Avia Solutions Group (Avia) consists of over 100 companies with more than12,000 aviation professionals, providing services from maintenance and repair (MRO), pilot and crew training, ground handling, and aircraft leasing. Avia owns the largest wet leasing (ACMI - Aircraft, Crew, Maintenance, and Insurance) business in the world with a fleet of 214 aircraft - 174 passenger and 40 cargo aircraft – underpinned by 11 air operator certificates (AOCs) globally.
ACMI is a strategic profit-accelerating leasing practice that allows scheduled airlines to manage their fleets more efficiently, adjust to market fluctuations, and optimize operational costs. By integrating ACMI as part of an airline’s long-term strategy, both aircraft capacity and income can be maximized.
Much like birds migrating to new environments for the winter seasons, ACMI airlines also take advantage of seasonality. This is because they have the freedom and ability to redeploy their aircraft to support client operations around the world when peak seasonality periods are in effect. This often coincides with summer holiday periods and school semesters, which start and end in different months around the world.
From an airline’s operational perspective, ACMI wet leasing ensures that own aircraft utilization is higher all year around. During ACMI leases, airlines also benefit from lower operational risks from leasing assets as opposed to purchasing them outright.
Avia’s group reported €1.2bn in revenue for first half of 2024. The reported figures constituted 29% and 44% increases in year-on-year first half revenues and Q2 net profit. These gains were driven by the implementation of the company’s strategy of bolstering capacity to meet strong demand from airlines globally during their peak seasons. The growth trajectory continued into the second quarter with half year 2024 results showing a growth in EBITDA to €179 million, a 34% increase compared to H1 2023.
Jonas Janukenas, CEO of Avia Solutions Group, attributed the strong financial performance to the company’s strategy to amplify flexibility for seasonal changes in capacity requirements.
“Our seasonal ACMI strategy allows our airlines to migrate aircraft to different regions around the world to enable our customers to upscale for peak seasonal demand.” Janukenas said. “With a 50% change in the total number of flights operated in Europe between January and July of this year, we continue to expect the need for airlines to adjust for seasonal behaviour in
the market.”
Different regions experience seasonal shifts in passenger demand at various times in the year. For example, in the United Kingdom, students will return to classes on September 1st, meanwhile in Malaysia and Thailand, students return to classes March 1st and May 1st respectively. These dates, September 1, March 1, May 1, and their corresponding shifts in market create unique opportunities as each region will experience an increase in demand from summer tourism at different times
in the year.
Janukenas added that the ability to migrate aircraft to different regions to adjust for seasonal needs resulted in increased financial performance for Avia’s customers. “Our ACMI can improve airline profitability by 2-3% with the right strategy in place,” Janukenas said.
The group is continuing to expand its ACMI offerings in passenger and cargo aircraft in different regional markets across the globe. The expansion has expanded the group’s ability to perform counter seasonal strategies by unlocking markets in the Asia Pacific region. In the first half of 2024, Avia Solutions acquired charter airline, Skytrans, in the first quarter to expand ACMI services in Australia. The group now holds 11 AOCs but said in its half year results that it is planning to obtain further air operator certificates (AOCs) in Malaysia, Thailand, Philippines and Brazil “in the near future.”
By investing into more southern hemisphere jurisdictions, Avia aims to offer more seasonal capacity as the IATA Summer in the northern hemisphere comes to an end in October. “We supply additional capacity to the European market during the European summer and we shift aircraft to the southern hemisphere in the Americas during the winter as well as other European winter destinations,” explains Janukenas, who adds that year-long lessee customers would see the most profit. “Our passenger airline customers that lease aircraft for whole years benefit from operating aircraft without the burden of aircraft maintenance , insurance, and crew costs.”
Airlines have always utilised ACMI providers during peak times, but during the capacity shortfall that the market is currently experiencing alongside a dearth of maintenance availability, there is an amplified benefit to counter season strategies.
“The drop in revenue during off-season periods, exaggerates other shortages in the market, making the stability of year-long counter season strategies more important than ever before,” Janukenas said. “At a full year duration, ACMI leases meant cost efficiency by reducing maintenance cost, overheads, and insurance premiums.
Wet leasing also has the advantage of enabling passenger airlines to be more efficient in terms of financial performance and capital utilisation – a key concern in the post-pandemic world.
The previous growth at Avia has positioned the group to help other companies navigate seasonal shortages of capacity, maintenance, and crew availability, by offering increased flexibility to respond to the opportunities presented by the entire global economy. Rather than relying on short-term revenue fixes that change with the climate, the principled ACMI approach empowers airlines to reach more stable air and consistent year-round revenue.
“Demand is elevated but we work with long-term clients because capacity is scarce in the months leading up to summer,” says Janukenas. “There would have been better results for more in the industry during the summer schedule in the absence of the GTF problems. Even older aircraft are subject to the price increases as a downstream effect of
the scarcity.
Avia inducted more than 50 aircraft in 2023 and with the acquisition of Skytrans earlier this year, it added 13 regional aircraft to its fleet.
“We would like to grow our capacity more, but we are taking a long-term view to our aircraft acquisition during this shortfall of supply– we will review the situation again the Autumn when we believe availability will be higher,” says Janukenas. “I expect the fourth quarter and into the first quarter of 2025 to have greater availability of midlife aircraft.”
Fleet expansion requires a significant investment and Avia Solutions Group has significantly improved its financial health during the first half of this year. The company increased its equity capital by €307 million to €655 million, thanks in part to US-based Certares Management, a private equity investment firm which invested into Avia in 2021, electing to convert its preferred shares to ordinary shares. The group also successfully issued US$300 million of five-year senior unsecured bonds with coupon of 9.75% in the first half of 2024.
The bonds, which are issued by Avia’s subsidiary ASG Finance Designated Activity Company, were issued with a long-term senior unsecured rating of BB with a Recovery Rating of RR4 from Fitch Ratings. Bookrunners were Citi and Morgan Stanley.
Ahead of the new issuance, Avia has continued to repurchase its US$300 million bonds maturing in 2024 and at the end of 2023 had US$180 million of bonds outstanding.
With its differentiated business model, Janukenas and his team embarked on an extensive roadshow ahead of the new bond issuance. “We reached out to many different investors and educated them on our business model,” he says.
The effort paid off when the new bond issuance was almost twice oversubscribed, and sold to investors from all over the world, including some of the largest funds and asset managers from the US, Europe, and Asia.
By paying down its bond maturing in December 2024 with proceeds from the new issuance, Avia managed to both preserves its own liquidity and generate surplus funds allocate to “strategic business development initiatives”, including acquiring more aircraft.
“We were very pleased with the success of the new bond,” says Janukenas. “We are actively looking for more targets for acquisition and M&A activity.” Avia’s large trading team is actively looking for more aircraft and trades with more than 50 lessors for midlife assets. “We have a wide and deep reach, with
various sources.”
Price remains a significant stumbling block in such a overheated market. Echoing the old saying, Janukenas observes wryly that “you can buy anything if you pay too much.” With aircraft availability remaining stubbornly low, Avia is taking a longer-term more conservative approach to
aircraft acquisition.
For the immediate future, Janukenas is focused on providing reliable, quality operations for Avia’s clients, which rely on its services. “With a growing fleet, we become more visible; more important for our clients,” he says. “A big step for us is the further development of our counter-seasonable markets. We have begun operations in Indonesia, to tap the lucrative high growth market, and we are about to open in Thailand, and the Philippines, Brazil, and Malaysia, we only recently acquired an AOC in Australia. By increasing our presence in this region, we increase the resiliency to cyclical demand elsewhere in the world and . continue to expand our winter season placement.”