Re: Avation (AVAP)
Posted: November 3rd, 2023, 7:11 am
Annual Report
Avation issued their Annual Report last week. Always worth a look as it contains considerably more info than the RNS release.
ATR Fleet Impairments:
After I updated my own ATR fleet book value model to remove my perceived level of impairments and compared it against what Avation said the aircraft market value was I was some ~$40m over. Prior to COVID I was usually +/- 3% but to be ~15% off was a surprise.
The difference is that I had not really taken into account the current level of accrued impairment charges Avation have racked up over recent years.
Impairments for the ATR fleet commenced as a result of Covid and have been given as follows. The numbers given in parenthesis are the total number of ATR aircraft in the fleet at the time:
Nil in 2019 (25)
$19,735m in 2020 (28)
$41,582m in 2021 (28)
$2,394m in 2022 (26)
Reversal of $4,3m in 2023 (21)
Using the data I can create the following graph
Now, this is really crude because fleet composition changed over time and impairment is affected by whether or not an aircraft is held for sale and am not sure I am capable of going into that detail. However, I do believe that the given normal market conditions we can still expect notable reversal of impairments to continue. The only question I have is that given valuations are largely third party driven (Aircraft Appraisers plus Auditors) how have Avation management kept the reversals so low and if that is true, why have they done so? Is the fleet potentially worth ~30p/Share more than stated?
There is a $50,764m revaluation reserve on the books which I believe is Market value of the asset – book value of the asset (must also include the widebodies) but considering there is $34,392m in the 2019 accounts suggests I don't understand it Maybe because they are leased? Definitely need an accountant here!
If anyone would like to delve into this further then please share you findings/comments here but pending that I forsee reversal of ATR impairment charges continuing and potentially substantial.
FlyBig airline Termination.
On 5 October 2023 the Company terminated a lease agreement for the 12-year old ATR 72-500 aircraft VT-FBA (MSN 955) on lease with India's FlyBig airline. Then on 9 October 2023 the Company entered into an agreement to sell the aircraft aircraft to Buddha Air in Kathmandu, Nepal, which was completed by 27 October 2023. Aircraft value is probably around $8m with, I would imagine, most of the associated debt paid off and with a bit of luck a small amount of maintenance reserves might be released too.
Although Avation indicated this was the oldest aircraft in Avation's fleet, whilst technically true based on initial lease date it is incorrect based on first flight date. That belongs to VH-FVH (MSN 954) on lease with Hevilift which is 2.5 weeks older than the aircraft they just sold. Pedant.
ATR Re-lease
The Company entered into a lease agreement for a second eleven-year-old off-lease ATR 72-600 which is expected to commence this month. It may be the old Virgin Australia VH-FVN (MSN 1039) aircraft.
Major Shareholders
I have never been able to square off the AR principle shareholders listed in the AR against RNS declarations. According to the AR (Year ending 30 June 2023) Vidacos Nominees Limited is largest shareholder with 22.66%. According to Companies House the only 'Persons with Significant Holdings' is Citigroup Inc registered in Delaware USA but with a London registered office. So (and I am guessing here) Oakwood shifted its holdings through Vidacos Nominees?
Vidacos is listed twice in the AR showing Vidacos Nominees Limited holding 4.95% which is pretty much the level they had back in 2015.
Failed Finance Leases Are Good for Shareholders
A gain of US$2.8 million was recognised on derecognition of the finance lease for Golden Myanmar Airlines ATR72-600. The gain represents the positive difference between the outstanding value of the finance lease receivable and the broker valuation of the aircraft’s market value at the date of termination of the lease. That aircraft was initially procured for $19,815,500 (2019 AR) in June 2019.
The other two Finance Lease aircraft I am aware of are the two ATR's operated by Braathens Regional Airlines in Sweden that are on ten year finance leases. Whilst Braathens are undergoing are financial reorganisation, as I mentioned in an earlier post, I would be surprised if they divest themselves of these ATR's nor want to convert them into operating leases.
Philippine Airlines Holding Company
Following the re-organisation of Philippine Airlines we know have the accurate share holding Avation will have in the Holding company, which is 124,787,353 shares valued at $11,235,000 at FY end. Given changes in exchange rates and share price that's currently worth around $0.5m less. I would like to see Avation sell these shares asap which I believe can be done mid 2024.
Avation has $62.3m cash in Fixed term deposits. Typically they previously ran around $5-10m for the last few years.
Interest Rate Risk
As at 30 June 2023, 95.8% (2022: 90.0%) of the Group’s loans and borrowings are at fixed or hedged interest rates. Interest rate risk is not material and therefore no sensitivity analysis presented. Makes me wonder what the implications are when the interest rates decline.
Companies House Submission
During the previous year, the Company transferred Capital MSN 4033 II Limited from its subsidiary,
Capital Lease Aviation Limited to the Company. Last week Avation published a 37 page Registration of Charge (not for the first time) with Investec for OE-IZC (MSN 4033), the easyJet 14 year old A320-200. Am willing to be corrected but I think all this means is that Avation have taken a mortgage against the aircraft. Often it seems to be accountancy related. Other views welcome.
