Avation plc (LON:AVAP), the commercial aircraft lessor, has announced a significant step forward in its financial strategy with a new $85 million expandable portfolio financing facility secured from a major international bank. This development not only strengthens the company’s cash flow position but also offers a more cost-effective alternative to its existing unsecured bond format financing, which is set to expire in October 2026.
The financing facility is initially earmarked for refinancing certain existing aircraft, with provisions allowing further aircraft refinancing subject to lender approval. The drawdown is expected in the coming weeks, with Avation estimating that a fully utilised facility could improve the company’s cash flow by up to $400,000 per month, thanks in part to the slower amortisation of the loan.
Strong Market Outlook for Aircraft Lessors
The global aviation sector continues to show strong recovery and growth, with the International Air Transport Association (IATA) reporting a 10.4% increase in global air passenger demand in 2024 compared to the previous year. This positive trend, combined with ongoing constraints in new aircraft supply, has driven lease rates for many aircraft types above 2019 levels. Avation has noted that the values of popular new narrowbody aircraft have risen by approximately 5% over the past year, reinforcing the company’s long-term growth potential.
A Fleet Built for the Future
Avation’s long-term fleet expansion strategy remains robust, supported by a purchase plan for up to 35 ATR 72 aircraft over the next decade. This includes 10 firm orders scheduled for delivery between 2025 and 2028, in addition to two aircraft that have already been delivered and sold. The company’s aircraft purchase rights, valued at $112.8 million as of 30 June 2024, further underpin its strategic position in the market.
Zeus Sees Strong Upside for Avation Shares
Avation’s last reported net asset value (NAV) stood at $3.62 (285p) per share, yet the stock currently trades at a significant 50% discount. This is in stark contrast to the global aircraft leasing peer group, which trades at around 1.0x NAV, and Avation’s own historical average of 0.9x in the three years leading up to the pandemic.
Zeus analysts view this discount as “highly unjustified” given the company’s strong business model, improving cash flow profile, and clear growth strategy. They maintain a fair value estimate of 250p per share, reflecting the potential for a significant share price re-rating.
John Cummins and Charlie Cullen of Zeus commented: “We view this morning’s announcement as positive for Avation, illustrating the availability of finance at attractive rates and increasing flexibility in the cashflow profile. Underpinned by a positive market backdrop for aircraft lessors and a significant discount to the last reported NAV, we see scope for the shares to outperform from here.”
On a Final Note
Avation plc’s latest financing move signals confidence in the company’s long-term prospects and provides an opportunity to enhance shareholder value. With strong fundamentals, a positive market environment, and a significant valuation discount, the company appears well-positioned for a strong performance in the coming months. Investors will be keenly watching the interim results scheduled for 25 February 2025 for further insights into Avation’s trajectory.
