Ladies and gentlemen, welcome to the Avation PLC Interim Half-Year Results for Six Months Ending 31st of December 2020 Investor Update Conference Call. My name is Emma, I will be your conference moderator for today. I would now like to turn the conference over to Duncan Scott, Avation Group General Counsel. Please go ahead.
Thank you, Emma. Today, on 26th of February, Avation published its unaudited interim financial results for the six-month period ending 31st December 2020. 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, 26th of February 2021. 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 statement 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. Thank you for joining us for a report on the company and its interim financial results for the six months ended 31st of December 2020. The half-year ended 31st December 2020 represents a complex period for the airline industry and Avation. Avation has been working diligently and with success on its COVID-19 strategy, implemented early in the crisis to preserve liquidity. The pandemic-related disruption to the airline industry has impacted aircraft valuation, and Avation has impaired the value of its fleet and provided for credit losses on receivables. These provisions are due to airline customers who have all been subject to restructuring processes. There was a negative adjustment to the value of purchase rights held for ATR aircraft. These impairment losses dominate the financial results.
Assuming that Avation's airline customers survive and meet their contractual obligations to pay rent and arrears, the company believes that it's unlikely there will be further large impairments to asset values in future. We believe that airlines who have survived for the past year should make it out of the other side of this crisis. We believe that this is a pivotal period for the company by prudently recognizing impairments and losses, and with the recently announced agreement to extend the maturity of its unsecured bonds by over five years until October 26. The company has positioned itself for a cautious return through opportunistic aircraft trading and deliveries from its order book in a post-pandemic environment. We've positioned ourselves for growth. The presentation is set out in three sections, including company overview, COVID-19 strategy update, and the financial results. I'll start with the company overview.
Slide four shows a snapshot of Avation. The company had 46 aircraft in the fleet, serving 19 customers in 15 countries. Avation owns, manages, and leases regional narrow-body twin-aisle aircraft to the airline industry. The fleet of twin-aisle narrow-body and turboprop aircraft is split 16%, 49%, and 35% by value respectively. At the end of the period, the aircraft fleet had a 4.6 year weighted average age and a 6.5 year weighted average remaining lease term. The financial period saw fleet assets total $1.16 billion. Avation has $809 million in unearned contracted revenue from existing leases. More than half of our customers are now flying at above 50% of pre-COVID-19 levels, and in what is a promising sign, these customers make up more than 60% of the unearned contracted revenue.
Slide five is a snapshot of the historical performance and expansion of the company over the last six and a half years. Pre-pandemic, Avation has shown that it can deliver consistent fleet growth. Investment in new or young aircraft has seen the average age and average lease term maintained to rank amongst the best in the leasing industry. It is this diversified fleet base and proven aircraft transaction capability, even during a crisis, that is helping Avation navigate the pandemic. Avation's diversified fleet is now at 46 aircraft, with a focus leaning towards regional and narrow-body aircraft. It is in these sectors that we have seen the fastest return to service.
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 lessor platform successfully in the post-COVID-19 recovery phase. Since the beginning of this pandemic, Avation has successfully completed 13 aircraft transactions, including lease extensions, aircraft sales, and new lease transactions. In addition to an order book for eight aircraft, Avation holds purchase rights for 25 ATR 72-600 aircraft, representing material source and potential growth for Avation and value for shareholders. Avation believes that newer aircraft carries lower risk of obsolescence, has greater potential for long-term cash flow, and have greater opportunity to service debt associated with financing through long-term leases. Slide seven. The next slide shows airline customers. As of 31st December 2020, Avation served 19 customers in 15 countries. Avation's customers include seven flag carriers.
While flag carriers were not excluded from the impacts of the virus and associated restriction, these airlines are most likely to receive government support due to the national importance of the carrier. The airlines are also likely to have a higher proportion of domestic routes. As countries move beyond the peak of the pandemic, domestic travel is recovering faster than international routes. It is important to note Avation's geographical spread of customers as the pandemic is at different stages around the world. Around 2/3 of Avation's customers by revenue are located in Asia, including airlines based in countries that had a less severe impact from the virus, such as Taiwan and Vietnam. We've also been fortunate in Europe, where our largest customer, airBaltic, has been performing well and has received a government equity injection. I'll now move on to an update on the company's COVID-19 strategy. Slide nine.
