Avation PLC (AVAP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Avation Half Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company 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 31st December 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 to the company's future performance represent management's estimates of future results and speak only as of today, 3rd of March 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 6 months ended 31st of December 2021 reflect the emergence from the severe disruption caused by the COVID-19 pandemic. Revenue exceeded expectations, and Avation's strategy to conserve liquidity succeeded with the net indebtedness being reduced as cash collection rates and unrestricted cash balances have improved. We expect this trend to continue throughout the 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 6 ex-Virgin Australia ATR72 aircraft, 3 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 delever 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's senior notes to 31st of October 2026. The company is seeing an increasing number of positive data points that support increased optimism in the aircraft leasing sector. We are seeing 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 airlines and improved utilization of aircraft. These factors all support the emergence of the industry from the pandemic. The company will cautiously position itself to return 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 3 sections. The first provides an overview of the company, and 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 31st December 2021. The past 2 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 of 31st of December, the company had 42 aircraft in the fleet, serving 16 different customers in 13 countries. Although the recent announcement that we completed the transfer of title in the first 3 ATR that we sold to Aegean, this means we have 41 aircraft as of today. Avation owns, manages and leases regional narrowbody and twin-aisle aircraft. The fleet is split between 17% widebody, 50% narrowbody and 33% turboprop by value, respectively. The aircraft fleet has a 5.3-year weighted average age and a 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 contracted 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 19 -- COVID-19 recovery phase. The company intends to return -- to add a new aircraft in the fleet from its order book in addition to looking at opportunistic purchases of aircraft and the participation in sale leaseback transactions. Avation's diversified fleet at 31st December is focused on fuel-efficient, regional and narrowbody aircraft. These sectors have seen the fastest return to service as we emerge from the pandemic. 83% of Avation's fleet is focused on regional domestic travel, which, towards the end of 2021, was close to returning to 2019 pre-COVID utilization levels. Avation believes that new aircraft 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 [indiscernible] 2 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 2 ATR aircraft representing a small proportion equity commitment for each aircraft given we are paying significant predelivery payments for each aircraft. We expect to be able to finance most of the remaining acquisition costs with debt. Our previous largest customer, Virgin Australia, entered into an insolvency at the start of the pandemic, resulting in 13 aircraft being returned to us. We've since placed 4 and sold 6 of these aircraft, leaving only 3 unutilized ex-Virgin aircraft in the fleet. Avation is returning to a high level of operational efficiency, which simply means that a high percentage of the fleet is generating rent. There was a strong interest in the remaining aircraft, and our expectation is that we sell or lease these 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 flag carriers. While flag carriers are not excluded from the impacts of COVID-19 and associated travel restrictions, these airlines are more likely to receive government support through the national imports carrier. These airlines also typically serves 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 is important to note Avation's geographical spread of customers as the pandemic impacted different areas at different times. Around 2/3 of Avation's companies by revenue are located in Asia, including airlines based in countries that experienced a less severe impact in the first year of the virus. We've also been in fortunate in Europe where our largest customers, airBaltic, has been performing well and has received a government equity injection. We've been able to retain the majority of our customer's fleet team. And for this reason, we believe Avation's business model was largely intact. We've included the list of customers and the aircraft to provide further granular detail on the fleet. The ATR market is recovering with interest in buying and leasing aircraft increasing. Together with the 3 ex-Virgin aircraft, we are also -- we are marketing, we're also remarketing 2 ex-Loganair aircraft. It's likely that we'll sell at least half of these midlife ATRs, which will free up further cash and enable Avation to recycle equity and/or delever the balance sheet. We've also received interest in the ex-Garuda aircraft. The company has announced the sale of 3 ATR72-600 aircraft to Aegean Airlines, which will be completed prior to the end of the financial year, which is 30th of June 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 [ yarded ] aircraft and, therefore, a natural seller of midlife aircraft. Let me now hand the call to Richard Wolanski, who will provide more detail on the financial results, liquidity and 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 is 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 noncash 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 to $2 million in the P&L. This was offset by a credit to equity in the balance sheet by a release of asset revaluation reserves. Thirdly, there was a $1 million noncash warrants expense in the P&L that is matched by a $1 million credit to equity via the warrants reserve. These 3 noncash 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 of the 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 unleased aircraft, which we are continuingly 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 30 June 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 debt may reverse some of those provisions for credit losses moving forward. Fleet assets declined by 7% to $1 billion due to the normal depreciation of the disposal of 2 aircraft. The weighted average cost of the total -- of total debt remained steady at 5.4%. The loss of USD 0.22 per share for the period and the NAV per share remained the same at GBP 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 1 Airbus A220 in October, followed by the sale of 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 2 to be delivered in -- are likely to be in March and April. We extended leases on a couple of ATR-600 aircraft with Hevilift, and we actually signed and delivered a third aircraft to Hevilift 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 the Boeing 737-800 return from Garuda, and we've commenced remarketing that -- on that aircraft. The 2 ATR72-600 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 have 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 secured debt facilities to 4%, which is 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 June 30 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 remained steady at GBP 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 5.7x from 6. And the net debt over EBITDA saw an improvement to 8.7x versus 12.5x as of 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, 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 June 30 to over $35 million. The company has also grown the number of unencumbered aircraft since June 30 from 3 to 5 aircraft as at December 31. 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 to December 31, 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 4 to 5 months. Having sold 2 aircraft prior to December 31 and the first of the Aegean ATRs in January, we expect to complete the sale in those remaining 2 ex-Virgin ATRs to Aegean over the next couple of months. These 5 aircraft sales released $42 million into working capital, net of debt, that we can -- that can then be used to delever 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 remarketing, collections from customers and from insolvency proceedings of Virgin Australia and Philippine Airlines, in addition to the normal cash flow from operations. In respect to the payout from Virgin, we have flagged to investors that Avation's claim against Virgin Australia has been adjudicated by the Trustee of the Creditors Trust in the sum of AUD 101.4 million. The administrator advised in December 2020 of an expected payout of 0.095 on the dollar for unsecured claims. In November 2021, however, the Trustee of the Creditors 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 $101 million claim should take priority over 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 to 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 had been paying power by the hour on a monthly basis since 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 '21, 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 reverts to this month. Avation has already stated publicly that in addition to a cautious approach to aircraft acquisitions, Avation will consider applying surplus cash that is being generated in the coming period to delever 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 lower the impact of the unsecured bonds or the value of any potential repurchases or the split between applying excess cash between fleet growth and deleveraging 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 line maturities in red match the underlying lease terms of the aircraft. The gray maturity represents a warehouse facility, which currently houses 9 aircraft. We're exploring refinancing some of the aircraft in this facility that are on long-term leases with matching duration senior debt and/or extending the warehouse. Loan maturities are typically aligned with lease terms. And with a long average lease duration of 6 years, most of Avation's senior debt, which makes up about 2/3 of our total debt, has significant duration. Avation confirms that it is current with all payments to secured lenders. Avation either complies with or has 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'll now hand the slides back to Jeff for an update on the company's COVID-19 strategy and a pathway moving forward.

