambling. I'll turn it over to you and I'll say, what is LL and why are they so interesting? And you can tell me if I'm saying it wrong as well. L.L. He was good enough. El Al, you know, like it's a little hard to get the exact pronunciation, but you're fine. So yeah, L.L is the Israeli flag carrier. It was started in 1948 when they founded the country and then it was privatized in the last 20 years. And, you know, the story to cut to the chase is since October 7th of 2023, there's been this almost continuous disruption in their market. The main airport in Tel Aviv is called Ben-Gurion.

and the because of like multiple multiple wars on multiple fronts actual there's an actual missile that hit ben-gurion last year was like um el-all has found itself in this basically monopoly position on the transatlantic flight there's been flight there's been carriers from europe that have been flying on and off but you basically had this situation where they've been able to you know command list like leading market share and they've delivered the balance sheet and we're still in the midst of a war and it trades like really cheaply an absolute relative basis and you know i think it's a very high quality asset type of thing that's going to be around 30 years from now and the market is you know scared out of its mind but i feel like it's a very asymmetric setup because of the quality of the balance sheet and the, you know, the current setup that we find ourselves in and love to like walk you through the story. Perfect. And before you do that, I should note that you have a really nice write-up. I actually, I thought the best piece of the write-up was the conclusion. You have just this

killer paragraph in the conclusion, which I can quote later. But I'll include a link to the write-up in the show notes so people can go see the full write-up, but they don't want to listen to us, Rumble for an hour. That's a great overview. I've obviously got some push-fits, got some thoughts there, but I guess we can start just, I think you fit on it, but I do like to start. What are you seeing that the market's missing that makes this a risk-adjusted opportunity? Yeah, so a few things. Number one, I think, just to start with the obvious, it's like this stock is pretty underfollowed. It happens to be that only half of it is publicly traded.

During the middle of COVID, there was an equity, essentially an equity recap. The Israeli government really did not bail the airline out. They provided some loans, but an investor came in, a U.S. investor. and essentially like bought, you know, half the, you know, between warrants, stocks and warrants, all the warrants are now fully converted. So the, we're looking at a fully diluted market cap right now. All the shares outstanding. There's 592 million shares.

We go through the slow confusing in terms of the shekel versus the dollar and I'll walk through that. But it truly is underfollowed and underappreciated. If you look at the front page, there are basically no U.S. hedge funds, the top holders are all Israeli insurance companies. And so usually I'm skeptical. and say, like, you know, they're a deleverage, something that's on the balance sheet, like we say that it's not been appreciated, but like I really think in this situation, the de-leveraging is so unprecedented and it's so significant because they've been able to just have three years of

windfall profits that they've totally de-levered the balance sheet and now they're like, well, you know, very overcapitalized, the returning capital shareholders. And that's, you know, that's a unique setup. Like, this is a tough business. This is Bob Crandall, the ex-CEO from American Airlines, said, like, this is a rotten, nasty business. Like, it's very hard. And, you know, we're talking about an airline in the middle of a war with, you know, jet fuel. Like, it was spiking, you know, like it was up 86% last quarter.

LL still managed to, like, generate a lot of free cash flow. So that's part of the story here is that they've already proven that they're even profitable with the commodity going against them. So that's number one. Like in terms of the delveraging and that speaks to the valuation, trades at like 2.3 times EV, the EBITDA, you know, generated a lot of free cash flow. So like there's just like an absolute cheapness and a de-leverage balance. So you're not to worry about any balance sheet issues. That's number one.

Number two is I think the market doesn't appreciate that their, you know, the inbound Ben-Gurion is like being completely transformed after three years of war. We're still in the midst of the conflict with Iran. the most important change, which has been permanent, I'm not saying it won't change, there won't be other carriers that will come in, but Turkish Airways and Pegasus, which were top five carriers,

they totally left the market, they're not coming back. Even Ryanair, which, you know, Ryanair is your worst nightmare, Michael O'Leary said, like, even when things like, you know, he's kind of like provocative, but he's like, I'm not coming back,

even when like the missile stopped flying because they basically took away his slots at Terminal 1, which is like the cheaper landing, right he's just he'll probably come back but you know he's probably just talking but right now like i still think that the market has been permanently transformed and you know the so that's number you know you have like that's on the supply side and then on demand side you know like el al has won the trust they're the only ones that have been able to consistently fly there's been this on

again off again literally for three years kind of get i don't use the word fly wheel i don't overstate it for an airline because it's commodity they're all flying the same planes but at the end of the day there is some walk-in with like the loyalty program and like people that just want surety that they're not going to have their tickets canceled which has happened i mean it's happened to friends you know almost happened to me i was there in may people are going to want to fly a law and so that speaks to the pricing power and the inelastic demand that they that they enjoy and in their unique you know in their niche so that was i point to those three things that that was fantastic and look you really set this up for me as a podcast so because those things are a lot of

