The 19th Annual General Meeting of AVATION PLC showcased the aircraft leasing company's robust performance and strategic initiatives, marking a significant milestone in its post-pandemic recovery. The meeting, held simultaneously in Singapore and London via video link, drew substantial shareholder participation, representing 58% of the issued share capital.
Executive Chairman Jeff Chatfield delivered an optimistic interim management statement, highlighting the commercial aviation sector's remarkable comeback. Revenue passenger kilometres have surged by 7.1% year-on-year as of October 2024, surpassing pre-pandemic levels despite ongoing supply chain challenges in aircraft manufacturing.
The company's fleet management strategy has yielded positive results, with 32 commercial aircraft currently leased to 15 airlines across 13 countries. The portfolio maintains a relatively young average age of 7.8 marks and boasts an average remaining lease term of 3.8 years. The recent sale of two ATR72 aircraft generated £10 million in net cash, whilst a favourable lease extension was secured for a 15-year-old Airbus A320.
AVATION's financial position continues to strengthen, with cash and bank balances reaching £136.6 million by mid-December 2024, representing an £18.6 million increase since June. The company has successfully reduced its COVID-era airline receivables by £6.4 million, demonstrating effective debt management practices.
A significant development emerged in the form of a share repurchase programme, with AVATION buying back 7.8 million shares—10.5% of outstanding shares—at 50 pence each. This strategic move reflects management's confidence in the company's intrinsic value and commitment to enhancing shareholder returns.
The company's conservative approach to financial management is evident in its loan-to-value (LTV) ratio, currently standing at 57-58%, well below the target of 75%. This prudent strategy provides flexibility for future growth opportunities whilst maintaining financial stability.
Looking ahead to 2025, AVATION has secured two new ATR72-600 aircraft deliveries and is actively exploring opportunities in the secondary market. The management team remains focused on addressing the 2026 bond maturity through various financing options, including secured finance and potential new bond issuance.
The aircraft leasing market's positive trajectory, coupled with AVATION's strategic positioning and strong financial management, suggests a promising outlook for the company. The board's commitment to reinstating dividends and continuing share repurchases reinforces their confidence in sustainable long-term growth.
Table of Contents
Opening Remarks and Meeting Setup
The 19th Annual General Meeting (AGM) of AVATION PLC commenced with a warm welcome from Executive Chairman Jeff Chatfield. He expressed gratitude towards the shareholders attending both in Singapore and London via video link. The meeting was structured to facilitate questions from shareholders, which could be submitted through a Q&A feature throughout the session.
The Company Secretary confirmed that a quorum was present, allowing the meeting to proceed. It was established that proxy votes had been collected, representing approximately 58% of the issued share capital. This significant turnout underscored the shareholders' engagement and interest in the company's direction and performance.
Resolutions Passed
During the AGM, several key resolutions were put forth for shareholder approval. Each resolution was presented as read, focusing on the company's governance and financial practices. The resolutions included:
Receiving the accounts and reports for the year ended 30th June 2024.
Approval of the directors' remuneration report for the year 2024.
Re-election of directors, including Jeff Chatfield and Rodri Douglas Mahoney.
Reappointment of Ernst & Young as auditors until the conclusion of the next AGM.
Approval of a final dividend payment of £0.005 per ordinary share.
All resolutions were passed with overwhelming support, with most receiving over 99% approval from those voting. This strong endorsement reflects shareholder confidence in the board's strategic direction and operational management.
Interim Management Statement: Market Overview
Following the formal business of the AGM, the Chairman delivered an interim management statement, highlighting the current state of the commercial aviation market. The air passenger sector has shown robust growth, with revenue passenger kilometres increasing by 7.1% year-on-year as of October 2024. This growth has surpassed historical highs, indicating a strong recovery in air travel demand.
Despite this positive trend, the market faces challenges due to constrained deliveries of new aircraft, primarily attributed to ongoing supply chain disruptions. AVATION believes that the market values of popular narrow-body aircraft types have increased by approximately 5% over the past year, further supporting the company's fleet valuation strategy.
Fleet Update and Aircraft Deliveries
AVATION's fleet management remains a critical component of its operational strategy. As of December 2024, the company owns a fleet of 32 commercial aircraft, leased to 15 airlines across 13 countries. The average age of the fleet is 7.8 years, with an average remaining lease term of 3.8 years.
Recent activities included the sale of two ATR72 aircraft, which generated net cash of around $10 million. Additionally, a lease extension was agreed upon for a 15-year-old Airbus A320 at a rate exceeding the previous rental agreement. This strategic move not only optimises cash flow but also reinforces the company's commitment to maintaining a competitive and valuable fleet.
Looking ahead, AVATION has two new ATR72-600 aircraft scheduled for delivery in 2025. These acquisitions are strategically placed with new airline customers, indicating a proactive approach to expanding the company's market presence. The company is also considering opportunistic acquisitions in the secondary market to further enhance fleet capabilities.
Financial Update
In terms of financial health, AVATION has made notable progress in reducing COVID-era airline receivables, with total receivables decreasing by approximately $6.4 million since June 2024. The management remains focused on improving collections to enhance cash flow and operational stability.
As of mid-December 2024, the company reported total cash and bank balances of $136.6 million, an increase of $18.6 million since June 2024. This improvement in liquidity is crucial as the company navigates its financial obligations, including outstanding secured bank loans amounting to $336 million at an average interest rate of 4.86%.
