© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen, and welcome to the Avation Half-Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tabs situated on the right-hand corner of your screen. Just please simply type in your questions at any time and press send.
The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so.
I'd now like to hand over, if I may, to Duncan Scott, Group General Counsel. Good afternoon.
Thank you. Today, on the 3rd of March, Avation published its unaudited financial results for the financial period ended December 31, 2021. A copy of our earnings release is available on our website at www.avation.net. This conference call is being webcast and recorded and the webcast will be available for replay on our website.
Please note that certain statements in this conference call, including answers to your questions, are forward-looking statements, including without limitation statements regarding our future operations and performance revenues, operating expenses, other income and expense items. These statements and any projection as of the company's future performance represent management's estimates of future results and speak only as of today, March 3, 2022.
These estimates involve risks, uncertainties that could cause actual results to differ materially from expectations. Further information on the factors and risks that may affect Avation's business are included in Avation's regulatory announcements from time to time, including its Annual Report and Half-Year results announcements. Avation assumes no obligation to update any forward-looking statements or information in light of new information or future events. Unauthorized recording of this conference call is not permitted.
I will now hand you over to our Executive Chairman, Jeff Chatfield.
Thank you, Duncan, and thank you for your time today. We have the majority of the management team with us if you have any questions at the end. The financial results for the six months ended December 31, 2021 reflect the emergence from the severe disruption caused by the COVID-19 pandemic. Revenue exceeded expectations and Avation strategy conserved liquidity and succeeded with indebtedness being reduced as cash collection rates and unrestricted cash balances have improved.
We expect this trend to continue throughout second half of the financial year. The significant impairments and provisions for credit losses on receivables experienced in the previous financial year have not recurred. Some of these provisions may potentially be written back as a result of further collections of debt. Impairments recorded during the period relate to one-off to off-lease aircraft including six ex-Virgin Australia ITSM ATR72 aircraft, three of which are now subject to a sale agreement with Aegean Airlines.
The fleet is returning to high levels of utilization as unused aircraft continue to be repositioned or sold. This significantly impacts – the significant impacts of airline insolvencies or restructuring of some of Avation's customers have been reflected in the prior period. Avation is engaged in a review of alternatives to de-level its – de-lever its balance sheet and lower the cost of debt which has increased as a result of the agreement to extend the maturity date of Avation capital senior notes to the October 31, 2026. The company is seeing an increasing number of positive data points and support increased optimism in the aircraft leasing sector. We've seen increasing interest from airlines to buy or lease aircraft at sustainable lease rates. More senior leaders willing to lend against aircraft assets, aircraft orders from airline and improved utilization of aircraft. These factors all support the emergence of the industry from the pandemic.
The company will cautiously position itself returning to growth throughout the opportunity – through the opportunistic aircraft trading and deliveries from its order book in the post-pandemic environment. Avation has no direct exposure to Russia or any Russian airline.
This presentation is set out in three sections. The first provides an overview of the company, the second provides a summary of the results for the financial year, half year, before taking the pathway forward, and then opening up the meeting for Q&A.
So, we now have a snapshot of Avation as of December 31, 2021. The past two years since the declaration of the pandemic have been the most challenging in the company's history. The COVID-19 pandemic disrupted our cash flow, our airline customers, and the valuation of our assets. As at 31st of December, the company had 42 aircraft in the fleet, serving 16 different customers in 13 countries. Although with the recent announcement, we've completed the transfer of title in the first three ATR72 we've sold to Aegean. This means we have 41 aircraft as of today.
Avation owns, manages, and leases regional narrow-body and twin-aisle aircraft. Fleet is split between 70% wide-body, 50% narrowbody, and 33% turboprop by value respectively. The aircraft fleet has a 5.3-year weighted average age and 6.1-year weighted average remaining lease term. Today, fleet assets total in excess of $1 billion. Attached to that fleet is $575 million in unearned contracts of revenue from existing operating leases and a further $64 million in lease – finance lease receivables. That's over $639 million in income on the remaining leases at this point.
On average, the fleet is still less than halfway through its expected life. The company has retained a full complement of commercial, legal, financial, and technical personnel to ensure it has the skill set needed to manage the platform successfully and return to growth in the post-COVID-19 recovery phase. The company intends to return to adding new aircraft in the fleet from its order book in addition to looking at opportunistic purchases of aircraft in anticipation of sale and leaseback transactions.
Avation's diversified fleet at 31st of December is focused on fuel-efficient regional and narrow-body aircraft. These sectors are seeing the fastest return to service as we emerge from the pandemic. 83% of the merchant's fleet is focused on regional and domestic travel which towards the end of 2021 was close to returning to 2019 pre-COVID utilization levels. Avation believes that new aircrafts carry a lower risk of obsolescence and provide greater, long-term cash flow to service debt through long-term leases. And last year, Avation rescheduled the ATR order book to reduce committed capital expenditure. Avation now holds all firm orders for two aircraft and purchase rights of 28 ATR72-600 aircraft. These represent a valuable asset as the purchase rights provide visible pathway to fleet growth.
