Avation Regulatory News (AVAP)

AVATION PLC

("Avation" or "the Company")

Financial Results and Interim Management Statementfor the SIX MONTHS ended 31 December 2017

Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces reviewed financial results for the six months ending 31 December 2017.

Key Financial Metrics

· Fleet assets increased by 35% to $1.008 billion since 30 June 2017;

· Revenue increased by 16% year on year to $52.4 million;

· Weighted average cost of total debt declined to 4.8%;

· Total profit after tax decreased by 8% year on year to $6.7 million; and

· Earnings per share ("EPS") decreased 15% year on year to 10.9 cents.

Operational Highlights

· Record growth with over $286 million in aircraft acquired in December 2017;

· First twin-aisle aircraft delivered into the fleet;

· First Boeing aircraft delivered into the fleet;

· Airbus A320 transitioned from Air Berlin to easyJet; and

· Four new customers added taking total airline customers to twelve.

Executive Chairman, Jeff Chatfield, said:

"During the six months ended 31 December 2017 Avation focused on re-deploying net proceeds generated by the sale of six ATR aircraft in June 2017, adding new customers to further diversify our revenue base and concluding our first investments in twin-aisle aircraft.

"Avation is pleased to report record growth in the value of its fleet assets. The Company took delivery of its first twin-aisle aircraft in December, completing the transformation into a diversified full service aircraft leasing platform. We also welcome four new airline customers.

"Lease revenue and total profit for the financial period were slightly reduced year on year. This was due to starting the period with a reduced fleet following the sale of six ATR 72 aircraft in June 2017. The sale of these aircraft de-risked the portfolio by lowering airline concentration and released equity which facilitated the acquisition of four new aircraft in December 2017.

"Avation ends the financial period with a larger, more diversified fleet and an increased revenue base that will deliver long-term shareholder returns."

Financial Highlights

1. Fleet assets equal property, plant and equipment plus assets held for sale

2. Book Value per Share is the total equity divided by the total number of shares on issue at period end.

Aircraft Fleet

As at 31 December 2017 Avation's fleet comprised 37 aircraft including five aircraft on finance lease. The weighted average age of the fleet (excluding finance leases) has reduced to 2.9 years (30 June 2017: 3.3 years) and the weighted average remaining lease term has increased to 7.9 years (30 June 2017: 7.5 years). As at 31 December 2017, all aircraft owned by the Company were fully utilised. Avation has three ATR 72 turboprop aircraft on order for placement during calendar year 2018 and three aircraft in calendar year 2019.

Fleet assets increased 35% to $1,008.5 million (30 June 2017: $744.7 million). Four aircraft were added to the fleet in the period including a Boeing 777-300ER delivered to Philippine Airlines, an Airbus A330-300 on lease to EVA Air and two ATR72-600 aircraft delivered to Mandarin Airlines.

During the period an Airbus A320 on lease to Air Berlin was transitioned to easyJet. This resulted in the release of maintenance reserves of $10.5 million into revenue and a corresponding impairment charge on the aircraft of $8.0 million.

Two older narrowbody aircraft with total book value of $38.4 million were re-classified as assets held for sale. Finance lease receivables totalled $10.3 million (30 June 2017: $45.4 million).

Debt summary

1. Total Loan to Value Ratio is the total loans and borrowing divided by the total assets.

2. Weighted Average Cost of Secured Debt is the weighted average of the interest rate for the secured loans and borrowings as at the period end.

3. Weighted Average Cost of Total Debt is the weighted average of the interest rate for the total loans and borrowings as at the period end.

The weighted average cost of total debt decreased to 4.8% as at 31 December 2017 (30 June 2017: 5.1%). The weighted average cost of secured debt decreased to 4.3% at 31 December 2017 (30 June 2017: 4.5%).

At the end of the financial period, Avation's overall loan to value ratio was 77% (30 June 2017: 72%). At 31 December 2017, 95% of total debt was at fixed or hedged interest rates (30 June 2017: 95%).

Avation issued an additional $30.0 million Senior 7.5% Unsecured Guaranteed Notes due 2020 under its Global Medium Term Note programme at a premium to par value in November 2017.

Avation will continue to source competing forms of secured and unsecured debt finance to fund growth with the overriding objective of achieving the lowest cost of finance.

Credit Rating

The Company's current credit ratings are as follows:

Dividend Policy

The Company confirms its aim to maintain a progressive dividend policy.

Recognising that the Company's functional currency is US Dollars (USD) and to reduce exchange rate risk, shareholders are reminded that dividend payments are declared in USD. Shareholders who prefer to receive dividends in British Pounds (GBP) can elect to receive GBP by completing a form that can be downloaded at www.avation.net/dividends.html

Market Positioning

Avation's strategy is to target growth and diversification by adding new airline customers, while maintaining strong average aircraft age and lease term metrics. Avation focuses on new and relatively new commercial passenger aircraft on long-term leases. Avation is able to supply regional, narrowbody and twin-aisle aircraft to the airline industry.

