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Avation (AVAP)

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Carcosa
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Re: Avation (AVAP)

#327043

Postby Carcosa » July 18th, 2020, 12:26 pm

On 2nd April 2020 I wrote a few words about Doric Nimrod Air Three (DNA3). Having taken a closer look and made an investment a few weeks ago I have subsequently written a few words about it here: viewtopic.php?p=326997#p326997

Carcosa
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Re: Avation (AVAP)

#331051

Postby Carcosa » August 5th, 2020, 11:02 am

Today Virgin Australia released the following announcement on the Australian Stock Exchange.

Virgin Australia's new owners Bain Capital announced they are removing ATRs, Boeing 777s, Airbus A330s and Tiger's Airbus A320s from the airline's fleet. Virgin Australia chief executive Paul Scurrah said "Our best guess is that domestic and short-haul [international] demand may take three years to fully recover, with the very real chance that it could be longer," he told reporters on a conference call.

Mr Scurrah said ditching the turboprop ATR regional aircraft would mean some of Virgin's regional routes might not continue.

"We'll continue to service 18 of the top 20 regional ports through 737 coverage," he said.

"But it does mean, because we're exiting the ATR, there's quite a few routes that we will not be continuing with. We are currently reviewing options to continue servicing those routes previously flown through a number of different mechanisms."

So I think it's fair to say that in addition to the previously -500 aircraft looking for new homes the other five ATR's (-600's) are now off-lease.

Surprisingly Avation did not issue an RNS until midday in which they said

The Company advises that it is not aware of any decision to return its remaining five ATR72-600 aircraft that are leased to Virgin. The Company has an agreement with the Administrator so as to ensure that these aircraft are being properly maintained and stored. The Company will liaise with Virgin regarding the continued use of the five ATR72-600 aircraft and will provide further updates when appropriate.

Don't know about you but I think this sounds bad. Avation should be aware 100%. This weaselly worded RNS is not good enough.

Looking on the bright side, there may be the possibility of Hevilift or someone else taking over these ATR's (at much reduced lease rates) and operating them in the same (unopposed) routes.

These ATR's brought in about $25m in revenue pre-Covid

Either way, Investors had all morning to get out of Avation but the lack of activity suggests there are not many retail shareholders remaining!

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Re: Avation (AVAP)

#331352

Postby LeoInvestorUK » August 6th, 2020, 11:41 am

Yesterday's statement Virgin Australia / Bain Capital statement says:

* Simplified all-Boeing 737 mainline fleet and the retention of the regional and charter fleet, but removing ATR, Boeing 777, Airbus A330 and Tigerair Airbus 320 aircraft types


Now surely the ATRs are used on regional flights, the "R" in ATR stands for Regional, right? And I've found loads of references of them being used within NSW in particular [1][2]. So this is a contradiction - they cannot both retain the regional fleet and remove ATR types. However they may be making some unspoken distinction between Virgin Australia Regional Airlines (which only operates jets) and regional flights flown by Virgin Australia.

The Group will move to an all-Boeing 737 mainline fleet for domestic and short haul operations which will see the removal of ATR, Boeing 777, Airbus A330 and Tigerair Airbus 320 aircraft. The Groups regional and charter fleet will remain, while the company reviews options at Virgin Australia Regional Airlines (VARA), including different operating models to support continued regional and charter flying


This paragraph is entirely consistent with retaining some ATRs. In particular, they could be moving some ATRs back to VARA.

Also, I would have though that e.g. Port Macquarie News would have had something to say about losing a major part of their air connectivity. The only coverage I can see of yesterday's statement talks about the loss of Tigerair:
www dot portnews dot com dot au slash story/6864885/virgin-australia-sends-tiger-to-extinction/

Also also, why are Virgin Australia still taking bookings for e.g. VA 1184 previously operated by ATR-72s in January?

Based on the evidence I have the statement is badly worded and the situation is still under review.

[1] For example, compelling evidence of VH-FVZ, an ATR 72-600 flying from Sydney to Port Macquarie in January 2020: www dot youtube dot com/watch?v=M2rdW_ZZ5Xs. Also pictured: VH-FVR
[2] VH-FVN tar1090 dot adsbexchange dot com/?icao=7c1c51&lat=-35.161&lon=150.668&zoom=6.5&showTrace=2020-03-01

Carcosa
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Re: Avation (AVAP)

#331368

Postby Carcosa » August 6th, 2020, 12:06 pm

You make interesting comments.

