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

Episode Summary

Executive Summary: The episode centers on Adam Buckstein’s bullish thesis on El Al, arguing that wartime disruption has created a rare asymmetric setup: a dominant, underfollowed airline with a net cash balance sheet, valuable owned aircraft, and sticky demand from travelers seeking reliability. The discussion also revisits Stride, where Buckstein remains constructive despite CEO turnover and AI-related concerns, emphasizing secular school-choice demand and operational resilience.

Main Topics: El Al as a wartime beneficiary with durable market position (Priority: 5/5): Buckstein argues that El Al has become the dominant carrier in Israel amid prolonged conflict, with rivals leaving the market and customers prioritizing reliability, creating pricing power and elevated market share. Balance sheet deleveraging and asset-backed downside protection (Priority: 5/5): The thesis relies heavily on El Al’s transformed balance sheet, including a large net cash position, customer prepayments, and a growing share of owned aircraft, which together support downside protection. Valuation versus peers and hard-asset support (Priority: 4/5): Buckstein contends that El Al trades at an unusually low multiple versus global airlines and below the value of its owned planes plus loyalty/credit-card assets, implying substantial mispricing. Geopolitical, regulatory, and government-risk debate (Priority: 4/5): The host presses on the risks of state intervention, wartime operating requirements, pricing scrutiny, and fines, while Buckstein argues Israel generally respects property rights and treats El Al as a strategic partner. Stride update: enrollment, leadership change, and AI concerns (Priority: 5/5): The conversation shifts to Stride, where Buckstein says the key question is fall enrollment; despite a CEO departure and market fears over AI, he believes demand for school choice remains strong. Operational complexity and AI limits in virtual schooling (Priority: 4/5): Buckstein argues that AI will not easily disrupt Stride because the business involves complex human, regulatory, and state-specific requirements that software alone cannot replace.

Key Arguments: El Al is underfollowed and underappreciated, with only about half the equity publicly traded and ownership concentrated among Israeli institutions. The wartime environment created a quasi-monopoly on key routes, especially with Turkish Airways, Pegasus, and others exiting or reducing service. El Al has already proven profitable even with adverse fuel costs and wartime disruption, suggesting resilience rather than a purely temporary windfall. The balance sheet has improved dramatically, with over $2 billion of liquidity and a meaningful portion of that backed by customer prepayments. Even if customer float normalizes, Buckstein believes the company still retains net cash and significant real asset value. Owning more of the fleet reduces leasing risk and should improve long-term economics versus heavily leased competitors. The market is likely underestimating the permanence of changed competitive dynamics at Ben-Gurion Airport, even if competition eventually returns. For Stride, the main catalyst is fall enrollment, which will reveal whether the market’s concerns about guidance and growth are justified. CEO turnover at Stride may be less negative than feared because the prior CEO had credibility issues and the new CEO has relevant industry experience and a sale-friendly contract structure. AI is unlikely to “blow up” Stride soon because the company operates within a highly regulated, human-intensive education ecosystem with multiple stakeholders and state-specific curriculum demands.

Data Points: El Al EV/EBITDA multiple: ~2.3x - Used by Buckstein to argue the airline is trading cheaply relative to its cash generation and peers. Fully diluted shares outstanding: 592 million - Buckstein referenced this after discussing the post-COVID recapitalization and warrant conversion. Liquidity/available funds: Over $2 billion - He said El Al has more than $2 billion in available funds for liquidity. Air traffic liability / customer float: About $1.3 billion - Described as an interest-free loan from customers due to advance ticket purchases. Finance line shift: ~$35 million swing - He cited Q2 finance income improving by roughly $35 million year over year. Jet fuel price change: Up 86% last quarter - Noted to show El Al remained profitable even with a major input-cost headwind. Fleet ownership: About 80% owned - He said El Al now owns most of its fleet after buying aircraft out of lease. Aircraft bought out of lease: 9 aircraft - He cited this as a recent improvement in fleet economics and asset permanence. Normalized free cash flow: $150 million to $200 million - His rough expectation for a conservative normalized earning power case. 2023 free cash flow: $100 million to $200 million - He called 2023 the last clean year and used it as a normalized reference point. Competition authority fine: $40 million - Referenced as a wartime pricing penalty for excessive/unfair pricing from Oct. 2023 to May 2024. Stride student base: ~240,000 students - Used when discussing the loss of Lone Star Academy in Texas. Lone Star Academy size: 6,000 students - A major school loss discussed as a potential source of concern for Stride. Stride state footprint: 30 states - Used to illustrate the company’s scale and the limits of its geographic coverage. Stride enrollment penetration: 1% to 2% - He said full-time tuition-free virtual public school remains underpenetrated. Stride CEO tenure: 5 to 6 years as CEO; 13 years at company - Context for the abrupt leadership change and market reaction. Stride EPS growth: From under $1 to over $8 - He cited this as evidence of strong execution during the prior CEO’s tenure. Stride stock reaction to CEO change: ~60% down - He referenced a sharp selloff after the Canvas/LMS implementation and broader leadership concerns.

Pivotal Quotes: "this stock is pretty underfollowed" — Adam Buckstein: Used to frame why the market may be overlooking El Al’s asset value and balance sheet improvement. "this is a rock nasty business" — Andrew Walker quoting Bob Crandall: Discussion of the airline industry’s structural difficulty and why El Al’s resilience stands out. "you have to be long school choice here" — Adam Buckstein: Stride discussion emphasizing that the investment thesis is really a bet on the growth of school choice rather than software disruption.

Implications: The episode suggests investors may find opportunity in misunderstood, asset-backed businesses with temporary distortions—especially where competition has structurally changed. It also highlights that in education, policy, execution, and demand durability may matter more than AI headlines.