Good afternoon, ladies and gentlemen. 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 tab situated on the right-hand side of your screen. Just simply press, submit your question. The company may not be in a position to answer every question received during the meeting itself. The company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll, and if you would give that your kind attention, I'm sure the company will be most grateful. I'd now like to hand over to Group General Counsel, Duncan Scott. Good morning.
Thank you. Good morning to everyone. Today on the 3rd of March, Avation published its unaudited financial results for the six months ending 31st December 2022. A copy of our results announcement is available on our website at www.avation.net. This conference call is being webcast and recorded. 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 projections as to the company's future performance represent management's estimates of future results and speak only as of today, 3rd March, 2023. 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 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 over to Executive Chairman, Jeff Chatfield.
Thank you, Duncan. Good afternoon or evening, everybody. Thank you for joining this investor conference call, where we discuss our half year results for the six months ending 31st December 2022. Avation's generated a profit, increased its net asset value per share, maintained liquidity, and continued to reduce debt. The company is well-positioned to execute its business strategy as the aviation sector continues to recover from the impacts of the COVID-19 pandemic. The snapshot of the company as at December 31st. At the end of the half year period, Avation's fleet comprises 37 aircraft leased to 16 airlines in 13 countries. By value, we own a diverse fleet of aircraft, including 52% narrow body, 30% regional turboprop, and 18% wide-body by value.
The fleet has excellent metrics with 6.1 year weighted average age and 5.4 year weighted average remaining lease term. Fleet assets have a net book value of $936 million, and we have $536 million in future contracted lease receivables. The portfolio as at 31st of December 2022. It's dominated by modern, fuel-efficient, regional and narrow body aircraft, which generally operate on domestic and short-haul routes. These have been the fastest to recover after the COVID-19 pandemic. The number of unutilized aircraft has been reduced to now two with the sale of an off-lease 737-800 and the commencement of a lease announced this week. There is only one lease for an Airbus A320-200 aircraft set to expire this year.
The next scheduled lease expiry is not until the year 2025. Moving on to our outlook. Avation has placed two firm orders for two new ATR 72-600. We hold purchase rights for a further 28 ATR 72-600 aircraft. The two aircraft are due to be delivered in 2024, while the purchase rights for aircraft are to be delivered out to June 2027. The order book and purchase rights provide the company with a visible fleet growth opportunity. Avation's purchase rights have increased in value, partly due to a capped inflation formula, which we believe is now significantly below the actual cost inflation. In respect to the first two aircraft, Avation's paid all pre-delivery installments and believes the balance of the purchase price can be funded with secured debt.
Avation is reasonably confident that it can source an attractive lease contract for the ordered aircraft. Avation's aircraft come with the Pratt & Whitney PW127XT-M engine, which provides lower fuel consumption and 5% more power, and also can operate on sustainable aviation fuel. We expect it'll be able to operate with 100% sustainable aviation fuel from 2025. If we just go forward again. This is an ATR slide, which shows the range of customers around the world for ATR 72 aircraft. It's actually got as many customers as or operators as, for example, Boeing 737 aircraft and more than the Dash 8s and E-Jets and so on. It's an extremely popular aircraft type all over the world.
There's plenty of choices on where to place aircraft. This is another ATR slide, it's actually really important in the sense that it demonstrates that of the ATR aircraft that have been made, over 1,200 are over retirement age. In other words, as they retire and hopefully get replaced, we'll be well-positioned. For example, there was 1,600 delivered, as I've just said, there's 1,200 over retirement age. That's a really important business opportunity because clearly, there's a market there for a lot of replacements. Which is very important because I think that Avation is one of the world's largest, if not the largest, options for that type of aircraft. They're a very extremely fuel-efficient and low carbon dioxide aircraft.
At the moment, you've got ATRs operating with sustainable aviation fuel. As I said earlier, by 2025, you can operate an aircraft, an ATR 72 with a 100% sustainable aviation fuel. CO2 production will basically be virtually zero. We have a background with green finance. In late 2019, we established, the world's first, commercial aircraft financing with a green loan, which was provided by Deutsche Bank, and it was signed off via, an agency, and we won an award for doing that. We have a history of green financing. This is another ATR slide.
