Activist Campaign / Company Sale
This is a bet alongside Jeremy Raper and Rangeley Capital in expectation that one way or another they will help close the discount gap relative to peers and book value of the airplane fleet.
AVAP is a $110m market cap UK-listed aircraft leasing company. The company is currently trading at 0.49x P/BV vs. 0.9x multiples for much larger aircraft lessors. Recently, Rangeley Capital acting in concert with Jeremy Raper has accumulated a 26% ownership in AVAP. The action plan has not been disclosed yet, but here’s what Jeremy said during a recent podcast:
I’ve raised money and entities I manage have taken a 20 something percent stake in a listed aircraft leasing company in the UK called Avation, AVAP. This is all public filings. And you know my goal is to maximize value for all shareholders. It’s ostensibly a very cheap equity and I have a number of ideas to kind of create value for all shareholders.
Jeremy has highlighted that the landscape for smaller aircraft lessors has deteriorated amid higher interest rates, given their lower bargaining power and credit ratings. So the playbook may revolve either around company sale to a larger industry player or liquidation of its airplane fleet.
They (larger lessors) are managing to pass on the cost of higher interest rates to their customers. And it’s not showing up in credit yet, meaning they can charge higher yields without having to take huge impairments. […] But if you’re a smaller lessor, you don’t have that power. The cost of debt is going up. Maybe you need to go for below market leasing. Spread is getting crunched. It’s haves and have nots.
Important to note that the largest part of this stake (19% out of 26%), was acquired from the shutting-down hedge fund Oceanwood Capital at 79p/share (market price was 100p at the time). So for this portion of the investment, Jeremy/Rangeley are already sitting on 50% paper gains. However, the rest of the stake was accumulated at the end of October / beginning of November around the current market prices. I do not think these incremental purchases have been done only to breach the 25% ownership threshold – even at today’s prices the company is still very cheap relative to peers and equity value is fully backed by the liquid aircraft fleet.
During a shareholder meeting in late November, AVAP’s management (executive chairman owns 19%) stated that they have not yet had any discussions with Rangeley/Jeremy yet – their response to question about this:
Not particularly because they have been buying shares and they’re following the rules and want limited interaction with the company until that program is completed. So, we’re not really in a position to comment at the moment.
However, management’s previous comments kind of indicate that might be open to consider sale of the company – from a May’23 webinar:
In 2019, we received a proposal from an investor to buy the company. We haven’t had one lately. Over a period of time you’ll see more appreciation from investors for this sector: it has done super well out of COVID. You’ll see consolidation. […] I’m shocked we don’t see more investment grade lessors buy the sub-investment grade ones.
AVAP Book Value
Here is the breakdown of AVAP’s book value.
Note: the indicated share count includes 6m of warrants issued to Avation noteholders, these are exercisable at 114.5p by Oct 2026.
Cash ($117m). That is higher than the current market cap. Note covenant details and minimum cash requirements have not been disclosed in the annual report, but if the company chose (or was forced to) return just a part of this cash to shareholders, it would be hugely accretive and likely result in material spike in the share price. The amount of cash held by other aircraft leasing peers is a significantly smaller portion of aircraft fleet BV (AER at 5%, AL at 1%), so probably at least half of the reported $117m pile could be regarded as excess cash.
Airplane Fleet (BV of $845m + $8m). AVAP’s fleet consists of 36 airplanes, including 21 turboprop (regional), 13 narrowbody, and 2 widebody aircraft. The average aircraft age is 6.4 years with average remaining lease term of 5 years. The airplanes are leased out to 17 airlines in 14 countries, with a focus on Asia (74% of total planes leased) and Europe (26%) (see here, p. 16). Given that the fleet is predominantly regional and narrowbody, AVAP’s planes are generally operated on short-haul routes.
I have done some online checks to see how much this airplane fleet could be worth if sold today piecemally and it seems that the reported book value falls within my low and high end estimates, based on publicly reported pre-owned aircraft sale values (keep in mind these are rough estimates and some line items might not be accurate).
Turboprop ATR 72-600 planes comprise 40% of AVAP’s fleet value and might seem like the biggest risk in terms of valuation. However, over the last fiscal year, AVAP sold three ATR 72-600 airplanes above or close to their book values (see here, here, and here). Also, since 2020, the price of new-build ATR 72-600 has been gradually creeping up (table below). Corresponding to the same price increase trend, in both FY22 and FY23, AVAP recorded significant gains on purchase rights to acquire additional 28 ATR 72-600 airplanes.
My read from all of this is that these aircraft models are in high demand and that the fair value of pre-owned ATR 72-600 planes is likely to be at least in line with the depreciated cost basis. The ATR manufacturer itself also indicates high demand for its aircrafts and plans to double the production capacity in the coming years:
The goal for 2023 is to maintain our position as the leading regional aircraft manufacturer, by targeting at least 40 deliveries, with the ambition to ramp up production to 80 aircraft in the coming years.
All in all, I think that AVAP’s airplane fleet book value reflects the realizable value of the assets fairly well.
Aircraft Purchase Rights (BV of $86m). AVAP holds purchase rights to acquire 28 ATR 72-600 planes from the manufacturer, with deliveries on or before June 2027. While the company provides limited details on these purchase rights, AVAP has the contract since fiscal 2018. To re-value these rights regularly, AVAP uses the Black-Scholes option model rather than actual changes in the new-build plane values. However, as shown in the table above, the price of new ATR72-600 increased by c. $2m since beginning of 2022, which would sum up to a $56m gain on purchase rights for the 28 aircrafts on order. This also ties in with the reported $21m and $38m of unrealized gains for these purchase rights during FY22 and FY23. The rest of the gain ($27m) was recorded during fiscal 2020.
Thus the $86m on AVAP’s balance sheet attributed to these rights seems to correspond to the actual increases in plane values, and quite likely a similar amount could be gained in sale / rights transfer scenario.
An accretive target for larger players
An acquisition of AVAP or its aircraft fleet would appear to be highly accretive for larger aircraft lessors, even at a premium to the current share price levels. Publicly-listed competitors AER, AL, and BOC Aviation (2588:HK) are currently trading at significantly higher book value multiples of 0.93x, 0.63x, and 0.91x P/BV, respectively. The valuation discrepancy is warranted, given that these comps are much larger and have displayed significantly lower costs of debt and scale efficiencies over recent years (charts below). As a result, these comps are generating ROEs of 10%+ whereas AVAP remains unprofitable excluding unrealized gains.
Fleet lease yields are fairly similar across the group, however AVAP’s higher cost of debt is driving down the yield spread. This difference is only likely exacerbate going forward, when the company will need to refinance its debt at much higher interest rates – being a small industry player AVAP not able to pass the increased borrowing costs to its customers as effectively as large industry players. On top of that, there is usually a lag between increases in interest rates and corresponding improvement in lease rates (partially due to multi-year contract terms). This would pressure AVAP’s profitability even more in the short term. Just by re-financing AVAP’s aircraft fleet at more favorable rates (i.e. relative to lease yields), potential acquirer could realize material gains – 2% spread improvement would result in c. $15m of pre-tax gains.