These first two ATR aircraft represent only a small proportion of the equity commitment for each aircraft given that we have paid significant pre-delivery payments for each aircraft, and we expect to be able to finance most of the remaining acquisition cost with [ph] debt (00:08:01). Our previous largest customer, Virgin Australia, entered into insolvency at the start of the pandemic resulting in 13 aircraft being returned to us. We've since placed four and sold six of these aircraft leaving only three unutilized ex-Virgin aircraft in the fleet.
Avation is returning to a high-level operational efficiency which simply means that a high percentage of the fleet is generating rate. There was a strong interest in the remaining aircraft and our expectation is that we would sell or lease this remaining unutilized aircraft in the short term with further positive news expected shortly.
Airline customers. The next show – slide shows airline customers. Today, we have 16 customers in 13 countries. Avation's customers include five flag carriers, while flag carriers are not excluded from the impacts of COVID-19 and such travel restrictions, these airlines are more likely to receive government support due to the national importance of carrier. These airlines also typically service domestic routes as countries have moved beyond the peak of the pandemic in terms of domestic travel which has recovered faster than international air travel.
It's important to note that Avation's geographical spread of customers as the pandemic impacted different areas and different times. Around two-thirds of Avation's companies by revenue [indiscernible] (00:09:29) in Asia including airlines based in countries that experienced a less severe impact in the first year of the virus. We've also been fortunate in Europe where our largest customers, airBaltic, has been performing well and has received government equity injection. We've been able to retain the majority of our customers' fleet team and for this reason, we believe Avation's business model is largely intact.
We've included the list of customers in the aircraft to provide further granular detail on the fleet. The ATR market is recovering and with interest in buying or leasing aircraft, aircraft increasing. Together with the three ex-Virgin aircraft, we are also – we are marketing, we're also remarketing to ex-Loganair aircraft. It's likely that we'd sell at least half of these mid-life ATRs, which will free up further cash and enable Avation to recycle equity and will delever the balance sheet. We've also received interest in the ex-Garuda aircraft.
The company has announced the sale of three ATR 72-600 aircraft to Aegean Airlines, which will be completed prior to the end of the financial year which is June 30, 2022. Avation is currently not aware of any sanctions in respect to the current situation in the Ukraine which will have an impact on the company. Avation has no direct exposure to Russia or any Russian airline. Avation has a focus on [indiscernible] (00:10:55) aircraft and, therefore, natural sale of our mid-life aircraft.
Let me now hand the call to Richard Wolanski who'll provide more detail on the financial results and liquidity key ratios.
Thanks, Jeff. The next few slides of the presentation provide a summary of the financial results. Further details included in today's stock exchange announcement, which is also available on the company's website.
During the period, Avation generated total income of $60.1 million, which while down 5% year-on-year, did exceed the company's expectation. Revenue was $57.9 million which was down 6%. Operating profit totaled $18.8 million which is a big turnaround from the $34 million loss in the first half of 2021. This resulted in a total loss after-tax of $15.3 million, a sharp drop from the loss of $61.2 million in the corresponding period last year. The amortization of non-cash gains on the debt modification recognized in the financial year 2021 results from the extension of the duration of the unsecured bonds that was classified under IFRS 9 as debt modification, and that amortization impacted the P&L by $3.6 million in the period. You'll also see a loss on disposal of aircraft of $2 million in the P&L. This was offset by credit to equity in that balance sheet by release of asset revaluation reserves.
Thirdly, there was a $1 million non-cash warrants expense in the P&L that is matched by $1 million credit to equity via the warrants [ph] reset (00:12:53). These three non-cash items represent approximately half of the reported loss for the period.
Finally, as mentioned in the results RNS released to the London Stock Exchange this morning, the $9.9 million impairment to fleet was offset in the P&L by a write-back of maintenance reserves and end of lease compensation totaling $8.7 million. The impairment related only to our leased aircraft which we are continuing to successfully reposition or sell.
To put these results into context, the disruption caused by the pandemic last year resulted in over $87 million in impairments to the value of the fleet and over $25 million for expected credit loss recognized in the previous financial year to June 30, 2021. These significant impairment and credit losses have not recurred in the first half of 2022. As Jeff mentioned at the beginning of the presentation, collection of debts may reverse some of those provisions for credit losses moving forward.
Fleet assets declined by 7% to $1 billion due to normal depreciation and disposal of two aircraft. The weighted average cost of total debt remained steady at 5.4%, the loss of $0.22 per share for the period. And the net per share remained the same at £1.64 as the P&L losses recorded for the period were offset by gains in equity in the balance sheet and exchange rate movements.