At the moment, that plane is operated by one of our customers. The aircraft for that customer was financed by that green loan. It's already 50% sustainable aviation fuel compliant. It is sort of happening now, you know, the transition to low CO2 operations. As I said earlier, the ATR is a very successful program. In total of all ATR models, there's 1,800 sold, 200 operators, 1 billion passengers. It's the sort of number one turboprop in the world. We believe, given the CO2 initiatives around the world with governments and taxes and consumer, it'll have a strong future.
Overall, coming back to our broader business, we have 16 countries and 16 customers in 13 countries. We're now 14, given the events of this week. We have 70% of our customers by revenue are in Asia, with the remainder in Europe. Our top three customers by revenue are Vietjet, airBaltic, and EVA Air. We have no exposure to anything Russia. We have no impact. We're not aware of any impact from sanctions resulting from Russia. We tend to only want to lease aircraft in places where we're confident that we'd be able to repossess it in the event of a default. We are a sort of a buyer of new or relatively new aircraft and the natural seller of mid-life and older aircraft.
You've seen us sell older aircraft, so we can transition to new modern technology aircraft going forward. Some of the highlights. We sold two ATR 72-600 aircraft in the period. We transitioned and sold a Boeing 737-800 that we'd repossessed. We wrote a new lease with an airline in Nepal. We've successfully repossessed an aircraft from Myanmar. We're good at transitioning, selling and leasing aircraft. Now we talk about the financial results, and I'll hand over at this point to Iain Cawte, who's the Chief Financial Officer, to continue this presentation.
Thanks, Jeff. Good morning, everybody. The next few slides of the presentation provide a summary of the financial results. Further detail is included in today's stock exchange announcement, which is also available on the company's website. In the half year to 31 December 2022, total revenue and other income was $55.3 million. The reduction in revenue is mostly a reflection of the reduced fleet size. Operating profit increased by 86% to $35 million compared with the prior year.
Operating profit includes a $3.2 million gain on derecognition of a finance lease, a $6.9 million unrealized valuation gain on an equity investment, and $5.8 million of aircraft transition costs. The gain on derecognition of a finance lease represents the positive difference between the outstanding finance lease receivable and an independent broker valuation for the ATR 72 aircraft repossessed from an airline in Myanmar. The gain on an equity investment is a mark-to-market adjustment to the value of shares in Philippine Airlines, which Avation received following the airline's Chapter 11 restructuring process. Aircraft transition costs are principally costs incurred in the transition of a Boeing 737-800 repossessed from Garuda, which was sold in February.
Profit after tax of $8.3 million for the period compares with a loss of $15.3 million in the comparable period. Profit after tax includes a gain of $1.7 million on the early full repayment of two loans that were refinanced in the period, and a gain of $0.5 million on repurchased bonds. Finance expenses were reduced by 9.5% to $31.7 million, compared with $35 million in the prior year. Net indebtedness was reduced by $46 million in the half year period as the company continued to delever its balance sheets. Total assets were largely unchanged at around $1.2 billion at both the 31st of December and the 30th of June. Moving to the next slide, an analysis of our debt.
As noted on the previous slide, net indebtedness has been reduced. Weighted average cost of debt increased from 5.7% to 6.1% over the six-months period. The face value of unsecured notes outstanding was largely unchanged at $348 million as at 31st of December. Weighted average cost of secured debt increased to 4.5% from 4.0% in the period due to increases in floating rates and mandatory scheduled repayments skewed towards lower cost facilities. Following the refinance of two floating rate EUR loans with long-term fixed rate debt in November 2022, the proportion of fixed rate debt increased to 94.8%.
The ratio of net debt to total assets was further reduced to 62.9% as at 31st of December, and is forecast to continue to fall as scheduled loan repayments exceed depreciation of aircraft. Looking at some key ratios, obviously net asset value per share has increased to GBP 2.82 in the period from GBP 2.68 at 30th of June. Lease yield was 9.4%, but will increase slightly once all off-lease aircraft are placed or sold. Lease yield for aircraft on lease was around 9.6% in the period. Credit ratios have all improved over the period as net debt has been reduced. Looking at our summary of liquidity, the company has preserved liquidity over the half year period while deploying funds generated from operations and aircraft sales to pay down debt.