Another way to look at the value AVAP in the hands of the larger peer would be check incremental profits that the acquisition of the fleet could generate. The net income for listed peers tends to hover around 3% of the fleet book value. At this level, AVAP’s fleet could produce c $26m in net income, implying that the company is trading at 4.5x potential earnings of the current asset base. Meanwhile listed peers sit at around 8x-9x PE.
Precedent transactions also suggest any acquisition would be done much closer to book value vs the 0.46xBV that AVAP is currently trading:
- In 2022, AER acquired GE’s Capital Aviation Services business for $30bn or approximately 0.8-0.9x P/BV (see here).
- Also in 2022, SMBC Aviation Capital bought Goshawk Aviation at 0.82x P/BV (see here).
- This year, Avilease acquired Standard Chartered Aviation Finance business at over 2x P/BV (see here).
I do not think the likes of AER, AL or BOC Aviation would be buying out AVAP outright as these companies concentrate on larger Boeing/Airbus jets and have limited/no fleets of turboprop planes. I have used these companies as examples of where airplane lessors trade and what profitability levels could be achieved with improved scale/efficiency. Still these players might be interested in piecemal purchases of the Airbus/Boeing planes from AVAP, and that’s already 50%+ of the fleet value. And then we have slightly smaller lessors such as DAE which among other aircraft also has a fleet of 67 ATR-72. Aside form the lessors, a number of regional airlines with existing ATR-72 might also be after AVAP’s book – 21 operating ATRs and further 28 on order – for a quick boost in capacity.
Why has Oceanwood sold out at such a low price?
The part of the thesis that I fail to fully understand is this – if the upside is so easily recognizable/realizable, why did Oceanwood Capital sold its stake so cheap – 20% below the market prices at the time and at 70% discount to book value?
AVAP amounted to c. 4% in Oceanwood’s portfolio and the stake was disposed as part of the fund’s liquidation. However, my read of the situation is that this was not a fire sale scenario where the fund was pressured by margin calls and client redemptions. Oceanwood fund is shutting down as its deputy CIO, who previously co-managed the fund with the founder, decided to strike on his own. Seemingly, there had to be sufficient time to shop the investment around in order to find a buyer at a higher price. Oceanwood could have explored a sale to various parties, including AVAP’s peers in the leasing industry.
The company also holds plenty of cash – $116m as of June – that is just idly sitting on the balance sheet. To buyback shares from Oceanwood even at the current 123p market price (vs 79p where Oceanwood sold) would have amounted to only $20m and would have significantly enhanced the value for the remaining shareholders, including the executive chairman who holds an 18% stake in the company. The chairman himself should have been interested in doubling his ownership in AVAP at an attractive price. Finally, Oceanwood’s stake could also have been sold to the yet-to-be-launched hedge fund of the ex-CIO.
I am obviously not privy neither to the exact circumstanstance of Oceanwood’s liquidation nor to any agreements that Rangeley / Raper might have with Oceanwood re the sold AVAP stake. So maybe there is a very easy and clear explanation for this. If Jeremy / Chris are reading this, congrats on what so far seems to be shaping up to a slam dunk of an investment.
Thanks.
Thanks for the note. Few queries:
1) Avation is an unprofitable subscale player, so why should they buy back shares? I would argue they should first fix their balance sheet.
2) I am curious why GE’s Capital Aviation and Goshawk were sold for 80% of BV while Standard Chartered Aviation was for 2x? That is a big difference. Moreover, shouldn’t Avation go much below 80% BV as it is subscale and burning cash?
3) what is the source of publicly reported pre-owned aircraft sale values?
4) What is the source for CMV and MLR data?
Thank you.
Thank you for the questions:
1) I am not saying they should be buying back shares if Avation continues to operate in its current form. Expensive debt is clearly a bigger issue. However, if one looks at asset/company sale scenarios, then cashing out some of the shareholders materially below BV would be very accretive for the remaining shareholders, including the executive chairman. Large cash simply provides optionality.
2) I am unable to comment on the differences in valuation, but it might have had something to do with a high embedded leverage for the Standard Chartered transaction (gross assets of $3.8bn vs net assets of $0.3bn).
3) Values of pre-owned aircraft – I have really just gathered these from various random places and press releases, so as I have already noted, it might not be accurate. Some info came from avitrader.com, airliners.net. If you come up with more accurate estimates, please share.
4) CMV and MLR table was taken from here (https://www.lemonfool.co.uk/viewtopic.php?f=33&t=6425&sid=74d041a353dd7dd723ea0114f66f741a&start=260). It was compiled by aviation consultancy Ishka.
Thank you, dt.
1) Can you please explain your point: “if one looks at asset/company sale scenarios, then cashing out some of the shareholders materially below BV would be very accretive for the remaining shareholders” ? If the company gets sold in the future, shareholders would anyway get the cash on the balance sheet.
2) It seems this situation could be dead money unless we have some clarity when the company decides to narrow the gap.
1) It’s a matter of repurchasing $1 at 60 cents.
Let’s look at this from the perspective of the executive chairman. He currently has 18% stake in the company. If he could use part of the cash balance to repurchase shares from minority shareholders at let’s say 0.6x BV, he would increase his % ownership in the company on an accretive basis. Then if the company/assets are eventually sold closer to the book value, then the value of this incremental stake would be higher than the pro-rata portion of cash that was spent to repurchase shares materially below book value.
2) Correct – AVAP has always traded under 0.5xBV or even below 0.4xBV. However, Rangeley/Raper did not enter this setup just to keep it as ‘dead money’. I would expect some kind of initiative from their side (together with management or without) over the coming months.
yeah, ok. Timing is important because they are burning cash.
Thank you for the pitch. Do any other airplane lessors capitalize purchase options and include it as an asset on their balance sheet? I don’t recall seeing this listed as an asset on AL or AER’S balance sheet. Why would some lessors include this and other don’t? Is there a reason via IFRS and GAAP, or does this say something about management (i.e. is this aggressive accounting)?
It accounts for most of the P/B discount relative to peers. If you adjust for capitalized aircraft purchase options maybe the P/B difference isn’t so great. Thanks again.
Initially, I wanted to deduct the value of aircraft purchase rights from BV calculations and had a similarly skeptical view. However, it seems that the increases in the value of the purchase rights are backed by documented increases in the prices of the new ATR72 planes. The demand for these aircraft also continues to be elevated. AVAP estimates the value of these rights using the option model, so the figure on the balance sheet is a sum of the actual observed plane pricing increase + any remaining time value of the option. In an ideal case, we should be deducting the second part to estimate BV realizable today more accurately. But as the volatility in plane prices is low, this time value of future ATR72 price fluctuations should be quite limited.
