Avation benefiting from ‘rising demand, leasing rates and asset values’ says John Cummins at WH Ireland

Avation plc (LON:AVAP) is the topic of conversation when WH Ireland’s John Cummins caught up with DirectorsTalk for an exclusive interview.

Q1: What are the highlights from the interim results?

A1: Interim results illustrated continued positive progress after a challenging few years across the airline industry brought about by the pandemic. Avation now has two remaining off-lease ATR 72-600 aircraft to place following the announcement earlier this week of a new customer taking a 24-month lease for an ATR 72-600 and the sale of the Boeing 737-800 last month. At the peak, the group had 14 aircraft that were not on lease during the pandemic. Importantly, the group’s NAV increased 5% to US$3.42, with the shares trading at a 50%+ discount to this value.

Q2: How do you see the outlook for aircraft leasing and the company?

A2: Market dynamics are beginning to provide a much more positive backdrop for aircraft lessors such as AVAP. Air traffic is increasing, the costs of maintaining and operating older aircraft are rising, many airlines’ balance sheets have weakened considerably and OEMs are struggling with stepping up production rates of new aircraft – these factors in combination leading to higher demand, rising leasing rates and increased asset values for lessors.

Q3: The company has invested in a modern, well-diversified fleet. What benefits does that bring?

A3: It means that their aircraft are in demand and reduces the risk profile. The group’s strategy to maintain a fleet of modern and fuel efficient aircraft is well aligned to the aviation’s industry’s goal to reduce CO2 emissions, comprising a significant proportion of fuel-efficient Airbus A220 and ATR 72-type aircraft and future ATR deliveries will be powered by next generation engines, potentially certified for use with sustainable aviation fuel (“SAF”) by 2025.

Q4: Have your forecasts changed in any way for Avation?

A4: We left our revenue expectations unchanged, that presently assume the two unutilised ATR 72-600 aircraft are leased in FY 2024E and adjusted our estimates to incorporate the various other gains coming through in H1. Our year-end net debt forecast incorporates both the proceeds of the 737-800 sale and an assumption that the balance on the two ATR 72-600 aircraft on order will now be paid in FY 2024E.

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