Other current assets includes $8 million shares in Philippine Airlines, issued as part of the restructuring of the airline via a Chapter 11 bankruptcy process. The shares are due to be exchanged for listed shares in PAL Holdings, Inc. later this year. We have revalued the shares based on the ratio for the share exchange, which has been established by an independent valuation and the published share price for PAL Holdings at 31st of December. We include unencumbered aircraft as potential sources of liquidity, as they may be used as security for new loans or sold. The Boeing 737 aircraft was sold in February 2023. Following the successful extension of Avation's warehouse loan facility in June 2022, there are no significant near-term debt maturities other than scheduled monthly and quarterly loan installments.
The following slide illustrates how scheduled repayments of secured debt exceed projected depreciation of aircraft over time, reducing the expected senior loan LTV ratio. The bars represent estimated amounts at each fiscal year-end for the current fleet only. I'll now pass you back to Jeff for the conclusion of the presentation.
Let's talk about the future. Clearly, we've got to leverage the in-industry recovery from COVID. The management plan is to transition, reposition, sell, lease the last couple of unutilized aircraft. Continue to manage capital structure and repay debt. Clearly, obviously, in an environment where there's 1,200 ATR aircraft over retirement age, there is opportunities to organically grow by the, you know, self-funding delivery of ATRs to that client pool, which should be a very, you know, steady progression as we deliver aircraft. In conclusion, there's obviously, and the sector has demonstrated recovery. Our company's returning to profitability slowly and getting lower leverage.
Clearly and the macro environment's changing where people want modern technology and low CO2 aircraft, which is sort of being forced on them by governments more than anything else. We're aligned with that, as far as a sustainable future goes. What we will do is we can have a question and answer session. Please feel free to use your system to answer questions.
That's great, Jeff, and to the team from Avation. Thank you very much indeed 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. Just please simply type in your questions at any time and press send. Just while Jeff and the team take a few moments to review those questions you've submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the Q&A, will be available via your Investor Meet Company dashboard. Jeff, no surprise, probably as you can see, you've got a number of questions from investors given the attendance on today's call. If I may, Jeff, just hand back to you.
If I could ask you to read out the question, and then obviously a response where it's appropriate to do so, and then I'll pick up from you at the end.
Okay. Well, there's one from the IMC host, which was, "Over the years, Avation has been proud of the fact that there was a young fleet. COVID put a stop to that." Well, I disagree with that, but, "When can investors expect to see genuine fleet growth, especially amongst A220s?" Well, we've got two aircraft due to be delivered in early 2024, so that's growth. We have purchase rights for ATR72s, which is more growth. A220 is more difficult given that they're probably one of the best aircraft, commercial aircraft in the world at the moment, so they're not particularly easy to come by. We do see opportunities, but, you know, it's not that easy. That's that question dealt with.
I think the next one is, "When is AVAP expected to pay dividends?" At the moment, we're focused on lowering the cost of debt and lowering the amount of debt. Once there is excess free cash flow above and beyond what we need for that, we will be paying dividends again. Next one's Nick B. "Can you explain how purchase rights work?" I think Soeren Ferre would love to take this question. Why don't you take it, Soeren?
Just bringing, Soeren back in. Just bear with one second. Thank you, Soeren.
I'm on?
Go ahead, sir.
Okay. Well, basically, purchase rights are, it's like an option you have with the aircraft manufacturer, in this case, ATR, where basically you give a notice. Unlike option, purchase rights are just pure options. They don't have a date attached to it. In our case, we basically give notification to ATR, and ATR has to give best efforts to give us a slot, at least in the coming 18 months. Traditionally, it's never been an issue. That enables us today, like, you know, for example, today we have two firm aircraft, but we have actually submitted offers for three aircraft to some campaigns, because we've already discussed with ATR. ATR has the aircraft available, if we exercise purchase rights, basically, we can get the slots.
Once the purchase right has been firmed up, the benefit we have with the fleet of aircraft as part of the old contract apply as well. We, as Jeff said, you know, we have an excellent, escalation cap. That escalation cap will be transferred to all the purchase rights without a limitation of time.
