Avation (AVAP)

[Carcosa]

A couple of charts:

Adjusted Return on Equity


Net Spread



Video Interview
An anemic interviewer asking, yet again, the wrong/inappropriate/amateurish questions. Might have been more informative to ask about the weather. I just put the link here for reference but cannot recommend anyone viewing it.


Random News

Ransomware
Aercap (2000+ aircraft lessor) confirmed a cyber incident related to ransomware on 17 January.
Aercap says its investigation into this incident, including the extent to which data may have been exfiltrated or otherwise impacted, remains ongoing. Aercap reportedly faced a 29 January deadline to reach an agreement with a new cyber threat group before it released data allegedly belonging to the NYSE-listed company.

Air Travel
The International Air Transport Association (IATA) has released data for November 2023 air travel performance, indicating that air travel demand topped 99% of 2019 levels. Asia-Pacific capacity rose 58% and the load factor was up 2.9 percentage points to 82.6%.

Research by Airfinance Journal has shown the depths to which airline ratings fell during the pandemic, which ravaged airline profitability, liquidity and balance sheets. The airline industry was, on average, rated a consensus BB before the pandemic, with the index weighted by the size of the airline, but this fell to CCC+ in the depths of the crisis in 2020-21.

ATR

The top performer in the turboprop segment is the ATR72-600, which has seen an average 8% increase in values in 2023 compared to the previous year. This rise in value can be attributed to the cheap cost of passenger-to-freighter (P2F) conversions available for the type, coupled with the OEM facing little competition in the turboprop market - the only other viable option being the older DHC8-Q400.

https://www.iba.aero/insight/regional-a ... mance-2023
The interest in the ATR72-600 aircraft type has surged over the last year, especially among airlines in search of capacity to meet the current market demand. This has led to many existing operators opting not to return their aircraft at lease maturity and instead choosing to extend leases at higher Lease Rates.


Avation Related News

SkyExpress
Operating lessor Abelo has completed lease agreements for the first two of 20 ATR 72-600s under its orderbook. The aircraft will be leased to Greek carrier SkyExpress. The first aircraft was delivered on 15 January, while the second unit is anticipated to be delivered by March. Abelo is also the launch customer of the new STOL variant of the ATR42 model and has an orderbook for 10 units. SkyExpress has two ATR72-500s and seven ATR72-600s in its fleet along with five ATR42-500s.

Binter Canarias
Nordic Aviation Capital has confirmed a lease agreement for one ATR72-600 with Binter Canarias. The Spanish carrier operates a fleet of 19 ATR72-600s and four ATR72-500s.

Pelita Air
Indonesian carrier Pelita Air is looking to lease in up to 15 additional Airbus A320 aircraft this year as its proposed merger with Garuda’s budget offshoot Citilink awaits approval. It's Citilink subsidiary has 66 A320, A320neo, A330neo and ATR72-600s in its fleet.

I used to work with Pelita Air around 2002-4. They started out as a contract airline for the O&G industry. As a result they were very competent.

Cebu Pacific
Filipino carrier Cebu Pacific has agreed to lease a pair of ATR72-600s from Nordic Aviation Capital (NAC) for regional subsidiary Cebgo. Cebu Pacific's Cebgo turboprop fleet incudes 21 ATR72s and five ATR72-500s in storage


Loan Notes - A roundup
Aircastle has priced a new set of 5.95%, $650m senior notes due 2029 at an issue price of 99.391%

Other recent lessor offerings priced a little lower although still in a similar range, including Avolon’s $1.15 billion 5.75% senior notes due 2029

BOC Aviation’s $500million senior 2029 notes with a coupon of 5% and all-in yield of 5.25%;as well as Aercap’s $800m, 5.1% senior notes due 2029.

In contrast, Griffin Global AssetManagement earlier this month expanded its existing $400m 8% senior unsecured notes due 2027 with an additional $300m of senior unsecured notes. The upsized bond will carry the same coupon of 8% per annum, but the additional $300m of new notes were priced at 101 to yield 7.636% per annum.