Avation's COVID-19 strategy focused on maintaining liquidity and cash flow. Avation took a pragmatic approach to focusing on preserving cash flow as airline customers suffered from major disruption. Avation was a first mover in working with airline customers to help them through this difficult period. Support involved allowing deferment of a proportion of the rent. This is not a rent decrease or holiday. Airlines will need to repay the deferred proportion of the rent. To balance this reduction in cash flow, Avation has implemented three key strategies. The first was to adjust the amortization of senior loans associated with the fleet and key lending banks. The second has been to reduce administration expenses. While we are targeting broad lowering of costs, specific actions including elimination of employee cash bonuses while the pandemic persists. The third step has been to reduce capital outgoings.
This includes a moratorium on capital expenditure that has seen no new deliveries of aircraft into the fleet and a temporary suspension of dividends. By carefully managing cash flows, Avation is confident it will navigate through the COVID-19 to position itself for opportunities post-pandemic. Slide 10. The next slide provides a summary of what Avation has successfully implemented with its customers and lenders to deal with the COVID-19 pandemic. We made agreements with 14 of our 19 customers. Typically, Avation provided a three to six month rent deferral for a proportion of the rents with a six to nine month repayment period. Avation's airlines are required to continue to pay maintenance reserves as a part of the deferral agreement. The total rent deferred by airlines is $25.9 million. Avation successfully mitigated the impacts of lower rents and cash flow by agreeing to reschedule $31 million in loan amortization.
During the period, Avation initiated a process to extend the date of maturity of the $342.6 million outstanding under the Avation Capital 6.5% senior notes due May 2021 to October 2026. The company recently announced it reached an agreement with sufficient bondholders to implement an extension, a consent solicitation exercise was launched on the 23rd of February 2021. The company expects the extension will be completed on the 16th of March 2021. In the company's opinion, this extension agreement constitutes an important capital structure stabilization measure. The directors believe that an extension will provide sufficient financial flexibility to support the continued development of the business through and post the COVID-19 pandemic. The extension is for more than five years, the company retains the option to refinance the notes at any time. Stakeholders should note that the impact of the virus continues around the world today.
Avation remains cautious and notes there may be further work and cooperation needed before we come out of the pandemic. Slide 11. On the next slide, we provide information on our customers. 12 out of 19 customers are being charged normal rents. This includes three of the top five customers. Airlines that represent over 60% of Avation's $809 million in future contracted revenues are now flying at over 50% of pre-COVID-19 levels. We noted earlier that certain countries where some of our largest customers are located have had less severe impact from the virus, including Vietnam, Taiwan, and Latvia. Three of our airline customers entered into restructuring processes as a result of the pandemic. Two customers, Virgin Australia and Braathens, entered into administration. Avation had 13 aircraft with Virgin, and thus far has transitioned six aircraft.
Furthermore, we're very fortunate the leases to Virgin were mature, with only one to three years remaining on each lease. The unearned contracted revenue associated with Virgin Australia represented less than 6% of Avation's total unearned contracted lease revenue across all customers, as of the date of the entry into administration. The relatively low levels of debt associated with the returned aircraft will be further reduced by the expected payment to Virgin Australia's creditors, which we expect to receive in the coming months. Avation had two ATR 72 aircraft on lease to Braathens when it entered administration. The airline has now exited administration and restarted operations. Avation has agreed new lease terms with the airline, excluding extensions in lease duration from 10-12 years. The company's also negotiated adjustments to the amortization profiles of related loans to reflect the revised lease terms.
The third airline is Philippine Airlines, which is currently preparing for an entry into restructuring. Avation understands that the airline intends to retain the use of the Boeing 777-300ER, which is on lease from Avation, albeit at a reduced lease rate, and this results in an impairment loss in the financial results for the period. The majority of the impairment and expected credit losses that dominate the profit and loss for the period are related to Philippine Airlines. Having the aircraft by the airline is, in our opinion, the optimal outcome. The three airlines that have been through a restructuring make up virtually all of the impairment and credit losses, so recognized in the profit and loss. Let me now hand the call to Richard Wolanski, who will provide detail on the financial result and key ratios.
