So yesterday afternoon, Borealis subsidiary Chorus Motors issued a press release about its WheelTug subsidiary’s agreement with Delta Air Lines.

(Got that?)

Borealis stock soared 50 cents, to $12.50, on volume of 1,300 shares; Chorus Motors stock remained unchanged at $8 on volume of 4,000 shares; and, in an only-possibly related development, Roche Bay – the iron ore subsidiary – saw its stock soar $13.70, from $3.30 to $17, on volume of (are you sitting down?) 400 shares.

(WheelTug itself is not a publicly traded security.)

Delta, meanwhile – also traded on the pink sheets, because it’s in bankruptcy – dropped 30%, to 31 cents, on volume of 32 million shares. (This trading, I feel sure, was unrelated to the Borealis press release.)

So the first thing to say, as always, is: Ha, ha, ha, ha, ha.

Yes, it’s a funny company (to put it mildly). ‘Bizarre’ needs several more ‘rrrr’s’ to describe it.

But the stock’s still quadrupled in the seven and a half years since we first started laughing at it (even as the NASDAQ lost half its value) and I sure wouldn’t sell any now, even though all kinds of delays and disasters could still arise. (The delays almost surely will.)

Consider, first of all, that – ludicrous though the ‘efficiency’ of its public markets are – one share of Borealis gives you effective ownership of roughly one share of each of the subsidiaries. And yesterday someone paid $17 for RCHBF, $8 for CHOMF, $1.50 for COLCF and (when it last traded) $1.80 for PWCHF. So you could have paid $28.30 for the subs separately, or $12.50 for the basket.

More importantly, consider that:

  1. Few dispute it would be great if commercial jets could back out of their gates and taxi without using their jet engines. Airlines would save time, fuel, and labor; reduce noise, pollution, and engine wear.
  1. In tests with a Boeing 767 piloted by Air Canada’s chief pilot, the Chorus prototype seemed to do what it was supposed to.

So while it’s no sure thing that Delta and WheelTug will succeed in ironing out the kinks, it’s not inconceivable that ‘Full development and approval of the system is expected sometime in 2009 and Delta, as WheelTug’s launch customer, could begin installing the system on its fleet of B-737NG aircraft as early as late 2009,’ as the press release says.

Well, okay, frankly it is inconceivable. How can there not be delays? But add a year and it would still be in our lifetime. And if it does work, you can imagine that within a decade virtually all big jets would have them, just as they have radar.

Some things are just too good not to adopt.

Take cell phones for example. U.S. cell phone subscribers jumped from 340,000 in 1985 to 180 million in 2004. And WheelTug could be adopted even faster, because cell phones were really expensive in 1985. WheelTug’s motors are better than free (or so the company argues) – they will save airlines money. Indeed, click here to play with the numbers yourself. I used $2.50 a gallon as my assumption for the price of jet fuel, left most of their other assumptions unchanged, and came up with an annual saving of $517,000 on a Boeing 737 . . . $905,000 on a Boeing 757.

Maybe these numbers skew high; but neither do they assign any value to happier passengers and pilots, or to the environmental benefits. (I assumed zero for the carbon credits most non-U.S. carriers would accrue.)

However you play with the numbers, it’s at least possible to imagine that an airline would be eager to pay WheelTug $50,000 a year, per plane, for a system that might save ten times that much and make people, and environmentalists, happier.

And it’s possible to imagine WheelTug clearing half of that, pre-tax.

Sure, I’m pulling these numbers out of thin air, and sure, if someone else comes up with a competitive motor the profit margin could plummet (but they, too, would want to make at least decent profits rather than do all this work for nothing) . . . but I’m just saying it’s possible to imagine thousands of jets earning WheelTug $25,000 a year in profit.

Delta alone has more than 400 jets, which – using these entirely sky-pie numbers – would be a profit of $10 million a year.

And the agreement ‘gives Delta the right of first refusal to provide installation and maintenance services on WheelTug systems for . . . other airlines that desire such services. Delta already performs maintenance for more than 100 customers and this could serve as another opportunity to continue to grow its maintenance insourcing business.’

So, what if WheelTug were ultimately providing the system for 4,000 jets (there are about 16,000 in service worldwide, not counting the little ones) . . . $100 million annual profit.

There are a million risks here and, again, the numbers are so back-of-the-envelope and loopy as to call into question your judgment for even considering them.

But still, God invented envelope backs for a reason.

Now what’s all this worth? A company that makes $100 million a year (say) might reasonably be worth $1 billion. The agreement gives Delta ‘warrants to buy 600,000 shares of WheelTug plc at an average price of $36 per share.’ I believe WheelTug is currently divided into about 5 million shares, owned mainly by its parent Chorus Motors, so that would mean Delta has the right – though certainly not the obligation! – to buy in at a market cap of about $200 million. If at some point the company were valued at $1 billion, they’d be getting the shares at 80% off.

Now (before I enumerate at least a few of the very real risks) let’s take this even a little further.

If WheelTug ever were valued at $1 billion (vaguely $200 a share), its parent, Chorus Motors, might be valued at even more. After all, airplanes are not the only things in which a superior motor technology might be useful. So, even with dilution, Chorus could also someday be worth $200 a share – and each Borealis share owns a Chorus share.

And Roche Bay could conceivably be worth the same kind of serious money – it owns, supposedly, what may be truly vast, commercially exploitable iron ore deposits.

And then there are all the other patents and subsidiaries.

So is it conceivable all this could someday be worth one-tenth as much as the Wrigley Gum company? That would put the stock at $280 a share.

One could get even more carried away imagining the upside, but this is more than enough pipe-dreaming to make the point.

The stock may now be a lottery ticket with four possible outcomes:

  • a chance it will go to zero when the iron ore turns out to be lethally radioactive (or just impossible to extract economically) and the motors prove unreliable, and no funding can be obtained to exploit whatever potential the other technologies may hold (or when GE suddenly leaps in with an equivalent motor the size of a grapefruit)
  • a chance the stock will bumble along between 5 and 20 more or less forever, as hopeful developments like yesterday’s suck in buyers who bid it up some, while endless delays and inexplicable disappointments cause it to drift back down to low single digits, only to be revived a year or two later when traces of gold are reported mixed in with the iron ore
  • a chance that over the next five or ten years the company will actually accomplish much of what it hopes to accomplish in the next three – and will actually begin to gain some credibility, and to act at least vaguely like a normal company, with an experienced CEO, meeting the requirements for listing on NASDAQ or the London Exchange, or someplace – and the stock actually will rise ten or twenty fold
  • a very, very slim chance the technology is so good and the mineral deposits so vast, and so on, that the company will one day be worth a quarter what Wrigley Gum is worth today, which would put it north of $1,000 a share

How you assign probabilities to these four scenarios determines how you should value the stock. But because the first scenario is real, you still must not risk money in this speculation that you cannot truly afford lose.

I’m probably not buying more shares, because I have so many. But I sure ain’t selling.


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