Earlier this month, Aircastle amended of one of its unsecured revolving credit facilities, expanding the size of the facility that matures on 24 May 2025 to $375m from $245m during the nine months ended 30 November 2023.

[Carcosa]

Current state of the 70-seat aircraft market.
(Summary of an Air Finance Journal article)



Manufacturers like Embraer and ATR had been considering developing new 70-seat aircraft models, but have put plans on hold due to concerns about market size and engine technology.

ATR recently announced plans for a new hybrid-electric aircraft called the EVO, which is slated to enter service in 2030. However, ATR has delayed the formal launch decision on this aircraft from 2023 to early 2025. The company still insists it can meet the 2030 target for entry into service.

The viability of any new 70-seat aircraft depends heavily on the availability of suitable new engine technology that meets requirements for fuel efficiency and maintenance costs. Embraer has said engine proposals it received did not meet its needs.

Perhaps the most obvious absentee from current production is the Q400 model, Despite, expressing the intention to re-start production when orders justified it, new aircraft are not yet in the pipeline.

With no new aircraft models being actively launched, the secondary market for used 70-seaters, including older regional jets and turboprops, is increasingly important. However, factors like engines running out of cycles/hours and the high cost of shop visits are challenges.

There is debate over whether turboprops or regional jets are more cost efficient for the 70-90 seat sector, with turboprops favored for shorter stages and jets better on longer routes. Environmental regulations may restrict continued use of older jets.

Overall, uncertainty about market size, engine technology, and operating economics seem to be barriers to new model launches in the 70-seat segment currently. The secondary market for used aircraft is active but facing some limitations.


Comments on Avation
Here is a link to a post made by an Ecuadorian student at University of Pennsylvania regarding Avation. There are a few errors in the article along with some questionable assumptions but the overall gist is worth a Sunday afternoon read. Am seeing more of this type of content since Raper/DeMuth Jr's involvement with Avation.

[FernandoVallarino]

Hey Carcosa. I am the Ecuadorian student. Firstly, thank you so much for reporting about the company and industry for so long.

Could you please enlighten me about the errors and questionable assumptions? We certainly disagree on the value Chris and Jeremy can create.

[FernandoVallarino]

Hey Carcosa. I am the Ecuadorian student. Firstly, thank you so much for reporting about the company and industry for so long!

Could you please explain to me the errors and questionable assumptions? We certainly disagree on the value Chris and Jeremy can create. Editing some words. Don’t want to come across as hostile!

[Carcosa]

Greetings Fernando,

Am not going to go through your article line by line as the general gist of your views are worth considering.

Although small, Avation is the second largest ATR lessor worldwide. Arguably the largest if you include the option aircraft.

To add some context to Avation you could have mentioned in October 2016 Avation announced that it had received an expression of interest for 22 ATR 72 turboprop aircraft. As a consequence, Avation, through an appointed adviser, sought competing proposals from the market and received eight offers from a range of investors and lessors at a premium to book value. At the end of the day Avation considered that getting rid of 22 aircraft would gut the business and in the end allowed the sale of sale of six leased ATR 72-600 aircraft.

You mentioned the CRJ900 was the only competing aircraft for ATR. The CRJ900 is, as you pointed out, no longer in production but is also a jet aircraft versus the ATR being a turbo-prop.

Saying what is an ATR72-600 competitor outside North America is relatively easy; it's other turbo-props with similar seating capacity based on runway performance. At maximum weights, the ERJ-170 and the CRJ-700 (jets) require between 5,000 feet and 5,600 feet of runway. The Q-400 (turbo-prop), at its maximum weight requires 4,800 feet of runway, while the ATR 72 requires 4,300 feet of runway. The CRJ is not a true competitor.

In North America (United States, Canada, and Mexico markets) the situation is slightly different because of the 'Scope Claus' that effectively restricts sales of turbo-props with more than 50 seats; hence the very poor ATR72-600 sales in those territories. So, maybe, you could argue Jet regional airliners are a competitor in that market.

