Avation Share Discussion Threads

[russman] 09/11/2015 06:17

Neither, it is obvious that I am a disaffected CLA shareholder.
Only 2 weeks to go.
Yours
The Beguiled.

[aroberts1] 08/11/2015 00:59

Russman you are so negative on this one, do you own shares in it? It owns $500m in planes and according to trytotakeiteasy is generating free cash of $43m per year? AVAP seems to be cheap to me with only 55 million shares? Do you own shares or are you short?

[ragehammer] 07/11/2015 11:41

There are no double salaries. The directors remuneration given in the AVAP group report is consolidated across the group, including CLA (which is fully consolidated in AVAP group accounts).

[russman] 07/11/2015 09:49

Sorry me again, read the Loeb Aron marketing flyer from Richard.
They estimate that delisting CLA will save $300k dollars even I estimated 300k sterling. Looks like the double salaries are still going to be paid, presumably for doing a lot less work, well 4 leases work. £400k salaries for managing 4 aircraft lease. Nice work if you can get it.
Loeb estimate gross borrowings will be $200k less cflow $50m = net increase $150m.
My purchases estimate is running a lot higher than $200k, maybe AVAP will sell some of the new ATRs as opposed to lease them out

[russman] 07/11/2015 02:06

Shall we say the gross lease rate is 12% on this Boeing 737.
You could sell another $100m of notes at 7.5%.
But current secured dollar bank loans are less than 5% (at the moment).
Not allowed to use CLA's assets for Group collateral.
Are the loan notes being used as an overdraft until AVAP lock in Group rates.
Maybe the new ATRs are ringfenced.

[trytotakeiteasy] 06/11/2015 12:53

Well looking at the accounts the cash generation is very robust. This makes sense as a key P&L charge of depreciation is non-cash.

So in the year to June 2015 net cash flow from operating activities was US$43.4m versus net profit after tax of US$13.2m. Given the young age of the fleet the group is swimming in freecashflow i.e. excluding the cash spent to expand the fleet.

[harrogate] 06/11/2015 12:41

Yes but not with cash they generated but with the proceeds of the $100m loan note.

[trytotakeiteasy] 06/11/2015 10:12

Well at least no one can say this isn't a cash generative business. They recently bought back 5% of their shares... and have bought a new plane...

[russman] 06/11/2015 09:00

This cash must be burning a hole in Jeff's pocket.
It may be a good deal, we cannot tell yet.
Better sell some more notes.

[trytotakeiteasy] 21/10/2015 17:17

Horndean Eagle - I think you are right in that profit forecasts may have been lowered. However, maybe due to the unsecured debt which is to fund growth. So it may mean higher profits further out. So not really an issue in that something negative and unexpected happened.

Probably recent events should mean a profit upgrade but they haven't announced on that.

[horndean eagle] 21/10/2015 15:23

In case shareholders were not aware a huge profits downgrade for this year and a more modest one for next year. Some might argue a profits warning should have been made but the company believes they don't have to inform the market of this. Sums up the company.

I think Russman has it spot on in terms of why AVAP have no interest in taking over CLA. Jeff cannot take out the $350k a year salary he currently draws if he does that. All the dodgy loans etc in the past have enriched Jeff at the expense of CLA holders. The only reason large shareholders sold out at 20.5p was Jeff effectively blackmailing them by not paying out dividends and throwing in exceptionals year in year out. Can't see why he continued this vindictive streak by limiting buybacks at 20.5p. Hes saving a fraction of what he takes out in salary by not offering shareholders a decent exit.

[russman] 20/10/2015 23:06

I cannot see there will be any significant change to future consolidations after CLA delists.
Fair Value will go through the merger reserve.

[russman] 20/10/2015 22:26

Thanks for the opinions.
Going back to the gearing ratio.
Between 1/7/15 & 31/12/16 AVAP/CLA have bought 2 second hand A321 and are contracted to purchase 10 ATR & 2 more A321 = Say US$600m inc costs.
The loan note programme is ideal for flexibility until funding can be locked in against the leases. It is too risky for me as long term equity.
I think you are suggesting equity is 5% of these new deals; that would turbocharge earnings. i.e 20x
What happens if the loan note market grinds to a halt again?

[trytotakeiteasy] 20/10/2015 22:01

Interesting share purchase today. So takes out 5% of the shares from private hands and puts them in Treasury. That should surely boost future earnings per share by 5%. I.e. even if the shares aren't owned the profits per share on them just comes back to the company anyway.

So surely the CLA cancellation with associated fees saved and the 5% share repurchase today should both boost earnings per share? Or am I missing something?

[briangeeee] 20/10/2015 14:06

Russman, please do try to be clearer. Misinformation about consolidation doesn't help anyone. You've previously posted about lease based IFRS accounting - if there's something specific you'd like others to take into account, please be open and post it. Is it the changes to IAS17 to which you're referring? Personally I'd welcome increased on-balance sheet transparency.

[ragehammer] 20/10/2015 13:36

Russman, that is true. But every month that goes by sees earnings being added to the balance sheet which bulks up the equity position and chips away at the gearing ratio. However there is no doubt that AVAP are having a significant push for growth at the moment and the $100m of loan notes is being used as an extra layer of unsecured debt to fund aircraft purchases where normally you might see equity.

