Avation Share Discussion Threads

[carcosa] 20/9/2019 11:22

Both are A321-200SL's and about 3.5 years old.
Regn G-TCDM (MSN 7003)
Regn G-TCDO (MSN 7055)

It would be nice to think that they get repossessed very quickly as given demand for these aircraft they are likely to end up being leased for higher revenue. However, seems like things are likely to drag on...

[quepassa] 20/9/2019 10:11

Anyone know how many and which type of aircraft that Avation have out to Thomas Cook?

ALL IMO. DYOR.
QP

[podgyted] 19/9/2019 10:22

WH Ireland 19/9/19:-

"Avation

Upgrades following additional planned ATR 72-600’s

Avation is a lessor of commercial aircraft to a diversified airline client base.
Yesterday, the group announced that it had signed a 10-year lease with Braathens
Regional Airways AM for four new ATR 72-600 aircraft. This takes the total number of ATR 72-600 aircraft due for delivery in FY 2020E to five, which compares to our
previous assumption of three. As was the case with the August delivery, we
understand these aircraft to be on finance leases as opposed to operating leases. On the back of this announcement, we have raised our two year earnings expectations
by 16.8% and 8.5% respectively, which includes a gain on sale being recognised from
these aircraft in the current financial year. Even so, we see scope for further upgrades to our estimates as additional aircraft are added to the fleet beyond those already on order. Our estimate of fair value stands at 352p, a c.19% premium to the NAV per share."

[carcosa] 18/9/2019 09:51

Because the discussion with US-Bangla are ongoing and there would still be an LOI or other contract intent that would prevent AVAP perhaps?

Braathens might have configured their aircraft differently.

Share sale yesterday was tiny and actually took place many days ago. It was the UT trade at the end of day that pulled the reported share price down and today it basically recovered. I don't see today's ATR deal having an influence on the share price to any great degree when it was already highlighted over the past few weeks.

I see oil price and exchange rates as the highest risk to the share price in the short term.

[harrogate] 18/9/2019 08:46

Thanks. Why do you think that they didn't use one of the aircraft they have for this deal? The share sale announced yesterday knocked the shares it would seem.

[carcosa] 18/9/2019 08:41

I'd be a lot happier when they get those two ATR's sitting on the balance sheet placed with a customer. One, if not both is destined to complete the US-Bangla but would not be surprised if they are actively seeking new homes for them.

[quepassa] 18/9/2019 08:07

Today's RNS.


Growth continues unabated.


The new lessee, Braathens of Sweden:-

hXXps://www.braganza.com/our-companies/aviation/braathens-regional-airlines


Excellent news and more positive progress on the burgeoning fleet.

ALL IMO. DYOR.
QP

[sharesoc] 08/9/2019 21:05

Avation present at our next Manchester growth company seminar on Tuesday which may be of interest to current shareholders and potential investors:

[sogoesit] 06/9/2019 12:31

Great info.
Thanks for the discussion and enlightenment on the swap issue.
Good weekend.

[melody9999] 06/9/2019 11:03

Great posts from 2300 on - thank you for the education. QuePassa - are you really the same person that has been so repetitively disparaging of APF - to the point of boredom - when here you are so enlightening?!

I don't have the financial knowledge to add anything - however I do have a sense that our BOD are extremely focused on minimising and mitigating any risks associated with what is in essence a simple business model.

Anyone going to Sharesoc Manchester nest week? See you there.

[quepassa] 06/9/2019 09:49

You may have sold out because you don't have the full story about how they insure themselves against big moves in interest rates, using swaps.

Certainly the FD at last night's Pro-Active presentation in London was extremely upbeat about future prospects, profitability and growth plans of the company.

I guess they wouldn't hike the dividend by a jaw-dropping 45% if they weren't pretty certain about the Outlook and prospects.

ALL IMO. DYOR.
QP

[quepassa] 06/9/2019 09:39

They are aircraft lessors. Not interest rate speculators.

They lock in returns up front by fixing debt. This is prudent.

You wouldn't be very happy if they kept interest on a floating basis and interest rates rose sharply - which could theoretically be disastrous for them, shareholders and profitability.

The person who told you that by twitter is 100% correct.

If you look in last years accounts, you will see that they did have to break a swap (because of early repayment of underlying loans) and it threw up a great profit of $3.6million on that occasion. See Note 13, Page 78.

They are just hedging interest rate exposure by fixing it. Just like many people who take a fixed-rate house mortgage because they want to be certain of the (monthly) cost of the mortgage, versus their monthly income.

ALL IMO. DYOR.
QP

[carcosa] 06/9/2019 08:45

Harrowgate,

Right now I think I would prefer someone with financial/interest rate swap knowledge!

As far as I can figure out the key rate is LIBOR in this instance


I 'think' these swap rate contacts last for a period of five years (am not certain). Presumably starting from each aircraft lease.