Additionally, AVATION has recently repurchased 7.8 million shares, representing 10.5% of the outstanding shares, at a price of £0.50 each. This buyback is seen as a strategic move to enhance shareholder value, reflecting the company's belief in the intrinsic value of its shares.
2025 Outlook and Corporate Activities
Looking forward to 2025, AVATION plans to focus on several key activities aimed at sustaining growth and enhancing shareholder value. With all existing aircraft placed with customers, the company is poised to explore opportunistic purchases in the secondary market, contingent upon reasonable pricing and availability.
Corporate finance activities will also be a priority, particularly in preparation for the maturity of a bond in 2026. The management intends to evaluate various financing options, including secured finance and bond issuance, to optimise the company's capital structure.
As the company navigates the complexities of aircraft supply and demand, it remains committed to reinstating dividends and repurchasing shares as a means of delivering value to shareholders. The outlook for the commercial aviation market remains positive, supported by strong demand for air travel and a strategic approach to fleet management.
Share Repurchase Strategy
AVATION PLC's recent share repurchase initiative reflects a strategic decision aimed at enhancing shareholder value. The company successfully repurchased 7.8 million shares, amounting to 10.5% of its outstanding shares, at a price of £0.50 each. This action was taken at a time when the board deemed the shares to be undervalued, signalling a strong belief in the company's long-term prospects.
The rationale behind this buyback is multifaceted. Firstly, repurchasing shares reduces the number of shares in circulation, thereby increasing the earnings per share (EPS) for remaining shareholders. Secondly, this move serves as a clear indication of confidence from the management regarding the company's valuation, potentially attracting more investors in the long run. However, it raises critical questions regarding future liquidity and the impact on operational investments.
Investors may ponder whether the company plans to cancel the repurchased shares or hold them in treasury. Historically, AVATION has tended to cancel such shares, which could further enhance the value for existing shareholders by reducing overall share count. Transparency regarding these decisions will be essential for maintaining shareholder trust.
Addressing Bond Maturities and Future Financing
As the maturity of the company’s bonds approaches in 2026, AVATION PLC is proactively planning its financing strategy to ensure stability and growth. The management has indicated that they will explore various financing options, including secured financing and potential bond issuance, to optimise the company's capital structure.
One of the pressing concerns is the penalty associated with refinancing the existing bonds, which currently bear an interest rate of 9%. This penalty could affect the decision-making process, as the company aims to avoid unnecessary costs. Investors should seek clarity on how the company intends to navigate this situation and what measures are in place to mitigate risks associated with refinancing.
Furthermore, the management's commitment to evaluating the market for favourable financing solutions is commendable. They aim to assess the global debt markets comprehensively and secure the best possible terms for any new financing arrangements. This diligence is crucial for maintaining the company’s financial health and supporting its operational objectives.
Aircraft Valuation Insights
AVATION's approach to aircraft valuation remains a cornerstone of its operational strategy. The company has observed a notable increase in the market values of both new and older aircraft, driven largely by the supply chain issues affecting manufacturers. Recent analyses indicate a 12% uptick in value for newer aircraft, while older aircraft have seen a 5-7% increase in valuation.
This positive trend in aircraft values is significant for the company’s asset management and financial strategy. With constrained deliveries of new aircraft, the demand for existing aircraft in the secondary market has surged, creating opportunities for AVATION to capitalise on its fleet’s worth. Investors should consider how these valuation trends will impact the company's balance sheet and overall financial performance.
Furthermore, the management's proactive stance on aircraft valuation suggests a robust framework for asset management. By continuously evaluating the market and adjusting their strategy accordingly, AVATION can optimise its fleet utilisation and enhance overall shareholder value.
Target Loan-to-Value Ratio
The company has set a target loan-to-value (LTV) ratio of 75% for its fleet of aircraft. Currently, AVATION's LTV stands at approximately 57-58%, which indicates a conservative approach to leveraging its assets. This prudent strategy allows the company to maintain financial flexibility while still pursuing growth opportunities.
Maintaining a lower LTV ratio positions AVATION favourably in the event of market fluctuations. This approach not only mitigates financial risk but also preserves the company’s ability to secure additional financing if needed. Investors should monitor the company’s progress towards achieving this target and consider how it aligns with broader market conditions.
Moreover, the management's focus on balancing debt levels with asset values is crucial for long-term sustainability. A well-managed LTV ratio can enhance the company’s creditworthiness, potentially leading to better financing terms in the future.
FAQ Section
What is the current status of the company's share repurchase programme?
AVATION has successfully repurchased 7.8 million shares, representing 10.5% of the company’s outstanding shares, at £0.50 each. The company is considering whether to cancel these shares or hold them in treasury.
How does the company plan to address the 2026 bond maturity?
The management is evaluating various financing options, including secured finance and potential bond issuance, to address the upcoming bond maturity while minimising penalties and costs.
What are the recent trends in aircraft valuations?
Aircraft values have increased, with new aircraft seeing a 12% rise and older aircraft appreciating by 5-7%. This trend is attributed to supply chain issues affecting manufacturers.
What is the target loan-to-value ratio for AVATION?
The company has set a target LTV ratio of 75%, while currently maintaining an LTV of approximately 57-58%. This conservative approach supports financial flexibility and risk management.
How is AVATION addressing its financial health post-COVID?
AVATION has made significant strides in reducing COVID-era receivables and improving liquidity, reporting total cash and bank balances of $136.6 million as of mid-December 2024.
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