Avation Targets 14% Fleet Growth Through 2030 as Aircraft Supply Tightens

Key Points

• Avation targets 14% annual fleet growth through 2030, supported by 13 firm aircraft orders, 19 purchase rights and an expected two secondary-market acquisitions per year. The company could return to its pre-COVID fleet peak of about 48 aircraft by June 2029.
• Aircraft supply constraints at Boeing, Airbus, Embraer and ATR are supporting lease rates and aircraft values. Avation is particularly focused on ATR turboprops, which have faced shorter delivery delays, offer higher lease yields and help diversify fleet risk.
• Avation says its financial position has improved, with extended debt maturities and stronger credit metrics, while management estimates the shares trade at roughly a 50% discount to book value. The company has repurchased about 22% of its shares over the past two fiscal years and is considering a potential U.S. or dual listing.

Avation LON: AVAP outlined plans to expand its aircraft leasing fleet through the end of the decade, supported by an existing order book, purchase rights and selective acquisitions in the secondary market.

Speaking at the Sidoti Conference, Director of Investor Relations Tim Bacchus said the company operates as an on-balance-sheet aircraft lessor, owning aircraft and placing them with airlines under dry operating leases and, in some cases, finance leases with purchase options. Avation earns returns from the spread between lease rental yields and financing costs, as well as from aircraft trading gains.

Bacchus said the aircraft leasing market is benefiting from a supply-demand imbalance as manufacturers including Boeing, Airbus, Embraer and ATR face production constraints. The resulting delivery delays have supported demand for both new and older aircraft, as well as lease rates and aircraft market values, he said.

Fleet Growth Plans

Avation currently has 33 aircraft on its balance sheet, leased to 17 customers across 17 jurisdictions. Its fleet consists of approximately 10% wide-body aircraft, 60% narrow-body aircraft and 30% ATR 72 turboprops by asset value. Nineteen of its aircraft are ATR models, and the company also owns one engine.

The company has 13 aircraft on firm order for delivery through the end of the decade and a further 19 purchase rights exercisable through 2034. Bacchus said the firm-order book alone supports at least 10% compound annual fleet growth through the decade. If the company continues to acquire roughly two aircraft annually in the secondary market, it could grow at a 14% compound annual rate through 2030, he said.

Under that scenario, Avation would return to its pre-COVID peak of about 48 aircraft by June 2029. Without secondary-market purchases, it would reach that level by June 2030, according to Bacchus.

Two aircraft are scheduled for delivery during the second half of the current year, with additional deliveries expected next year. Bacchus said Avation typically orders aircraft before identifying customers, but begins marketing delivery positions well ahead of delivery. In the current environment, he said aircraft are generally placed around a year in advance of delivery.

ATR Focus and Market Conditions

Avation’s ATR exposure is central to its strategy. Bacchus said ATR delivery delays have been materially shorter than those for narrow-body aircraft such as Boeing 737s and Airbus A320s. While he said narrow-body delays can range from six to nine months, ATR delays have been closer to zero to three months.

Ashley Nicholas, Avation’s Director of Corporate Finance, said ATR aircraft offer smaller ticket sizes that can increase fleet diversification and reduce concentration risk. He also said the aircraft have generated higher lease yields than many other aircraft types.

Avation’s portfolio is concentrated in Asia-Pacific, which accounts for about 80% of its exposure, while the company is also seeking further geographic and customer diversification. Bacchus said Avation added its first customer in the Americas during the past year and is looking to expand its European customer base.

The company said it has limited direct exposure to the Middle East conflict, with only one aircraft located directly in the region. Bacchus said Avation does not have direct exposure to fuel prices and that all leases remain in force, though airline customers could face tighter margins from higher operating costs.

Capital Structure and Valuation

Bacchus said Avation has strengthened its credit profile since the COVID period, with net debt-to-equity below pre-COVID levels and interest coverage equal to or better than prior levels. The company refinanced debt last year, extending its principal debt maturity profile to 2031. It also has debt due in 2028 associated with VietJet Air aircraft that it expects to roll over.

For the first half ended Dec. 31, Bacchus said revenue and operating cash flow remained relatively stable while operating profit grew, despite the earlier sale of a Boeing 777-300ER aircraft. He said Avation had offset the revenue effect of that sale with new aircraft deliveries.

The company has also repurchased shares and bonds. Bacchus said Avation bought back roughly 22% of the company’s shares over the past two fiscal years, citing what management views as a substantial discount to net asset value.

He said Avation’s shares were trading at about a 50% discount to book value based on the closing price cited in the presentation. Excluding intangible assets related to aircraft purchase rights, he estimated the discount at roughly 20% to 25%.

Bacchus said the company is increasing investor engagement and is evaluating whether a dual listing or a U.S. listing could be appropriate over the long term, noting the depth and liquidity of U.S. capital markets.

About Avation (LON:AVAP)

Avation PLC is a specialist commercial passenger aircraft leasing company owning a fleet of commercial aircraft which it leases to airlines across the world.

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