There are no new production aircraft competing with the ATR72-600's. Thus the demand for ATR's is such that the number of production aircraft coming off the line is increasing but being held back by continual supply chain shortages. It is not the result of the CRJ but organic demand, replacement cycle and other turbo-props ceasing production.

To say that Avation only received strategic enquiries about the ATR72-600 is incorrect. They have numerous enquries on a weekly basis as your own artile alluded to e.g."He [Soeren Ferre] continues saying that these days they are getting 2 calls per week looking for ATRs."

Historically Jeff has said they do not usually issue an RNS when there are only LOI's but await for a contractual agreement to be signed. However he has followed that up with perhaps reviewing that policy to permit an earlier RNS. Speaking from experience though, a large number of LOI's fail to materialise so am not sure the stockmarket would see that for what it is.

Avation is being valued in line with other listed lessors on book value terms. However that valuation has been boosted by Raper et al.

Now here is a thing to ponder...
Are aircraft purchase rights an intangible asset until they are exercised and reflected in the cost of the aircraft? As such, then should they be excluded from the calculation of tangible equity? That in turn means that the implied P/TB value is higher than implied (This is in part when I occasionally publish my own Loan to Value figure, it is much higher than the Avation implied P/TB value). It is only in recent years that Avation changed its model to Price to Book (probably driven by accountants and auditors for a listed company) rather than Price to Tangible Book which is typical of the leasing industry.

The question then arises as to whether or not Puchase Rights should be included. Traditionally they are indeed excluded within the leasing industry in my experience. Perhaps you could confirm this yourself by reference to other lessors.

Therefore, Avation's valuation is more than comparable with its larger competitors.

You imply that access to reasonably priced financing is at risk and that is why selling the fleet/company now is a likely exit route. I guess the argument is what is 'reasonable'? Avation can relatively easily finance the aicraft because their balance sheet is now in a much more improved state and getting competitive financing for aircraft assets is straightforward. More so given the quasi green credentials of the fleet. If bank interest rates have indeed fallen by FY27 then refinancing the FY27 'wall' is simply not an issue.

The other factor to be considered is the Loan to Value. This has been notably decreasing post COVID and is an important metric when refinancing.

Whilst you highlighted gains can arise from reduced administrative/legal expenses I would not think much would change. Roughly 30% of those costs concern annual visits by third party contractors to the airlines to check logbooks, hardware standards, AD/Technical Variation compliance etc (Incidentally if you like travelling and have good engineering and aerospace background it's a great job to do!). Those costs remain, as would a portion of office salary and legal costs. The real savings would come through refinancing which could be upwards of $22m/year.

You can work out the actual ATR72 purchase costs for avation from the Annual reports as well as the original purchase rights cost.

As regards the Rangeley Capital and Jeremy Raper situation, I was staggered when Jeff said the new shareholders had not contacted management. Furthermore, within the aircraft industry, arranging a sale/takeover takes a matter of weeks, not months. So far nothing has publicly been said about a liquidity event. I think these guys are well outside their area of competence and as such are looking to get out and are perhaps aiming at finding a buyer for their Avation shares. So yes, we do agree we have differing views about them!

Anyway, you wrote a good article about Avation and its informative to read other view points about the company. If you write anything further then please post a link on this board. Thanks.

[FernandoVallarino]

Thanks for all the feedback, Carcosa.

I took some of those points from Avation`s earnings calls.

On the March 3rd, 2023, Soeren Ferre’s said the following:

“[ATR] is the only aircraft in its category that can do the job. The Bombardier is not being made anymore. That goes to what Jeff was saying, when he was saying that there are 1,200 aircrafts to be replaced. They can only be replaced by ATR, whereas in the past you had actually 2 suppliers. You had Bombardier and ATR.“

He mentions the replacement cycle as you well point out. Seems like he omitted all the turboprops outside of the United States. We all agree, though, there are no new production aircraft competing with the ATR72-600's. The gist of the argument should remain there is a shortage of ATR72-600's which increases their market values.