of the things I wanted to talk about. Let me, let's start with the de-leveraging, you know, because I think you mentioned this, and I think this will play into the balance sheet and valuation stuff as well. You know, you mentioned over the past few years that the company has robed kind of wartime profits to really de-leverage the balance sheet. They've gone from a net debt position to a huge net cash position. And I guess I have two separate thoughts on that. Number one, you know, I remember after the Ukraine-Russia war started, a lot of you know, whether it was energy, steel, a lot of these guys were making just record profits. And even today you could apply it to the microns of the worlds and the memory components,

though, you know, I think that's a different level of record profits. But I would look at them and say, hey, I think the market's missing how good the balance sheets are, right? These guys have always run with like 2x leverage. Now they're running 1X net cash. And then what ended up happening was, yeah, but they were doing it because of like kind of prime time profits. And when the profits fell out, they just had these huge cash pool sitting around.

but you know none of the stocks have really to my mind worked that well like u s steel got taken out so that kind of work for them but like all the steel players cleveland cliffs the one up in canada like none of them really worked so i guess my first thought would be hey they kind of de levered through a super normal profits and we come back to profits later but does that really work and that would kind to go to the second thing i'd say where they've got this big net cash position but a lot of it is from customer float right customer prepay and yes they're not canceling flights, but you mentioned it. The Israeli government didn't bail them out during COVID and go ask all the airlines how they feel about relying on like a balance sheet

made up of customer float when the customers might cancel. And here they might cancel because of a COVID or they might cancel because the war breaks out even further and nobody wants to travel or they can't travel safely. They can't launch flights safely. So I guess I look at this balance sheet and I say, hey, I see two errors that like companies or that I've looked at or companies have made in the past that this balance sheet kind of rests on, that's not say it's going to go bankrupt, but if we're relying on that for the valuation, could that prove a problem?

Yeah, so let's talk about the balance sheet. And so the way they talk about it, there's over $2 billion in available funds for liquidity. About $1.3 billion of that is called air traffic liability, which is basically an interest-free loan from their customers because people buy the tickets in advance. So even excluding that and assuming that it normalizes, and it will someday,

but they've been enjoying this. float for the last three years, they still have a significant net, they still have a significant, you know, significant net cash position on their balance sheet. So that's number one. Number two is, it's a real asset. It's just like, it's pretty extraordinary. I was looking, you know, they just printed their second quarter. Like they had, I think it was like, you look at the income statement. There was like, they had $31 million in like net finance. It was like positive. Whereas the last, you know, Q2 last year was like negative four. That's a $35 million. shift just in the financing line.

And part of that is they've been able to buy out nine aircrafts over the last since 2025. They basically bought them off of lease. And that's much better, longer term. So, like, you know, I would just point to the things that are permanent. Like, so like, you know, assuming the ATL normalizes fine. They're still going to have cash balance. They're still going to have, we're still going to own 80% of their fleet.

Like two years ago was like there was only 50% of the fleet. And I feel like that. Those two, and the most important thing, I think about this all the time. You're right. Like, this screams, this thing is over-earning, right? Like, how could you not be concerned that there's going to, it's going to mean revert, and the stock's not going to work because it's just going to be very difficult. And I think that I would point back to their last clean year, which was really sandwiched

between COVID and the war in October 7th was 2003. And in 2023, like, they were profitable, you know, after Capax, after leases, after you know, amortization of loans. So, and they, to the tune of like $100 to $200 million in free cash flow. So I kind of look at it like that. Like, worst case scenario, you know, let's say they go back to that. Like you're looking at a $2 billion EV and normalize, you know, at least 150 to $200 million in free cash flow. I feel like I'm willing to take that bet. But like I don't think, I think that's going to be low because they've permanent, they've, they've had a lot of capacity. it's not clear how much capacity they've added because some of it is wet leases.

So those wet leases are, you know, their temporary leases that they have. But that's the minority of it. That's the minority of it. The majority of it is just, you know, they've added to their fleet. Perfect. Let's turn to evaluation a little bit more, right? So you're right up again, the killer line and people should go read the write up. It's at the end.

But the killer line you have is, hey, the downside here is supported by they've got the $1.3 billion of net cash that we talked about. they own a lot of their planes and go look at plane prices like owning planes the all these planes are in the money you say hey they own a billion plus of planes and they've got an external valuation on their branded credit card program that's and loyalty program that's worth 700 millionish so that's 3.5 billion and kind of hard asset value versus an EV of depending on how you treat the cash two billionish right so you're buying it at a substantial discount i i want to talk about that in terms of you also compare to a bunch of airlines, JetBlue, United, Delta, all these guys, which trade it like five to six times EBIT on, these guys are trading it too. So how do you think about the valuation there?