The Company's business model involves rigorous investment criteria and has a history of delivering consistent profitability while seeking to mitigate the risks associated with the aircraft leasing sector. Avation will typically sell mid-life and older aircraft and redeploy capital to newer assets. This approach is intended to mitigate technology change risk, operational and financial risk, support sustained growth and deliver long-term shareholder value.

Avation is an active trader of aircraft and from time to time will consider the acquisition or sale of individual or smaller portfolios of aircraft, based on prevailing market opportunities and considerations of risk and revenue concentrations.

Outlook and Interim Management Statement

The outlook for the second half of the 2018 financial year is for materially increased lease revenue due to increased fleet size.

Management believes that the risks associated with its portfolio of assets have been reduced through the repositioning of the fleet, growth and diversification that has been achieved during the financial period. Avation has demonstrated that it has the capability to acquire, finance and deliver a number of aircraft in a short period of time when the opportunity presents itself and has a platform which supports future growth.

Management believes that it can attract airline customers, acquire aircraft and obtain the required funding for growth. In addition to operational cash flows, funding is traditionally sourced from capital markets, asset backed bank lending and disposal of selected aircraft. Access to acceptably priced funding is a risk, which is common to all capital-intensive businesses. Specific risks which are inherent to the aircraft leasing industry include, but are not limited to, the creditworthiness of customer airlines, over-production of new aircraft and market saturation, technology change, residual value risks, competition from other lessors and the risk of impairment of aircraft assets.

Avation's Board of Directors is pleased to deliver satisfactory financial results from its aircraft leasing business through this period of fleet repositioning, diversification and growth.

Results Conference Call

Avation's senior management team will host a conference call on 26 February 2018, at 1pm GMT (UK) / 8am EST (US) / 9pm SGT (Singapore), to discuss the Company's financial results. Participants should dial: United Kingdom 020 3936 2999; United States +1 845 709 8568; Singapore 31 634 602; other locations +44 20 3936 2999 and enter 609760 when prompted. The conference call will also be webcast live through the following link:

http://avation.emincote.com/results/2018firsthalf

To view the webcast investors will be invited to register their name and email address, participants can do this in advance or on the day. A replay of the webcast will be available on the Investor Relations page of the Avation website and a presentation, to support the conference call, will be available on the Avation website prior to the conference call.

Forward Looking Statements

This release contains certain "forward looking statements". Forward looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for Avation's future business and financial performance. Forward looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks. Further information on the factors and risks that may affect Avation's business is included in Avation's regulatory announcements from time to time, including its Annual Report, Full Year Financial Results and Half Year Results announcements. Avation expressly disclaims any obligation to update or revise any of these forward looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.

- ENDS-

More information on Avation PLC can be found at: www.avation.net

Enquiries:

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

Other reserves consist of capital redemption reserve, warrant reserve, fair value reserve and foreign currency translation reserve.

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

AVATION PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2017

This interim condensed consolidated financial statements for Avation PLC for the six months ended 31 December 2017 were authorised for issue in accordance with a resolution of the Directors on 26 February 2018.

1 CORPORATE INFORMATION

Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and is listed on the London Stock Exchange in the Standard Segment (LSE:AVAP).

The Group's principal activity is aircraft leasing.

2 BASIS OF PREPARATION AND ACCOUNTING POLICIES

This interim condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority and in accordance with International Accounting Standard (IAS) 34 'Interim Reporting'.

The interim condensed consolidated financial statements do not include all the notes of the type normally included within the annual report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the consolidated entity as the full financial report.

It is recommended that the interim condensed consolidated financial statements be read in conjunction with the annual report for the year ended 30 June 2017 and considered together with any public announcements made by Avation PLC during the six months ended 31 December 2017.

The accounting policies and methods of computation are the same as those adopted in the annual report for the year ended 30 June 2017 except for the new category of revenue recognition policy as follows:

Maintenance reserve released - The maintenance reserves revenue is recognised in the profit or loss upon the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease agreements.

The preparation of the interim condensed consolidated financial statements require management to make estimates and assumptions that affect the reported income and expenses, assets and liabilities and disclosure of contingencies at the date of the Interim Report, actual results may differ from these estimates.

The statutory financial statements of Avation PLC for the year ended 30 June 2017, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain any statements under section 498 of the Companies Act 2006.

The interim condensed consolidated financial statements are unaudited and reviewed by the auditors.

The interim condensed consolidated financial statements do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2017

(a) New standards and interpretations not applied

The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements.

The Group intends to apply these standards and interpretations when they become effective.