You are correct to point out that neither AER nor AL have this kind of line item on the balance sheet. I am not sure whether this is due to different accounting standards or management’s aggressive accounting (I would think the former). And maybe BV multiples would be much closer among these companies if AER and AL also reassessed the value of their order book and recorded it on the balance sheet (though the differences in earning multiples would not be affected by this). But worth pointing out, that these planes have been on ATR’s order book since the end of 2017, whereas only a small portion of AERs or ALs order book originates from 6 years ago. So AVAP’s order book had more time to age and in turn, might have become relatively more valuable vs contractually agreed plane acquisition prices.
But my key point here is that disregarding differences between the peers, I think this is a real asset and any potential buyer would be forced to pay up something fairly close to AVAP’s estimated value for these ATR72 purchase rights. So this is not only a balance sheet entry resulting from potentially aggressive accounting.
I’m a CPA and a bit of an accounting wonk who worked at the FASB (the U.S. accounting standard setter) for almost 10 years. AER and AL follow USGAAP, whereas AVAP follows IFRS. Both sets of standards have special accounting for purchase options that meet the definition of a derivative (and should be measured at fair value), but are related to the purchase of an asset that the company may use in its normal operations. If a company has an option to purchase an asset that they will use in their business, the company can elect to recognized the option at its cost (and not remeasure at fair value each period) if certain criteria are met. AVAP does not likely qualify for this alternative from fair value accounting for at least some of their purchase options because in their annual report they note, “The Group has determined that it would seek to dispose of excess aircraft purchase rights over and above its requirement to acquire additional aircraft for its fleet. ” For the options on aircraft that they intend to use, their is still an alternative in IFRS to recognize and remeasure them each period at their fair value, but certain conditions must be met. So it appears that the accounting is not aggressive for at least the purchase options for excess aircraft that they intend to sell and not take delivery. For the remaining options, as long as they qualify for fair value accounting, then it’s not outside of the rules.
Thank you, that is good to know.
Appreciate the feedback.
I wouldn’t worry about Oceanwood Capital. Different investors have different views and priorities and in their case it sure seems like the CIO might have been motivated to close out the portfolio quickly so they could move on to their next job.
The issue I see here it has a lot of leverage and the actual catalyst isn’t specifically known yet (sale, dividends, etc). Raper has a great track record so this is likely to do well too but it has more moving parts than his mining lawsuit plays, and combined with that leverage makes it seem risker. If we had a (unlikely) second pandemic it could be a zero. I’m thinking to pair it with a put that pays off well out of the money as a hedge but I don’t see any LEAPS available for the stock. Any ideas on other ways to hedge, such as a way to short turboprop airliner values?
Thank you, Dt, for the write-up. If it might be of help for anyone, I’m sharing my amateurish attempt to triangulate the AVAP plane values. Just public sources, I did not have access to any premium aviation data subscriptions. AVAP provides minimal info on the fleet so I was trying to find values of approx 6 year-old planes of various models.
**ATR72-600:** @ $15 million
– Value of a new aircraft as of 2023 is $22 million. Avitrader.com (https://avitrader.com/2023/02/27/narrow-body-aircraft-values-recover-in-2022-and-set-for-2023-climb/)
– As this is the main aircraft of AVAP, in a recent earnings call, they have disclosed that the new aircraft price stood at $21.3 million as of Dec’22 based on IBA Insight data. H1 earnings deck (https://www.avation.net/files/AVAP_Inv_Presentation_3Mar2023_final.pdf)
– In 2021, 4-year-old plane were going for about $13-14 million (likely these prices were affected by Covid so would need to be adjusted upwards). IBA Insight (https://www.iba.aero/insight/turboprop-aircraft-values-show-positive-trends/)
**ATR72-500:** @ $6 million
– In 2021, 10-year-old ATR720-500 was going for $6 million. As these planes are no longer in production, I am just using the value of 10-year-olds in 2021 as my average plane value in the AVAP’s fleet. IBA Insight (https://www.iba.aero/insight/turboprop-aircraft-values-show-positive-trends/)
**A220-300:** @ $30 million
– New A220-300 in March 2022: $36.1 million. Cirium Aviation Analytics (https://assets.fta.cirium.com/wp-content/uploads/2022/03/23235419/Aircraft-Value-Guide.pdf)
– New A220-300: $37 million, 4-year old value: $28 million. IBA Insight, from two years ago (https://www.iba.aero/insight/tracking-airbus-and-boeing-narrowbody-aircraft-values-in-2021/)
– Range between $26.2 and $38.8m provided on Airliners.net, aligning with the two other sources. Airliners.net Forum (https://www.airliners.net/forum/viewtopic.php?t=1484553)
– New at $39m in 2023 Avitrader.com article based on IBA’s new estimates also squares with the forum numbers. Avitrader.com (https://avitrader.com/2023/02/27/narrow-body-aircraft-values-recover-in-2022-and-set-for-2023-climb/)
**A320-200 (ceo):** @ $25 million
– Market value of 5-year old A320-200ceo in July 2022 at around $25-26 million and 10-year-old at the same timeframe at $17-18 million. IBA Insight (https://www.iba.aero/insight/narrowbody-aircraft-values-update-august-2022/)
– Market value from the oldest to the newest at Airliners.net from $3.8-34.6 million. Assuming a reasonable 5-7% depreciation per year gets us to $23-25 million on a 6-year-old plane in line with IBA estimates. Airliners.net (https://www.airliners.net/forum/viewtopic.php?t=1484553)
– 12-year old A320-200 estimated to be worth about $18 million (about 6% depreciation from the current market value estimates). Avitrader.com (https://avitrader.com/2023/02/27/narrow-body-aircraft-values-recover-in-2022-and-set-for-2023-climb/)
**A321-200:** @ $27 million
– 4 years old A321ceo was valued at $32.5 million, meanwhile, the 12-year-old is estimated to be worth $18 million as of the end of 2021 (about 7% yearly depreciation). IBA Insight (https://www.iba.aero/insight/tracking-airbus-and-boeing-narrowbody-aircraft-values-in-2021/)
– Range between $9.2 million for the old and $42.4 million for the new build A321-200. That’s about 27 million for a 6-year-old plane, assuming a rapid 7% annual decline in value. Airliner.net (https://www.airliners.net/forum/viewtopic.php?t=1484553)
**A330-300:** @ $30 million
– Expected value of 12-year-old A330 at $20 million in 2023 from Avitrader based on IBA’s latest reports. Avitrader.com (https://avitrader.com/2023/02/27/narrow-body-aircraft-values-recover-in-2022-and-set-for-2023-climb/)
– Airliners.net range from oldest to newest is between $4.5 and $48.8 million. Assuming a 7% decline in value every year gets us to $31.5 million on a 6-year-old plane. (https://www.airliners.net/forum/viewtopic.php?t=1484553)
– Listing price of a 2007 A330 at $20 million, so that’s about a 5% annual decline from the full life market value of A330. Assuming a similar rate of decline on a 6-year-old plane will get us to $35-36 million. Controller.com (https://www.controller.com/listings/search?Category=3&Model=A330%7CA321&Manufacturer=AIRBUS)
– As of the end of 2021, a 10-year-old A330-300 was at about $25 million. Scope Ratings (https://www.scoperatings.com/ScopeRatingsApi/api/downloadstudy?id=e5107d42-f3c7-4bfc-be3b-3f93b1826c9f)
**777-300ER:** @ $40-50 million.
– Airliners.net estimated range between $17.2 and 92.5 million from oldest to the newest build. Airliners.net (https://www.airliners.net/forum/viewtopic.php?t=1484553)
– Cirium estimated range is between $19.2 million and $27.2 million. Cirium Aviation Analytics (https://assets.fta.cirium.com/wp-content/uploads/2022/03/23235419/Aircraft-Value-Guide.pdf)
– In the 2021 scope report, a 10-year-old 777-300ER valued at c. $43 million (7% decline from airliners.net upper limit estimate)
With these figures the total sums up to just under $700 million.