Thank you, Richard. 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 was mitigated by adjusting the amortization profiles of related financing with the agreement of 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 the 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, the balance of this reduction in cash. Avation implemented 3 key strategies to reverse -- preserve cash flow. The first was to adjust the amortization of senior loans associated with fleet and 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 has seen no new deliveries of aircraft in the fleet and a temporary suspension of dividends. In terms of the outcome, support agreements were with 14 of 19 customers. Rate 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 grow. The disruption created by the COVID-19 pandemic is beginning to recede following the successful rollout of global vaccination programs that support a return to increased levels of air travel. This trend is already evidenced in regional and domestic travel, and we expect this will be followed by a 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 of the lessors, Avation has no aircraft in Russia and exposed to any financings in Russia. The fundamentals of the business and 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 innovations 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 of the maturity to 2026. Cash flow from operations continues to improve. The return to normal trading conditions as companies -- countries open air travel to unvaccinated -- to vaccinated travelers. Avation's largest 5 customers, which make up almost 70% of monthly revenue, were current or in compliance with repayment plans as at December 31. Cash inflows for the remainder of the financial year will be boosted through the settlement of unannounced aircraft sales and expected further sales of our new aircraft, collections from solvency proceedings related to Virgin Australia and Philippine Airlines and from collections of 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 the long term. Profitable -- to create a long-term profitable cash flow positive business that wants to grow. We're looking at our returns to reduce the impact of higher coupon created as a result of the extension of the duration of the unsecured bonds is 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 long-term opportunity for airline travel, particularly in the turboprop and narrowbody sectors. We, as a management team, continue to support, believe in and align 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 on the top.

[Operator Instructions] That's very kind of you and Richard for your presentation this afternoon. [Operator Instructions] But just while the company take a few moments to review those questions submitted already, I'd like to remind you that a 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'll take them in order. The first one is from Damian. He asks, can you please summarize the different payables and ways PAL is paying for the present and past [ results ] from certain lease. They will direct this to Iain Cawte, who is the Chief Financial Officer of the company. So Iain, take you microphone on.