Thanks, Jeff. On to slide 13. During the financial period, Avation generated total income of $63.3 million, which is down 6% year-on-year, with lease revenue making up $61.3 million of this amount, down 9%. There was an operating loss of $34.5 million, and this was impacted, and as Jeff mentioned, dominated by the negative adjustment to the value of the purchase rights for ATR 72 aircraft of $7.9 million, and through fleet impairment of $46.6 million and $12.9 million in expected credit losses on receivables and accrued revenue. Avation's loss after tax was $61.3 million. Following impairment, fleet assets were down 6% to $1.16 billion. At the onset of the pandemic, the company elected to suspend capital expenditure to preserve liquidity, and this will continue until the crisis abates. Avation's weighted average cost of total debt rose slightly to 4.6% from 4.5% from June 30 2020.
A loss of $0.979 per share was recorded for the period. On to slide 14, an analysis of the profit and loss. In the stock exchange release earlier today, we provided a breakdown of the P&L of the leasing business operating profit before tax, excluding adjustments to the ATR purchase rights and the impairment of aircraft and the expected credit losses on receivables and accrued revenue that I just mentioned, to highlight to investors that the core leasing business remains profitable. Our financial results show that revenue decreased by 9% to $61.3 million for the year, compared to $67.6 million a year ago. Depreciation decreased by 2%, $23.7 million. Administrative expenses decreased by 10% through cost-saving measures that we implemented to $5.5 million.
This resulted in the core leasing business generating an operating profit of $33 million versus $36.1 million in the previous half year period, which was down 8%. That primary difference is due to the Virgin ATR aircraft that are yet to be repositioned, impacting on lower incomes during the period. Finance expense net of finance income decreased 6% to $26 million versus $27.5 million in the previous period. This results in a profit before tax from the leasing business, $7.1 million, which is down from $8.6 million in the previous period. This illustrates the profitability of the core leasing business and the opportunity to generate shareholder returns once we are able to navigate our way through the pandemic.
The impairments and provisions, as discussed in the previous slide, resulted in a loss before tax of $60.5 million, and at the bottom line, there was a loss after tax of $61.3 million. On to slide 15, which shows a summary of the debt of the company. Net indebtedness remains flat at $1.04 billion. There was a slight increase in the weighted average cost of the group's secured debt facilities to 3.7%, up from 3.6%. This resulted also in the weighted average cost of debt to the company, also rising slightly to 4.6% from 4.5% as at June 30 2020. At year-end, 90.7% of total debt was at fixed or hedged interest rates.
Avation's debt-to-assets ratio was 77%, which increased from the June 30 2020 figure of 73.2%. The chart shows the evolution of the group's cost of debt over the past seven years and shows a steady decline in the cost of both unsecured and secured debt. On to slide 16. We provided some ratios on a comparative basis. The net asset value per share declined to GBP 1.74 compared to GBP 2.86 as at June 30 2020. Administrative expenses as a percentage of total income decreased to 8.7%. Debt to EBITDA has increased to 11.6 x from 8.4x . Funds from operations to debt declined during the period, as did EBITDA, as a function of interest expense. This is a function of the provision for expected losses on receivables and accrued revenue that lowered the EBITDA. Just onto the final slide and concluding remarks.
Avation continues to navigate its way through the most challenging period in the history of aircraft leasing. The fundamentals of the business and the business model remain intact, and there are some optimistic signs that point to an end of the pandemic. Avation has adopted a pragmatic approach to preserve cash flow and liquidity and will continue to work to preserve the business and deal with each of the numerous issues that have arisen. Avation has shown that it can transition aircraft in these tough times and intends to place the remaining seven ex-Virgin Australia ATR 72 aircraft or potentially sell them. The company believes that airlines will require a significant number of leased aircraft in a post-pandemic phase due to the vast number of older aircraft that have been retired and the impact of the pandemic on airline balance sheets, reducing their ability to purchase aircraft directly.
