Re: Avation (AVAP)
Posted: May 23rd, 2023, 7:00 am
Hi nr98
Thanks for the post/questions.
Options
A few years ago, I posted my views about how the options are accounted for. If the lessor does not place an order then they expire worthless; so to some extent the lessor has a liability of placing an order or else they expire worthless. In practice though they do have practical value and GAAP/IFRS require them to be accounted for but of course that reflects the perceived value as of today.
Nearly all aircraft lessors are private equity and they would almost certainly view Avation's options as having significant value.
Because Avation have so many options they do become something that investors need to be aware off because their values can swing by millions of dollars year to year. For short term change in valuation using the change in the US treasury one year (USTSY01) rate tells you if those options should increase or decrease in value accordingly depending on how it changes at Avations's HY/FY reporting dates. An acquirer may value those options assets based on what they believe they will be at the end of each option period rather than what they are worth today and then discount that further.
If we all agree interest rates will be lower in years to come then those options are worth considerably less than stated.
ATR's
Unfortunately, when Avation were disposing of non-lease producing ATR assets to which you refer it was in the middle of a pandemic and the need of having cashflow/better balance sheet trumped any above book profit concerns. There were significant cashflows that Avation had to pay; insurance, parking, maintenance, interest etc., The fact they could actually sell them at all is to be congratulated!
The problem is that smaller airlines do not like ordering aircraft for delivery dates 2-3 years in the future and larger airlines tend to want aircraft in bulk. Hence this is why ATR are trying to ramp up production along with a new variant. There are no practical new aircraft available in that turboprop, short/rough field landing segment other than the ATR.
Source Material
In terms of source material there is a lot out there, but two sources I regularly use are iba.aero (e.g. https://www.iba.aero/insight/narrowbody ... ough-2023/ or https://www.iba.aero/webinars/iba-webin ... ets-worth/) and airfinance.com (use https://12ft.io to access). Investment banks/Rating agencies/auditors/Boeing/Airbus often issue large documents on the subject of leasing e.g. the KPMG report I linked to last week.
Thanks for the post/questions.
Options
A few years ago, I posted my views about how the options are accounted for. If the lessor does not place an order then they expire worthless; so to some extent the lessor has a liability of placing an order or else they expire worthless. In practice though they do have practical value and GAAP/IFRS require them to be accounted for but of course that reflects the perceived value as of today.
Nearly all aircraft lessors are private equity and they would almost certainly view Avation's options as having significant value.
Because Avation have so many options they do become something that investors need to be aware off because their values can swing by millions of dollars year to year. For short term change in valuation using the change in the US treasury one year (USTSY01) rate tells you if those options should increase or decrease in value accordingly depending on how it changes at Avations's HY/FY reporting dates. An acquirer may value those options assets based on what they believe they will be at the end of each option period rather than what they are worth today and then discount that further.
If we all agree interest rates will be lower in years to come then those options are worth considerably less than stated.
ATR's
Unfortunately, when Avation were disposing of non-lease producing ATR assets to which you refer it was in the middle of a pandemic and the need of having cashflow/better balance sheet trumped any above book profit concerns. There were significant cashflows that Avation had to pay; insurance, parking, maintenance, interest etc., The fact they could actually sell them at all is to be congratulated!
The problem is that smaller airlines do not like ordering aircraft for delivery dates 2-3 years in the future and larger airlines tend to want aircraft in bulk. Hence this is why ATR are trying to ramp up production along with a new variant. There are no practical new aircraft available in that turboprop, short/rough field landing segment other than the ATR.
Source Material
In terms of source material there is a lot out there, but two sources I regularly use are iba.aero (e.g. https://www.iba.aero/insight/narrowbody ... ough-2023/ or https://www.iba.aero/webinars/iba-webin ... ets-worth/) and airfinance.com (use https://12ft.io to access). Investment banks/Rating agencies/auditors/Boeing/Airbus often issue large documents on the subject of leasing e.g. the KPMG report I linked to last week.