This is great, thank you!
So is your conclusion that the value of the planes (~$700m) is $49m below DT’s low end estimate?
The key differences between mine and Giorgi’s calculations seem to be ATR72-500 and Airbus 321 values.
– The 321s on Avation’s fleet are relatively new aircraft that were acquired during the years 2016-2017 from Airbus. Back in 2017, the company paid c. $250m for 5 new A321. So my estimate of $32-$40m value for a six-year-old A321 is likely to be overly conservative, especially with plane prices increasing across the board due to inflation and other factors. These models are now discontinued and replaced by 321neo. As can be seen in this official pricing list from Airbus (https://www.airbus.com/sites/g/files/jlcbta136/files/2021-07/new-airbus-list-prices-2018.pdf), the list price for 321neo model ($129m) is only slightly higher than the non-neo-321 ($118m). These list prices are not what most companies end up paying, so not sure how much of a real referce tese are, but just this year Cathay Pacific recently placed an order for 32 new A321neos for $4.66bn, or $145m per plane (https://www.reuters.com/business/aerospace-defense/cathay-pacific-buys-32-airbus-a321-200neo-aircraft-466-bln-2023-09-29/).
– For the ATR70-500. These were acquired new during FY2012. And the company shows a total of $108m paid for these planes in the cash flow statement, so $18m per plane. At the time the ATR72-600 cost approximately 25% more. So I valued these used planes at a slight discount to the values attached to the 600s models. My guess is $6m is a bit too punitive.
Without having full data for used plane prices, this exercise is more of an art than science. We also have to keep in mind, that Avation is regularly reviewing the value of its fleet and deducting impairments if there is a mismatch with fair values. Some of these impairments get later reversed ($3.3m was reversed during 2023).
https://www.iba.aero/insight/regional-aircraft-performance-2023
“ The top performer in the turboprop segment is the ATR72-600, which has seen an average 8% increase in values in 2023 compared to the previous year. This rise in value can be attributed to the cheap cost of passenger-to-freighter (P2F) conversions available for the type, coupled with the OEM facing little competition in the turboprop market – the only other viable option being the older DHC8-Q400.
The interest in the aircraft type has surged over the last year, especially among airlines in search of capacity to meet the current market demand. This has led to many existing operators opting not to return their aircraft at lease maturity and instead choosing to extend leases at higher Lease Rates”
A good slide showing how AVAP’s cost of debt compares to other aircraft lessors. The net spread would increase by 50% if the debt is refinanced at peer levels.
AVAP reported H1’FY24 results with no major changes on the operational front. While revenues and operating income were down 17% and 50%, respectively, year-over-year, the declines were partially driven by one-off/non-recurring items. Company’s cost of debt continued to creep up to 6.3% in H1’FY24 (vs 6.1% in FY23 and 5.7% in FY22), but this was more than offset by an increase in lease yield from 9.7% in FY23 to 10.4% in H1’FY24. Nonetheless, the yield spread remains substantially below those of larger competitors, such as AER and 2588:HK. AVAP currently trades at 0.44x P/BV compared to 0.93x and 0.94x multiples for these larger aircraft lessors.
During the conference call, management was asked multiple times about the wide discount to NAV and the involvement of activist investors. No material updates have been provided aside from management’s comments that it is focused on narrowing the discount to NAV and is open to any feedback from the activist. See several quotes from the conference call below:
AVAP sold 2 ATR newbuilds, in advance of taking delivery, for gross proceeds of $10mm (to be received once planes get delivered, later this year and early next, respectively). If you account for PDPs ($1mm each plane, I estimate), this implies about a $4mm profit, per plane – or at a premium to the implied per-plane in-the-moneyness of the purchase rights as of last balance sheet date ($88mm for 28 purchase rights, or $3.15mm per plane). this should not be a surprise as newbuild plane demand remains very strong; supply is very low; and as travel demand has rebounded the value in use of aircraft of all stripes has risen considerably. I believe these prices imply about $22mm/ATR-600 for newbuild ATRs, versus AVAP’s implied ‘strike’ price (where they have the right to purchase planes) of around $18mm.
essentially AVAP has demonstrated not just that the intangible value in the purchase rights is ‘real’, but that it is actually could keep going up; and that they can monetize these intangible assets, for cash. AVAP has exercised another 10 purchase rights for delivery over the next 4 years (so call it another $40mm of implied profits, through the PnL, assuming current valuations hold) and then has a further 24 options (as yet unexercised) going out to mid 2030s. I think they likely preserved most of the residual intangible book value through that order (along with the time extension), but perhaps less on a per-plane basis (ie accepting a lower purchase ‘strike’ price in return for maturity extension on the options).
still, at a high level, it is hard to conclude there isn’t a significant tailwind of intangible -> tangible asset conversion occuring here, at a minimum over the next 2-3yrs as aircraft markets remain extremely tight.
tangible book value today is $142mm, and the equity trades at a $125mm market cap – so this $40-50mm of tangible value creation (pre-tax) is clearly a significant positive either versus the market cap, or versus tangible book today.
Thanks for the comment. This sale of two ATRs validates management’s estimated value of the purchase rights.
From the write-up above: “Thus the $86m on AVAP’s balance sheet attributed to these rights seems to correspond to the actual increases in plane values, and quite likely a similar amount could be gained in sale / rights transfer scenario.”
Have you had a chance to talk to management? Is the plan to monetize all of these rights or does the company plan to take the actual delivery of some of these planes for it’s own business?
yes, i have discussed all aspects of the business, strategy, and balance sheet with management, and will remain focused on maximizing value for all shareholders.
you will note in today’s trading update that performance rights at book now appear much higher – $115mm, versus $88mm at last report – given the increase in number of rights; move in aircraft valuations; and extension of these options (ie a good chunk of time value). It is worth noting that tangible book is probably $10mm or so higher (post closing of the two sales early next year), and the company appears to be generating positive FCF again now that the fleet is fully released. adjusting for the increase in purchase rights value, book value as at 1H is likely 285p – giving no value to the $10mm receipts as that will hit at year end/early next. tangible book at year end is likely to be around 175p, so still well north of current trading levels.