Just having a look at the operational highlights. We sold one Airbus A220 in October followed by the sale of an – a relatively old Airbus A321 in November. We also reached an agreement to sell a 3 ex-Virgin ATR aircraft to Aegean, the first of which has been delivered in January with the next two to be delivered in – are likely to be in March and April. We extended leases on a couple of ATR 600 aircraft with Heavy Lift, and we actually signed and delivered a third aircraft to Heavy Lift during the period. The Philippine Airlines restructuring was finalized with the airline importantly retaining that Boeing 777-300ER.
In terms of aircraft transactions, we got this Boeing 737-800 returned from Garuda and have commenced remarketing that on that aircraft. The two ATR 72-600 aircraft were returned from Loganair and are being remarketed now for sale or lease. An Airbus A320 was also returned to us and transitioned.
On this slide, we've provided some information on Avation's debt position. Net indebtedness, importantly, has declined by almost $72 million since 30 June 2021 and by around $180 million in the past 18 months since 30 June 2020. This trend will continue throughout the remainder of the financial year.
There was an increase in the weighted average cost of the group's secure debt facilities to 4%, which was up from 3.9% as a result of repayment of some lower cost debt. But this had the beneficial impact of increasing the number of unencumbered aircraft in the fleet. The weighted average cost of debt for the company remained steady at 5.4%, and at the end of the year, 89% of total debt was at fixed or hedged interest rates. Avation's net debt-to-assets ratio improved to 70.5% since 30 June when it was 71.9%. And the chart on the page shows the evolution of the group's cost of debt over the past 8.5 years.
We've provided a range of key ratios on a comparative basis. The net asset value per share remains steady at £1.64. Lease yields have improved to 10.3%. Administrative expenses on a cash basis, excluding the warrant expense, increased to 10.1% partly because of the lower revenue base but also because expenses have increased primarily driven by higher legal fees in dealing with some of the issues arising from the pandemic. The company also put a very tight squeeze on expenses last year during the height of the pandemic.
The debt-to-equity ratio has reduced to 5.7 times from 6 and the net debt over EBITDA saw an improvement to 8.7 times versus 12.5 times as at 30 June 2021. Debt to total assets also improved to 73.1% from 73.9%. And EBITDA as a function of interest expense improved slightly.
On to slide 11 (sic) [slide 12] (00:17:48), which provides a look at our liquidity. Avation identified liquidity as our key focus during the pandemic. Total cash has been preserved over the past couple of years and we have now managed to build the unrestricted cash balance by 25% since 30 June to over $35 million. The company has also grown the number of unencumbered aircrafts since 30 June from three to five aircraft as at 31 December. The bonds, the unsecured bonds, which now have an additional interest component on top of the original 6.5% coupon of either 2.5% PIK or 1.75% cash, now have a maturity of 31 October 2026 and are callable at any time.
Cash collections are returning to normal, with 91% cash collection rate for the year-to-date at 31 December, a significant improvement over the prior financial year. And we also note that the December monthly cash collection rate was 171% which confirms that we are recovering arrears that have arisen as a result of the pandemic.
Liquidity is expected to continue to improve over the next four to five months. Having sold two aircraft prior to 31 December and the first of the Aegean ATRs in January, we expect to complete the sale in those remaining two ex-Virgin ATRs to Aegean over the next couple of months.
These five aircraft sales released $42 million into working capital, net of debt that we can – that can then be used to deliver and/or fund future growth. We are expecting a number of positive cash flows over and above normal cash flow from operations in the next few months as well, before the end of the financial year.
These include in the coming months, additional aircraft sales to those mentioned, which are likely to include some of the ATRs we are marketing. Collections from customers and from the insolvency proceedings of Virgin Australia and Philippine Airlines in addition to those – to the normal cash flow from operations.
In respect of the payout from Virgin, we have flagged to investors Avation's plan against Virgin Australia has been adjudicated by the trustee of the creditor's trust in the sum of AUD 101.4 million. The administrator advised in December 2020 of an expected payout of AUD 0.095 for unsecured claims. In November 2021, however, the trustee of the creditor's trust advised that unsecured claims in respect of Virgin Australia had increased from initial estimates provided by the administrator by AUD 1.7 billion to a total of AUD 5.8 billion. Avation expects that these increases in claims will reduce the payout to creditors from the estimate originally provided by the administrator.
The company is participating in litigation, arguing that 45% of its AUD 101 million claim should take priority over on the unsecured claims. A decision is expected in the coming months. If successful, this claim would increase the payout from Virgin by an order of magnitude.
In respect of PAL's restructuring completion, Avation has already received payments for power by the hour rent for the period from September 2020 to September 2021 and a promissory note for 25% of the pre-September 2020 rent arrears. There will also be some equity granted to us although we have not attributed any value to this component.
