Avation Regulatory News (AVAP)

AVATION PLC

("Avation" or "the Company")

UNAUDITED Results for the SIX MONTHS ended 31 DECEMBER 2022

Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces unaudited results for the six months ended 31 December 2022.

Financial Highlights

· Revenue and other income reduced to US$55.3 million (2021: US$60.1 million);

· Operating profit increased to US$ 35.0 million (2021: US$18.8 million);

· Profit before tax of US$6.7 million (2021: Loss before tax US$15.9 million);

· Net indebtedness reduced by US$46.0 million to US$746.9 million (30 June 2022: US$792.9 million); and

· Net asset value per share increased 5.2% to £2.82 (30 June 2022: £2.68);

Operational Highlights

· Two ATR 72-600 turboprop aircraft were sold during the period;

· One ATR 72-600 aircraft was repossessed from an airline in Myanmar;

· One off-lease ATR 72-500 started a lease with a new airline customer in Nepal;

· Avation received a creditors' distribution of US$3.4 million from Virgin Australia;

· Two Airbus A220-300 aircraft were re-financed with fixed rate long-term loans, reducing Avation's exposure to interest rate changes;

Outlook

Avation is focussed on the execution of lease deliveries and sale agreements for the remaining off-lease aircraft in the fleet in the second half-year period and managing the overall cost of debt. The airline industry is continuing its recovery from the lows seen during the COVID-19 pandemic. Global domestic air travel in December 2022 as reported by IATA, has recovered to around 79.9% of December 2019 passenger numbers while international travel, while lagging, has recovered to around 75.1% of December 2019 levels. 

The Company believes that airlines will require significant numbers of leased aircraft in the short to medium term due to the large number of older aircraft that have been retired as a result of the COVID-19 pandemic, and the impact of the pandemic on airline balance sheets, reducing their ability to purchase aircraft directly.

The Company's future strategy will focus on leasing modern, low CO2 emissions, fuel-efficient aircraft. Avation is supportive of the aviation industry's goal of becoming more sustainable through a transition to new technology more fuel-efficient aircraft engines and the use of sustainable aviation fuel to reduce CO2 emissions.

The Company will cautiously position itself for a return to organic self-funded growth through deliveries from its orderbook, opportunistic aircraft trading and may convert ATR purchase rights to firm orders should attractive lease opportunities arise."

Executive Chairman, Jeff Chatfield, said:

"During the six months ended 31 December 2022 Avation reduced the number of off-lease aircraft in the fleet from six to four. In addition, the sale of a Boeing 737-800 in February 2023 has further reduced the number of off-lease aircraft to three. A key strategic aim for Avation over the coming months is to conclude sales or lease agreements for all remaining off-lease aircraft and we are pleased to announce that we have recently concluded a lease agreement with a new airline customer for one of the three remaining aircraft.

Avation has continued to de-lever its balance sheet, achieving a reduction to 62.9% in the ratio of net debt to total assets as at 31 December 2022. A significant portion of the cashflow generated by the fleet has been directed towards repayments of debt. Scheduled loan repayments for the 2023 calendar year, amounting to around US$57 million, exceed the expected depreciation of the fleet over the same period.

A bond repurchase tender was concluded in February, resulting in the repurchase and retirement of US$7.1m of Avation Capital S.A. 8.25%/9.0% unsecured notes. The Company may pursue other liability management exercises from time to time with the aim of further reducing the cost and/or outstanding amount of unsecured debt in issue. The Company has retained Citibank as a strategic adviser for potential future debt reduction exercises.

After the recovery from the COVID-19 pandemic, Avation plans to re-grow its business in an organic prudent and sensible manner. We will target organic growth, which includes the placement of the remaining off-lease aircraft and leasing the two ATR aircraft we have on order for delivery in 2024. We have paid all pre-delivery payments due for the two ordered ATR aircraft and believe that the balance due on delivery of the aircraft can be funded with senior secured debt.

