Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces reviewed financial results for the six months ended 31 December 2019.
Key Financial Results
- · Revenue increased by 15% to a record $67.6 million;
- · Profit before tax increased by 218% to $45.2 million;
- · Profit after tax increased by 180% to $38.2 million;
- · Earnings per share increased by 178% to 60.0 cents;
- · Net asset value per share increased by 15% to $4.29; and
· Dividend, announced in respect of the first half grew by 5% to 2.1 cents per share.
- · Repossession of two aircraft from Thomas Cook and transition to a new lessee;
- · Three new ATR72-600 aircraft acquired during the period;
- · Completion of finance leases and transfer of two Fokker 100 aircraft to the lessee;
- · Leases signed for five ATR72-600 aircraft to be delivered to Braathens by 30 June 2020;
- · Airline customers increased to eighteen; and
· First ever commercial aircraft financed with a Green loan – recognised by Airline Economics
as “Deal of the Year for Innovation”.
Executive Chairman, Jeff Chatfield, said:
“Avation posted record lease rental revenue and assets for the period ended 31 December 2019. Most importantly the customer base continued to expand. In response to a proposal from an interested party the Company appointed an adviser and announced a strategic review and formal sale process. Upon completion of the strategic review and formal sale process the Board will consider the recommendations and provide further comment.
“During the period, Avation repossessed two Airbus A321 aircraft from Thomas Cook and transitioned the aircraft to a new lessee. While the airline sector performed profitably as a whole, 2019 saw a record number of airline insolvencies. Avation’s limited exposure to Thomas Cook and lack of exposure to other airline failures results from increased scale and diversification and the application of stringent investment criteria.
“Recognition of the purchase rights for ATR72-600 aircraft in the financial statements highlights the value of this previously unrecorded asset and generated a one-off unrealised gain of $37.0 million. It is important to note that notwithstanding the impact of the recognition of purchase rights for ATR72-600 aircraft, the leasing business continued to grow. The Company’s strong performance enabled the Board to declare an interim dividend of 2.1 US cents per share for the period.
“Avation has a strong cash position with four new aircraft expected to be added to the fleet through deliveries to Braathen’s and US Bangla between now and 30 June 2020. The Company believes it has sufficient liquidity to fund further fleet growth which will be sourced from the orderbook for ATR-72-600 aircraft and through aircraft acquisition.”
Strategic Review and Formal Sale Process
On 6 January 2020, the Company announced a comprehensive review of strategic options that would include the potential sale of the Company or aircraft assets through a formal sale process. Since the date of the announcement, a number of parties have expressed interest in the Company and certain portfolios of aircraft. The strategic review and formal sale process is being undertaken in response to an unsolicited approach to purchase the Company. The purpose of the review is to establish what path would represent best value for shareholders.
The Board believe that Avation’s value is above the net asset value of the Company. These value drivers, which are not represented in the balance sheet, include:
- · Realisable value of the fleet may exceed the book value;
- · Value of the leasing platform and experienced employees;
- · Singapore tax domicile and Aircraft Leasing Scheme, providing low corporate tax rates;
- · Scale and diversification benefits to existing industry players;
· Positive rating trajectory and potential savings a larger entity may unlock through
refinancing existing debt with lower cost debt; and
· Premium for control.
The Directors of Avation will have regard to their duties both under the Companies Act and the Takeover Code, as well as the advice from their mandated advisers in reaching their view on any transaction arising from the strategic review and formal sale process, including any recommendation to shareholders.
The strategic review and formal sale process is ongoing and further announcements will be made as the process continues.
Recognition of Purchase Rights
The Company holds Purchase Rights to acquire 25 additional aircraft under its contract with ATR. In December 2019, the Company changed its business model for Purchase Rights by recognising that it holds excess Purchase Rights over and above the Company’s requirement to acquire additional ATR aircraft for its fleet. The Company will seek to dispose of excess Purchase Rights from time to time when market conditions are favourable. In recognition of this change in business model, the Company recognised the Purchase Rights at fair value through profit or loss in the financial statements for the six months ended 31 December 2019.
Purchase rights for 25 ATR72-600 aircraft, represent a material source of growth for Avation and value for shareholders. The fair values were determined by the Company based on an independent third party valuation of the aircraft delivery positions. The recognition of this asset on the balance sheet has generated an unrealised gain of $37.0 million. Further analysis of the impact on the income of the Company is provided below.