As part of the restructuring, PAL have been paying power by the hour on a monthly basis in September 2021 and this will continue until this month, March 2022. And as of this month, the lease reverts to a fixed monthly rate. Since PAL commenced the restructuring in September 2021, the plane has been generating significant revenue which we have been collecting. Monthly rents collected on a power by the- hour basis since September 2021 were within 5% of the fixed rate rent that the plane reversed through this month. Avation has already stated publicly that in addition to our cautious approach to aircraft acquisitions, Avation will consider applying surplus cash that is being generated in the coming period to de-lever the balance sheet with a specific focus on outstanding senior unsecured notes due October 2026. Avation is reviewing a variety of alternatives to lower or eliminate the amount of unsecured bonds outstanding. Any repurchase of notes improves future profitability, lowers the average cost of debt, lowers future cash interest payments and supports the long-term goal of refinancing the notes.
Avation is unable to provide further guidance at this point in time as to the details of actions to allow the impact of the unsecured bonds or the value of any potential repurchases or the split between applying excess cash between fleet growth and de-leveraging the balance sheet. Avation will consider the market conditions at the relevant time.
On this slide, we show the loan maturities over the coming years. Secured debt loan maturities in red match the underlying lease terms of the aircraft. The growing maturity represents a warehouse facility which currently houses nine aircraft. We're exploring refinancing some of the aircraft in this facility that are long-term leases with matching durations senior debt and/or extending the warehouse. Loan maturities are typically aligned with lease terms and with a long average lease duration of six years, most of Avation's senior debt, which makes up about two-thirds of our total debt, has significant duration.
Avation confirms that it is current with all payments to secured lenders. Avation either complies with [ph] those (00:23:35) received waivers with all senior bank loan covenants. Avation is also in discussions with senior lenders to permanently amend or remove some of the covenants that no longer reflect the capital structure in a post-COVID environment.
I will now hand the slides back to Jeff for an update on the company's COVID-19 strategy and our pathway moving forward.
Thank you, Richard. Avation instituted a program of support for its airline customers by agreeing to defer a payment of a proportion in their rent in the short term. The cash flow impact of the support program was mitigated by adjusting the amortization profiles of related financing with the agreement with lenders. The successful implementation of this strategy enabled the company to materially lower debt – indebtedness and begin to build the level of unrestricted cash on the balance sheet, as historic rents and payout from insolvency proceedings related to customer airlines are collected.
Our support involved allowing deferment of a portion of the rent, this is not a rent decrease or a holiday, airlines need to and indeed have begun to repay the deferred rent. To balance this reduction in cash, Avation implemented three key strategies to reverse – preserve cash flow. The first was to adjust the amortization in senior loans associated with the fleet with key lending banks.
The second was an immediate reduction in cash expenses throughout 2020 and 2021. The third step has been to reduce capital outgoings. This included the moratorium on capital expenditure that we see no new deliveries of aircraft into the fleet and a temporary suspension of dividends. In terms of the outcome, support agreements with 14 of 19 customers, rent deferred by airlines totals $25.9 million. Banks agreed to reschedule $35.2 million of loan amortization, and we extended the maturity of the unsecured bonds to October 2026. Clearly, there is a pathway where we are positioned for recovery and growth.
The disruption created by the COVID-19 pandemic is beginning to recede following the successful rollout of global vaccination programs that have supported return to increased levels of air travel. This trend is already evident in regional and domestic travel, and we expect that this will be followed by recovery in international travel as we move towards the remainder of 2022.
Omicron appears to have only had a short-term impact on the rebound. The situation in Ukraine hasn't yet had any significant impact on our customers, but this is a fast-moving and evolving situation. Unlike most other lessors, Avation has no aircraft in Russia and exposure to any financings in Russia.
The fundamentals of the business models remain intact. The recent completion of the restructuring by Philippine Airlines resolves one of the last remaining lease defaults resulting from the pandemic in Avation's fleet. Avation is set to emerge from the pandemic with a smaller fleet, with higher levels of utilization, and a long time for repayment of the company's unsecured notes following the extension in maturity to 2026.
Cash flow from operations continues to improve as we return to normal trading conditions as companies – countries open air travel to unvaccinated – to vaccinated travelers. Avation's largest five customers, which make up almost 70% of the monthly revenue, were current or in compliance with the repayment plans as at 31 December. Cash inflows for the remainder of the financial year will be boosted through the settlement of unannounced aircraft sales and the expected further sales [ph] of our new launched (00:27:58) aircraft.
The collections from the insolvency proceedings related to Virgin Australia and Philippine Airlines and from the collections of the outstanding amounts related to rent deferral arrangements and the increase of receivables as a result of COVID-19. This has been evidenced by our – in our improving cash collection rates for the period ended 31st December 2021 and an increase in unrestricted cash balances.
With the worst of the pandemic appearing to be behind us, Avation is now looking to rightsize the fleet and adjust the capital structure for long term. Profitable capital – to create a long term and profitable cash flow positive business [ph] that's going to grow (00:28:37), we're looking at alternatives to reduce the impact on our coupon created as a result of the extension of the duration of the unsecured bonds that's having on profitability and cash flow.