Thank you. Next one, I think. Could you discuss the outlook and timing for asset sales? They're slowing down. Our preference is to lease the remaining aircraft. We may sell one because clearly there's interest in it. We certainly would like to lease the others, and we'd like to have it all wrapped up by June 30th. Another question is regarding the delivery of timing for the former Golden Myanmar ATR. We've transitioned that aircraft, I believe. Nick B's asked any plans to have exposure in the U.S., We tend to find that the United States has very low cost of money to airlines, so they tend not to be that attractive to lessors. There's sort of some second-tier and third-tier airlines that we could look at in the future.
The next one, what's the total free cash flow from the sale of three aircraft? It's not something we would ordinarily discuss in any great detail. I think you'll see it. If you study the accounts, you should be able to work out roughly what it is. Unless, Iain, you wanna take that? No, he doesn't. He's on mute. The next question is, thanks for the presentation. Why do you think that the current share price is only about 50% of the net asset value? There's no real very simple answer to that. I mean, it's a question of investor relations, promotion, risk, size. Clearly, over the coming days, our job is to promote the company so that the shares are at least in the same postcode as net asset value, like the rest of the lessors.
But clearly, you know, we've come out of COVID, and there's a lot of disruption in the world, and very difficult. Stephen P. asks, what does the company to do with the equity investments in airlines received in the receipt of debt? Well, you know, our business is leasing aircraft, so typically we would sell those. Jonathan J. s, Richard Wolanski is still the FD of Avation. On the call, The way we manage the company is we effectively had two people dealing with different types of investors and financiers. On the call is Ashley Nicholas, who has taken Richard's role in terms of investor relations. Ashley's on this call and feel free to introduce yourself if you want, Ashley.
Thank you, Jeff. Yes, if investors have questions after this call, they can certainly send them through to the investor at avation.net or my email address, which I think is at the end, and we'll happily answer those questions post this call.
Ashley's been with the company for many years and principally deals with banks, so he's raised most of the asset-backed finance. The next question is from Damian. Both United and Avation have talked about new aircraft and other shortages limiting industry growth. What impact does this have on aircraft values, lease rates, useful leasing lives for the existing fleet and ATR orders and purchase rights? Number two, has stated a focus on organic growth. Can you expand on how you view industry consolidation with Standard Chartered's exploration of a disposal to one of the latest? Might this create more opportunities as airlines seek diversity of supply? I think Soeren would really like to talk about. Soeren was one of the, has an Airbus and an AerCap background.
I'm sure that you would like to talk about aircraft shortage, industry growth and impact on aircraft values.
Yes. What we've seen, I would say in the since the last half of 2022 was, you know, slowly. I mean, in 2022, beginning of 2022, we had an oversupply of ATRs, as you know, the traffic from COVID hadn't totally recovered. Thank God, you know, the regional traffic and domestic traffic is the traffic that has recovered the most compared with international. The situation we're in today is basically now we have a shortage of ATRs. We are getting, you know, all of our ATRs are now spoken for, either they're, you know, being sold or they're being placed with new operators actually not discussed yet.
We are getting about, I would say, two calls a week from, you know, existing airlines or start-up airlines who are looking for ATRs because basically that's the only aircraft in its category which can do the job. You know, the Bombardier is not being made anymore. You know, that goes to what Jeff was saying, you know, when he was saying that there are, you know, 1,200 aircraft to be replaced. They can only be replaced by ATR. Whereas in the past you had actually two suppliers, you had Bombardier and ATR. We're in a situation where we have a shortage, and I don't think the shortage is going to improve, I would say, in the next two years.
We're already seeing that the lease rates for aircraft in the last six to eight months have increased by about, you know, 20%. You know, we were talking about aircraft at, you know, $60K, $65K, you know, mid-year last year. We're not talking to anyone now with lease rates for older aircraft below $80K. The trend is clearly going up. As the lease rate goes up, clearly valuations are going up. We even have customers who are on the market looking for used aircraft. They just can't find them. Now they are talking to us and say, "Well, you know, is there a way we can make it work with new aircraft?" Obviously, at much higher lease rate.
Yeah, I think there is a good momentum for us, simply because the exposure we have on the regional market, and that also includes the A220, you know, has really the biggest potential today.