And I'll come back with kind of a pushback on it. Yeah, I think, I mean, look, I'm a generalist. I'm not an airline expert. The right way to probably do the valuation is to, like, you know, segment across like percentage of the fleet that has owned. But I think directionally, the more planes you own in this environment, given how expensive leasing is, the higher or multiple should be. And the better the balance sheet, I mean, I just see a lot of things that indicate to me they should at least trade with the rest of the group and not at a discount. Now, obviously, there's a huge geopolitical risk factor. But as crazy as it sounds like, they've proven that like they can fly under all circumstances. And they have an implicit backstop of the government.

So like when things got really intense, like the government stepped in and, you know, basically, you know, said they would insure the planes when the private insurers would, you know, commercial insurance would step out. So, you know, I don't want to overthink it, but I think they deserve, you know, at least a trade in line with the peers, which would be a really nice return from here. Questions obviously like on what multiple normalized earnings, but like, you know, that's, that's the guesswork, you know, like there's been permanent, you know, increase in their capacity. And I think, you know, but like, you know, the big X factor now is like jet fuel, you know,

So like that's kind of masking some of the, you know, improvement in underlying earnings power. But like I think once things normalized, you're just going to see a business that's generating a lot more free cash flow. And it should it should trade, you know, in line with peers. No. And it's interesting because, you know, airlines, one of the questions I have in my head is kind of like, hey, everybody, every value investor, you say airlines, if you'll think Warren Buffett, 1990, call 1,800 airline a hollock or whatever, right? But the interesting thing here is because it's in Israeli, like there are limited. slots. And it's got to me, and you can correct me, I'm wrong, but it's got a lot of the New York City components to it where in airlines, and I remember this from the Spirit Jetep Lee trial,

like, yes, airlines are super, super competitive across the domestic board, but there's limited spots in New York City. And those are really valuable because those spots, because there's supply and a lot of demand coming in, those spots are hugely valuable, hugely profitable. You know, I look at Israel. And I think you could imagine a lot of the same with, the Tel Aviv airport. There's limited spots, a lot of international demand. And guess what, everybody left? So these guys took, I think it's like 50% of the spots in Tel Aviv. Again, you can correct me if I'm directly wrong. But yes, they put on a lot of supply, but they took out a lot of the best supply and they own it. And there's no way out for anyone else to come unless they, like,

build a new terminal or something. So you've kind of got a really interesting setup there. You can tell me if I'm misthinking about any piece of that. Yeah, I mean, that's the right way to look at, You know, I forgot the guy. He was the one who deregulated airlines under Carter. And he's like, airlines are like marginal cost with wings. So, you know, your marginal cost, like, leaves the market. So then like it's obviously much better for pricing. So like I think Delta and United, like they want to come back like two years ago.

Like they've been, it's literally been on again, off again for years. And they're supposed to like slowly come back in Q4. And they will eventually come back. Like that's how you have to underwrite this. like there's going to be full competition someday like full stop now who knows how long this war goes on like you know who they listened to the other day that like you know every war that's been started like the troops are going to be home by Christmas it's like the nature of these things that like they go on longer than people expect so like we're six months into this iran conflict like who knows right

so i kind of look at it like i would be long this you know just on normalized journeys whatever those are, you know. And I think right now the setup is you have a few more, at least, you know, two more quarters of like just gushing windfall profits that further kind of like buy down your enterprise value. And you're buying like the number one, you know, you're buying everyone wants to own the number one in a market. Like this is the undisputed number one. It has like this great brand. And, you know, that kind of like got me over the hump to own an airline as much as like, you know, it's, uh, I've been trained. I'll, I'll, I'll, Contact my buddy Warren and have him get you the,

a membership and the anonymous thing. Maybe he'll be your sponsor, who knows. Let me go to, you mentioned the profits, right? So they're kind of making windfall profits right now because wartime, everybody else leaves. They get the slots. I think people might look at the windfall profits in two ways. One, they were, the state of Israel obviously has a lot of say here, right?

They were kind of required to run. And I believe part of their operating agreement says the state of Israel can require them to run in extreme emergencies and can require them to staff no matter what. So I think there's two sides that. One, people worry, hey, these guys are going to be required to run uneconomically on the downside. And then the counter is, and you can tell me if I'm wrong, but, you know, I was familiar with the golden chair. So I was just kind of Googling around while I was prepped for this podcast. The golden chair is Israel owns a piece of some like kind of state, state-ish companies that gives them blocking rights over mergers and stuff. And as I was going around, I saw, hey, they got hit with

the competition authority fine for $40 million for excessive and unfair pricing from October 2003 to May 2024. And that makes me worry, hey, are you going to have the worst of both worlds, right? If there's no demand because of war or something, you're going to be required to fly. But if you, there's tons of demand and everybody's coming out and you try to kind of increase your pricing to wartime, wartime pricing, they're going to hit you with, they're going to hit you with fine. So on the downside, you have to have all the capacity operating and on the upside, fine for the super normal profit. So how would you kind of think about the, that's just general state of Israel risk, I suppose, but it's also like regulation risk, all of that type stuff.