There are likely to be opportunities to buy aircraft from airlines and lessors looking to adjust to reduce their portfolio which Avation is positioning itself to take advantage of. Avation is opportunistic – optimistic about the long term opportunity for airline travel, particularly in the turboprop and the narrowbody sectors.
We, as a management team, continue to support, believe in, and are aligned with the company and its investors. I'll now proceed with the Q&A session. So, everyone is welcome to ask a question. There's a Q&A box on the side. We're giving you time.
That's great. Jeff, thank you very much, indeed. Let me just go in and give some investors some instructions. And that's very kind of you and Richard for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the right-hand corner of your screen. [indiscernible] (00:29:44) company take a few moments to review those questions submitted already, I'd like to remind you the recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your Investor Meet Company dashboard.
Jeff, as you can see, there's been a number of questions submitted by investors on today's call. So, thank you, firstly, to everybody who submitted questions. Perhaps, Jeff, if I may hand back to you to read out the questions and give a response where it's appropriate to do so.
Thank you very much. So, I think we've taken in all of the first ones from [ph] Damien (00:30:15). He asked, can you please summarize the different payables and ways PAL is paying for the present and past arrears on the 777 lease? I will direct this to Iain Cawte, who is the Chief Financial Officer of the company. So, Iain, you can turn your microphone on.
Yeah. Hi, [ph] Damien (00:30:35). So, the restructuring of PAL completed on the 31st of December. And as a result of that, we received back rent payments on a power by the hour basis for the period between PAL entering administration in September 2020 and the end of the power by the hour period in September 2021. We also received promissory notes for – which represented 25% of the rent arrears outstanding at the date that PAL entered administration. And we subsequently received a number of shares in Philippine Airlines, which we believe are intended to be listed on the stock exchange.
Very good. The next one is from [ph] Phil (00:31:30). How did the company reduce debt in the first half of 2022, repurchase bonds in the secondary market, if so, what price? I'll direct this to Iain again.
Yes. So, you'll have seen it in the announcement that we sold a couple of aircraft, one of those aircraft was financed, so that was a big chunk of the loan repayments. We also refinanced a portfolio of older ATR aircraft. And at the same time, reduced the outstanding loan by about $5 million. And then, of course, we have our normal amortization. So, in a normal reporting period, we do tend to see debt reduce just due to normal course of business.
Thank you. The next one is from [ph] Ganesh (00:32:26). Could the company advise us if it still has aircraft that are leased in Myanmar? I think we'll direct this one to Rod. Do you want to answer this one Rod?
Yes. Hello. Yeah, we have one ATR 72 with Golden Myanmar. We've reached a consensus with the airline that the problem is not going to be – the political problems are not going to be resolved quickly in Myanmar, and they will return the aircraft [ph] consensually (00:32:57). So we're in the process of doing that right now. And at the same time, we remarketed the aircraft and we've already actually signed an LOI with another airline to take delivery of that aircraft. So, that's good development, that's happened since the end of last year, the last couple of months.
Thank you for that, Rod. So, what he's saying is, we're transitioning the aircraft to another airline and we've signed the LOI for that. We don't normally like to announce LOIs until we actually deliver the aircraft, but that one is proceeding quite well, and so we may need to follow-up with an announcement on that.
The next one is from [ph] Brandon (00:33:44) which I'll direct to Richard. What is your current expectation of the receipt of moneys from Virgin Australia? And this is a question of when, not if. Yes it's a question of we will receive moneys but we'll let Richard answer the rest of that.
Yeah. Unfortunately, [ph] Brandon (00:34:04), the trustee of the creditors' trust hasn't provided any details or expectation of a payout. There was some suggestion there was going to be an interim payout but that hasn't eventuated. And so, we're being left in the dark on that. We do expect there to be a payout. We know that the debt – we get weekly calls from people wanting to buy that debt for money. So, the market in general expects that to be – [ph] had to be made (00:34:34). Although, as we try to explain in the presentation, the expectation is that it's not going to be the $0.095 that the administrator originally suggested. And in fact, he's been silent since then in fact and then so as the trustee of the creditors' trust. So, we do expect a payout. We were expecting it by the end of the financial year. But until we get that confirmation, we don't – we know as much as you do.
Thank you, Richard. Just to clarify, we are anticipating in the process of trying to get 41% of our adjudicated claim considered to be a priority claim in which case we get a substantially greater share than we first advertised.
Moving on, so the next one is from [ph] Michael Dee (00:35:35). Do you see an expansion in the US at all or further deployment in Europe? I can answer that. We are interested further in Europe. We're less interested in the United States at the moment because the – typically, US airlines and lessors have very low cost of funds and they tend not to deal with international leasing companies too much.
The next one is from [ph] Brandon (00:36:02) asking about any issue with airBaltic from the current situation in Ukraine? I think Rod can answer that one.