On number two, organic. What I mean by organic growth is self-funded growth. You know, investor question that we've had in the past was, are you going to raise money, for example, to fund the two aircraft that you've ordered for early 2024? You know, as in terms of raise money from shareholders. The answer is no, we don't need to because we've paid from that from operations, and we've paid all of the PDPs. When we're talking about organic growth, we're talking about self-funded growth rather than hitting up shareholders for more money to fund growth because clearly with the share price where it is, it's an expensive undertaking. I've got no comment really on Standard Chartered in particular.
However, I will say that some pure financial investors have sort of struggled because they don't have the technical capacity to transition an aircraft. You know, for example, you know, we must have transitioned 14 aircraft in the past, you know, a couple of years. You know, we've had to get them, fly them somewhere, fix them, pay for the engine shop visits, do everything. That's a bank or a normal financial institution's not really geared up to do that. You can understand it might be too complicated. The next question comes from Ken B. With the historic low LTV age not making yourselves vulnerable to be acquired. I don't know that LTV is driven by M&A appetite. Yeah, I mean, what we want is to make profit for our shareholders.
Getting rid of debt's a really good thing. Kellan, what are the net sales? Well, we own that aircraft, that 737. You know, I don't really wanna go into the precise details, but We actually did super well with the aircraft because Avation has a technical team. We basically spent about roughly, say, 60% of someone else would have spent to bring that aircraft up to the state that it needed to be, to be sold. We managed, you know, two engines to go through the shop. We managed to repossess the aircraft from India in the first place with the flight to Malaysia. We put the airframe through the shop. We did super well.
Our proceeds proportionately were above what a lot of lessors would have achieved with that aircraft. We're very pleased with the technical and transition team. Next question is James. Are you strategically attempting to recycle capital tied up in wide-bodies into new ATR aircraft? That's, you know, we're constantly buying and selling aircraft. You know, every aircraft you buy, at some point you've got to sell. All we can. You know, that's all we've done to grow the company in the last 16 years. At some point, the whole lot will get sold. Not any particular aircraft. Next question is for Iain, I think. How much secured debt will be. Ashley, how much secured debt will be needed to fund the remaining delivery payments for the next two ATRs? There's no Pre-Delivery Payments required.
Ashley Nicholas, do you wanna talk about your process to raise the debt to finance those?
Yeah. I mean, we go out to the whole universe of secured bank lenders. You know, the balance of the payments that's due to ATR, we would expect to most likely pay or get all of that financed through the secured debt market. Having already paid the PDPs, we would expect the rest of the balance at delivery to be paid or funded by secured lenders.
I think he's asking how much secured debt's required.
Around $15 or so million per aircraft.
Next one, John C. You've made good progress to reduce the number of off-lease aircraft to two. What was the peak number of off-lease aircraft in the fleet during the pandemic? From what you can see, what is the current monthly production rate? Well, I think the annual production rate of ATR 72s is literally about 35. Is that correct, Soeren?
And they're-
Sorry?
Yes. Yes. Yes. They are at 35, and they're going to 40 next year.
Right. Ian, do you wanna answer the first one? Where did we peak out? Was it about,
Yeah. Well, we peaked with off-lease aircraft on the day that Virgin went bankrupt and redelivered 13 aircraft. We actually had one aircraft, one unutilized aircraft already at that time. That took us to 14. Since then, we've obviously brought that back down to two. Yeah, 14 is the answer to the question.
Yeah. A number that you won't see in the repeat, we hope, is, you know, we've spent millions and millions of dollars transitioning those aircraft, which was, you know, for all shareholders a, a horrible impost. Hopefully it doesn't repeat. The next question was, Kellan. Considering the $100 million tender offer concluded with only $7 million of bonds, would you consider open market purchases of unsecured bonds going forward? Yes, we would. We, you know, we now know where the market is. Clearly, bondholders' view of the company's possibly got a bit better than it was. We now certainly know where the market is, so that's something we would consider. Could we see any orders in the near future for narrow body jets?
Well, we looked for organic growth at some stage, if we sell something, we typically recycle it because clearly if we just sell everything, there won't be anything left. We wouldn't speculate, but you could see some, you know, in the future, some narrow-body action, which is a good thing. The next question is Brandon. Approximately where are aircraft values currently compared to COVID? How far off the bottom reached are they? Soeren, do you want that one?
