Avation plc (LON:AVAP), a leading aircraft leasing company, has announced a significant transaction involving the sale of two ATR 72-600 aircraft. This sale, part of a strategic move, is projected to generate $10 million in net cash proceeds for the company. The announcement follows a long-term purchase agreement with ATR, enhancing Avation’s portfolio and financial flexibility.
Key Details of the Transaction:
- Aircraft Sale: Avation has entered into a sale agreement for two ATR 72-600 aircraft from its order book, set for delivery in late 2024 and early 2025. These aircraft will be sold to an airline client upon delivery.
- Financial Impact: The transaction is expected to result in $10 million in net cash proceeds. This amount reflects the difference between Avation’s purchase price and the sale price, as well as the return of pre-delivery deposit payments.
- Future Orders and Purchase Rights: Avation has 10 additional ATR 72s on order through 2028 and holds 24 further purchase rights extending to June 2034. The recent sale highlights the potential value of these future purchase rights, which were valued at approximately $88 million as of 31 December 2023.
Strategic Significance:
WH Ireland, in their latest research note, views this sale as a positive development for Avation. The transaction validates the valuation of the company’s purchase rights and provides a clear indication of the potential for future value enhancement through similar transactions.
The proceeds from the sale, alongside recent bond repurchases, will lead to adjustments in forecasts. These include the removal of anticipated lease revenue from the sold ATR 72-600s, and reductions in net finance and depreciation costs.
Analysts John Cummins and Charlie Cullen said, “With the ability to grow the fleet or carry out similar value enhancing transactions from its ATR order book over the medium term, we view Avation as increasingly well placed to deliver further shareholder value following recent developments. With an improving market and Avation strategically positioned to benefit from growth in demand for low CO2 fuel-efficient aircraft, we view the business as on an upwards trend.“
Market Position and Valuation:
Avation’s strategic positioning to capitalise on the increasing demand for low CO2, fuel-efficient aircraft is noteworthy. This market trend, coupled with the company’s robust order book, places Avation on a favourable growth trajectory.
Despite the positive outlook and strategic developments, Avation’s shares are currently trading at a significant discount to their net asset value (NAV). The substantial discount indicates a potential upside for investors, given the company’s improving market position and strategic initiatives.
Disclaimer: This article is based on a research note by WH Ireland. It is intended for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.