Yes. We don't think that airBaltic will have serious issues with – like any European airline, they – I think something like 10% of airBaltic's network was to destinations in either Ukraine or Russia. They only have three destinations in each country. And the bulk of their 70 destinations are in Europe. So, we don't think that it's going to have a lasting effect on airBaltic's financials.
Very good. Thank you. The next one is from [ph] Kevin (00:36:53). Can you give an update on the remarketing efforts for the six underutilized aircraft? Would Rod like to take this one?
Yes, okay. So, I mentioned already the Myanmar aircraft we've already signed an LOI. Since the end of the year, in the last couple of months, in fact, we have signed two other LOIs. So, we've signed one LOI for one of the Virgin – ex-Virgin ATR 72-500s, which is a lease. And we've signed an LOI for the sale of the two ex-Loganair, [indiscernible] (00:37:35), ex-Loganair aircraft, ATR 72-600s. So we only actually have two ex-Virgin ATR 72-600s remaining to be remarketed, and we have quite a lot of inquiries that we're following up on at the moment. And then the Garuda 737, which we're also following up on various inquiries. So we expect to clear the – those aircraft by the end of this half.
Thank you, Rod. [ph] Mosen has (00:38:11) asked can we provide an updated maturity schedule? The one in this presentation is still the old one. So on the screen this is the liability [ph] structuring book loan (00:38:20) maturities. Iain, can you confirm that that is still correct?
I would actually have to go and reconcile that. I didn't produce that one.
Okay. Thank you for the answer. So we'll have to follow that up with a further clarification in due course. Thank you. It looks – okay. We'll follow that up. Thank you for your question.
The next question, which Iain can also answer is, can you break down $40 million – the proceeds of the $40 million aircraft sales in the period that was executed? How much was the debt repaid on the sales? [indiscernible] (00:39:17) So, Iain?
Yeah. Sure. So the net proceeds from the A220 is about $12.5 million, and the net proceeds from the A321, the older aircraft that we sold, was about $6.3 million. Does that answer your question?
Yeah. Thank you. That answers the question. The next one is from [ph] Ross (00:39:55). Thanks, Jeff, Iain and Richard. Can you describe your capital allocation priorities? Have you received significant proceeds from aircraft sales of Virgin?
Well, clearly our job is to get the company profitable again. And we – that that survives and generates money and everyone gets paid and [ph] sorted (00:40:17). So, the key priority for the company is to grow – regrow sufficiently to ensure profitability as quickly as possible. But if there's excess capital then [ph] on to a super trade (00:40:28) for the company is to – clearly to deal with the unsecured bonds because they're very expensive and buying them is a good way to get rid of the – just to get rid of some of those. So, first priority is to get profitable. Second is to get rid of those – as many of those bonds as possible, I think answers your question.
The next one is from [ph] Mosen (00:41:00). Will you be paying the next coupon in cash or do you still PIK? Well, we pay – most of the coupon is paid in cash. There's a small component in PIK and we'll decide in the – at the right time which is not yet what we're going to do with that.
The next question from [ph] Ken B. (00:41:23) is how would you rate yourselves in handling the business over the last two years compared with your competitors?
I guess I'll take that one. We have some very, very competitors who are clearly very good at what they do. We have done very well. We were complemented on by the banks especially on our strategy, which was, if you like, the COVID strategy was that – we were, sort of, one of the first to act. And, if you like, start to execute on that strategy, which was very sensible and well-received and we worked through it. I think we've been sensible about diversification and risk.
We've managed to, for example, avoid the Russian problem and some of the other big issues that have popped up for some of the newer players in the industry. We've certainly demonstrated that we could trade aircrafts. We've transitioned a lot of aircraft. We're constantly repositioning and successfully transitioning aircraft.
So, I think we – compared – in reality, we're a very – we're quite a small leasing company, but we've done pretty much everything that the largest leasing companies with lots of resources have managed to do, and we've done so quite unfairly in our view with the higher cost of funding, because clearly some of them have all the fleets and less attractive credits and lower cost of funding, which is quite, sort of, difficult to reconcile. So, I think we've done pretty well compared with some of them.
Next one from [ph] Mosen is was (00:43:20) first half 2022 a good run rate for revenues and EBITDA after all these asset sales. Well, we haven't sold many aircraft. I think we'll – maybe, Iain, you can deal with that one?
Sorry. Yeah. The run rate for revenue, I mean, obviously it will reduce in the second half because we sold a couple of aircraft and we are lining up further aircraft sales and some of those were earning revenue in the first half of the year. So, the run rate in the second half will reduce slightly compared to the first half, but we should then generate over $100 million revenue for the year.
The next question is from [ph] Reno (00:44:06). What is the impact of higher oil prices on the demand for aircraft that you are remarketing? Rod, you want take that one?