Yeah, you have to get comfortable with it. Like, I think first of all, it's kind of, it's scary to like invest in a foreign country. It's just like, you know, there's a different currency and a different government. I think Israel is relatively, you know, capitalistic, insane. And I think that backdrop to go back to COVID, the fact that they did not bail out the airline. like anything's possible because it's the government but like there is there is like a recognition and understanding like they stepped into the lurch and bailed this thing out when they were like losing you know tens of millions of dollars on a monthly basis like no one knew this is in the depths of covid so i think they might my take on it is they respect the property rights yes of course

all is beholden to the government like and that's actually what happened in april this year like they were they had to fly flights at like very you know very reduced capacity because of restrictions from the government just for safety reasons and of course all did it all but that's like you know that's just the nature of the that's the position they're in. One other quirk that I think is important is that one of the things that differentiates you know the big question with airlines is like they're all flying the same planes right they all buy this like what you know they're all using the same airport so you're right Like the slots are important, but even like once, you know, they all, they all, assuming they already have the same slots.

Like, how do you actually differentiate yourself? So, of course, there's some things here and there, as bells and whistles in the cabin. But LL, like, has the leading security, like, you know, end up. There's no one else that does security like LL does for obvious reasons. And so part of the way the security works is that the government mandates that they have this like super security. It's very expensive. They have people in local markets and also foreign markets that interrogate passengers will ask you like random trivia about the Hebrew Bible. They just like, they just try to like, you know, mess with you to like make sure like you're not a terrorist.

So that costs a lot of money and the government imposes that upon a law. So like this was probably missed. But, you know, last year they renegotiated that cost sharing agreement. And the government, you know, like they basically share the cost for that extra security. The point is it's more collaborative. it's like a partnership, like the government appreciates what they do. And they've stepped in and they provided a lot of capacity when everyone left the market. So I'm not concerned about, you know, that risk that the government's going to try to.

I mean, look, you see this. There was a lawsuit and like it's $40 million. It's not nothing. But it's not like a kangaroo court thing where like they can't have their dang court. It's like a pretty Western capitalistic, you know, where they're, you know, you're going to be able to defend yourself. and honestly i'm just laughing because i'm having trouble i went to catholic high school but i'm having trouble imagine like if i got pulled out and they're like hey man tell me about the hebrew bible i'm just uh i might i might not be able to fly because they might suspect me of terrorism

be like i don't know man let me go a little bit more on valuation so you know you list several peers i think ryan air is kind of your only international peer in your deck in your write-up you've got United, Delta, JetBlue. I should have put Wiz in probably. Wiz would have been better because like WIS is like a low-cost carrier, but like they're kind of like a basket case. So like they're not making money. But that actually was because they do play in the Tel Avivian market.

Are they used to? Well, the one I was thinking of was Jet 2 over in London, which is a favorite of a lot of value investors as well, right? But that trades really cheaply. And it does have some of the, I mean, it's completely, it is completely different, right? have an airline, but that is more known for package bookings and that sort of stuff. But it gets a lot of float and that company, they own a lot of their airplanes. I actually pitched to a friend, we should go activists on them and force them to wrap up the whole business and just sell

the aircraft because they were trading so far below the value of the aircraft they own. But, you know, that company trades really cheaply. So, you know, you've got this company, you've got them trading at 2x EBITAB versus United Airlines at 6x. And I guess my question would be, hey, is a largely domestic U.S. player, scaled U.S. player that gets a lot of profits from the loyalty program and the credit card points, which I know LL does as well, but I mean, that pales in comparison to the might of the U.S. consumer. Is that really the right comp? Because if I went to kind of the second tier of airlines, I think you find a lot of them are trading kind of around this pricing. Yeah. I mean, I hear that pushback. I think I would just go back to like what I said previously

that there's just a lot of characteristics in this setup that like speaks to the quality of the asset and the you know the durability opportunity and you know like the the niche that they play in so that's that would that's you know unique to them um but yeah i don't i haven't studied those other airlines so like i completely okay completely okay and look at some point two x ebidot is two x ebotic but let me focus on the ebidot number because i i think this is a more interesting question and this is one that jumped up to me so even obviously DNA is the back depreciation and emergization I've done a lot on aircraft and aircraft lusters and like you know the most important things for aircraft for airlines aircraft lesters and everything is getting the plane going right the

the less time you can have on the ground the more time you can have up in the air because the plane is your big expense and that depreciation is is massive on the plane LL follows Jewish holidays right so they don't fly on the Sabbath and they don't fly on major holidays so So that's roughly, what, 12 to 15% of the year that they're kind of not flying on, if I'm doing one divided by seven plus on holidays, correct in my head. Yeah, I think that applies in two ways, right? When they're buying aircraft and they go and they buy a new Boeing airline, the, you know, Boeing's going to sell to the high better for the most part. LL is competing against, you know, Thai airlines or jet tour, who's going to run at 24-7, basically. LL is going to run it kind of in that math, 26 or something.

