Avation PLC (AVAP) Earnings Call Transcript & Summary

Right. Good morning, ladies and gentlemen. I'm Jeff Chatfield, Executive Chairman of the company. On behalf of Board of Directors, I welcome you to the Avation 15th Annual General Meeting. Actually, there's couple of people joining, which we'll add. [indiscernible]. I think we'd skip. There is still people with many [indiscernible] joining. So we've got more shareholders than we normally have, which is amazing. So my name is Jeff Chatfield. I see more of you have joined, quite a number actually. I will now hand to the company's secretary for some announcements.

Thanks, Jeff. Good morning, ladies and gentlemen. Due to the coronavirus pandemic, this meeting is being held remotely by Zoom teleconference in accordance with the U.K.'s corporate governance -- Corporate Insolvency and Governance Act 2020. There will be no in-person voting at the meeting with all votes to be put to a poll based on the votes cast by proxy. And the proxy votes have been tallied by the company's registrar, Computershare Investor Services and a copy of their report has been [indiscernible] to meeting. Please can I ask [indiscernible] alliance if they are not really needed. I can confirm that at the board who is present.

Thank you. Thank you very much, Duncan. I will proceed. So as quorum is present, I declare the 15th Annual General Meeting of Avation PLC open. The resolutions which are to be considered today are set out in the notice of meeting published on the 25th of November 2020. Rather than reading the whole of each resolution, well, I would like to repose that we take each resolution is read as set out in the notice. Before we proceed to the formal business of the meeting, I would like shareholders, who wanted to speak or ask questions during the meeting, to wait until dealt with the resolutions. And then I'll be making a statement and take some questions. With regard to voting, all the resolutions being proposed this morning will be put to a poll based on proxy votes in order to sort of use all shareholders to be properly represented. So that'll be reported. I can confirm that we've received proxy votes in respect of more than 73% of the entire issued share capital in the company. The first item of business is to receive company's accounts and reports for the year ended 30th of June 2020. The second item of business is to approve the directors for remuneration report for the year ended 30th of June 2020. The third item is to approve the directors' remuneration policy. The fourth item is to reelect myself Robert Jeffries Chatfield as the Director of the company. The fifth item is to reelect Derek Sharples as the director of the company. The sixth item is to reappoint Ernst & Young as auditors of the company until the conclusion of the next Annual General Meeting. The eighth item is reauthorize -- to authorize the directors to allot shares.

Jeff, you missed the seventh.

Sorry. The seventh item is to allow the directors to determine the remuneration of the auditors. And eighth is to authorize the directors to allot shares. The ninth is empower directors to allot shares which [indiscernible] pre-emption rights disapplied. The tenth is to authorize the directors to make [indiscernible] market purchases and cutting down the shares. The eleventh is to authorize disapplication of such pre-emption rights of the [indiscernible] treasury. I'll now ask Duncan [indiscernible].

Yes. Thank you, Mr. Chairman. Here are the results. We have received proxy votes in respect to [ 47,000,833 ] [indiscernible] shares representing 73.78% of the issued share capital of the company. All resolutions have been passed and I can confirm the [indiscernible] straight into resolution as follows. Resolution one, all the votes were cast in favor. Resolution two, [ 36,287,974 ] votes in favor, 11,579,769 votes cast against. Resolution three, 41,627,524 votes in favor, 6,232,884 votes against. Resolution four, 47,867,458 votes in favor and 285 votes against. Resolution five, all votes were cast in favor. Resolution six, all votes were cast in favor. Resolution seven, [ 47,870,298 ] votes in favor, 2,315 votes cast against. Resolution eight, 43,249,051 votes in favor, 3,598 votes against. Resolution nine, 37,891,923 votes in favor, 5,363,021 votes against. Resolution 10, 43,233,051 votes in favor, 21,113 votes against. Resolution 11, 37,893,133 votes in favor 5,359,021 votes against. So it has -- taken all resolutions have been carried.

Thank you, Duncan. As no notice has been received of any other business prior to [indiscernible] at an AGM. And that concludes the formal voting part of the company's 15th Annual General Meeting, I declare the formal shareholder meeting closed. And now that we've dealt with the formal business, we're pleased to report that all resolutions have passed. I'd like to make an interim management statement and give a trading update for the business. However, first, I hand back to the company's secretary for the important notes.

Thanks, Jeff. Please note that certain statements in this meeting, including certain answers to your questions are forward-looking statements, including without limitation, statements regarding to our future operations and performance, revenues, operating expenses, other income and expense items. These statements or any projection of the company's future performance represent management's estimates of future results and speak only as of today, 23rd of December 2020. These estimates involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information on the factors and risks that may affect Avation's business is 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 transmission is not permitted.