Perhaps I expressed myself incorrectly here. I attempted to say that all the strategic enquires they have received last year were about the ATR fleet. My comments on the ATRs strategic enquires came from Jeff on the last call. He said “all of the sort of strategic, if you like, enquiries we have received in the last year have been about the ATR orderbook”.

On the purchase rights and valuation. Bigger lessors like AerCap and Air Lease, as traditional, include their orders in their balance sheet and account for them at funded cost. For these two their orders account for approx. 22% of their book value. For Avation, the purchase rights account for 35% of the book value. Although orders and rights are not the same, the book value of other lessors also has significant assets which are not deployed aircrafts. Orders like purchase right are assets and have value. Thoughts would be appreciated here.

These days owning purchase rights and having placed orders with near-term deliveries should command a premium in valuation, assuming the former are exercised or monetized. I agree if you compare the P/TanBook of Avation to larger counterparts, it is hard to say there is any mispricing, especially if one believes many of the rights could expire worthless and the company will remain public. But if one thinks these rights can be monetized and some corporate event is likely it makes it interesting.

Carcosa, are purchase rights funded in a similar same way as orders?
I saw an article which said that Airbus was considering buying back production slots from customers. Do you think ATR would be open to do a similar arrangement?

I probably overstated how problematic a refinancing would be. My concerns about the refinancing are more so about the interest rate they would have to eventually pay assuming we don’t return a near-0 interest rate environment. Avation owns interest rate swap contracts until 2030. I am not sure about the expiration schedule for these contracts, but if they were to refinance in a higher-than-0 interest rate environment, the difference between the cost of financing of Avation and bigger peers would be even more drastic. As you point out an investment grade acquirer today would save arpprox. $22m/year, or about FY19 earning. I think this emphasizes the logic this is worth more in a sale than what the market could perhaps ever pay for it.

Thanks for the points on the potential saving to an acquirer.

I will change the factual points and clarify other arguments in my article. Expect to see in this forum possible future articles.

Thanks again,
Fernando

[Carcosa]

Avation Related News

Alliance Air (India) (X2 ATR's with Avation)
Airline likely to receive financial support of $139.5 million for the financial year running from April 2024 through March 2025, according to the country’s interim 2024 budget. The government earmarked the funds for Air India Asset Holding Limited (AIAHL), the state-owned holding controlling Alliance Air and other assets formerly owned by Air India (AI, Delhi International) before privatisation.

The regional carrier also received an additional $72.3m in the revised budget for the current financial year in the form of a direct equity infusion. This comes on top of a planned $85.5m subsidy to the entity.

Valuations and Lease Rate Factors
A short video from IBA indicating further valuation improvements with the A220 aircraft and general increases in lease rates across the board. Some pickup in ATR valuations too.


Leasing News

A220 Sale
In what I find an interesting bit of news is that EgyptAir will sell its fleet of twelve A220-300s to Azorra Aviation amid plans to retire the type completely. Reportedly these aircraft have freshly overhauled, updated engines from Pratt & Whitney.

A220's being sold into the market is a rare thing. Hopefully we will find out the price to provide a tangible touch point to the current value for the aircraft type.

[Carcosa]

Avation Related News

ATR
Press release from ATR

ATR Achieves Robust Growth in 2023
- Leading regional aircraft manufacturer targets book-to-bill >1 in 2024
- Sales and deliveries surge by 53% and 44% respectively vs 2022
- Record year for support and services – 15% increase vs 2022
- 11 new customers of both new and pre-owned aircraft
- 160 new routes opened with ATR aircraft worldwide

ATR sees further demand in the next years, with expected fleet growth mainly in South Asia (India), South-East Asia (Indonesia, Philippines) and Brazil. New regulations related to rising environmental pressure also create opportunities for ATR to capture a significant portion of the replacement market, especially in Europe, Japan, Canada and the United States.