Sure. So, I mean, I think that given that most of the aircraft that we're remarketing are the ATR 72s, they're renowned to be one of the most fuel efficient aircrafts in the world in fact. So, I think airlines that operate those regional aircraft are – seem to be doing okay. And there's also moves with some of the airlines to move towards sustainable fuel as well and the ATR is able to burn sustainable fuel. So, that's also a good development for the ATR.
And I mean the fact is we've placed – you've got agreements to deal with almost all. Next one is from [ph] Ross 00:41:09. And similar question from [ph] Matt and Daniel (00:45:15). So, they're all asking about cash flow. So can you describe cash collection trends since the start of 2022 given the impact of Omicron in the geopolitical uncertainty? Then Matt asks, how does 91% collection rate compared with pre-COVID cash collection rates? Is this realistic [indiscernible] (00:45:42) 100%? And Daniel asks, what are the collection rates for the six months ended December 21, 2021% of customers and also percent of scheduled lease payments? So, Iain, do you want to address those questions? You might need to turn your mic on.
[indiscernible] (00:46:12)
Cash collection.
The cash collection, the number that we published was 91% for the six-month period. Prior to that, I think we were collecting about 75%, 76%. And so obviously the cash collection rate has picked up significantly in the last half year. And that, you know, tallies with our experience of airlines recovering from the COVID period. I mean, in, you know, for the rest of the year, we expect that that trend to continue. Certainly, Philippine Airlines exited administration on the 31st of December. They made a couple of fairly substantial payments to us in 30 January. And we have another customer that has cleared their arrears.
And you'd also note that we've expressed in the notes in the financial report that we've got – the financial report that we've got – reached agreement with a major customer for the repayment of around $30 million of arrears, although that repayment will be staged over a number of periods. But the trend is clearly positive and we expect that trend to continue to improve.
Okay. There's a question from [ph] David (00:47:43) for the A320 that's been transitioned, does this mean you've secured it to the next customer? Yes, it does. There's a question from [ph] Mosen (00:47:53). Have the $42 million of asset sales proceeds been received? Only see $40 million in cash flow statement. That would be another question for Iain.
So, I think you're confusing net proceeds with gross proceeds. We have sold aircraft for gross proceeds of $40 million, which has been reported in the half year. We have, you know, agreed to sell three more aircraft. And we've also reported in the presentation that the net proceeds from all of those aircraft combined will be around $42 million.
Okay. Next one is from [ph] Matt (00:48:40). What are the terms of the PAL promissory note and what is the balance sheet value? Duncan, are we allowed to talk about the terms of PAL promissory notes?
I think the detail of terms are confidential, but the promissory note will start to repay from beginning of next year. I believe it's a period of 24 months.
And, Iain, the balance sheet value?
It's about $770,000.
Okay. I have – right. Okay. Next one from [indiscernible] (00:49:30) is talking about a big influx of airplanes coming to supply [indiscernible] (00:49:36) Russia. So, even if you have no exposure in Russia, there's supposed to be increased pressure on lease rates and aircraft valuation. Any comments?
I will comment on that. I mean, it is inconceivable and impossible for all those aircraft in Russia to leave Russia in the next 27 days or whatever is being talked about. It's physically impossible. So, they won't come out nor will they report. So, I don't know what will happen.
It's a big problem if you're an owner of them. There will be a lot of financial difficulty for the lessors because, clearly, it's a lot of money. Will it immediately impact lease rates? I doubt it because when you sign the lease, it's in place for a long time. And it was likely to be an aircraft shortage as COVID recovers because a lot of aircraft have lost – have left the industry and been retired forever.
So, in reality, what would happen is some aircraft would come out, they would get re-marketed. It might have a short-term impact on lease rate. Probably won't impact us because, as Rob disclosed earlier, we're pretty much down to roughly only a couple of aircraft. And we sort of have views on where they can go. So, it wouldn't really impact on ourrevenue or us, but I can see it impacting some – somewhere for lessors with sort of outside exposed – outsized exposures to Russia. I think that answers the question. I mean, we don't want to speculate too much.
[ph] Bradley (00:51:29), with the existing cash potentially coming from the planes recovered from Virgin Australia and PAL, one up by buying bonds at discounts [indiscernible] (00:51:37). Bradley, that's a great idea, but our job is to make sure that the company is profitable and is the right size to be profitable.
And obviously, if the opportunity is there to buy bonds at a discount, we'll be doing it. We have certainly bought a few in the past and haven't been frightened to buy them. So it's a great idea. But the number one job is to ensure the company is profitable and, therefore, can grow and expand.
[ph] Peter (00:52:10) is asking, please may I ask whether there's been any sign of traditional banks increasing appetite lending in the sector? Was it too early to make judgments right now? Iain, do you want to do that one?
I think banks have been quite standoff-ish. They're watching interest rates. They're watching obviously the pandemic play out and now we've got the crisis in Ukraine. So it's not an easy time to be going to look for finance.