Well, the AGM statement in interim management [indiscernible]. The purpose of this statement is to provide investors with an update on current operations for the half-year financial reporting period commencing 1st of July 2020. Avation produced satisfactory results in the year ended 30 June 2020, notwithstanding the ongoing global pandemic. Lease revenue increased by 14% to $135.3 million. In a challenging year, we were able to maintain profitability with profit before tax of $14.7 million. As of the current date, Avation's freight totals 46 aircraft. Avation's customers include 19 aircraft -- sorry, 19 airlines in 15 countries. The average age of the fleet is 4.5 years and the average remaining lease term is 6.5 years. Investors are advised that finance leases for 2 Fokker F100 aircraft completed since July 1 as we met in '20, and ownership of the aircraft has been transferred. Operational Update. At the outset of the COVID-19 pandemic, Avation instituted a program of support for its airline customers by agreeing to defer payment of a portion of their rent in the short term. The cash flow impact of this support program has been mitigated by adjusting the amortization profiles of related financings with agreement of lenders. As at the current date, Avation has provided support 14 airlines customers with agreements to defer a total of $13.7 million. The company has mitigated this impact on cashflow with secured lenders agreeing to reschedule $26.5 million of loan amortization. As at this date, 7 airline customers have returned to normal monthly rental levels. Since July 1, 2020 Avation's, airline customers have begun to return to service with airlines representing over 79% of unearned contracted revenue flying at greater than 50% of pre-COVID levels. The travel, airline and aircraft leasing sector remains challenged, even at these levels of return to service. Debtor collection has been challenging during the year due to the severe disruption to airline cashflows and Avation has had to monitor and work closely with airlines to ensure operational cashflow is maintained. Avation's customer Philippine Airlines (PAL) has recently announced that they are seeking to restructure the airline. At this point, Avation understands that PAL intends to maintain the use of its Boeing 777-300ER aircraft on lease from Avation for the remaining term of the lease. However, PAL's restructure will see an adjustment to the lease rate and may result in an impairment in the value of this aircraft in the financial results for the period ended 31 December 2020. Avation Capital S.A. senior 6.5% notes maturing May 2021. The Company has engaged PJT and DLA Piper to discuss with an ad-hoc group of bondholders and their counsel with the aim of obtaining an extension to maturity of the bonds of between 2 and 5 years. If an extension is achieved, we expect it could include increased cash or non-cash yield, payment of an up-front fee and potentially, enhanced covenant or other restrictions. The company has been informed by the ad-hoc group's legal advisers that it comprises holders of the notes, holding a sufficient percentage of the notes to implement any transaction to extend the maturity of the notes. We cannot guarantee that these discussions will achieve this result and stand ready to explore all alternatives. Outlook. COVID-19 continues to dominate the industry and Avation expects there will be some continuing work to do to support airlines as the challenges facing the sector will remain for an extended period even with the successful roll out of vaccines for COVID-19 commencing around the world. Avation is optimistic about the long-term opportunity for air travel particularly for the turboprop and narrow-body aircraft sectors. The company will position itself for a return to growth through opportunistic purchases and delivery of its order book in a post-pandemic environment. Avation's teams have been managing airlines, bankers and finances on a daily basis in the duration of COVID-19. We have an opinion that air travel and passenger movements will exceed previous levels when a treatment or vaccine is deployed and passengers perceive air travel to be safe. Therefore, post-COVID-19 we remain optimistic and expect significant opportunities for a rapid return to growth. So that's the end of the AGM [indiscernible]. This concludes management's remarks and [indiscernible]. I'll be now happy to deal with any questions. [Operator Instructions]

Any questions? [indiscernible] This is the best attended AGM, I think, we've ever had in terms of number. Duncan can you see any questions?

There is nothing. I can't see that there's any questions coming in. I will unmute and we'll hold [indiscernible]. Well, it's [ Ross ]. Okay. [indiscernible].

Hi there. Have you got any thoughts on the timescale on the discussions or negotiations on the [indiscernible]?

We stand ready to respond. We are engaged to the best we can with -- right now through their [indiscernible]. We'll be working over the holidays, so we're available. We've spoken to them. We don't really have a view on how long these discussions will take. And it's the only reason of the delay. But we're ready and we're working and we're hoping for contact now. I can get more specific in that because [indiscernible] anything happen we will make an announcement immediately. There's a question from [indiscernible].