AVAP is now trading above the expected year-end tangible book value of 175p.
Are these purchase options usually exercised at current market prices or historically set prices? Does AVAP benefit from (unexpected) market price appreciation?
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces that it has sold two ATR 72-600 aircraft to Danish Air Transport (“DAT”).
The two aircraft were acquired in 2018 and leased to DAT on leases which included purchase options. DAT notified the company of its intention to exercise the purchase options for both aircraft and the sales of the two aircraft have now been concluded. This transaction is at book value and releases net cash proceeds, after repayment of associated bank loans, of about $10 million.
Do not confused purchase rights that AVAP holds for new plane deliveries vs purchase rights that lessee holds on the leased planed from AVAP.
The write-up discussed purchase rights held by AVAP for new plane deliveries which have a specified price per plane (let’s call it historical prices). These rights are being re-evaluated regularly based on market prices of the new planes.
The latest announcement talks about lessee buying out the leased plane from AVAP. The purchase price was likely determined in the lease terms and it could be both, historical, index, or current. All depends on the lease terms.
I think it’s implied in the write-up that they are using historically set prices.
So, in the same way the Aircraft Purchase Rights for pre-ordered aircrafts can be considered hidden assets to AVAP, the purchase options exercisable by lessees on existing aircrafts can be considered hidden liabilities to AVAP?
AVAP reported FY2024 results (ending June 30). The business continues perform as expected with the aircraft fleet being fully leased. A couple of takeaways:
– Almost all of generated cash went towards debt reduction (debt down by $81m during the year). Now debt stands at 57% of total assets.
– Only one lease expiry and only $50m of debt maturities pending during 2025.
– Company placed orders for 10 new aircraft commenting: “Avation plans to grow its business in a prudent and strategic manner. To that end the Company has placed an order for ten new ATR 72-600 aircraft to be delivered gradually over the period from Q4 2025 to Q2 2028. Avation’s management believe that the contract price for this order is favourable compared to forward valuations for the aircraft type. The order was placed by exercising ten of the Company’s purchase rights for new ATR aircraft.” The company will still have rights to purchase 18 new aircraft from the previous contract and also received additional rights to purchase 6 new aircraft till 2034.
– I think this signals that debt is now at comfortable levels and that management is ready to start monetizing its purchase rights.
The stock continues to trade at roughly 50% discount to the reported NAV (NAV of £2.71/share vs share price of £1.35). Conference call transcript should be out soon and there might be some further color on company’s direction going forward.
https://www.londonstockexchange.com/news-article/AVAP/unaudited-results-for-year-ended-30-june-2024/16684233
Sharing with the board some interesting tidbits from the recent AVAP conference call (mostly on M&A, discount to NAV, debt reduction/buybacks). My takeaway so far is that that activist shareholders haven’t been very active in engaging with the company, while management seems largely intent on maintaining the status quo.
About M&A:
“The first question we had is, is the company considering a management buyout? And I can say, not at this stage.
Has the company received any approaches for business combinations in the last 12 months? I think we announced one last year.
Question three, would we consider noncore business in the next few years? The answer is no.”
About activism:
“Have activist shareholders provide any sort of standard input to improve the business share?
Well, the one so-called activist shareholder has been quite supportive and hasn’t – I think is enjoying the improvement in the underlying parts of the business.”
About debt reduction and share buybacks:
“Given the paramount importance of continuing to reduce debt, should shareholders assume that the company will not be repurchasing the shares for the future?
Well, it’s a question of degree and timing. So the company has announced that it’s going to buy shares, but it’s also announced that it’s going to buy bonds. And it’s also coming paying a lot of debt. And so it’s a ratio thing. What’s the appropriate ratio to satisfy all the audiences that are involved in the company? And clearly, the companies have been a buyer of the bonds at prices that work for the company. In size, we’ve bought $17 million worth in the last few months, but we couldn’t buy $17 million worth of shares because I think the share price would be very high. So it’s a question of how much money you spend on both, and that’s sort of a function of the markets. Clearly, the company has been doing well and consider both things and reducing debt is a good thing, but also we need to respect and look after our shareholders.
About strategic alternatives.
“Is there any strategic process considered? Merging with a better balance sheet entity seems the only way to crystalize value?
Well, the company is in organic growth mode and is doing the right things. It’s paying down its debt, it’s buying back its shares, it’s buying back its bonds. It’s got an organic growth profile out sort of for 10 years. So that’s the job of the company. It’s not up to us to manufacture transactions that artificially change that.”
About NAV:
“So the next one is challenging. So share market does not believe the NAV.
Well I don’t know whether the share market believes in NAV or not. I mean, there could be an argument that says that big shareholders think, well, you’ve got all this big order book, how are you going to fund them? You got to need more money. But what they don’t think about is it’s actually over a very long time. Over 10 years, you do generate a lot of money. And we have demonstrated that by selling 2 aircraft right now, we fund what we need to pay for substantially in PDPs for quite a while.
So I don’t know if it’s just NAV. I think big shareholders also consider whether you’re going to call on them for another a few hundred million dollars to fund your order book and the answer is, well, it’s a 10-year program.”
About timeline:
“The next one talks about, are you saying we need to wait 10 years? No, I don’t think we need to wait 10 years.”
Sky News reports that Oaktree-backed Azorra Aviation Holdings is preparing a takeover bid for AVAP. Multiple other parties in the aircraft leasing industry are also evaluating potential offers. The move comes amidst increased consolidation within the sector.
https://news.sky.com/story/oaktree-backed-predator-eyes-swoop-for-london-listed-avation-13244580
Interestingly, the stock reacted only briefly on 10/30 when the news broke
Very large trading volume (2.7 million shares vs average daily volume of 200k).
Price reached as high as 192p early that day during the first hour.
And then returned to normal the next day.
Two directors were very eager to sell their shares in the open market at >11% discount.
They exercised their 2020 and 2021 series staff share warrants at a price of 130 pence and sold the AVAP shares for 150 pence on 11/28 (and the closing price the day prior was 169.5 pence).
Robert Jeffries Chatfield, a director, subscribed via a company in which he is interested in for 1,200,000 ordinary shares as part of this allotment. In addition to this subscription Mr Chatfield has sold 1,200,000 shares through the market at an average price of 150 pence per share. Accordingly, his direct and indirect holdings in ordinary shares will be 12,230,001 on Admission becoming effective, which represents 16.38 per cent of the enlarged share capital.
Roderick Douglas Mahoney, a director, subscribed for 750,000 ordinary shares as part of this allotment. In addition to this subscription Mr Mahoney has sold 750,000 shares through the market at an average price of 150 pence per share. Accordingly, his direct and indirect holdings in ordinary shares will be 730,000 on Admission becoming effective, which represents 0.98 per cent of the enlarged share capital.
