Guest Post From @SilvioDixon: First Aviation Services, A Greatly Improved Company Selling Below NCAV


This is a guest post from a good up and coming value investor Silvio Dixon who runs the blog Instant Genius while working through college.  I highly recommend visiting his blog and following him on Twitter @SilvioDixon if you like his work.  He has requested constructive criticism because he wants to learn and become a better investor faster so please give him some suggestions on things to work on.

If you would like to write a guest post for Value Investing Journey please contact me as I would love to have more quality content on the site.  Now on to his write-up.

First Aviation Services, A Greatly Improved Company Selling Below NCAV

I first learned about First Aviation Services (ticker symbol FAVS, OTC:Pink) by reading about the company at Nate Tobik’s great blog, Oddball Stocks.

His report can be read here:

His report discusses FAVS’ Book Value, which he believes is perhaps double its current share price of $9.49, or more.  (BV is conservatively around $20.)  In this report I am emphasizing FAVS’ improved earning power as the primary metric of showing how undervalued the stock is.

What does it do?

FAVS primarily serves the corporate and regional airline industry, performing maintenance, repair and overhaul of landing gear, propellers, wheels, brakes and hose assemblies, electrical, hydraulic and electromechanical components, and oxygen and fire suppression systems.  They do this through their two operating subsidiaries, Aerospace Turbine Rotables, Inc. and Piedmont Propulsion Systems.

The Catalyst

On March 18th, 2013, FAVS sold one of its subsidiaries, Aerospace Products International, Inc. to Resilience Capital.  It retained a 3% equity interest in the API business.

“Aaron Hollander, Chairman and CEO of FAVS, said, ‘The sale of a majority interest in API will allow First Aviation to focus on its core Maintenance, Repair and Overhaul businesses.  We have a significantly improved balance sheet that will permit us to pursue both organic growth and acquisitions.  We have invested in both Piedmont Propulsion Systems LLC and Aerospace Turbine Rotables, Inc. during 2012 expanding the quality of our facilities and engineering development that will position us well for future growth.’” — from an FAVS News Release

“As part of the sales transaction, First Aviation’s total debt was reduced from $25.2 million to $6.8 million and all obligations relating to a third party guarantee of the term loan were extinguished.” — from an FAVS News Release

“With our improved balance sheet we are reviewing a number of significant organic growth opportunities as well as acquisitions in the MRO space.” — from an FAVS News Release

The 2nd quarter results of this year (2013) were significant as they marked the first full quarter of post-sale operations for FAVS.

“Sales from continuing operations for the first quarter increased 21% to $6.8m compared with $5.6m in the prior year.”

“Gross profit increased to $3.1m compared with $2.4m in the prior year.”

As of June 30th, 2013, the Company had:

$9.92 of net current assets per share  (the current share price is $9.49)

And a current ratio of 1.8

For the 3 months ended June 30th, 2013,

the Company reported earnings of 51 cents per share (excluding non-continuing operations)

and generated 42 cents of free cash flow per share

These are vastly improved results compared to the losses from continuing operations in the 2nd quarter of 2012.

First Aviation occupies a firm position in the regional airline parts and service industry, and should have no problem continuing to produce good results.  Its CEO and Board of Directors are highly qualified and capable and have a considerable personal stake in the success of the Company.

Aaron Hollander, Chairman and CEO of First Aviation, owns 45.5% of total equity and 64.5% of voting Common A.  Mr. Hollander holds warrants for a total of 233,135 shares of Common A at a strike price of $7.00 per share which must be exercised within a ten year period.  He is also custodian for 650 shares owned by his children.

Stanley J. Hill, an Independent Director, owns 1.8% of common equity.

Joseph J. Lhota, an Independent Director, also owns 1.8% of common equity.

Itsik Maaravi, an Independent Director, does not own any common equity personally, but is the designee of Piedmont Aviation Component Services, LLC, which owns 29.5% of common equity.

These men together comprise First Aviation’s current Board of Directors.

First Aviation has achieved an incredible turn around in profitability and has a greatly improved balance sheet.  If earnings can remain close to these levels, it would mean that FAVS is currently selling at less than 5 times earnings.  FAVS is also seeking to grow, either through acquisition of a similar type of company/facility or through the expansion of its existing operating subsidiaries, Aerospace Turbine Rotables, Inc. and Piedmont Propulsion Systems.

Advantages as a Type of Investment

–deep value



–growth opportunities


–liquidity issues if trying to invest large amounts of capital


Disclosure: Long FAVS