Yes. Damian, so the restructuring of PAL completed on the 31st of December. And as a result of that, we received back rent payments on 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 a promissory note 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 [ Phil ]. How did the company reduce debt in the first half of '22? We repurchased bonds in the secondary market, so what price? I'll direct this to Iain again.

Yes. So you'll have seen 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 the 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 the normal course of business.

Thank you. The next one is from [ Ganesh ]. Could the company advise if it still has an aircraft leased in Myanmar? I think we'll direct this one to Rod. Do you want to answer this one, Rod?

Yes. Yes, we have one ATR72 with Golden Myanmar. We've reached 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 consensually. 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 said 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. So we may need to follow up with an announcement on that. The next one is from [ Brandon ], which I'll direct to Richard. What is your current expectation of the receipt of money from Virgin Australia? And this is a question of when, not if. Yes, it's a question that we will receive monies, but we'll let Richard answer the rest of that.

Yes. Unfortunately, Brandon, the Trustee of the Creditors Trust hasn't provided any details of an expectation of 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 -- hard to be made. Although as we tried 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 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. Well, just to clarify, we are anticipating in the process of trying to get 40-odd percent of our adjudicated claim, considered to be a priority play, in which case we get a substantially greater share than we first advertised. Moving on. So the next one is from Michael. Do you see expansion into the U.S. and a further deployment in Europe? I can answer that. We are interested in -- further in Europe. We're less interested in the United States at the moment because the -- typically, U.S. airlines and lessors have very low cost of funds and may tend not to deal with international listing companies too much. The next one is from Brandon asking, 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. 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 3 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 [ Kelvin ]. Can you give an update on the remarketing efforts for the 6 underutilized aircraft? Does -- would Rod want to take this one?

Yes, it's 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 2 other LOIs. So we've signed one LOI for one of the Virgin -- ex-Virgin ATR72-500s, which is a lease. And we've signed an LOI for the sale of the 2 ex-Loganair, [ ex-fly VX ] Loganair aircraft ATR72-600s. So we only actually have 2 ex-Virgin ATR72-600s 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. [ Moshen ] has asked, can we provide an updated maturity schedule? The one in this presentation is still the old one. So on the screen, we see the liability structure and loan 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 insight. 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 and costs that was executed? How much was the debt repaid on these sales? That's a question from Kelvin. So Iain?

Yes, sure. So the net proceeds from the A320 was 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?

Yes. Thank you. That answers the question. The next one is from Ross. Thanks, Jeff and Richard. Can you describe your capital allocation priorities if you receive significant proceeds from aircraft sales from Virgin? Well, clearly, our job is to get the company profitable again. And we -- that survives and generates money and everyone gets paid. And 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 it is super. Trade 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 -- is 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 it answers your question. The next one is from Moshen. Will we 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 at the right time, which is not yet what we're going to do with that. The next question from [ Kenny B ] is, how would you rate yourselves in handling the business over the last 2 years compared with your competitors? I guess I'll take that one. We have some very, very good competitors who are clearly very good at what they do. We have done really very well. We were complemented 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 Russia 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 aircraft. We've transitioned a lot of aircraft. We have been constantly repositioning and successfully transitioning aircraft. So I think we -- compared in reality, 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 a 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 Moshen is, was first half '22 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?

Sorry. Yes, 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 early 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 [ Reno ]. What is the impact of higher oil prices on the demand for aircraft that you are remarketing? Rod, do you want to take that one? .

Well, sure. So I mean I think that given that most of the aircraft that we're remarketing are the ATR72s, they're renowned to be one of the most fuel-efficient aircraft 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 replaced with -- you've got agreements to deal with almost all. Next one is from Ross and a similar question from [ Matt ] and [ Daniel ], 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 and the geopolitical uncertainty that met us, how does 91% collection rate compare with pre-COVID cash collection rates? Is it true this could go 100%? And Daniel asks, what are the collection rates for the 6 months ended December '21, percent of customers and also percent of scheduled lease payments? So Iain, do you want to address those questions? You might need to turn your microphone. Cash collection.