ATR will steadily ramp up output of its twin-turboprop aircraft over the next three years as it targets annual deliveries of 50 units in 2024


PW127XT
A welcome confirmation that Maintenance costs are reduced by almost one-third on the ATR 72-600 according to launch customer Air Corsica. Personally I'd say its a little bit too early to come to any firm conclusions.

Rumour of the Day
In June last year, Malaysia's Berjaya Air Sdn Bhd, the aviation arm of BLand, placed an order for two ATR 72-600 turboprops, the first of which will be delivered by June 2025. When it enters service, it is expected to be the first ATR with an all-business-class configuration that can carry up to 28 passengers. Apparently Avation are in the running to finance this perhaps via a SALB. Should be noted that Berjaya Air are not a scheduled operator so these VIP configuration aircraft are to serve resorts owned by parent Berjaya Group

[Carcosa]

Not much of a substantive post for this week but...

Avation Website/Interview
Looking for clues on the Avation website, which was updated this week, you could be forgiven in thinking they have some LOI's for 2025 deliveries.

The embarrassing interviews from DirectorsTalk continued with this little piece last week. When the interviewer mentioned 'E-Jets' I am certain he thought these were Electic-Hybrid aircraft and did not realise he stumbled into the reference to Embraer aircraft. By sheer odds, one day the interviewer is going to stumble across a probing question, although I suspect a bunch of chimpanzees are more likely to write a Shakespearian play before such a question is asked.


ATR
If any readers want to know more about ATR/turboprop and ESG then an interesting article that mentioned Avation, was published by ISHKA recently which you may find of interest; although for me the whole subject is a bit overdone.

The ongoing Singapore Airshow has (by Day 3) been muted for ATR with little more than some marketing talk and a very small announcement from Air Tahiti (an Avation Customer) taking another ATR.

[Clitheroekid]

I thought the following comments made by `abtan', an excellent poster on Paul Scott's SCVR comments section were extremely helpful, and I hope I'll be forgiven for reproducing them here:

A few thoughts:

The company reported today that a repossessed aircraft was sold at a material discount to Book value.

I believe there 2 other aircraft were also sold below Book Value relatively recently.

Eeek!

There's only one aircraft coming off lease in the next 2 years, so there will be limited upside from the current higher market lease rates.

Fortunately lease rates are expected to remain high for the next 2-3 years due to supply chain issues.

I'm a novice here, but my belief therefore is that Avation needs to start getting some of those 28 ATR options delivered in order to take advantage of the current elevated lease rates.

Sadly there was another warning in today's reporting indicating delays to the 2 ATRs that were meant to be delivered soon.

Debt - as Jeff (the CEO) mentioned in the call, the company's plan is to pay off as much of the cheaper secured debt (c5%) before the more expensive unsecured debt (9%) comes due in 2026.
The company would then switch their expensive unsecured debt to less expensive secured debt.

This seems like a common sense strategy

...and with 25% of the planes coming off lease in 2026 I imagine there will be flexibility to either reduce total debt, or re-lease the same planes using cheaper financing.

I personally therefore don't see much risk for the large debt repayment due in 2026, quantitatively speaking.

As per the IMC presentation today, aircraft values (for some aircraft) since 2019 dropped c15% before rebounding and going higher than those 2019 levels.
The key fact for me here is that 15% figure.

I calculate that if PPE (i.e. planes currently out on lease) on the balance sheet drop by 15% then the company is currently fairly priced.

A 20% drop in PPE would be disastrous for the company and make me want to sell my current holding today.
However, if there was a 15% drop from a once-in-a-century global pandemic, then I believe the chances of 20% drop in the next few years is minimal.

And if valuations stay roughly the same as they are now, then there is significant upside to the current share price over the next few years - my own estimates fluctuate between +50% and +100%.

I think it's also worth adding that there are $11m worth of shares in the Philippines waiting to be sold and $8m of deposits that are sitting with ATR that I had not fully accounted for before today.