We note that most of our peer leasing companies have suffered large losses due to the seizure of aircraft leased to Russian airlines. Avation was fortunate in that it did not have any exposure to Russian airlines. Our policy is, and has always been, to only lease planes in jurisdictions where we are confident that we can arrange repossession, if ever required.

The Company has taken steps to reduce overheads by reducing headcount and actively managing legal expenses and other expenditure. The Company has an in-house technical team and management was pleased that the overall cost of managing the transition of one Boeing 737-800 was less than anticipated.

Few aircraft were built during the COVID-19 pandemic so lessors that own them have seen positive developments in valuations. As an owner we have managed to move, sell, service and, most importantly, transition aircraft.

We are reasonably confident that the Company will be able to place its remaining inventory of off-lease aircraft and arrange leases for the two new aircraft ordered for delivery in 2024."

Financial Summary

1. Fleet assets are defined as property, plant and equipment plus assets held for sale plus finance lease receivables.

2. Cash and bank balances as at 31 December 2022 comprise cash and cash equivalents of US$32.1 million (30 June 2022: US$35.3 million) and restricted cash balances of US$79.3 million (30 June 2022: US$83.9 million).

3. Net asset value per share is total equity divided by the total number of shares in issue, excluding treasury shares.

4. Based on GBP:USD exchange rate as at 31 December 2022 of 1.21 (30 June 2022:1.22).

Aircraft Fleet

At 31 December 2022, Avation's fleet comprised 37 aircraft, including five aircraft on finance lease. Avation serves 16 customers in 13 countries. The weighted average age of the fleet is 6.1 years (30 June 2022: 5.6 years) and the weighted average remaining lease term is 5.4 years (30 June 2022: 5.7 years).

Two ATR 72-600 aircraft were sold during the period. Turboprop and narrowbody aircraft make up 82% of fleet assets as at 31 December 2022. Fleet assets have decreased 5.2% to US$936.3 million (30 June 2022: US$988.0 million). As at the date of this report, Avation has three off-lease aircraft. We aim to agree new leases or sales of these remaining off-lease aircraft by 30 June 2023.

Avation has orders for two new ATR 72-600 aircraft and purchase rights for a further 28 aircraft as at 30 June 2022. The order-book and purchase rights provide a pathway to organic fleet growth.

Avation has no exposure to Russia or any Russian airline. Avation is currently not aware of any sanctions resulting from Russia's invasion of Ukraine that will impact the Company.

Debt summary

1. Net indebtedness is defined as loans and borrowings less unrestricted cash and bank balances.

2. Net debt to assets is defined as net indebtedness divided by total assets.

3. Weighted average cost of secured debt is the weighted average interest rate for secured loans and borrowings at period end.

4. Weighted average cost of total debt is the weighted average interest rate for total loans and borrowings at period end.

During the period net indebtedness was reduced by 5.8% to US$746.9 million (30 June 2022: US$792.9 million). Two aircraft previously financed under the Group's floating rate warehouse loan facility were re-financed with long-term fixed rate debt, reducing exposure to changes in interest rates.

The weighted average cost of total debt has increased to 6.1% as at 31 December 2022 (30 June 2022: 5.7%) due to repayments of lower cost secured loans in the period. The weighted average cost of secured debt also increased to 4.5% at 31 December 2022 (30 June 2022: 4.0%).

At the end of the financial period, Avation's net debt to total assets ratio improved to 62.9% (30 June 2022: 65.1%). As at 31 December 2022, 94.8% of total debt was at fixed or hedged interest rates (30 June 2022: 90.0%). The ratio of unsecured debt to total debt was 38.6% (30 June 2022: 35.8%).

Financial Analysis

Revenue

Lease rental revenue decreased by 12.2% from US$48.5 million in the six months ended 31 December 2021 to US$42.6 million in the six months ended 31 December 2022. The decrease was principally due to the reduction in the number of aircraft in the fleet from 42 at 31 December 2021 to 37 at 31 December 2022.

