Alliance Aviation Services (ASX:AQZ)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Price is what you pay, Value is what you get - Warren Buffett

It is not very common that a company becomes cheap on both asset value and earning power value at the same time. Alliance Aviation could be one such case.

Alliance’s core business is transporting workers to remote mining locations across Australia. These sites are often inaccessible by road, making aviation not just a convenience but a necessity. This gives Alliance a somewhat-essential role in the mining ecosystem. Barriers to entry are not low: the company owns a fleet of aircraft, operates across a national infrastructure network, and holds the necessary regulatory approvals. The company also leases its aircrafts to third-party airline operators while also providing crew and maintenance services.

Despite this positioning, the stock declined nearly 50% over a short period following two negative developments: a) a reduction in earnings guidance relative to market expectations, and b) the earlier-than-expected departure of its founder.

Alliance now trades at a market capitalization of roughly A$219 million (A$ is Australian Dollar currency), despite tangible book value around A$459 million (after deducting capitalized costs) and near an 8-year low share price. At first glance, such a discount might suggest structural problems or “classic” airline economics with chronic losses. However, that is not the case here.

First, the company has been consistently profitable since 2014 and management expects continued profitability in the coming fiscal year, although at a lower level.

Second, unlike commercial airlines—where demand is volatile and sensitive to macro conditions—Alliance operates predominantly under long-term contracts. This stability is reflected in the company’s unit economics (Table I), which show that Alliance has generated positive profit per aircraft on average since 2015. In FY2025, 97%+ of the flying hours were under long-term customer contracts.

This distinction is important: airline operation is a high fixed-cost business, so utilization and passenger volumes are critical drivers of profitability. Through its contracted model, Alliance has historically maintained relatively stable utilization and margins compared to traditional airlines.

Table I

Source: Company filings and Author calculations

The rapid 50% stock decline between October 31 and November 18 was an inauspicious start to new managing director's tenure. But company has wasted no time in responding to the situation. They are moving quickly to both align company's revenue with higher cost, and implementing operational changes to improve the efficiency. Since early November, Alliance has been renegotiating key contracts to reflect industry-wide inflation induced cost pressures.It is also exploring sale of non-core assets to reduce leverage, and reviewing procurement practices and renegotiating supplier contracts. 

While these actions implicitly acknowledge that management could have responded earlier to rising costs, they also demonstrate a willingness to address missteps. Additionally, recent insider share purchases around current price levels signal management’s confidence in the company’s long-term intrinsic value. Importantly, most of the factors behind the earnings downgrade appear short-term in nature rather than structural.

From an asset perspective, Alliance offers a strong margin of safety. As the market price is significantly below tangible book value, this warrants scrutiny of the book value. It primarily consists of aircraft assets. However, these aircraft valuations have been independently verified by a third party (per the company), reducing the risk of a major write-down. Even allowing for valuation errors, a 50%+ discount to tangible book still provides a substantial buffer.

From an earnings perspective, the company's market price is not expensive. Over FY2015 to FY2026 (management guidance), profit per aircraft has averaged approximately A$785,000 versus exceeding A$1 million in FY2025. Based on this unit economics framework, the stock implies an earning yield of roughly 20%. Even assuming management fails to recover margins and the reduced guidance represents a new normal, the stock trades at under 7x earnings—equivalent to a ~15% earnings yield. As short-term headwinds subside, I believe Alliance has the potential to move closer to its normalized earning power.

That said, the investment is not without risks. Management execution and mining industry cyclicality remain key concerns. For these reasons, this is not a “full position,” but rather a situation that merits a small allocation.

Based on the valuation support from both assets and earnings, along with the potential for normalization over time, I like Alliance Aviation’s stock. It offers a meaningful margin of safety and the prospect of attractive long-term returns from both an asset value and earning power perspective.

Abhay Srivastava is the Founder and Managing Member of AS Investment Partners LLC, a value investing firm (www.asinvpartners.com).

Abhay can be reached at abhay@asinvpartners.com

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