If we then factor in 95% of the current value of planes (for prudence), the finance lease receivables, unrestricted cash balances and the total debt repayable, then the company is worth significantly more than the current market cap implies.
And then there's the maintenance reserve mentioned by davidjhill in the comment's today and possible upside coming from here if some of it remains unused.

(One more thing. I'm not sure if I've worked it out correctly, but it looks as though the company is able to buy ATR's for $3m less than their current market value...and they have options on 28 of them - happy to be corrected on this point if I've misunderstood the numbers.)

I don't have a very large holding as I'm fully invested already, but based on the numbers alone, there seems to be a lot of upside.

Sadly, I don't think a lot of this will be realised until the 9% unsecured debt is paid off in 2026.

Having said that I think it's worth holding in case someone comes along and tries to the company on the cheap in the meantime.

[Carcosa]

ATR Book Loss

Avation issued their half year results last week plus a presentation on InvestormeetCompany

No surprises in the interims except for one, the surprise element was the $2.9m book loss from the ATR 72-500 aircraft with India's Flybig airlines. I think this merits a bit of a review as it affects my view of Avation's competency in some areas.

This aircraft had a book value of around $9m - $10m (as previously discussed in an earlier post) so to lose best part of $3m is a hugely significant loss in percentage terms. So what could have caused such a devaluation? Well, firstly it has got nothing to do with general market valuations of ATR72-500's.

The aircraft (MSN955) was previously leased with Virgin Australia until they went bust. It was leased to them for around 10-11 years, meaning most of the associated financing should have been paid off. It was then re-leased to Flybig in January 2021 for an undisclosed period of time, but may have been 5 years.

FlyBig airlines was a tinpot little airline operating in India with dreams of expansion on the back of government subsidies and trying to upgrade to more modern equipment i.e. ATR's. Avation were not the only lessor providing ATR72-500's to the airline. It all fell apart toward the end of 2023.

Flybig were trying to operate scheduled flights to difficult locations. The ATR was ideal for that type of operation. From the beginning Flybig seemed to be struggling and I think the economics did not work out by operating into relatively poor areas.

In the end FlyBig claimed 'supply line challenges' as the excuse as to what undid the airline. Probably a bit of a euphemism suggesting they could not obtain quality, competent engineering and other staff combined with back handers taking too much away from the airline.

A loss of $2.9m in less than three years takes some doing. That magnitude of loss may be attributed to one, or a combination of factors.

1) Airframe damage. - You have to basically crash an ATR to generate that sort of damage. It's built for harsh environments.
2) Engine damage. - Mis-rigging, mishandling, mis-reporting can certainly mess with engines, e.g. hot starts causing turbine damage is one example
3) Component robberies (1) - struggling airlines often resort to using an aircraft as a 'Christmas tree' meaning it is used as a supply of spare parts to support other aircraft operations; losing the associated paperwork would make those items unservervicable (if you can find where the components are in the fleet) and may also require then to be scrapped as its uneconomical to re-certify the parts. However, to lose $2.9m would probably require those parts to be major engine components or the propellers.
4) Component robberies (2) - Literally theft and subsequent sale of arts whether sanctioned by the company or not.
5) Loss of records

Insurance, which would be a requirement of any lease, would unlikely cover the above which are mostly criminal matters.

The question I have is what were Avation doing?
They should have been receiving monthly flying hours so if the aircraft was not flying Avation should have been making enquires.
Cessation (or initially more likely, reduced) leased payments should have prompted closer oversight of the airline
They should be in regular contact with the airline and reviewing trade/press commentary regarding the airline operations
Their third party auditors should have alerted Avation that things were amiss
Avation should have visited the airline and arranged aircraft recovery asap.
The above are not untypical actions by any leasing company.

Avation have accrued a history, in my mind, of not taking proactive action when one of their aircraft is in trouble. They are however very good at recovering from the subsequent fallout! This is often called 'fire-fighting' where once the house is on fire they re great at putting the flames out but a little bit of pro-active action would have prevented the fire in the first place at a substantial lower cost.