So they're paying 24-7 pricing for something they're going to run 26. So my first question would be, how can they make that economics work? And then my second question is, if we're valuing it on EBITA, but 15% of the time they have an unproductive asset, should we actually be haircutting them for that 15% of time the assets are on the ground? Yeah, it's a great question. So, and I think this is like interesting. I think this speaks to what's happened that they've,

they've, they've, they already had like a large percentage of their planes that were owned. And then like, like I said, since 2025, they've, they've bought back nine planes. So whatever, you know, like, they don't share the exact, you know, what they're underwriting to. But like, it seems very clear that leasing is not the optimal, you know, it could be for the reasons that you've talked about. I just think in general, like, leasing has gotten much more expensive. Your total cost of ownership when you lease the plane, like you have to return the plane in a certain condition, right? You have to, like, redo the engines and everything. Like, you wouldn't do that if you were, you know, you would probably, whatever it is, you know, assuming it'd say if you would push out

that scheduled maintenance. So I think that, you know, they're probably responding. That's part of the reality is that why they're like buying their planes off lease. And I think that, again, like, that's, of course true. You could cut the EBIT up by 15%. But then I was just, like, let's look at the last normal year, like, they were, they were doing fine. You know, like this business has been, you know, six years ago, it seems so long ago, but like, the post-COVID, it's hard to, like, talk about pre-COVID because it was just a different business. Like, it's new ownership, like, different balance sheet, everything.

But, like, you know, if you take it as it is, like, I can't envision a scenario where these guys wouldn't be profitable, like, you know, in their market. No. And look, it cuts both ways, too, right? because A, I would guess is really pay a premium for their travel because, you know, the airlines have to depreciate it over six days instead of seven days effectively, right? And that creates, it does create a kind of unique moat around the business, especially operating inside the country because if Delta wants to expand, well, all their systems are designed for, hey, we run this for seven days a week, you know, when we're looking at airplanes, we can put it here for six days a week, or we can go, fly it from, you know, Tampa to San Diego, seven days a week. So I do think it creates unique, a unique market that might have some moat and some competitive advantage. It is just, you know,

the DNA line, I do worry, would I rather $1 of EBIT off from these guys or $1 of EBIT off from Jet 2, where the depreciation is kind of going to be 15% lower at Jet 2 just because they run at 7%, 15% more? It's, it's an interesting question that kind of jumped out to me. And it's one, I haven't really had to think about before because across most business I look like, they all operate on the same hours and this doesn't. So that's, yeah, it's a very, it's a very unique setup. Yeah. Let's see. Let's see if there's anything else. I think we've gone through most of my questions on jet on, on, uh, LL actually. Anything else we should be talking about LL or do you want to do a quick update on Stride? Um, no, that's good. That's good. Cool. Let's talk about Stride. So we,

you came on at the beginning of this year and was it at the beginning of this year? I can't even remember at this point or was it ended last year. One of the two. The beginning, January, yeah. But we did, did a really interesting podcast again. I got taught, it might have been the podcast. Not the podcast I got the most feedback on there. There are some, uh, fiery ones out there. But it was the podcast. I got a lot of, probably the most professional imbalance from deep concentrated value investors who were interested. You know, it's company trading at. Now you guys can't help themselves at 10 times earnings. Yeah. Well, it's not just 10 times earnings. It's 10 times earnings. 10 times earnings growing quickly, tailwinds, moody, very cap-x light. Like, it has a lot of...

Session-resistant. Yeah, it has a lot of... Yeah. So there has been a lot that's happened over the past seven to eight months since then. New CEO, earnings, a outage. The stock price is, like, reasonably flat since then. So I'd love to just toss over to you and just do a quick update on stride, if that makes sense to you. Yeah, so the big news that you're talking about as the CEO kind of left abrupt.

there wasn't a lot of, and then they reported their, you know, they pre-announced their Q4, their fiscal year ends in June because they want Q4 to, excuse me, their Q1 to line up with the school year. They get their count date, which is their enrollments. So they want that to line up with their fiscal first quarter. And then that basically predicts, it's a very like, you know, they have a lot of, they can see the, basically can see the revenue for the rest of the year because it's, you know, the students at the beginning of school year with, like, they model, like, some attrition and, like, they gain some. So basically what happened is the CEO left right before he'd been there.