Two ownership reports have been filed last week.
IG Markets increased from 3.76% to 6.97% (cash-settled equity swaps) on 11/28.
HSBC Bank disclosed 5.89% ownership for the first time also on 11/28, the same day when the two AVAP directors sold their shares at 150 pence per share.
The IG filing is particularly interesting.
I don’t think IG Markets clients (mostly small CFD day-traders) are typically interested in AVAP shares (very illiquid, fundamental play), or capable of taking up large off-book block trades.
Maybe some large investors are hiding behind both?
AVAP has bought back 10.45% of shares in issue at 150p/share, and hinted at further such transactions in the future. Wondering who’s selling?
“The Board of Avation PLC (LSE: AVAP), announces that it has concluded a repurchase of 7,800,000 shares, through the market, at 150p each, representing 10.45% of the 74,671,886 ordinary shares in issue. Repurchased shares will be held in treasury. Following this transaction, the company has 66,871,886 voting shares in issue.
We repurchased shares at a 47% discount to the last reported Net Asset Value per share of 285p, making this transaction highly accretive to all residual shareholders in the Company. We will continue to pursue all avenues to manage the capital structure and maximize shareholder value, including further accretive transactions of this nature in addition to our articulated portfolio growth strategy.”
I am a bit puzzled by this buyback. There was a single trade of 7.8m shares at 150p yesterday recorded as off-market transaction (based on London stock exchange info). Was this the actual buyback form a single holder? Or is this how the move to ‘shares held in treasury’ is recorded on the exchange?
It’s also worth noting that this buyback was compensating for the Nov warrant exercise by AVAP employees/execs (+3.7m shares) when at least two of the directors sold 2m shares also at 150p (see Nov 28 comment above). Trading volume on this day also spiked to unusual levels (10.3m shares). My guess is that this was the day of the actual buyback, and a large of part of the buyback was filled by selling insiders.
While the buyback materially below NAV is accretive, if the whole amount was allocated for cashing out insiders and this was done at the time when there were rumors of potential bid for the company, it does not really look like management is really interested to “maximize shareholder value”.
Any other thoughts on this?
No, a “move to shares held in treasury” is not reportable to the exchange.
An actual transaction is reportable, and should be reported on the same day.
However, from the transaction data we can piece together a picture: it looks like accounts at HSBC and IG markets took up significant amount of the block sales on 11/28.
So it is still possible that, although technically AVAP did not buy the blocks of shares directly from the directors, it did later buy back these shares indirectly.
I have emphasize that this is purely my speculation based on public data.
Regardless, I think overall it’s a positive move, retiring 10.45% of shares at 150p/share.
The holdings by Christopher C. DeMuth Jr. (Rangeley Capital LLC) and Jeremy Raper decreased by 10.67% on the same day.
So AVAP likely bought back the 7.8m shares from them.
They still own 15.11% of AVAP (14.9% by DeMuth and 0.2% by Raper), down from 25.78%.
This does not inspire a lot of confidence:
– Rangeley/Raper sold almost half of their position in AVAP – potential pressure on management by these guys was one of the key parts of the investment thesis. Also, they clearly do not think risk/return is favorable at 150p/share to maintain the full position.
– It kind of seems that the whole buyback was done to cash out either insiders or large shareholders. Unclear which one, as was there were two days with 8m+ trading volume – insiders were likely selling on Nov 28, and Rangeley on Dec 17.
While the discount to NAV remains large and Rangeley/Raper have retained 15% ownership in the stock, due to reasons above I have also trimmed my AVAP position materially.
Seems prudent to follow DT’s lead….unless we hear from Rangeley/Raper.
As nobody has disclosed a holdings increase in recent days (unlike after 11/22 when HSBC/IG reported corresponding increase), I assume the buyback was done on 12/17 to cash out Rangeley.
DeMuth/Rangeley has made a profit of 90% (79p to 150p) in a year, so it could also be just prudent profit-taking and risk management.
It’s interesting that Raper owns just 0.2%, which is a very small stake and worth just 220k GBP, and yet DeMuth and Raper’s holdings are filed as “acting in concert”.
maybe worth chiming in here as seems there’s a fair few misconceptions re what has been happening:
– i sold a minority of my position and maintained a majority of my position, in a highly accretive fashion that adds value to the rest of the share (if you believe, as i do, that the price the shares were retired at was well below intrinsic value);
– the shares were repurchased at a very large discount to book value; and even a discount to tangible book value. If you agree with the view that the purchase rights – the vast majority of intangible value – have real value, through sale or exercise, over time (as was proven during FY24), then the accretion to the company through this transaction is very much real, and I’m not sure how that could be construed as an ‘insider bailout’;
– it is true the CEO and another director sold down into the warrant pricing, but only just-converted options (received as part of exec comp in prior years), they didn’t sell down any pre-existing owned shares. In any case the CEO still maintains >97% of his pre-sale position and basically his entire net worth in the company’s shares;
– whether the buyback got done or not, the sell of new shares/warrant-exchanged shares would have happened anyway. this was simply a function of the bond restructuring (during COVID), a bunch of warrants got issued to the bondholders, some of those guys exercised their warrants (now in the money) and wanted to sell, not sure how the buyback can be construed as in conjunction/related to that – in fact the two transactions were totally unrelated, in form and in fact;
– the reason I own ‘only’ 0.2% but am on the same filing as the Rangeley form is because I manage that vehicle (the Rangeley vehicle), but only own 0.2% directly in my own name. Obviously I have a substantial personal investment in that vehicle, as well, but for filing purposes all separate ownerships need to be listed. This is all standard disclosure practice in the UK.
At the end of the day, the old adage, ‘there are many reasons to sell a stock but only one to buy’ applies. If/when the bond gets refinanced at market rates, overall funding costs at AVAP should improve by at least 150bps – maybe $11-14mm in pre-tax profit per year – and that, combined with better lease yields and lower transition expenses suggest that even absent further purchase right sales, AVAP should be doing $20-25mm of pre-tax income in FY26. naturally I intend to work towards maximizing value of the entity in a more strategic fashion, in advance of that earnings power coming through, but with the fleet fully utilized; the purchase rights beginning to be monetized; the balance sheet now largely under-levered; the company demonstrating a willingness to retire shares in meaningful size at a large discount to book value; and the benefits of refinancing likely to enter the PnL in the next year or so, suffice to say it still seems an interesting opportunity (but please always do your own due diligence, none of this should be construed as advice).
there was a meaningfully positive development here that the market appeared to look through completely. AVAP disclosed that Philippine Airlines (PAL) – the lessee for AVAP’s B777-300ER, that is, a 7yr old widebody that is one of AVAP’s largest single assets – did NOT exercise their lease termination option and thus the lease would continue on the same economics until the end of 2029.
this wide-body lease was struck in 2017, when the plane was new – leases are typically 12-13 yrs (ie the first half of a plane’s normal usable life) ie about 25yrs. whilst PAL has been restructured, management has disclosed the lease term here is ‘over $1mm a month’, ie, at least $12mm of income a year. Given the evolution of the widebody market, you may have expected PAL to exit the lease (at their option) and try to source another, cheaper variant in the market (or rewrite the lease with AVAP) – but they didn’t, suggesting it was still economic for them to pay $1mm a month, locked in for another 5 years, even though optically lease rates are much lower than this on mid-life B777-300s (around $600k/month, apparently). Once again the value in use of existing aircraft is being demonstrated by operator actions.