Avation issued their Annual Report last week. Always worth a look as it contains considerably more info than the RNS release.
ATR Fleet Impairments:
After I updated my own ATR fleet book value model to remove my perceived level of impairments and compared it against what Avation said the aircraft market value was I was some ~$40m over. Prior to COVID I was usually +/- 3% but to be ~15% off was a surprise.
The difference is that I had not really taken into account the current level of accrued impairment charges Avation have racked up over recent years.
Impairments for the ATR fleet commenced as a result of Covid and have been given as follows. The numbers given in parenthesis are the total number of ATR aircraft in the fleet at the time:
Nil in 2019 (25)
$19,735m in 2020 (28)
$41,582m in 2021 (28)
$2,394m in 2022 (26)
Reversal of $4,3m in 2023 (21)
Using the data I can create the following graph
Now, this is really crude because fleet composition changed over time and impairment is affected by whether or not an aircraft is held for sale and am not sure I am capable of going into that detail. However, I do believe that the given normal market conditions we can still expect notable reversal of impairments to continue. The only question I have is that given valuations are largely third party driven (Aircraft Appraisers plus Auditors) how have Avation management kept the reversals so low and if that is true, why have they done so? Is the fleet potentially worth ~30p/Share more than stated?
There is a $50,764m revaluation reserve on the books which I believe is Market value of the asset – book value of the asset (must also include the widebodies) but considering there is $34,392m in the 2019 accounts suggests I don't understand it Maybe because they are leased? Definitely need an accountant here!
If anyone would like to delve into this further then please share you findings/comments here but pending that I forsee reversal of ATR impairment charges continuing and potentially substantial.
FlyBig airline Termination.
On 5 October 2023 the Company terminated a lease agreement for the 12-year old ATR 72-500 aircraft VT-FBA (MSN 955) on lease with India's FlyBig airline. Then on 9 October 2023 the Company entered into an agreement to sell the aircraft aircraft to Buddha Air in Kathmandu, Nepal, which was completed by 27 October 2023. Aircraft value is probably around $8m with, I would imagine, most of the associated debt paid off and with a bit of luck a small amount of maintenance reserves might be released too.
Although Avation indicated this was the oldest aircraft in Avation's fleet, whilst technically true based on initial lease date it is incorrect based on first flight date. That belongs to VH-FVH (MSN 954) on lease with Hevilift which is 2.5 weeks older than the aircraft they just sold. Pedant.
ATR Re-lease
The Company entered into a lease agreement for a second eleven-year-old off-lease ATR 72-600 which is expected to commence this month. It may be the old Virgin Australia VH-FVN (MSN 1039) aircraft.
Major Shareholders
I have never been able to square off the AR principle shareholders listed in the AR against RNS declarations. According to the AR (Year ending 30 June 2023) Vidacos Nominees Limited is largest shareholder with 22.66%. According to Companies House the only 'Persons with Significant Holdings' is Citigroup Inc registered in Delaware USA but with a London registered office. So (and I am guessing here) Oakwood shifted its holdings through Vidacos Nominees?
Vidacos is listed twice in the AR showing Vidacos Nominees Limited holding 4.95% which is pretty much the level they had back in 2015.
Failed Finance Leases Are Good for Shareholders
A gain of US$2.8 million was recognised on derecognition of the finance lease for Golden Myanmar Airlines ATR72-600. The gain represents the positive difference between the outstanding value of the finance lease receivable and the broker valuation of the aircraft’s market value at the date of termination of the lease. That aircraft was initially procured for $19,815,500 (2019 AR) in June 2019.
The other two Finance Lease aircraft I am aware of are the two ATR's operated by Braathens Regional Airlines in Sweden that are on ten year finance leases. Whilst Braathens are undergoing are financial reorganisation, as I mentioned in an earlier post, I would be surprised if they divest themselves of these ATR's nor want to convert them into operating leases.
Philippine Airlines Holding Company
Following the re-organisation of Philippine Airlines we know have the accurate share holding Avation will have in the Holding company, which is 124,787,353 shares valued at $11,235,000 at FY end. Given changes in exchange rates and share price that's currently worth around $0.5m less. I would like to see Avation sell these shares asap which I believe can be done mid 2024.
Avation has $62.3m cash in Fixed term deposits. Typically they previously ran around $5-10m for the last few years.
Interest Rate Risk
As at 30 June 2023, 95.8% (2022: 90.0%) of the Group’s loans and borrowings are at fixed or hedged interest rates. Interest rate risk is not material and therefore no sensitivity analysis presented. Makes me wonder what the implications are when the interest rates decline.
Companies House Submission
During the previous year, the Company transferred Capital MSN 4033 II Limited from its subsidiary,
Capital Lease Aviation Limited to the Company. Last week Avation published a 37 page Registration of Charge (not for the first time) with Investec for OE-IZC (MSN 4033), the easyJet 14 year old A320-200. Am willing to be corrected but I think all this means is that Avation have taken a mortgage against the aircraft. Often it seems to be accountancy related. Other views welcome.