Interest income from finance leases decreased by 16.7% from US$1.4 million in the six months ended 31 December 2021 to US$1.2 million in the six months ended 31 December 2022. The decrease was principally due to the reduction in the number of aircraft leased on finance leases from 6 at 31 December 2021 to 5 at 31 December 2022.

Other income

A provision for lease maintenance contributions was released due to changes to the terms and conditions for maintenance in three lease agreements during the period.

Foreign currency exchange gains arose principally from the release of deferred hedged foreign currency exchange gains on two Euro loans that were refinanced during the period.

The claim recovery recognised in other income in the six months ended 31 December 2022 is the balance of a distribution paid to creditors of Virgin Australia in excess of amounts allocated to trade receivables.

Administrative expenses

Staff costs reduced by 24.1% from US$3.8 million in the six months ended 31 December 2021 to US$2.9 million in the six months ended 31 December 2022 principally due to reduced headcount, lower bonus payments and lower charges for employee share warrants.

Other administrative expenses increased by 24.8% from US$1.3 million in the six months ended 31 December 2021 to US$1.6 million in the six months ended 31 December 2022 principally due to increased marketing related travel expenses.

Finance income

Interest income increased in the six months ended 31 December 2022 due to an improved interest rate environment for depositors. The group has transferred funds into term deposit accounts to take advantage of increased deposit interest rates.

Avation generated a gain of US$0.5 million on the repurchase of US$4.4 million of Avation Capital S.A. 8.25%/9.0% unsecured notes at a discount in July 2022.

A gain of US$1.7 million on early full repayment of borrowings arose when two loans were refinanced in November 2022.

Finance expenses

Interest expense on secured borrowings reduced by 14.7% to US$10.7 million in the six months ended 31 December 2022 from US$12.6 million in the six months ended 31 December 2021 as a result of repayments of secured loans. Secured borrowings have been paid down by US$113.4 million from US$591.4 million at 31 December 2021 to US$478.0 million at 31 December 2022.

Interest expense on unsecured notes includes US$4.3 million of non-cash interest paid in kind by increasing the face value of Avation Capital S.A. 8.25%/9.0% unsecured notes.

Amortisation of IFRS 9 gain on debt modification of US$4.3 million represents the non-cash accretion in the book value of Avation Capital S.A. 8.25%/9.0% unsecured notes resulting from the accounting treatment of the extension and changes to the terms of the notes agreed with noteholders in March 2021. The extension was accounted for as a substantial modification of a debt instrument in accordance with IFRS 9. The face value of Avation Capital S.A. 8.25%/9.0% unsecured notes outstanding as of 31 December 2022 is US$348.0 million.

Results Conference Call

Avation's senior management team will host an investor update call on 3 March 2023, at 1:00 pm GMT (UK) / 8:00 am EST (US) / 8:00 pm SGT (Singapore), to discuss the Company's financial results. Investors can participate in the call by using the following link:

https://www.investormeetcompany.com/avation-plc/register-investor

A replay of the broadcast will be made available on the Investor Relations page of the Avation PLC website.

Forward Looking Statements

This release contains certain "forward looking statements". Forward looking statements may be identified by words such as "expects," "intends," "initiate", "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.

Basis of presentation

This announcement covers the unaudited results of Avation PLC for the six months ended 31 December 2022.

Financial information presented in this announcement is being published for the purposes of providing preliminary Group financial results for the six months ended 31 December 2022. The financial information in this preliminary announcement is not audited and does not constitute statutory financial statements of Avation PLC within the meaning of section 434 of the Companies Act 2006. The Board of Directors approved this financial information on 2 March 2023. Avation PLC's most recent statutory financial statements for the purposes of Chapter 7 of Part 15 of the Companies Act 2006 for the year ended 30 June 2022, upon which the auditors have given an unqualified audit, were published on 3 November 2022 and have been annexed to the annual return and delivered to the Registrar of Companies.