His name is James Rue. He'd been there. He'd been the CEO for five or six years. He'd been in the company for 13 years. Like, under his watch, he had grown EPS from, like, less than a dollar a share to, like, I think they did, you know, over $8 this year. So pretty fantastic. results and that's obviously there was a huge COVID bump in the middle of that but like you know they've

totally grown through the COVID cohorts and kind of proven to the market that you know this is sustainable and like this is like the new level for for their market so you know so but the stock you know sold out violently when the CEO left I think the market was concerned that you know he got fired. We don't know really what happened because this upcoming school year is going to be a bust. And that, you know, how did you not think that? Like, it's hard to imagine the guy getting fired if he was like killing it. I think you're understanding that I saw this AK and I was like, oh my God. I think I told you. I mean, they fire him on fire, change, whatever it is, July 30th. He said he departed, you know, like, yeah. Whatever it is July 30th. And then the, the new CEO who is, I think

71 steps in steps in and yes they grew of prelim guidance when they hired the new CEO but you know earnings were scheduled for August 4th and I was like oh I've seen this movie before you put in the new CEO prelim guidance and then the earnings like three days later to whatever it is you come out and say oh next year is going to be tough it's all it's all the prior guy though you know I'm here to clean things up blame the prior guy I was only a little independent board member here yeah so look so I would point to a few things. So, you know, like there's always, there's one thing that, you know, I like investors that like kind of like distilled their thesis. There's like, what's the one thing that's really going to move the stock? You know, like what's that fulcrum question? So

it's enrollments in the fall. So again, like their first quarter, the September quarter, they're going to report enrollments. Usually do it three to four weeks. You know, let's talk late October. So that's going to be the print that's going to like send the stock up 20 points or down 20 points. And the question is like, are they going to be able to grow this year? That's really like all that matters people this you know when I invested that was kind of the thesis here is that this is a secular grower in expanding marketplace generates a lot of cash flow and like they're the market leader and it seems like the penetration you know you're talking um you know I mean some of your viewers might they do virtual public schools so like it's really under

penetrated only one to two percent of students do full-time tuition free you know stay at home school, you know, it's only in 30 states. And it just seems like this business could be like much bigger 10 years from now. And so really the question is like, you know, the street is taking down their numbers. I think they have them growing like revenue by like, you know, two and a half percent next year and like, you know, probably barely growing enrollments. And so let's just talk about why like, you know, questions are going to take the over or the under on enrollment. So like I'm still very bullish on it. And like I'm just triangulating around a few data of points and you could tell me, you know, what you think. Number one, I think that the CEO,

the whole thing, like, you know, this is all reading tea leaves, but like the last year, in spite of the fact that he had a good multi-year run, the last year was like kind of a disaster. They implemented a new LMS learning management system, which is like the piece of software that they use for like curriculum and students and parents, it's like brings everyone together. and they upgraded to an off-the-shelf provider called Canvas, which is like the best LMS in North America, but it was a disaster like most ERP launches are. And so they missed their guidance last year.

So that was number one, and that was under his watch. Number two, they lost a school in Texas, a 6,000 student school, which is like pretty significant on a base of like call it 240,000 students. This is Lone Star Academy, and it is the first question on the most recent earnings call for those who are kind of doing. Correct. And again, I've been following this company for years, and that was an underperforming school. Every year, you know, it's like a portfolio.

They have, even though they're only in 30 states, they have close to 100 schools. Part of the business model is that like every single state has multiple schools precisely for this reason. Because if you lose one school for whatever reason, lose its accreditation, so then you can like, you can, you know, reenroll those students in another school. So that happened under James's watch. So there's like two big kind of like checks against him during the year that would have been plausible for the board to say, you know, enough is enough. In spite of the fact that like maybe like things weren't falling off a cliff.

But again, we're only going to know when they, when they report. So that's number one. So number two, I think it's important. The one publicly traded competitor, Pearson came out, you know, the week before. or they have a division. This is, you know, they're a holding company that owns a lot of different assets. But like the division that does virtual public schools, like they were just like ebullent, like things are just rocking, you know, demand is very, very strong.

You can say maybe they're taking share from stride, like hard to know. But that's, if I could jump there, you know, I, when I read the Q4 earnings call with the new, it's the new CFO who says it, but he says funding environment looks favorable. application volumes, strongest application volumes, maybe slightly behind last year, but still strong. Encouraged by conversion rates. Like, it doesn't sound, maybe I'm wrong. Maybe they're lying to me. Maybe they're putting in a great face.