If you can borrow secured at 4% on 75% of the aircraft, unsecured at 8% on (say) 20% and equity fund the rest and then lease the aircraft out at 13% yield, those earnings start to drop through to equity pretty quickly. That's the plan anyway.

Certainly riskier than using 25% equity funding for aircraft additions, but then they woudln't be able to build scale as quickly. Given the sharp reductions in fuel prices in the last couple of years, most airlines will be in a secure financial position for the next couple of years, so default risk is low IMO.

[trytotakeiteasy] 20/10/2015 13:20

Russman - yes that is true and they have a higher target for gearing then they currently have. Aircraft leasing companies have high gearing. However, secured borrowing is on a fixed rate basis and matched against the initial lease term. If borrowing is a general concern then it is best to avoid banks, utilities, real estate or aircraft leasing.

Avation are seeing their cost of borrowing go down which suggests that lenders, in any rate, see the group as lower risk.

[russman] 20/10/2015 13:15

I will try to be clearer.
The planes acquired & planned to be acquired in the AVAP/CLA group in the current year should push the gearing ratio considerably higher.

[ragehammer] 20/10/2015 10:57

CLA is already fully consolidated into the accounts of AVAP. The only change you'll see is to the extent that the minority shareholders of CLA sell up at 20.5p is a reduction in the "non-controlling interest" at the bottom of AVAP's consolidated P&L and Statement of Financial Position (aka balance sheet).

[trytotakeiteasy] 20/10/2015 10:39

Russman - as I understand Capital Lease currently has no liability for Avation. If it is fully taken over I don't think that would change. So not sure if it increases Avation's risk profile. Consolidated debt may look worse but if Capital Lease goes under I don't think Avation is liable for its debts.

Savings- I don't think it is just the £300k in listing costs saved. It should also be the duplicated director salaries. So I think it can be meaningful relative to profits.

Will have a look at your other points.

[russman] 19/10/2015 22:31

The consolidated gearing ratio will go through the roof (even by leasing benchmarks). I suppose they could sell a plane.
I am not sure what the covenants are for the bank debt or if the loan note buyers are bothered about the credit rating.
Frankly the saving of £300k is peanuts for delisting CLA.
Once AVAP hit > 75% they should have asset stripped the 4 planes & put CLA in voluntary members' liquidation. A few tax & time issues but basically quite easy and cheap. But Jeff does not get his double salary anymore.
But no, they want to show the City that they are cheap second hand car dealers.

[trytotakeiteasy] 19/10/2015 09:27

Russman - Not sure they need any money. They have already stated they have more than enough. Unsecured debt issue means that they can finance more planes then they have planned. Will have a look at the other points.

On a pure financial basis surely the CLA deal is positive for Avation or do you disagree?

[russman] 19/10/2015 08:43

So you have:-
Checked their IFRS valuation policy = Book value
Checked operating cashflow to TEV = interest rate risk
Checked performance = against their peers eg Aercap
Checked governance = looked at CLA

If they have a rights issue (say 1:1 @ 120p), would you buy more?

[trytotakeiteasy] 18/10/2015 19:56

Russman - ok a fair few points there. I have had one AIM company try to sue me at one point but am not familiar with Speechlys.

- Lease accounting - well they use IFRS which is the International Financial Reporting Standards. That is a global benchmark so not sure that is an issue. It is hardly Avation's fault if IFRS has flaws if that is your argument?
- Book value - Not sure I need lease accounting for that. Surely it mainly the value of planes bought minus debt financing. Clearly profits will be added to book value over time and profits do reflect lease accounting.
- Lease accounting - I think that revenue is lease income so there shouldn't be an issue with that. Or at least over the term of the lease the revenue will match lease income in any event. So not sure what the issue could be here?
- Main accounting issue is depreciation but this appears to be in line with peers.
- Cashflow - profit after tax in the last two years was just below US$15m. However, cashflow from operating activities was US$43.5m last year and US$27.5m the year before. So not sure that there really is any kind of issue where cashflow doesn't match reported profit. Cashflow is higher than reported profit mainly due to depreciation.
- Trading of planes - The loss of gain on disposal was not significant in terms of profits with it at US$3m two years ago as a profit and a US$0.7m loss this year. So this isn't really driving profits. In the cashflow statement it the proceeds from planes are put in the investing activities section so they don't affect operating cashflow.
- Operating cashflow estimate - Well this will always be lumpy. But it should increase given more planes being owned and lower debt costs. Not sure if impact of CLA ownership.
- Broker note. Looking at this and operating cashflow is forecast to increase this year and next year. Freecashflow is negative due to the purchase of new planes.

Not sure there is any smoking gun in the points you raise but I have only looked for about 10 minutes. With a very young fleet this will be a very cash generative business. On the accounting side they just need to have enough cash generated to buy new planes to replace existing ones. This condition looks to be met.

So I may try to have a longer look but it seems that your argument is that the whole of the aircraft leasing sector is flawed or are you just critical of Avation? The other companies seem to do ok and have a similar approach to Avation i.e. Aercap the largest aircraft leasing company.

[russman] 18/10/2015 08:54

What is your estimate of op. c/flow (exclude 1 offs & plane sales) as a "multiple" of TEV?
You need to take account of the increased shareholding % in CLA.