Of course, I do not know the actual facts in Flybig's case but a $3m devaluation of the asset over a short lease period takes some doing; let alone the loss of income during the leasing period.

Avation did well in finding someone to take the aircraft off their hands on an 'As-is, where-is' basis, especially in India (see prior posts regarding India's failure to apply Cape-Town Convention standards). I think it simply was not worth trying to recover the aircraft given it's low valuation.

FlyBig remains in business albeit with a much reduced fleet using old equipment and although Avation are pursuing the airline for additional cash it seems hard to imagine the airline can generate anything remotely close the the levels of FCF to satisfy Avation's claims.

Other Comments:
- Not going to go into much depth here because we've discussed ad-infinitum about it already:

Finally we should see some of those ATR aircraft Purchase Rights being converted to cash.
The Two ATR deliveries have slipped again using the now oft used excuse of supply chain challenges. Can't say I really buy that argument.
Interest rates are the key to unlocking future value via cheaper debt. (Also the reason why they need to start offloading those Purchase Rights before they start losing value).
Aircraft Valuation increasing; although Avation cherry picked the ATR data to show only new aircraft.
The Philippine PAL Holdings equity stake should be realised asap. That has increased in value by around $0.4m since December
Although Avation re-financed four aircraft they were planning on refinancing five. What went wring with that?

Something worth re-iterating that maybe some investors have got wrong.
Leasing an aircraft today brings in a higher Lease Rate than prior years. e.g. ATR today lease rates around 9% but similarly the loan/finance interest rates are much higher too so the net interest margin is not much different than before. However if you have an existing old aircraft then you can get away with lease rate of ~9% but this is against the value of the aircraft today; so your actual cash income is significantly reduced.

In other words would you prefer income of 6% of $19m or 9% of $10m? It is NOT good for aircraft to come off lease before the end of contracting period. That's not what we want. However at end of a contract lease, new leases at higher rates are good but that will likely be against an aircraft value between Current Market Value and Base Value for any subsequent long term lease. Also by that time the associated loan should have been paid off too.


Outlook
I remain highly suspicious of the new major shareholders. I remain of the view they are not good for retail investors as they are inexperienced, ineffectual and a distraction.

The company is now in a position to return to regular profits, poised to take advantage of lower interest rates... but I would like to see some real action with the fleet assets; either buying or selling.

NAV £2.56. P/NAV 0.46. Discount higher than industry levels even accounting for Avation's small size etc.,

Other Items
Avation are currently recruiting for a new Corporate Treasurer.

[Carcosa]

Yesterday's announcement regarding the sale of an ATR72-600 brings to a close a long and arduous journey for that aircraft (MSN 1039). Originally with Virgin Australia it got laid up for a considerable period of time following the airline's bankruptcy. It was originally scheduled to be sold in May 2023 but for whatever reasons it got delayed by 10 months.

Whilst sold above book value (around $9.8m) I do wonder if they could have obtained more given that fair value prices increased a fair bit over the last 12 months, although in the grand scheme of things it's pretty much irrelevant. The fact this old aircraft has left the Avation fleet will help a little bit for the average age of the fleet.

However all of the four ATR72-500's are 13 years old, three of them are with Hevilift; they providing helicopter and fixed-wing aircraft services for various industries, including oil and gas, mining, construction and tourism. Hevilift fly in Australia and Papua New Guinea. Hevilift are rebrading to Aerlink.

All of the ATR72-500's are have leases expiring in 2026 and hopefully Avation will be able to dispose of these old aircraft at that time. It would be nice to think these form part of the Finance Leases (Under a finance lease, the ownership of the aircraft is essentially transferred from Avation to the airline at the end of lease) but given the relatively short lease period and the value of the finance lease payments in the Annual Report I think this may be doubtful.

Apart from the ATR72-500's there are also two ATR72-600's (Air Tahiti and Fiji Airlines) that are ten years old.

Avation have also started share buybacks, currently only 30,000 shares, which are again presumably for future share-based payment awards for staff.