Yes. I think in terms of ATR, I think the ATR market was actually very soft before COVID. The values were actually fairly low. The lease rate were under stress. We are definitely in terms of valuation, I think above COVID level.
Next question. How easy it will be to raise finance in the current interest rate environment? Well, it's easy, but it's. Obviously, interest rates have gone up, so lease rates have gotta go up proportionately. Stephen B, how much of the profit is a result of exceptional and non-recurring items? Well, there's plenty of non-recurring costs. Do you wanna try and deal with that one, Ian, or?
Yeah. I can have a go. I mean, it's not an easy question to answer, obviously, because the fact that we have non-recurring items in this period, doesn't mean we won't have more non-recurring items in the next period. I mean, if you just look down the P&L, within other income, there's a, you know, $3.4 million exchange gain. Obviously, we're gonna get more exchange gains in future, but I can't tell you what the numbers will be. Further down the P&L account, there's a gain on derecognition of a finance lease. We hope not to have to do further derecognitions of finance leases because we only, you know, we only had to do that because the original lessee defaulted.
On the cost side, you know, there's a loss on disposal of an aircraft. Obviously, that only happens if we sell an aircraft, and we'd hope to make a profit on future aircraft sales. The purchase rights revaluation, I mean, that will be a feature of our P&L account while we hold purchase rights, because we will be revaluing them at every balance sheet date, and I can't tell you if that will be a gain or a loss in future. The gain on the [uncertain] , again, as long as we hold those shares, we're required to mark them to market. Let's say we will have further movements on that share price for sure.
Then on the transition expenses, obviously, our business is not to pay maintenance costs for aircraft. We hope to not have to transition aircraft. If leases are performing, we shouldn't have too many transition costs in future. That has been a feature of the P&L account over the last couple of years because of the numbers of aircraft that were redelivered by airlines that defaulted through the COVID pandemic. I've, I probably haven't really answered your question, except in general terms, but I hope that's helpful.
The next question was, if you had excess cash today, how would you rank repurchasing of notes at a discount, stock buyback and three, dividend? Well, you know, clearly, while notes are available at a discount, they're very attractive, as would be a dividend down the track. I guess it's notes first. In the future, dividends, and number three, stock buybacks. A sort of question from Cypress. What is the lease expiry schedule currently? Any risk of non-renewal over the next two- years? We've only actually got one aircraft that is due to come off in the next two- years. Soeren, what are our prospects on transitioning or re-leasing or extending that particular aircraft?
Well, fairly good. We're actually reasonably close to extend the aircraft for up to six years with the existing lessee. If he plays difficult, we already have a handshake agreement with another operator to take the aircraft.
We don't see a lot of problems in the next two- years. What other regions do you see placement opportunities for Avation place ATR other than Southeast Asia? Well, in the slides that we have, the ATR slide, you know, there's 100 operators around the world. It's 200. Where's the ATR slide? If you look at.
It's 200.
200 operators. You know, it's a risk versus return question. You know, you look for the optimal risk/return. You're in an environment where, you know, a lot of them are, a lot of them are getting old, so they need to be replaced. Your ideal strategy is to go to an ATR operator that's got a lot, that are old and effectively do a fleet rollover. We're probably the only lessor in the world that can do that given the size of the order book. Can you comment regarding transition costs? Are they higher than normal? If so, why? That asking about Myanmar. No.
It was actually the 737 was the most expensive, also the number of We, you know, we put a lot of aircraft through the, through the shops. The 737, you know, we had to do two very expensive engines in shop visits, you know, one of them, what, you know, clearly putting two engines through a shop is two. You know, jet engines through a shop is expensive. Tim F, "Did you say the ATR option price flight cost?" What happens with when you buy aircraft, you don't really know the delivery price until you get delivery.
For example, if you rang up Airbus today and said, "I'd like to buy a, an A320neo," you know, they'd say, "Great," you know, "Here's your order." On the delivery in 2028 or 2029, whenever they're gonna deliver it to you, the price has changed with inflation. What we've got is we've got a, an inflation cap with ATR, which is lower than the real world inflation. It's something we negotiate in our, in our purchase contract because we were scared about interest rates and inflation. As time goes on, our price gets better, which makes them valuable in their own right. ATR will honor that because clearly we're been a giant customer, and they're fully motivated to sell us another $500 million or $600 million worth of aircraft. Those options are very valuable.