Obviously, this speaks to the strength of the broader twin-engine widebody market. the successor aircraft to the B777-300, the B777X series, has been massively delayed (as per other Boeing programs) and with decisions like this it seems will continue to be delayed for a number of years. Meanwhile it signals the strength of the widebody market (not just the narrowbody market) and particularly for mid-life aircraft.
Widebody planes are big ticket items and maintenance/overhaul for new lessees is expensive; as such this specific aircraft coming off lease now presented a real risk, that is now removed completely. Clearly a big positive.
But more than this with another 5yrs of income attached and a firm mid-life aircraft market for widebodies, the window is now open to sell an aircraft like this at a significant gain on book. I estimate this aircraft is on the books at something like $65-70mm (though the exact number has not been disclosed). This 7-year-old aircraft is poised to now generate $60mm in gross rental income over the next five years, whilst Ishka (an aircraft pricing consultancy) currently estimates 10-year-old B777-300s are roughly worth $55mm (up 45% year over year, and probably still rising). In 5 years AVAP’s 777-300ER will still be only 12 years old and moving onto its second lease; in the current market I believe residual market value at that point will be well north of depreciated book value.
In other words, I believe post this PAL extension the saleability, and value, of this specific aircraft should have gone up a lot. Even a $10mm sale above book value, today (readily achievable imo) would be quite meaningful in the context of AVAP’s current equity market cap ($115mm) and thus be highly accretive.
Thank you for sharing Jeremy. What’s your price target for AVAP?
i believe the co can sustainably earn $25mm+ of pre-tax income, standalone, post refinancing (the ’26s); partial debt paydown; and incorporating the sale of 2 deliveries per year, more or less, going forward. note that each time they sell a plane at delivery, assuming current or tighter market conditions, they should book a $3-4mm profit (ie booking the in-the-moneyness of the purchase right attached to said delivery, through the PnL). this amounts to a $6-8mm pre-tax income tailwind over the next 4-5 years (if you believe aircraft markets remain this tight, as i do).
what is $25mm of pre-tax income (with a 17% stat tax rate in singapore) worth? i would argue a good deal more than <5x, which is what the market is pricing it in now. maybe 7-8x? that gets up well above 220p.
a more book-value based approach – which seems at least a little incorrect here given a good chunk of earnings is coming, essentially, from the intangible assets, per the purchase right sales – would suggest value to me of at least 200p, because tangible book today is about 160p; the company should soon be adding 20-25p/share in net book per year, through earnings, as soon as next year; and the intangible value is very large and needs to accord at least some value.
finally, there is the reality that this company consumes $9mm of G&A a year in maintaining a tiny fleet. if any other (larger) lessor acquired this fleet, most of this cost goes away (at a minimum theres $5mm of corporate overhead and pubco costs that can go). in the context of an entity only doing $15mm of pre-tax income this year, this is also a huge number. that is not something i am banking on, necessarily, but it further buttresses the argument this should be worth closer to 200p or more in any sale.
Thanks! I would also add that AVAP’s tax rate has been reduced to 8% under the Singapore ALS, valid until at least Aug 2029. That’s another $2 million/year in savings, or $14m (or 16p/share) in additional intrinsic value assuming 7x multiple.
“Avation operates from its headquarters in Singapore where it is tax resident and, since 2014, a
beneficiary of the Singapore Aircraft Leasing Scheme (“ALS”) tax incentive. In August 2024 Avation was granted a further five-year extension to its ALS tax incentive at a reduced 8% tax rate. “
Two interesting development from the half-year report:
(1) Monetization of purchase rights: “Having observed the significant profit volatility created by the option pricing model used to value aircraft purchase rights, Avation intends to seek a financial partner to invest in a joint venture for the purchase rights with the desired outcome of funding future conversions to firm orders and reducing volatility in Avation’s reported profits.”
(2) Up-listing: “Reflecting the Company’s growth ambitions and market position, the Board is considering an application to transfer from the Transition Category to the Equity Shares (Commercial Companies) (“ESCC”) category of the Official List and Main Market of the London Stock Exchange. While still at an early stage, this move would further enhance Avation’s visibility and access to capital markets. The Board will make appropriate further announcements in due course.”
Will higher tariffs cause further significant inflation in aircraft prices?
Aircraft manufacturing has a particularly long and global supply chain.
Yes it will – so existing fleet value will increase, and the value of the purchase options will increased as the price escalators on aircraft purchases is fixed at CPI (I believe)
I believe so. In addition, Since the safety issues at Boeing , I’ve bought into AL, AER, DPA, AA4, DNA3, and 2588 (BOC Aviation).
Apart from NAV moving from £2.94 to £2.77 today, does the devaluation of the USD have any impact on the business?
Management believes that current book value (excluding the Boeing 777 sold) is undervalued by $82m (or 90 pence/share) as of June 2025.
And the sale of Boeing 777 (expected to close in Q3) is expected to release around US$33 million in net cash proceeds (or 36 pence/share).
These numbers are very significant for a highly-levered company with market cap of only $140m.
“Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, has recently announced the sale of a Boeing 777-300ER and a new ATR72-600 at sales prices above book value. The Company believes that the market for modern commercial aircraft is extremely robust with demand not matching supply. IATA estimates that it will take some years before this mismatch will be corrected.
In response to an analyst question the company advises that as at June 2025 the difference between 3rd party external desktop market appraisals and the Company book value of the fleet, excluding the Boeing 777-300ER, is favourable by approximately US$82 million (unaudited). This number is indicative only and is subject to market fluctuations.”
“Avation PLC (LSE: AVAP), announces that it has entered into an agreement to sell a Boeing 777-300ER widebody aircraft, currently on lease to Philippine Airlines.
Asset valuations for widebody aircraft have performed strongly since the end of the COVID pandemic and this sale transaction is contracted to generate a material profit above book value. After repayment of associated debt finance the transaction is expected to release around US$33 million in net cash proceeds.”
Some RNS updates:
From two disclosures (19 June and 1 July), Rangele/DeMuth/Raper have reduced their combined holdings by 2 pp from 15.94% to 13.92%.
On 2 July, Moody’s Ratings has assigned the Company a first-time B1 Corporate Family Rating (CFR) and B2 issuer rating with a stable outlook.
On 2 July, company signed a six-year lease agreement with existing customer, PNG Air, for one ATR 72-600 aircraft currently on lease to Mandarin Airlines.