But it doesn't sound like something that's about to go negative or have the rug pulled out from you or anything. Yeah, I would agree. There's a lot of breadcrumbs here. And like, then there's like a whole like, just like you have to understand like optically, like mathematically. Like, so they basically started the year. They're going to, the end of the year with less students than they started. And that sounds really bad. And that was a self-inflicted because they were having issues with, with their LMS,

they intentionally throttled back something that's called in-year enrollment. So, so basically what that means is that the, you know, when they, when they report next year, they're reporting off a lower base and they previously, usually, they add students in the middle of the year. So, but like that doesn't. speak, you know, what matters is like the underlying dynamics of the market and are they healthy or not healthy. And so I feel strongly that, you know, the market is healthy. Just actually, sorry, to go back to the LSOA, that's the school in Texas that they lost, I'm very, very confident that they're going to be able to enroll a large percentage of those students in the other schools

that they have in Texas. That's what happened in New Mexico, right? Correct. Yeah, they have in the previous year, again, this happens every year. But part of the uncertainty going into the CEO leaving was this was the only school in Texas that had K through two. It's relatively unique. That's like a smaller niche within the market. And so there was no other K through two school. So they have a private school that they were going to like give to, they were basically going to give those students and those grades free education. they were able to, you know, get a permission from the Texas regulator to open up K-3-2, you know, in Texas.

So I just think that speaks to like my, you know, I think that's more likely than not that they're going to be able to retain those students. But again, there's a lot of smoke here. So I totally understand why the market would be skittish in that context. If I can follow up on three different points. I mean, the first on the CEO change, I mean, I'm sure you did tons of expert calls. I liked our podcast so much. I did a few expert calls. And a lot of the experts, a lot of the formers I talked to, were not big fans of the old CEO to put

something. And I know some people who kind of viewed him as a blocking factor. So, you know, when I saw the change, I was like, oh, I don't, the timing was not great. But I didn't know if it was a as big and negative as people thought. Like I thought it actually might be positive. And just related to that, I will note the new CEO's contract. I mean, he's a 70 year old stepping into a tech business. And his contract is very much like.

it spends a lot of time on what happens if this business gets sold. So I thought all of that was very interesting. I'll pause there and add two other things I wanted to. It's also impressive guy. If you look at his resume, like he's been on a lot of company boards. It sounds like he understands like, you know,

share buyback math. And most important, like he did work in the education industry. Like James did not. And like, I feel like in order to take this business to its next level, like you need someone that has like, you know,

credibility within it. And that's so I mean, it sounds ridiculous, but I could have seen the stock being up on the news, but like, you know, there's just so much uncertainty given the fact pattern going into it that like the market just like forget about this, you know. The feedback on the old CEO, the thing I heard across the board was, I believe he was the CFO before he became CEO, right?

Yeah. It was a CFO running a business where relationships and education mattered. And I think the financial results were really impressive, but I think there were a lot of people who worried about the about that combo. You know, the other thing I want to talk about, we did the, the, podcast in January. I'll trust your memory. That was right at the start of the real SaaS sell-off, right? From mid-January to mid-March, if you had bought SaaS in mid-January through mid-March, I mean, you were just covered in blood. And Lauren is not SaaS per se, but it's not immune.

And I think, you know, as the SaaSpocalypse happened, a lot of the my worries on this and a lot of people are talking to, their worries were AI, right? And I think there was a pushback, hey, these guys are going to be better than public schools at adopting AI. But I think there was another push that was you don't need to compete with the public schools. You kind of need to compete with you kind of need to compete with just online and AI spreading in general as lots of competitors started out. I mentioned this because now we're in July. I think some of those AI fears have maybe subsided. And I would also mention I saw Alpha School came up time and time again.

And people are saying, look how great their results are. I think they've had poor results when they've tried to take. their private charter school model to public schools. So I threw a lot out there, but I'd love to just get your update on AI as it relates to stride. Yeah. I mean, there's also like, you know, like this was like, this was back in July, like, and Fraitha came out with like an offering for K through 12 for teachers. It wasn't even like a school, just like a way to kind of like help teachers with their

curriculum. Like stock was down like five or 10 points on that. So like the market is clearly thinking that way. How could it not? But I think that I would just say anyone that's concerned about, you know, AI, like taking over this business, like they haven't done enough work in terms of like how like messy and complicated this is. Like there's just like this is literally like the soup to nuts, the entire, you know,

they're basically taking a brick and mortar school and the only difference is that it's online. So that means there's teachers, you know, there's actually physical textbooks. they're, you know, like they're distributing textbooks and, you know, laptops to all the kids. And then there's, you have to be credentialed, right? Like, this is taxpayer funded, you know? So like, whenever you're, you know, just like go down the list of all the different, and there's like tons of different stakeholders.