Let's just clarify:
These -600 ATR's originally operated (Air Operators Certificate) by Skywest Airlines; where Jeff Chatfield, AVAP Executive Chairman cut his teeth, before being transferred to Virgin Australia Regional Airlines in 2013, they were then subsequently transferred to Virgin Australia in 2015

Virgin Australia Holdings is the parent company of Virgin Australia Regional Airlines.

It is possible, after reading your post, that the ATR's could be once again go to VARA per Scurrah's reference to one of those 'mechanisms'. The ATR disposals would then be confined to the -500's, which we already know about from AVAP

Either way I would anticipate that part of that deal would require negotiating the lease payments to a lower value.

Some poorly worded press releases made me believe all the ATR's are being disposed of but perhaps I was wrong. This is supported by the fact I was advised yesterday that the ATR flight crew are remaining employed.

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Re: Avation (AVAP)

#333069

Postby Carcosa » August 14th, 2020, 7:16 am

A few weeks ago I posted that Easyjet were in negotiation for SALB of six A320neo's valuing them at an average of $42.5m per aircraft (much reduced from pre-COVID levels). Today EasyJet issued an RNS saying they actually completed on five A320neo's at an average of $33.4m.

That is a huge disparity between intent and actual. We do not know actual specifics but the magnitude between $42.5m v $33.4m suggests valuations have fallen even further, and dramatically, since May 2020. The read across to Avation is not ideal.

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Re: Avation (AVAP)

#333105

Postby dspp » August 14th, 2020, 9:46 am

Carcosa wrote:A few weeks ago I posted that Easyjet were in negotiation for SALB of six A320neo's valuing them at an average of $42.5m per aircraft (much reduced from pre-COVID levels). Today EasyJet issued an RNS saying they actually completed on five A320neo's at an average of $33.4m.

That is a huge disparity between intent and actual. We do not know actual specifics but the magnitude between $42.5m v $33.4m suggests valuations have fallen even further, and dramatically, since May 2020. The read across to Avation is not ideal.


Nor is the read across to my Airbus shares :(

I take it you have been keeping an eye on
https://www.pprune.org/australia-new-ze ... ps-10.html

regards, dspp

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Re: Avation (AVAP)

#333570

Postby Carcosa » August 16th, 2020, 11:56 am

I take it you have been keeping an eye on
https://www.pprune.org/australia-new-ze ... ps-10.html


Can't say I have (I only have a nominal holding in AVAP, so don't pay too much attention, as I once did).

If REX need ECA finance (which appears to be the case) then they have to be brand new aircraft. Given that Avation have indicated no new capital expenditure is to be incurred then it seems unlikely Avation will supply the aircraft.

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Re: Avation (AVAP)

#337312

Postby Carcosa » September 1st, 2020, 8:04 am

So I think it's fair to say that in addition to the previously -500 aircraft looking for new homes the other five ATR's (-600's) are now off-lease.


And confirmed today via RNS

Am guessing three of the -500's are going to be tough to place/transitioned. Selling eight ATR's (x5 -600's and x2 -500's) seems unlikely to happen any time soon. If they get 10% of the US$74.7m claim then that will help a great deal but I have a suspicion that may be pared down considerably. Will have to wait and see.

Overall, far far from a catastrophe but selling those aircraft below book value seems a likely outcome to me. Pre COvid the -600's were worth about $12.5m each and are around 8 years old

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Re: Avation (AVAP)

#347880

Postby Carcosa » October 15th, 2020, 8:25 am

Today, after a long period of silence, Avation issued a Trading Update

I have to say that the Company have been very remiss in updating the market over recent weeks; especially given the content of today's TU

The Company has retained the core complement of commercial, legal, financial and technical skillsets and personnel to ensure it has the resources needed for a lessor platform in the post COVID-19 pandemic recovery phase.

Or put another way, they have sacked a few people. Given it was a very small team to begin with anyway their lack of loyalty to their staff is disheartening/callous. Nevertheless they fail to suggest how much money in admin expenses this will save.

Since the beginning of the COVID-19 pandemic Avation has successfully completed a total of 12 aircraft transactions including: lease extensions, aircraft sales and has originated new leases.

So why did they not inform the market via RNS's as these were completed. Surely that is price sensitive information? Under normal circumstances RNS's would be released. Smells like they have lots to hide.

Distinct lack of justification for these agreements has been given. I am left to assume that many of these deals are to keep the aircraft with customers for longer and at the same time accept reduced/nil lease revenue in the hope they can repay over a longer period of time.

The final two Fokker 100 aircraft were sold off the end of their leases. The sale of these last two aircraft was completed in September 2020. The Company's fleet no longer includes any Fokker 100 aircraft.

Good to know these were completed but the value of these aircraft are immaterial at this stage.

Avation has negotiated the retention of two recently delivered ATR72-600 aircraft with Braathens Regional Airways AB, which successfully re-emerged from Administration in September 2020.

Two? They previously admitted to one when I pressed them on this matter a few months ago. Due to some clever wording investors may have thought that Avation had all aircraft placed with customers at the start of COVID. It turns out they had two brand new aircraft on their books. Again clever wording "negotiated the retention " reality is that they were on the hook for them.

The Company transitioned two ATR72-600 aircraft from the failed Flybe to another UK airline.
Why not say who the other airline is? All this secrecy...It's Logan Air.

The Company also transitioned two ATR72-500 aircraft from the failed Virgin Australia to another Australian airline customer
Hevilift

and delivered a third Virgin Australia ATR72-500 to a new operator lessee in Asia.
??

Furthermore, the Company has agreed lease extensions on its two ATR72-600 aircraft leased to Alliance Air Aviation Ltd (Air India Regional) to extend the lease durations on these aircraft to 16 years each.
Or put another way, they are not paying their lease charges so Avation extended the lease terms in the hope that they will pay up over the longer term

In terms of narrow body aircraft, the Company also agreed a six-year lease extension on a Boeing 737-800 aircraft leased to an Asian flag carrier.
Why so secret in not saying who it is. I can tell you it's Garuda and the reason is that the lease rate is very low.

During tough times Avation have failed to impress me with their communication to the market. They have gone out of their way to be circumspect and failed to keep th emarlet abreast of what has been happening.

This lates RNS is a "Trading Statement" and yet not a single mention of revenue etc.

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Re: Avation (AVAP)

#369332

Postby Clitheroekid » December 23rd, 2020, 8:38 pm

I read today's trading update with interest, but the key issue seems to be the extent to which (if at all) the bondholders are willing to negotiate.

There's an interesting comment here - https://www.fitchratings.com/research/n ... 18-12-2020

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Re: Avation (AVAP)

#372061

Postby Heinous » January 1st, 2021, 2:58 pm

Avation Says they are "Optimistic About Medium Term Opportunity For Air Travel" - well so am I, but that does not mean that Avation will immediately benefit, if at all.
More specifically, they see opportunities especially for turboprop and narrow-body sectors; again, few would disagree, but there will be fierce competition among the post-Covid survivors for a share of those opportunities. With a surfeit of planes around, margins will under pressure. If Avaition is to benefit, it will need to be ready with funds to pick up the bargains, as well as a good eye for the market's direction and speed of regrowth.
Avaition are a small mover in what will be a turbulent and cut-throat market.
Meanwhile, "Fitch continues to expect a slow recovery for the aircraft leasing sector following the unprecedented downturn in commercial aviation, driven by a dramatic decline in global air traffic as a result of the coronavirus pandemic". All that with a bond due in May. So Avaition's medium term optimism might not be enough for a short-term problem, especially with most of the ex-Virgin ATRs still loitering without intent.

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Re: Avation (AVAP)

#385047

Postby dealtn » February 9th, 2021, 12:15 pm

Interesting couple of RNSs from then last two days.

https://www.investegate.co.uk/avation-p ... 25422935O/

New lease.

https://www.investegate.co.uk/avation-p ... 03544354O/

Details of financing to deal with the Bond rollover risk for May 2021 (plus a lot of other news).

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Re: Avation (AVAP)

#394943

Postby dealtn » March 12th, 2021, 2:41 pm


Carcosa
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Re: Avation (AVAP)

#433625

Postby Carcosa » August 10th, 2021, 8:40 am

Image

Some of these figures seem a bit 'light' to me. Posting here for future reference.

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Re: Avation (AVAP)

#437245

Postby Carcosa » August 25th, 2021, 8:58 am

Today Avation announced the Sale of one of the six A220-300 aircraft they have with airBaltic; with a book gain.

A few observations

I wrote about the purchase of this and other A220-300 aircraft a couple years ago (you can read about it in the archives). In summary because of various market events these aircraft were acquired at an extraordinary low price; perhaps as low as $30m. As a result, post COVID price is around $36m for a new one today.

This aircraft was sold to a "Very large US based global alternate investment firm who like the aircraft/leasing space" according to Avation. Given the stable price of the aircraft pre/post COVID and the fact that airBaltic is effectively a successful and Government owned airline then the risk of an airline default is very low. It's my understanding they continued to pay the lease obligations throughout the pandemic. A near sovereign backed airline should be an easy sell to asset investors (as is Emirates).

The troubling issue I have is why would a 'Very large' investment firm only be interested in one aircraft? Hardly worth their time I would have thought. So perhaps more aircraft sales are yet to be announced or there are some other reasons at play.

One possible scenario is that this data point provides evidence regarding the rest of the A220 fleet valuation for Avation. I don't entirely buy this argument but it would be a helpful factor. Perhaps more interestingly it provides more liquidity for Avation, may improve the rating outlook too; or at least arrest the decline.

Overall a positive and necessary move for the short term but questionable for the longer term although Avation probably have few options at the moment

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Re: Avation (AVAP)

#440382

Postby Carcosa » September 7th, 2021, 4:55 pm

Well, I've gone and done it again... re-bought into Avation; albeit a very modest amount (At the height of my holding in 2019, pre-Covid, I had a six figure sum invested).

Why now?

If I may use a metaphor... 2020/21 was about sealing multiple leaks in a sinking boat and now we are in the process of bailing out the water.

The final piece of the jigsaw fell into place when Philippine Airlines restructuring was announced with the Avation B777 aircraft to continue in service. Had the B777 not been 'rescued' I really felt Avation would struggle immensely for a long period of time. Perhaps even forcing the company to sink.

Just having a look at the titles of the RNS releases shows a lot of activity over the past 18 months or so. Summarising, the effect is

Practically all the aircraft are producing income.
Non income producing aircraft (Virgin ATR's) likely to be sold or leased in the next quarter.
All bank and airline deferments set
Improved cash/liquidity position through cash released from:
- A220 Sale
- Virgin Australia creditors trust payment ~$6.5m
- PAL restructure partial payment of arrears
- Additional repayments of airlines lease deferments
- Potential sale remaining Virgin Australia's ATR's
Likely buy-back of unsecured bonds (trading in the 80's). This will reduce Avation's most expensive debt
Possible future growth late 2022

There is no question that the forthcoming year-end finals are going to be bad reading when released. Significant impairments are to be expected although given Avation's history I suspect the impairments will not be as conservative as I would expect. Other financial metrics will likely take a beating too. It would not be out of the question to see impairments of:
ATR's ~10%
A220's ~5%
B777 ~ 25%
A330 ~ 20%

The recent increase of the share price seems a bit speculative to me; being seen as a COVID recovery play perhaps. When the Finals are released I would not be surprised to see a significant pull back on the share price unless there is some compelling positive narrative.

18-24 months from now I would anticipate Avation procuring more aircraft; being quite profitable and paying a dividend again. But; as was seen prior to COVID the potential to sell the company or its major assets is ever-present. Indeed relatively recently AerCap announced $30 billion deal for GE’s aircraft financier. Goshawk Aviation CEO Ruth Kelly only said last month they are on the lookout for M&A. Carlyle Aviation Partners' purchased Fly Leasing Limited earlier this year... Perhaps Avation may be an attractive company post Results???

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Re: Avation (AVAP)

#440406

Postby dealtn » September 7th, 2021, 6:20 pm

Bought in the low to mid 200s pre-Covid, and it sank sharply before I could reconsider my investment case. Doubled up 6 months or so ago at 100p. Still not sure what my exit strategy should be.

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Re: Avation (AVAP)

#440446

Postby simoan » September 7th, 2021, 8:22 pm

dealtn wrote:Bought in the low to mid 200s pre-Covid, and it sank sharply before I could reconsider my investment case. Doubled up 6 months or so ago at 100p. Still not sure what my exit strategy should be.

FWLIW I re-evaluated the investment case at the beginning of July last year and decided I had no interest in holding potential basket cases so sold the lot at about breakeven on my average price. I have zero interest in re-investing as I met my end goal of FI in July and these type of investments no longer meet my criteria. I wish everyone long in AVAP all the best.

All the best, Si

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Re: Avation (AVAP)

#440504

Postby Carcosa » September 8th, 2021, 6:35 am

Si,

I hope you will continue to post here. Shareholder or not. You provide a worthwhile perspective.

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Re: Avation (AVAP)

#440530

Postby simoan » September 8th, 2021, 9:21 am

Carcosa wrote:Si,

I hope you will continue to post here. Shareholder or not. You provide a worthwhile perspective.

Kind of you to say so, but my contributions to this thread are piffling compared to your own! I no longer need to take on higher risk/reward equity positions and I'm concentrating more on higher quality lower returns these days.

My reasons for selling were twofold; firstly it became apparent to me the pandemic disruption to air travel was going to go on far longer than I had originally anticipated, which has turned out to be true; and secondly, on reviewing a company webinar I wasn't entirely happy at the dominance of the Executive Chairman, in particular the way he spoke to the CFO, which of course could be nothing at all and just a bad day at the office! :)

All the best, Si


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