Avolon has reported net income of $97 million for the third quarter of 2023, a 28% increase on Q2, and $229 million year to date. Excluding the impact of Russia and unrealised gains on investment, adjusted net income was $103 million for the quarter and $235 million for the year to date.
The Dublin-based lessor reported an 8% jump in lease revenue to $588 million for the quarter and an increase of 3% to $1.799bn for the nine month period. Operating cashflow rose 125% to $626 million for the quarter – up sharply from the $278million a year ago. Avolon reported a 21% reduction in receivables and deferred balances over the quarter.
Avolon’s total available liquidity remains strong at $7.5bn, which includes $630 million of unrestricted cash and $6.9bn of undrawn debt facilities. The lessor’s net debt to equity ratio is 2.2 times, with a secured debt to total assets ratio of 22% and $16bn of unencumbered assets.
Avolon’s owned and managed portfolio at the end totalled 568 aircraft, with total orders and commitments for 329 new technology aircraft. During the quarter, Avolon reports that it executed 43 lease transactions comprising new aircraft leases, follow-on leases and lease extensions, as well as delivering seven new aircraft and transitioning four aircraft to a total of seven customers. The company entered into letters of intent for the sale and leaseback of 16 aircraft, and also sold 14 aircraft and entered letters of intent for the sale of a further 15 aircraft. Avolon confirmed that its orderbook as 95% placed to the end of 2025.
“The third quarter showed the continuing positive trajectory of our financial performance, helped by strong demand for aircraft and rising lease rates,” said Andy Cronin, Avolon CEO. “We continued to support our customers’ demand for capital and have underwrittenUS$2.9 billion in new sale and leaseback volume year to date. These transactions, along with lease extensions and aircraft placed from our orderbook at attractive lease rates, will drive our long-term profitability. We expect the current strong demand for travel and undersupply of aircraft to remain for the foreseeable future.”
Avolon is owned 30% by Orix Corp (through Orix Aviation Systems) and 70% by Bohai Leasing through an entity called Global Aircraft Leasing (GALC). In October, during the Airline Economics Growth Frontiers New York conference, GALC was in the market a proposed $1.95bn senior secured payment-in-kind (PIK) toggle notes due 2023, which were being co-issued by GALC and Global Sea Containers Two (GSCL II). Proceeds from the issuance are intended to pay down outstanding amounts under an existing $1.911bn 6.50% cash interest/7.25% PIK interest, Senior PIK Toggle Notes due 2024 issued by GALC in 2019.
As per an update from JPMorgan’s Mark Streeter on Oct. 31, there is about $1.9bn outstanding to pay on those bonds. However, the new issuance has struggled to price after two weeks in the market. Streeter and his team opine that for Avolon to service this debt “it would need to generate net profit of over $650mm ($325mm of dividends at 50%, 70% to Bohai generates just enough to service this interest)”. The latest results show that this would be difficult at the moment and according to Streeter that Bohai would be better served by selling Global Sea Containers (Seaco) and paying down the debt with the proceeds and reissued new debt secured by Avolon, with a simplified structure clearing the path for Bohai to look to sell its Avolon stake. Streeter writes: “We suspect Bohai and the controlling shareholder want to hold off on what we feel is an inevitable sale of the 70% stake in Avolon until all the positive tailwinds we’ve identified in this note drive further improvement in bottom line AVOL [Avolon] results.”
If Bohai were to initiate a sale of its Avolon stake, the market has been awash with rumours as to potential bidders. AviLease springs to mind, as does DAE, or a private equity investor, but the more left field suggestions have founder Domnhal Slattery swooping back in to regain control. Ideas on a postcard….