Avation accepts new Airbus A321s, considers ATR sale

Commercial passenger aircraft leasing company Avation was holding its annual general meeting on Tuesday, with executive chairman Jeff Chatfield updating investors on the organisation’s recent trading.

The firm said in the financial year to date, since 1 July, two brand new Airbus A321 jets have been added to the fleet with two midlife Airbus A321 jets and one new Airbus A321 being sold.

Chatfield said the brand-new aircraft was sold on delivery for risk mitigation reasons.

“As a result of trading activity, Avation's fleet stands at 38 aircraft.

“Importantly, as a result of the acquisition of new aircraft and the sale of older aircraft, Avation's fleet metrics have continued to improve since the end of the financial year.

“As at 1 November the weighted average age of the fleet declined to 3.3 years and the weighted average lease term has increased to 7.6 years.”

Chatfield said Avation has achieved significant progress in building and diversifying its aircraft fleet, and will continue that growth during the remainder of the current period with a further two new Airbus A321 jets to VietJet Air scheduled for delivery before 31 December.

He said as scale and diversification are delivered into the company’s aircraft fleet, the board would strive to lower the cost of debt, improving the profitability of its existing leasing business and enabling Avation to be more competitive in its mission to attract new airline customers.

“We continue to deliver economies of scale as the proportion of administration expense to fleet value continues to decline.

“We are pleased to report that Avation has a skilled and experienced team in place and a platform that can support further growth in fleet assets.”

Last month, Avation announced that it had received an expression of interest for the purchase of 22 of its ATR turboprop aircraft.

Charfield said that portfolio comprises relatively new aircraft with an average remaining lease term of approximately 6.3 years which are leased to a number of airlines in Europe, Asia and Australia.

The portfolio generates high lease yields, he added.

“Since the approach, Avation has announced the appointment of a financial adviser to evaluate the proposal and also engage with the wider investor market to determine the value of the portfolio.

“The size of the portfolio makes it an attractive acquisition for a range of both strategic industry and financial investors.

“For clarity and certainty, the board advises shareholders that no decision had been made to sell this highly valuable portfolio.”

Chatfield said the unexpired revenue for the 22 aircraft is in excess of $305m as at 1 November, and the board was considering and responding to the offer.

He explained that Avation remained committed to the ATR turboprop aircraft type, and it was not currently proposing to divest itself of its future order and delivery options for further ATR aircraft which would allow Avation to rebuild a turboprop portfolio.

“Should a sale of the portfolio be concluded, the board would consider a dividend for part of the proceeds from the profit on the sale of the portfolio assets to shareholders immediately following conclusion of the transaction.

“Avation would then seek to reinvest the remainder of the proceeds into replacement aircraft assets that would rebuild the fleet and add further diversification and new airline customers.”

The board had observed that Avation ordinary shares were currently trading at a discount to the net tangible assets, Chatfield said.

“It is therefore appropriate and in the interests of shareholders to consider asset sales that generate a premium to book value as a way of delivering enhanced shareholder returns.

“The value proposition of a commercial aircraft lessor such as Avation is the ability to trade aircraft, access and acquire aircraft, manage and market aircraft to airlines and attach leases to these assets to produce returns to shareholders.”