Results Round Up, Thursday 29th September 2022, 2pm – 6.30pm

Who are you principal competitors and how are they doing?

Listed lessors are Aercap, Air Lease, Bank of China Aviation. All a lot larger, typically with older fleets and exposure all over the world, including Russia. Share prices are all down, but typically lessors have all survived. Their share prices are down, however Avation is down more than these comparatively. This may because it was perceived to be smaller and more exposed to just a few credits. It is also listed in UK, and despite the weak pound (which should be positive for its share price) investors in the UK are less familiar with aircraft leasing and cautious of the leveraged business model. Potentially this sets Avation up for a better rebound.

how are you handling wage inflation?

Avation has less than 20 employees and its Admin expense as a function of revenue is amongst the lowest in the industry.

Please repeat how many,  who and where are you staff – countries, home-or-office based?  Repeat what growth in staff since when?

Less than 20 staff, head quartered and sole office in Singapore. This is also tax domicile of the Company, with tax rate below 10%.

Are you seeing organic growth in your underlying businesses?

Avation has been right-sizing its fleet during the pandemic but is now looking to return to growth in the current positive environment. If by organic growth, you are asking if we get repeat business from existing customers then the answer is yes, we regularly do repeat business.

On Stockopedia which many f us use, it seems the forecast revenue for 23 is flat vs 22.  Would you agree, or haven’t you got to a sensible forecast 23 yet?

The industry is bouncing back fast and opportunities are there for growth but it is too early to tell. Investors should note that with long lease durations and fixed lease rates then if the company doesn’t grow or doesn’t shrink then the revenue from one year to the next should be similar.

What effect will recent, large rises in interest rates have on you / planes valuations ? I am aware you have pushed out a large bond to 2026. Why do S&P Global rate your unsecured notes as CCC+ with a view of modest recovery prospects ?

No impact on existing fleet as 90% of debt is fixed or hedged. S&P have recently upgraded Avation to B- credit rating. For future business, Avation is a spread business, part of its investment criteria requires only agree a lease rate that cover the financing and debt amortisation cost for that particular aircraft. Understandably the senior lenders require this as well as they do not want to create a bad loan.

How many ATR’s are you on the hook for in 2023/4 before you start to loose some of the options?

2 ATR’s on order, these are already partially paid for (close to 20%). The purchase rights have a 5 or 6 year expiry.

You talk a lot about recovery post pandemic, and we welcome the AVAP transformation.  We look at perhaps European/UK situation too much but the SPs of our major airlines and holiday businesses are depressed and falling further.  Where do you see that growth continuing to positively influence AVAP’s future performance.

We look at passenger numbers, daily flights, aircraft load factors, interest from airlines, RFP’s, industry conferences, aircraft orders, OEM production data. We know that the global fleet has reduced through retirement and the nationalisation of over 500 aircraft leased to Russian airlines and we have seen from ticket sales that traveller behaviour hasn’t changed appreciably and that there is pent up travel demand. All point to a shortage of aircraft which is positive for aircraft values, lease rates and aircraft lessors.

IBA have provided data showing a large rebound in aircraft values of used narrowbody’s but Avation have seemingly not written back a large percentage of the prior impairment charge. Would it be reasonable to assume more positive re-valuations will be forthcoming in H1?

This is difficult to say. Avation wrote down over $130m in impairment to the fleet and only wrote back $21m in this financial period. The speed of the  rebound in the last couple of months have taken most by surprise so there certainly is a case for further future increases in aircraft values.

Thank you for your very good presentation.  AVAP an old friend to Mello!  However, in the Stockopedia figures which many of us use, we see forecast  of PAfterTax 34.4 – you declare 17; and EPS 24.7 – you quote 17.  Perhaps that is why there is oly a small S rise today.  Any further comments?

I cant speak for how Stockopedia take our IFRS prepared and audited financial statements and report a different number. Doesn’t make any sense.

Correction EPS saying 24.7 vs tocko 36 PAfterTax

Avations EPS was US 24.7 cents per share

Correction PAfter Tax 17.1 vs 34.4

Avations PAT was $17.1m

Earnings 24.7 vs 34.4 on Stocko

Avations EPS was US 24.7 cents per share

S&P They still say ‘modest recovery prospects!’ in the RNS

S&P were quick to reduce the rating and are slow to raise the rating. They are always trailing the results.

Will anyone want to buy old planes as the lease ends on the basis they will not be carbon friendly – Surely the existing fleet is mostly worthless on maturity ?

Aircraft typically have a useful life of around 25 years. Avation only deals in popular aircraft meaning that there is always a secondary market for old aircraft even at life end when they are parted out. From an accounting perspective we use industry standard residual values calculated based on the history of thousands of aircraft and over our 16 year history our depreciation has been over cautious as we have made far many more gains on sales than we have had losses.