International Accounting Standards (IAS/IFRS) Effective Date

(accounting periods

commencing after)

IFRS 15 Revenue from contracts with customers 1 January 2018

IFRS 9 Financial Instruments 1 January 2018

Amendments to IFRS 2 Classification and measurements of share-

Based payment transactions 1 January 2018

IFRS 16 Leases 1 January 2019

Amendments to IFRS 10 and IAS 28 Sale or contribution of assets

between an investor and its associates or joint venture To be determined

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Group in future periods. IFRS 16 does not substantially change the accounting for lessors whilst the Group's operating lease commitments are immaterial. IFRS 9 is not expected to change the accounting treatment for the financial instruments that the group holds. IFRS 15 is not expected to cause any material change to the Group financial statements as currently all of the Group's income is outside the scope of that standard. . It is anticipated that the other IFRS and IFRIC interpretations are not relevant for the Group's activities.

(b) Standards in effect in 2017

The Group has adopted all new standards that have come into effect during the six months.

4 FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm's length transaction, other than a forced or liquidation sale.

The carrying amounts of cash and cash equivalents, trade and other receivables, finance lease receivables - current, trade and other payables - current and loans and borrowings - current are a reasonable approximation of fair value either due to their short-term nature or because the interest rate charged closely approximates market interest rates or that the financial instruments have been discounted to their fair value at a current pre-tax interest rate.

The fair values (other than the unsecured 7.5% note) above are estimated by discounting expected future cash flows at market incremental leading rate for similar types of lending, borrowing or leasing arrangements at the end of the reporting period. The fair value of the unsecured 7.5% note is based on level 1 quoted prices (unadjusted) in active market that the Group can access at measurement date.

Non-financial assets measured at fair value:

Aircraft were valued at 30 June 2017. Refer to Note 13 for the details on the valuation technique and significant inputs used in the valuation.

4 FAIR VALUE MEASUREMENT (continued)

Classification of financial instruments:

A comparison by category of carrying amounts of all the Group's financial instruments that are carried in the financial statements which are considered to equate to fair value is set out below.

5 REVENUE

The maintenance reserves revenue relates to the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease payments. See Note 16.

6 OTHER INCOME

7 OTHER EXPENSES

8 FINANCE INCOME

9 FINANCE EXPENSES

10 RELATED PARTY TRANSACTIONS

Significant related party transactions:

11 FINANCE LEASE RECEIVABLES

Future minimum lease payments receivable under finance are as follows:

12 ASSETS HELD FOR SALE AND LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE

As at 31 December 2017, the Group's aircraft which met the criteria to be classified as assets held for sale and the associated liabilities were as follows:

13 PROPERTY, PLANT AND EQUIPMENT

13 PROPERTY, PLANT AND EQUIPMENT (continued)

Additions and Disposals

During the six months ended 31 December 2017, the Group acquired 2 Jet aircraft and 2 Turbo-prop aircraft. Aircraft with a net book value of US$38.37 million were reclassified to assets held for sale.

Valuation

The Group's aircraft were valued in June 2017 by independent valuers on lease-encumbered basis ("LEV'). LEV takes into account the current lease arrangements for the aircraft and estimated residual values at the end of the lease. These amounts have been discounted to present value using discount rates of 6.5% per annum for Jet aircraft and 8.1% per annum for Turbo-prop aircraft. Different discount rates are considered appropriate for different aircraft based on their respective risk profiles.

During the six months ended 31 December 2017, an impairment loss of US$8.0 million was recognised to write down the book value of an aircraft. The aircraft was repossessed from an insolvent airline and leased to a new customer under a new lease with different terms and duration.

14 GOODWILL

The Group performed its annual impairment test in June and when circumstances indicate the carrying value may be impaired. For the purpose of these financial statements there was no indication of impairment. The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual consolidated financial statements for the year ended 30 June 2017.

15 LOANS AND BORROWINGS

During the six months ended 31 December 2017, the Group issued US$ 30 million unsecured Notes with a fixed coupon rate of 7.5% and the tenor of 3 years repayable in May 2020 under the Programme. The Notes are listed on the Singapore Exchange (SGX).

Secured borrowings are secured by first ranking mortgages over the aircraft financed by the related borrowings, security assignments of the Group's rights under leases and other contractual agreements relating to the aircraft, charges over bank accounts in which lease payments relating to the aircraft are received, a charge over a fixed deposit and charges over the issued share capital of certain subsidiaries.

Junior secured borrowings are secured by second ranking aircraft mortgages, security assignments and charges over bank accounts.

16 MAINTENANCE RESERVES

During the six months ended 31 December 2017, the maintenance reserves amount of US$10.49 million was released to the profit or loss as revenue due to the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease payments. See Note 5.

17 DERIVATIVE FINANCIAL INSTRUMENTS