All "US$" amounts in this release are US Dollar amounts unless stated otherwise. Certain comparative amounts have been reclassified to conform with current year presentation.

-ENDS-

Enquiries:

Avation PLC - Jeff Chatfield, Executive Chairman +65 6252 2077

Avation welcomes shareholder questions and comments and advises the email address is: investor@avation.net

More information on Avation is available at www.avation.net.

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2022

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 31 DECEMBER 2022

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2022

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 2021

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2022

AVATION PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2022

This interim condensed consolidated financial statements for Avation PLC for the six months ended 31 December 2022 were authorised for issue in accordance with a resolution of the Directors on 2 March 2023.

1 CORPORATE INFORMATION

Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and its shares are traded on the Standard Segment of the Main Market of the London Stock Exchange.

The Group's principal activity is aircraft leasing. 

2 BASIS OF PREPARATION AND ACCOUNTING POLICIES

These 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 UK-adopted International Accounting Standard (IAS) 34 'Interim Financial 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 annual 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 2022 and considered together with any public announcements made by Avation PLC during the six months ended 31 December 2022.

The accounting policies and methods of computation are the same as those adopted in the annual report for the year ended 30 June 2022 except for the adoption of new accounting standards effective as of 1 July 2022. 

The preparation of the interim condensed consolidated financial statements requires 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 2022, 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.

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 2022

(a) New standards and interpretations not applied

The Group has not adopted the following new or amended standards and interpretations which are relevant to the Group that have been issued but are not yet effective:

Based on a preliminary assessment using currently available information, the Group does not expect the adoption of the above standards to have a material impact on the financial statements in the period of initial application. These preliminary assessments may be subject to changes arising from ongoing analyses when the Group adopts the standards. The Group plans to adopt the above standards on the effective date.

(b) Standard in effect in 2022

The Group has adopted all new standards that have come into effect during the six months ended 31 December 2022. The adoptions do not have a material impact on the Group's interim condensed consolidated financial statements.

4 FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The carrying amounts of cash and bank balances, trade and other receivables, finance lease receivables - current, trade and other payables - current, 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 value of the maintenance reserves is not disclosed in the table below as the timing and cost of the settlement of maintenance reserves cannot be determined with certainty in advance and hence the fair value of the maintenance reserve cannot be accurately measured.

The fair values (other than for unsecured notes, investment in debt instrument, fair value through profit or loss and derivative financial liabilities) above are estimated by discounting expected future cash flows at market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the end of the reporting period, which is classified under level 2 of the fair value hierarchy.

The fair value of the unsecured notes is based on level 1 quoted prices (unadjusted) in an active market that the Group can access at measurement date.

The fair value of the derivative financial instruments is determined by reference to marked-to-market values provided by counterparties. The fair value measurement of all derivative financial instruments is classified under level 2 of the fair value hierarchy, for which inputs other than quoted prices that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) are included as inputs for the determination of fair value.

4 FAIR VALUE MEASUREMENT (continued)

Assets measured at fair value classified under level 3:

Aircraft were valued at 30 June 2022. Refer to Note 11 for the details on the valuation technique and significant inputs used in the valuation.

5 REVENUE

Geographical analysis

5 REVENUE (continued)

Operating lease commitments

The Group leases out aircraft under operating leases. The maturity analysis of the undiscounted lease payments to be received under operating leases are as follows:

The operating lease commitments as at 31 December 2022 include US$9.3 million of deferred rents which have also been recognised within trade and other receivables.

6 OTHER INCOME

7 OTHER EXPENSES

8 FINANCE INCOME

9 FINANCE EXPENSES

10 RELATED PARTY TRANSACTIONS

Significant related party transactions:

11 PROPERTY, PLANT AND EQUIPMENT

11 PROPERTY, PLANT AND EQUIPMENT (continued)