The exercise price of the option is extremely useful. Next one's from Cypress. "Is there a debt ratio target the company is looking to achieve and sustain?" We're mainly interested in the cost of debt, Cypress. We're looking to lower the relative cost of debt, average cost of debt versus the lease yield in the then current environment. You know, if interest rates are high for us, they're also high for airlines. That's okay as long as we get a higher lease rent. To improve our profitability, what we need is a cost of funds. I mean, we've got relatively low percentage of leverage compared with some lessors. Our issue is we need to get the cost of debt down. Jonathan J, "Sorry to press the point.
Does Richard still work for Avation? What is his role? Richard has left the company, Jonathan. He's not, no longer with us. He's moved back to Perth. He's doing other things. Adil E, "How well have residual values for ATRs held up in the past years?" Well, historically, turboprops have got the best residual value equation of any type of aircraft, the reason for that is they have relatively long lives compared to commercial jet aircraft. The residual value is quite high and, more importantly, not that valuable. As Soeren just said a little while ago, you know, the market values of ATRs has increased dramatically lately because there's only been 35 MA a year. There's not a lot for sale in the secondhand market.
Consequently, their value is increasing. Jonathan J, "2020, you put Avation up for sale by a former sales process. Do you envisage that happening again with Avation?" We didn't put it up for sale. We had an inbound proposal from a another lessor that wanted to acquire the company, and obviously, COVID put a stop to that. If you're a public company, you know, that these things occur from time to time. You know, we have Citigroup as an advisor to the company on, you know, standby if that ever happens. It hasn't happened lately, so, but will it happen? Who knows. Bettina B, "How will the new ATR STOL variant impact the value of your ATRs?" "Are you able to switch your existing orders to this variant?" Yes, we are. The STOL is an ATR 42.
The STOL means short takeoff and landing, so it's really ideal for very challenging environments. In theory, we are able to do that. We probably would be reluctant to do that because we like aircraft where there are a lot of aircraft out there in the world, so there's a secondary market. As a new variant, we don't know how the secondary market's going to develop on that type. It's a sort of, at this stage, it's special mission. Next one is from Nandi. "Avation trades at a substantial discount to NAV. Are there any restrictions in your debt agreements that would prevent you from repurchasing shares?" Well, the answer to that is no. That's, I think, all the questions.
Jeff, you've been very generous, so you've taken every question from investors, this afternoon. Should any further questions come in, we will make these available to you post today's meeting. Now, Jeff, I know investor feedback will be particularly important to you and to the rest of the company, and I'll shortly redirect those on the call to give you their thoughts and expectations. Jeff, I wonder before doing so, if I may just ask you for a few closing comments just to wrap up with, and then I will redirect investors for their feedback.
Well, we wanna thank you for your support. We wanna reassure you that we don't intend to go and issue new shares for the purchase of aircraft in the short term. We've been very motivated to sort of survive and lower our leverage and manage all the problems. Clearly, the COVID thing's been a real challenge, and it's, I mean, it's still challenging for a lot of airlines. Clearly, you know, we've got to overcome that. We're well-placed because the CO2 thing is real. Governments want low CO2 aircraft. You know, ATRs, for example, are very well, and A220s are very well-placed to satisfy those requirements. Thank you for your support. I think there's a lot of, you know, the most ever investor interest we've ever had.
Operator, how many people have we got on the call?
You had 152 that have accepted. You have currently, at this precise moment in this conversation, there's 76 alive on the call as we stand here now.
Right. There's a late question from Robert. "Please clarify the comment share purchase restrictions on the debt agreement. The indenture does seem to limit payments to shareholders." There are buckets. Within the indenture, there's buckets of money that you can apply to certain things. It's not our intention... They're fairly big buckets. It's not our intention to repurchase shares. It's more our intention to repay debt, which is what we've been doing. We've been chomping through $46 million in the last six months, for example. I hope that answers your question. If you've got any other questions, you can email us at any time. All right. Thank you very much.
Jeff, you've been most generous with your time.