Can you give us a bit more clarity around, is it PAL, the Philippine Airline? I know that they've only got one plane with you, but it's actually quite a big plane. What percentage of their net -- of your revenue line with that plane?

[indiscernible] they told that it was 11%. It's very big new aircraft, but advised us that they are going to keep it, which is great. We will -- the majority of the revenue will stay in place to the end of the lease. But there will be -- they are proposing a lower lease rate. It is subject to them coming to the end of the planning and restructuring process. But we're confident at this stage, the plane will stay there, and the majority of the air fleet revenue will remain. But clearly, there will be some change to the dollar value of the lease, which may result in some change to value of the aircraft actually.

So is it on the value of the aircraft, it is an MPV thing is that you've got net cash flow from the lease, therefore, the residual values work.

Well, the aircraft only have one life. So if you've got 8 years or whatever is remaining, and you've got less rent from it, then you will -- the value of that goes down. But that's [indiscernible] thing. You deal with that. You won't know the outcome of that for quite a while. Are there any more questions?

I got one more, please.

Yes, go ahead.

So in the statement you referred to the fact that the aircraft -- your customers are still struggling, even though their load factors and capacity is picking up. To be harsh, that's not really your issue, is it? I mean, you need them just to be surviving, yes? [indiscernible] bother you whether they've got those loads back within 85 or 95, they'll still pay the same amount. And you don't have any upside from them being pulled. Therefore, equally, you shouldn't have downside from them [indiscernible] at the moment. As long as they can pay, they should pay.

As long as they can pay. The issue is the governments of the world have been something like [indiscernible] the airline business. And the people that have received that are hiring business and ones that haven't struggled. And it is the real stuff because a lot of these airlines are engineered to only potentially make a profit. If they're operating at almost full capacity and almost -- they're so almost [indiscernible]. So this current shock that we're going through means it's incredible for -- it's an incredible challenge for them to restart, it will cost a lot of money. We don't want to fire it all up again. Some of the capacity that has been grounded will be lost forever. So there's a lot of old mains around that won't come back. And so the consequence is really very interesting in the sense that it's going to cost a lot of money to restart. Air freights would probably be really high. And once it all gets done, again, aircraft will be very full and probably very higher than that. I have the world's [indiscernible] world's experts on -- who is on this call, if you want to jump in and be more specific on those comments. Bob, do you want to jump in? [indiscernible] COO, who is very close to the airline [indiscernible].

Thank you.

[indiscernible]. Rob are you there?

Can you hear me now?

Yes.

Yes. No, no, I agree with you. Obviously, the dilemma in the peak of the crisis and the way -- this is like a resilient way that sort of goes around the world. It's currently in Europe now, and if you're in the U.K., as you'll know, the airlines have all been grounded again and flights have been stopped. So obviously, when an airline is not flying at all, it's pretty challenging. So -- but hopefully, the rollout of the vaccines, that will -- the airlines will get back up flying again. It's, in fact, in many senses for the industry as a whole, there's always -- you have to try and look for the silver lining but -- and there will be one in the sense that the companies that survive. The companies that were very inefficient or have no buffer of capital will fail. And the companies that survive will have gone through a restructuring one way or another and will come out stronger than they were before so the industry -- once we get passed this crisis, the industry, the players will hopefully in theory be stronger and more efficient.

Thank you, Rob. Mr. Kennedy. Mr. or Mrs. Kennedy or Ms. Kennedy. Well, we don't know. Has asked the question, what are the potential opportunities in the first quarter of 2021, assuming the bond issue resolve [indiscernible]. I also mean, I guess that means we assume COVID's vaccine would have treated the COVID. Well, you'll see trading opportunities. So what you'll see is there'll be a lot of aircraft for sale by airlines [indiscernible] lessee owners. So there will be owners that have aircraft that want to liquidate it and there will be significant trading opportunities out there. Which is something we would have been very good. We already trade [indiscernible]. The financial crisis in [indiscernible] trade, in numerical terms, we've sold more -- we're trading more aircraft than what we may have [indiscernible] in the world. So we are good at that. And you can expect us to buy and sell and take advantage of the opportunities. But we do have a few post-crisis aircraft valuations will go up because supply has been diminished. That was Ken [indiscernible].

Are there any other questions? We've got the full management team on the line. If anyone has got any financial question, lay it up. Actually -- all right. So if there's no further questions, then this concludes the business of today and a very good remainder of the day and happy holidays. Okay. So thank you very much. This has actually been our best attended AGM, which is quite an interesting turnover. So thank you very much, and good day.

Good bye.