On 4 July, company canceled 8,361,500 shares held in treasury, or 11% of share counts.
On 8 July, company bought back 215,000 shares at 160p per share.
4 July update re Debt and liquidity:
“Avation has continued to de-lever its balance sheet. The Company has paid down secured loans by around US$25 million in the 11-month period ended 31 May 2025, before the effect of exchange differences, and has also repurchased US$21.6 million face value Avation Capital S.A. Senior PIK Toggle Notes due 2026 (“Notes”) in the current financial year to date, including US$10.1 million in the period since the Company’s previously announced Notes repurchase transaction. All repurchased Notes have been cancelled. Following these repurchases the current total outstanding balance of Notes is US$310.0 million. The Notes mature on 31 October 2026 and Avation is actively considering various pathways to refinance this liability.
As at the Date of this announcement current total cash balances are US$125 million (unaudited).”
Do we have a list of AVAP’s portfolio of aircrafts with serial numbers?
Out of curiosity, what do you need those serial numbers for?
just for fun, for tracking them real time on Flightradar24, as a proud partial owner :-D
What’s the thesis here now? Would have assumed a bidder would have show up by now, esp given the massive reval to the fleet a couple of months ago.
Take this with a grain of salt, but I did look into this about a month ago after Jeremy’s latest update. The core thesis is still that the asset fleet is more valuable than what’s reflected on the balance sheet. The company has confirmed that with the $82m revaluation of the fleet. However, that represents only about a 12% increase in total fleet value and a 22% increase in NAV per share. Most importantly, this was just an unaudited third-party evaluation, which I believe will not translate into an actual book value increase.
In the meantime, the company continues to trade at a large discount to NAV (c. 50%) which is consistent with its historical range, given its subscale nature. Even if that asset revaluation were reflected on the books, the discount would be 55% instead of 50%, so nothing major.
So unless management sells the company or finds a way to monetize the purchase right assets more effectively, there’s not much that will change here. Most importantly, with most exits—such as the recent Boeing 777 sale—management talks about reinvestment. That limits the potential for a clear catalyst. Maybe a substantially better refinancing in 2026, with much lower debt yields, could be a key catalyst for an earnings inflection—but that’s too complex to call with confidence.
Buybacks over the past year were fairly meaningful, reducing the share count by 11%, but even that didn’t move the needle. And while I don’t know the exact reason—and the activist hasn’t disclosed it—their combined position has been decreasing as well.
Overall, the stock is cheap, but I don’t see a special situation angle here, at least not anymore. I’d be happy to hear from others in case my read is off.
This looks quite accurate. I look forward to the refinancing as a potential catalyst for rerating.
I was a bit surprised at how little the activists (Rangeley, Raper, etc) have been able to achieve. Perhaps it was beyond their means.
Tough crowd.
Potential offering of US$300-400m.
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, rated B1 by Moody’s, B- by S&P, and B by Fitch, has appointed Wells Fargo Securities and HSBC to arrange a series of global fixed income investor meetings commencing on October 8, 2025. An offering of US$300-400m, up to 5.5 NC2 years, 144A/Reg S senior unsecured notes by Avation Group (S) Pte. Ltd. and guaranteed by the Company may follow, subject to market conditions.
Perhaps this will be the beginning of the rerating. Still surprising that this microcompany with a few (perhaps a little passive) activists involved has not received any significant offer so far.
Jeremy Raper shared his thoughts on AVAP following the FY25 results release.
https://x.com/puppyeh1/status/1974982405791604891
Such a weird set-up. I am very long and rooting for Raper/Rangeley. However I feel like commenting.
On one side, fundamentals look fabulous with constrained supply of narrowbodies, growing demand and AVAP full with orders and options aplenty. Balance sheet is also managed tightly, reduced admin costs, reduced funding costs, imminent derisking of the bond refi, and 13% of shares outstanding repurchased within a year. And to top this rosy picture Jeff the CEO is incentivized, holding 19% of the beast.
So what explains AVAP grossly underperforms its peers and trades water?
I posit that it is the actions of Raper/Rangeley, with their constant heavy trimming, they effectively put a cap any upside, around 160p at the moment. I think the signal they send defeats their activist purpose.
This is a bit depressing!
Rangeley/DeMuth/Raper stake has been sharply reduced from 12.88 to 7.50% this month so far.
（Thresholds were crossed on 3 Oct and 16 Oct)
Their stake has been further reduced from 7.50% to 5.96% (reporting threshold crossed on 21 Oct).
So Rangeley/DeMuth/Raper are exiting.
In the meantime, AVAP priced $300m of senior unsecured notes due 2031 at 8.5% (to repay expiring 2026 bond at 8.25%). Is the 8.5% interest rate higher than expected?
AVAP can call the bond after Nov 2027 at Par + 50% of annual coupon.
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company announces that its wholly owned subsidiary, Avation Group (S) Pte. Ltd., has successfully priced US$300 million of senior unsecured notes due 15 May 2031 with a coupon of 8.5% (the “Notes”) to be issued from its new US$1,000,000,000 global medium term note programme (the “Programme”). The Programme is guaranteed by the Company.
Avation intends to use the proceeds of the Notes to repay the outstanding US$298 million of 8.25% senior unsecured notes due 2026 along with issuance expenses. The Notes are expected to be issued on 6 November 2025, subject to customary closing conditions. The Notes are rated B by Fitch Ratings, B2 by Moody’s and B by S&P Global Ratings. The rating agencies also provide corporate ratings for Avation of B (outlook stable), B1 (outlook stable) and B- (credit watch positive) respectively.
AVAP price continues to slide, partly as a result of Rangeley/DeMuth/Raper’s ongoing exit.
In the meantime, AVAP has resumed its buyback activity, and has extended the A330-300 lease (its largest asset) by 4 years.
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces that on 29 October 2025 it repurchased 490,000 ordinary shares, through the market, at a price of 154.85 pence per share. The repurchased shares will be held in treasury.
Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company has agreed a four-year lease extension with EVA Air of Taiwan for its A330-300 widebody aircraft. The extended lease will now expire in November 2031.
Updates:
Rangeley/DeMuth/Raper have completed their final exit by 3 Nov.
AVAP repurchased 2,976,996 shares on 29 Oct, or ~4.6% of shares outstanding, at 138p per share. Very likely the company bought out the Rangeley group’s remaining stake (last reported at 5.96%) via this single block trade.
Both Fitch and S&P have assigned single B ratings to AVAP, with S&P raising from B- to B on 11 Nov, after the company has redeemed the 2026 notes with proceeds from 2031 notes.
AVAP has also affirmed its intention to consider the repurchase of the newly issued 2031 notes, likely opportunistically when they are trading at discounts. They will report such buyback activities on a quarterly basis (next one expected Mar 2026) or at the time of material activity.
All in all, I think management is eager to clean up its capital structure with excess cash, and we no longer have the overhang from the Rangeley exit. The stock continues to decline but the slope has moderated a little bit in Nov.