There's there's parents, students, teachers unions, you know, like, there's just a lot going on. So like, anyone that just comes in and says, like, you know, casually, like, AI is going to blow this up. like there's no way like it more likely is that like you know one of the biggest line items which is is curriculum because like the curriculum has to be like customized based upon the state and even the district and then there's like 12 there's 12 different grades like there's not just like one SKU they're selling like tons of and then one of the biggest things people appreciate is like they have you know if you're going to take taxpayer money you have to have you have to be open to everyone so like students with disabilities and kids that

have like individual learning plans because they have some type of learning disability. Like you have to cater to all their needs and provide for them. So, you know, like just spend a couple hours like, you know, going on the chat groups for parents and stuff and like you'll quickly realize that like there's no way that like someone's going to just let, you know, a piece of like AI software come in and like run this thing. No, and I can't claim to be the world's foremost expert, but this is, you know, in the few tweets and stuff I saw written, this is what people were saying about out school.

And, you know, maybe I feel silly for being worried, but they're like, yes, Alpha School, when you're, when you're only recruiting and you can screen out for gifted students. So all your students are gifted and all of their parents can pay $50,000 a year for private school. It turns out your results are pretty damn good with AI. But when you're like, you know, and we talked in the first podcast, how a lot of these, a lot of students with who come to Stride are dealing with much bigger issues. You know, they're coming from public schools. They might have troubled backgrounds. They might be moving around a lot. Like, yeah, the Stride model. the alpha school model might work great for people who have every advantage of the world, but public school needs to serve everyone. And Stride is operating in a very difficult environment and putting out pretty, as we discussed, pretty good stats for all that. Cool. Anything else we should be updating on Stride or anything? Yeah, I just think, you know, people think about the investment. You just have to, you know, abstract and think like, you're really being long school choice here. And, you know, we're not getting rid of, like, compulsory case with 12 education. There's, like,

like very substantial economies of scale, like when you are able to, it's like any technology business, you know, like there are, there's a lot of, and that's, that's what James was able to do. That's why the stock, like, you know, it was like up over 10x like under his watch, which is like really impressive because they were able to like invest more than a competition and they're also able to like show like some pretty significant operating leverage. And, you know, I think that, you know, if you look at from on the demand side of it, from, you know, parents and students are just like, there's a huge population of people that, like, they're not, not just, they like, the people that use it, like, they're desperate for

this because, like, they just don't fit into the regular school system. So, like, when you have that dynamic where, like, people, like, you know, create, they really want your product and they need your product and they're willing to, like, go to bat for you, especially if there's, like, you know, in a state legislature, I think that the political risk has actually been dramatically reduced, like, post-COVID, like, people's, this used to be, like, a nice have now it's a must have because like there's another pandemic so like that's kind of like a sea change in and so like I think eventually you know maybe this is going to be a year where who knows what happens you know they were they were conservative on the call why not you know like I would have

been conservative coming out of the gate oh I mean again this is one of the reason they they didn't give 20 some guy and you worry they get the new guy in and he's just going to come and throw everyone under the bus and say hey we're slashing everything we've got no visibility but it I mean yes you would have liked if they said revenue is going to be up 30 We're going to enroll to the students and everything's going to the moon. But they were pretty positive on the call, things considered. Worst case, I was just thinking the, so Canvas is like their LMS and like that was the cause of the big sell-off. The stock was down like 60% on the canvas implementation.

Turns out like Canvas is owned by a company called Instructure, which is owned by KKR. So like in the worst, worst case, like, you know, like this thing is, you know, they have a a, you know, a reset year. Like, I can't imagine, like, they know this asset. They probably could figure out, like, that was my last question. Would you be surprised if this was a public company in 18th, 24 months? I don't know. I'm not, I'm not playing. You know, like, I never, like, try to make that part of, I don't know. Like, I feel like, I don't know how to handicap that, but I think it is interesting that, you know, what, you know, they could insource the cost of the LMS and, like, they probably see what's going on, like, you know it better than I,

anyone else and see that. Ultimately, like, you know, if the demand is there and they continue growing, this is a great business, you know, and it's going to be around for a long time. I think this is, I think this is much more likely than your public, than your average public company to get taken out, both just the nature of this business and the recent CEO change. But, you know, much more likely than your public company, does that mean 5%, 10%, 75%. I take that under on 75%, but I'd probably take it over around 5%. But that's a long, long range of between. Good. This has been great.

I enjoyed it. Again, I'm going to include a link to the LL write-up so people can see the full write-up there. And you've got to read through to the conclusion because that conclusion paragraph is just such a banger there. And we'll have to have you on for a third podcast in the near future. All right. Good stuff, Angie. Thank you. Bye. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor.

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