Re: Avation (AVAP)
Posted: June 25th, 2023, 7:51 am
Hi JWK,
Jeff has been involved with commercial aviation his entire adult life. I don't see him as wanting to sell up for a quick buck. Publicly he tries to avoid making any statements about selling Avation but over the years he has implied it would have to be hefty premium, and he has let slip something around the 600p would get him interested. That's about x2.1 NAV. It's not an unthinkable number but the stars would need to align!
I did query him as to whether or not having a low LTV ratio would make Avation more attractive to an acquirer but he replied it would make little or no difference. Not sure I understand the reasoning for that but may be it has got more to do with cost of debt than LTV. Perhaps a lower cost of debt is the real driver, as you mention in your post. However as you can see from recent posts of mine Avation's actual cost of debt is very competitive but whether or not that can be translated to new aircraft is doubtful. So perhaps he is doing his damndest to get cost of debt reduced now knowing that going forward its going to increase significantly plus I wonder if he is putting new deals on hold until interest rates start declining; but then with an inverted yield curve, shouldn't that imply signing new business now is an ideal time?
What I find interesting is why Avation are not taking on new business and indeed in the recent past I speculated some of the new AirBaltic aircraft which Avation have been invited to bid for is unlikely to be won by Avation as they 'seem' to be shunning new business, currently.
Avation has 28 ATR options at a runrate of 6 options per year until 2027. That's practically more than doubling the current ATR fleet size. So is Jeff preparing the ground work for that? Will he be selling of some of the unencumbered aircraft? I really want to hear his thoughts on that.
When Chorus Aviation bought 6 ATR's from Avation in 2017 I think Jeff found the large reduction in fleet/income more difficult to recover from than envisaged at the time, so in principle I believe he is against selling a large portion of the fleet again unless well above book value and as a means to an end of financing these 28 ATR's.
In April 2020 AVAP announced a Strategic Review and Formal Sale Process to maximise value for shareholders at a time when P/NAV was ~0.8. Currently AVAP has a P/NAV of ~0.5. Castlelake Aviation and others have seemingly gone an acquiring spree recently buying assets above book value, suggesting corporate activity is rapidly recovering from the pandemic. Come the next investor Q&A I intend to raise this point but based on Jeff's history he may indeed reply with a non-committal response.
So, in answer to your question, I don't think cost of debt is currently a factor in deciding to sell the company.
An awful lot of speculation on my part.
Jeff has been involved with commercial aviation his entire adult life. I don't see him as wanting to sell up for a quick buck. Publicly he tries to avoid making any statements about selling Avation but over the years he has implied it would have to be hefty premium, and he has let slip something around the 600p would get him interested. That's about x2.1 NAV. It's not an unthinkable number but the stars would need to align!
I did query him as to whether or not having a low LTV ratio would make Avation more attractive to an acquirer but he replied it would make little or no difference. Not sure I understand the reasoning for that but may be it has got more to do with cost of debt than LTV. Perhaps a lower cost of debt is the real driver, as you mention in your post. However as you can see from recent posts of mine Avation's actual cost of debt is very competitive but whether or not that can be translated to new aircraft is doubtful. So perhaps he is doing his damndest to get cost of debt reduced now knowing that going forward its going to increase significantly plus I wonder if he is putting new deals on hold until interest rates start declining; but then with an inverted yield curve, shouldn't that imply signing new business now is an ideal time?
What I find interesting is why Avation are not taking on new business and indeed in the recent past I speculated some of the new AirBaltic aircraft which Avation have been invited to bid for is unlikely to be won by Avation as they 'seem' to be shunning new business, currently.
Avation has 28 ATR options at a runrate of 6 options per year until 2027. That's practically more than doubling the current ATR fleet size. So is Jeff preparing the ground work for that? Will he be selling of some of the unencumbered aircraft? I really want to hear his thoughts on that.
When Chorus Aviation bought 6 ATR's from Avation in 2017 I think Jeff found the large reduction in fleet/income more difficult to recover from than envisaged at the time, so in principle I believe he is against selling a large portion of the fleet again unless well above book value and as a means to an end of financing these 28 ATR's.
In April 2020 AVAP announced a Strategic Review and Formal Sale Process to maximise value for shareholders at a time when P/NAV was ~0.8. Currently AVAP has a P/NAV of ~0.5. Castlelake Aviation and others have seemingly gone an acquiring spree recently buying assets above book value, suggesting corporate activity is rapidly recovering from the pandemic. Come the next investor Q&A I intend to raise this point but based on Jeff's history he may indeed reply with a non-committal response.
So, in answer to your question, I don't think cost of debt is currently a factor in deciding to sell the company.
An awful lot of speculation on my part.