The cash collection number that we published was 91% for the 6-months period. Prior to that, I think we were collecting about 75%, 76%. So obviously, the cash collection rate has picked up significantly in the last half year, and that tallies with our experience of airlines recovering from the COVID period. I mean in -- for the rest of the year, we expect that trend to continue. Certainly, Philippine Airlines exited administration on the 31st of December, and they made a couple of fairly substantial payments to us in early January. We had another customer that has cleared their arrears. And then you'd also note that we've expressed in the notes in the financial report that we've got -- we reached an [ opportunity ] agreement with a major customer for the repayment of around $30 million of arrears, although that repayment will be staged over in 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 [ David ]. For the A320, there's been transition that mean -- does this mean you've secured its next customer? Yes, that does. There's a question from Moshen. Have the $42 million of asset sales proceeds been received? I only see $40 million in the cash flow statement. That will 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 agreed to sell 3 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. The next one is from Matt. What are the terms of PAL promissory note? And what is the balance sheet value? Duncan, are we allowed to talk about the terms of PAL promissory notes?

Yes, I think the detailed terms are confidential, but the promissory note will start to repay from the 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 Moshen. Analysts have talked about a big influx of airplanes coming to supplies exit Russia. So even if you have no exposure to Russia, there is supposed to be increased pressure on lease rates and aircraft valuation. Any comments? I will comment on that. I mean the -- 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. That's physically impossible. So they won't come out nor they'll 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 a lease, it's in place for a long time. And there was likely to be an aircraft shortage as COVID recovers because a lot of aircraft have lost -- have left the industry and have been retired forever. So in reality, what would happen is some aircraft would come out. They would get remarketed. It may 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 our revenue or ASK, but I can see it impacting some lessors with sort of outsized exposures to Russia. I think that answers the question just -- but I mean we don't want to speculate too much. [ Bradley ], with the existing cash potential income, we find more planes that recovers from Virgin Australia and PAL. Why not buy the buy bonds at discounts to market? Bradley, that's a great idea, but our job is to making 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've certainly bought a few in the past and haven't been frightened to buy them. So it's a great idea, but the #1 job is to ensure the company is profitable and, therefore, can grow and expand. [ Peter ] is asking, please, may ask whether there's been any sign of traditional banks increasing appetite of lending in the sector? Is it too early to make judgments right now? Does -- Iain, do you want to deal with this one?

I think banks have been quite standoffish. 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 [ Stephen ]. Does the transition of Myanmar aircraft lease provide any further impairment? 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 Golden Myanmar, it will come back onto the balance sheet as an owned asset and that they will have to establish a valuation for it at that time. And then, of course, if we manage to lease the aircraft, which we will try to do, it will be subject to our NAV accounting policy. And again, the [ client will be paid on in terms of ] the follow-on lease.

Rod has disclosed that we've signed the LOI to transition the aircraft. So there will be no material impairment on that. We can be certain -- we can be confident of saying that. Peter asked, prior to the pandemic, the company explored the potential sale by -- sale of renewed prices and sale, the company sell the agenda for medium term once the company's issues related to the pandemic have been dealt with? Prior to the pandemic, the company had been approached from a potential buyer and that we dealt with that as a public company should. So we hired an adviser to deal with it and all rest of it. So we -- I think we didn't create a 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, and we waited if people come along if they come along. I mean, clearly, the control of value and its -- 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 Phil. What caused the $1.8 million in aircraft maintenance? And do you expect this to stay elevated? Rod, do you want to deal with this one?

Yes, okay. I think the -- 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 had 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 of more aircraft to put through checks. So there will be some more maintenance costs coming up. But then once we've cleared the unleased number of aircraft, the 6 aircraft, then we should be -- we should have no more after that.

Next one is from Moshen. Again, it's a big question. Just to be clear, have you canceled the $7.5 million worth of bonds or bought back? Duncan, have we canceled them? They're there for cancellation.

They'll be bought back for cancellation. Technically, they're still inexistent. But they are disenfranchised under the bond trust documentation. We are in the process of dealing with brokers and DTC to get those canceled. But as of today, there's still -- technically, there's still increase.

A question from Stephen. In inflationary times, have you seen lease rents? 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 get to place the aircraft, and the lease rates go down and vice versa. But as far as new aircraft are concerned, the price of new aircraft never seems to go down. They 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 Phil. There's 2 questions to go. So Phil, why did the company reclassify the 3 turboprops as finance leases? The answer is we've given a 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, what are the delivery profile of 20 ATR purchase rights? I think Rod can 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 Mark...

I was just going to say, Jeff, you've answered every single questions that come through. I was a bit fearful for every one question you answered. There was another 2 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 read direct 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 certainly is receding. The company is heading back towards profitability and will be 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 2 years, but we're getting there, and we're enjoying 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. Could 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 it 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.