With worldwide interest rates declining then I'm, guessing LIBOR is also likely to decrease. Not good for shareholders like me.

The magnitude of the negative effect on AVAP NAV remains a bit of a mystery to me. Going over the last few years of Annual Reports I can't really see a good correlation (Accounting for the change in loan value).

I remain intrigued as to why Avation elect to continue buying back shares and placing them in Treasury. Nice in helping NAV but I don't think its significant in the scheme of things.

Would be nice to hear from some experts. One person has told me via twitter that "The IRS will have been part of their issuance given their liabilities will be mostly floating. Cash flows will match to bond maturity so the loss will never actually crystallise unless broken. The loss represents the effective break cost or just the MTM move of the swap." Which sounds good long term, if true, but goes against my very amateur understanding and does not change the short term view

[harrogate] 06/9/2019 08:02

Carcosa, thanks for the detailed and excellent posts on AVAP on lemonfool. They are required reading for any AVAP shareholder. Please keep up the good work. Industry knowledge is invaluable in investing and aircraft leasing while simple at one level has many moving parts that you help to unravel.

[carcosa] 06/9/2019 07:44

Wish I read the last couple of posts before I posted my thoughts here on TLF!



One point worth noting is that interest rate swaps have been in existence with Avation for years and explained. See any Annual Report for details.

[quepassa] 06/9/2019 07:14

It is an interest rate swap which needs to be marked-to-market.

They receive fixed payments on the aircraft they lease and some of the debt they raise to finance the aircraft is floating rate. For sake of prudence and to avoid big interest rate exposure, they use an interest rate swap to convert floating rate debt into fixed rate debt. By doing this they lock in the cost of the debt and fix the margin between the rental receipts on the aircraft and the cost of debt.

Accounting standards require them to mark the swap to market.However it is an accounting loss only not a real loss.

So, if they convert floating rate debt via a swap at 4% and floating rates in the open market fall to 3%, technically it will show a loss on the swap. On the contrary, if they have fixed their floating debt at 4% and open market rates rise to 5%, their swap would be in profit.

But the real point is to avoid big interest rate exposure and lock-in up-front the return between receipts on the aircraft and the cost of the debt.

Whilst it may not be explained in the unaudited results yesterday, it would almost certainly be explained in full when the detailed Annual Report is released.

So what has happened is that they fixed some floating rate debt via a swap and floating rates have fallen in the open market which has thrown up an accounting (but not real) loss. If they hadn't fixed, yes they would be paying less interest, but if interest rates had risen, they would be paying more interest. So, out of prudence, they lock-in a certain rate of return by matching a fixed rental income against a fixed rate of debt.

ALL IMO. DYOR.
QP

[harrogate] 06/9/2019 06:49

While they call it a cash flow hedge on the results it is actually an interest rate hedge. As they say in the results over 90% of the borrowings are fixed or hedged. So they have lots of hedges in place to protect against interest rate rises. The downside of that is that you potentially lose some of the upside when rates fall. Given that they have had to show what the "cost " of that has been by marking the hedges to market. The $18m will be the amount that the hedges will cost them over the life of those hedges if rates stayed the same as at June 19 over the length of each hedge. So none cash and should reverse over time and if interest rates go up then disappear quickly and we get a large increase in NAV just as it has been a hit to that now. having said that the share price looks up with events for now but that could change if they do some decent deals on airbus

[riverman77] 05/9/2019 17:53

That's even more concerning. What exactly is the casfhlow hedge for, and how has this racked up a loss of 18m, which is very large in relation to the size of the company? Moreover, there doesn't seem to be any sort of explanation in the report describing why the hedge is in place and any risks associated with it.

[buffetteer] 05/9/2019 14:38

NAV only up 3% due to negative mark to market $18m cash flow hedge .

[martinc] 05/9/2019 08:51

So the headline looks good, but mainly because they sold an aircraft at a profit, and last year they sold one for a loss. Take that out and the performance was only slightly ahead. And in USD in which they operate, NAV was only up 3%. That seems quite disappointing considering their debt is getting cheaper.

[riverman77] 05/9/2019 08:46

Impressive in terms of earnings and revenue growth, but tiny rise in nav per share which for me is the key measure. I'm out.

[sogoesit] 05/9/2019 07:37

Agreed; this is becoming a core holding of mine and I add throughout the year.
(They have started a portfolio of single engine leasing with one engine reported).
Good luck!

[catsick] 05/9/2019 07:18

At first glance these results look excellent company is growing fast and compounding very well, I don't see a lot of downside from a decent div and 20 pct growth year after year with everything baked in on long term leases ...

[sharesoc] 30/8/2019 11:51

Avation present at our next Manchester growth company seminar on the 10th September which may be of interest to current shareholders and potential investors: