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???