Next question is from [ph] Steven (00:52:46). Does the transition of [indiscernible] (00:52:47) aircraft lease provide any further payment? Iain, do you want to do that one?
A little bit too early to say. I mean that aircraft is on our balance sheet as a finance lease. And obviously, if we terminate the lease to go Myanmar, it will come back once the balance sheet If we terminate the lease to go Myanmar, it will come back onto the balance sheet as an owned asset, and we'll have to establish a valuation for it at that time. And then, of course, if we manage to lease the aircraft, which we will – we'll try to do, it'll be subject to our LEV accounting policy. And again, that value will depend on the terms of the follow-on lease.
Rod's disclosed that we have signed the LOI and transitioned the aircraft. So there would be no material impairment on that. We can be certain – we can be confident in saying that. [ph] Peter (00:53:43) asked, prior to the pandemic, the company had explored the potential of sale and review process itself. Is it still on the agenda for medium term? What's the company's issues related to pandemic that you dealt with?
Prior to the pandemic, the company had an approach from a potential buyer, and that – we dealt with that as a public company should. So we hired an adviser to deal with the rest of it. So we didn't create the situation; the situation was created for us. And as a public company, people – every week, you'll hear some noise about people interested in X, Y, or Z. So you deal with those issues as they arise from the outside world. When and if people come along, they come along. I mean clearly, the company has got a lot of value. And it's – people have different values on different ideas about share prices. So, clearly, opportunistic people will come along from time to time. But it's not something immediately that we really want to deal with unless it's a very attractive thing.
Next one is [ph] Phil (00:55:03). What caused the $1.8 million in aircraft maintenance? And do you expect this to stay elevated? Rod, do you want to do this one?
Yes. Okay. I think – well, Iain can maybe step in if I get this wrong, but I think the majority of that was the maintenance to the ATRs that we got back from Virgin which all have to go through airframe checks before they could be redelivered to another airline. So, I think that's what that number is. We still have a couple more aircraft to put through checks. So, there will be some more maintenance costs coming up. But then once we've cleared the un-leased number of aircraft, the six aircrafts, then we should be – we should have no more after that.
Next one is from [ph] Moshen (00:56:01), again is a big question. Just to be clear, have you cancelled the $7.5 million with bonds, already bought back? Duncan, if we cancel them, there they are for cancellation.
They'll be brought back for cancellation. Technically, they're still in existence but they are disenfranchised under the bond trust documentation. We are in the process of dealing with brokers and [indiscernible] (00:56:25) to get those cancelled. But, as of today, they still – technically they still exist.
A question from [ph] Steven (00:56:33). In inflationary times, have you seen lease rates? Rod, do you want that one?
Sure. I can give one answer which is lease rates – used aircraft lease rates are generally driven by supply and demand because the more supply there is on the market, the more desperate people will get to place aircraft and lease rates go down and vice versa. As far as new aircrafts are concerned, the price of new aircraft never seems to go down. It always seem to remain stationary or go up. So, lease rates on new aircraft are more driven by the cost of debt that lessors are able to obtain in the market.
Next one is from [ph] Phil (00:57:23). So, there's two questions to go. So, Phil, one company reclassified through turboprop's finance leases, the answer is we've given up purchase option to the airline operating those planes to buy the planes at a price that works for us. So if we can – clearly, we sell. Everything we buy, eventually we've got to sell. So, occasionally we give options to buy aircraft which technically can become a finance lease.
The last one is [indiscernible] (00:57:57) purchase rights? I think Rod should answer this.
The purchase right doesn't have a delivery date attached to it. It's a guaranteed price but without the delivery date attached, we just call upon deliveries when we have a need for them.
That's great, Jeff, I think...
We have a good price going forward. So, [ph] Mark (00:58:24)...
I was going to – I was just going to say, Jeff, you've answered every single question that come through us. I was a bit fearful that for every one question you answered, there was another two that followed. But thank you once again to you and the team for taking such time to answer those questions.
Jeff, I'm shortly going to redirect investors to provide you with their feedback and their thoughts and expectations which I know is important to you and the company. But before doing so, I wondered if I may just ask you for a few closing comments to wrap up with?
Well, thank you for the support over the last couple of years. Clearly, it's been a very torrid time in the – with COVID-19 which had – certainly is receding. The company is heading back towards profitability with engineering itself to do that. And we've demonstrated leadership in terms of our strategy and we've avoided some of the problems that our peers have. So, we're well-placed and thank you very much for your support and thank you for the management for doing what they've done and sticking with it. It's been a daily grind for the last two years, but we're getting there and we're joined from the experience and thank you very much.
That's great, Jeff. And to the team from Avation, thank you once more for your time this afternoon and for your presentation. Can I please ask investors not to close this session, as we'll now automatically redirect you for the opportunity to provide your feedback, in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company.
On behalf of the management team of Avation, I'd like to thank you for attending today's presentation and good afternoon and good evening to you all in Australia.