This supports the company's strategy of focusing on relatively new and popular commercial aircraft types. Future aircraft are likely to be delivered in a low-interest rate environment and where the main cash expense the lessor faces from interest expense from borrowing. Borrowing costs for new aircraft purchases may decline post-pandemic, which could enhance the bottom line of lessors. As a result of the pandemic-related financial turmoil, there are likely to be opportunities to buy aircraft from airlines and other lessors looking to adjust or reduce their portfolios. Avation's optimistic about the long-term opportunity for airline travel, particularly with the turboprop and narrow-body aircraft sectors that are servicing domestic routes, which is rebounding around the world in the last couple of months. This concludes management's remarks.
For the question and answer session, each participant will be allowed one question and one follow-up, and I'd like to hand the call back over to the operator.
Your first telephone question today is from the line of Ross Harvey with Davy. Please go ahead.
Good afternoon. My main question is on the possible sources of cash over the next six months. I'm thinking of the Virgin claim, the release of the restricted cash, finance on unencumbered aircraft, and various other streams of potential cash inflows that you mentioned in the statement recently. Can you just give us a sense of their size, what the likelihood of each would be, and maybe the timing of them?
Thank you, Ross. I'll address that. We're a listed company, we have a variety of opportunities to raise cash. In reality, we lent about $30 million to the airline, clearly we need to get that back to tread water and survive, as it were, in this difficult environment. The process going forward, the cheapest form of finance we have is senior secured debt provided by banks, it's still available, which is quite remarkable. Indeed, we got offers today from a financier that may or may not work, the banks are still in the business, that's the cheapest form of finance. We won't rule out equity issuance. Clearly, as a public company, you need to be willing to deal in the markets from time to time. That's what the stock market's for.
We also have a few aircraft for sale, and quite interestingly, the market for what is perceived to be good credits is quite buoyant. What's driving aircraft trading, in my opinion, at the moment, and I'm very close to this right now, is credit quality with the airline. Normally, we'd have a lot of discussions around aircraft type, age, maintenance condition, and so on. The key driver of decision-makers who are buying aircraft or investing in aircraft is around credit quality of the operating airline. You'll see us look at everything. Clearly, we're somewhat reluctant to sell what we perceive to be good credits, because clearly what that does is it shrinks our revenue base.
We have been. We're dealing in the ex-Virgin aircraft because they either need to be placed or sold. We've got a couple of A320s that we're marketing at the moment. We're marketing an ATR at the moment. There's a lot of trading activity that we're contemplating. We're in business. We've got all the full management team. We're constantly dealing with banks, the share market, and aircraft. In terms of your question around timing, there's no real answer to that. We'll crack on with things as quickly as we can, because in these times of crisis, you've got to be nimble and move very quickly.
Yeah. That's interesting.
I hope that's answered your question.
It has. Thank you. The other question I had was on the growth side, and I know it might be a little bit further down the line, but when you mention the opportunities that might be there, what sort of areas of the market would you be looking at? Would you be focused on a particular type of geography? Would you be looking for a particular type of airline credit or aircraft type? How would you go about financing that if there was to be something significant or if there was to be a portfolio on offer?
Well, the industry, air travel, some sectors of air travel diminished 90%. Clearly, it's been a torrid time. The survivors, the airlines that have survived through that, clearly are good credits. Okay, a lot of them have been reliant on government debt or other forms of debt. Therefore, they will need lease finance. Presumably, as the market recovers, they'll need a lot of aircraft because a lot of aircraft have been retired and left the industry permanently. There'll be an upswing. I've read analysis around the uplift in terms of credit filters. The industry participants that have survived this crisis will probably survive a long time because they've had a big test. It won't be difficult to work out what are good credits or not. I think that answers your question.
Yeah. That's good insight. I might chance a third, if that's all right, if you will allow me. It's a shorter one, maybe for Richard and Iain. I noticed one of your larger peers have moved recently from IFRS to U.S. GAAP on the basis that the impairment reviews obviously are less onerous, and maybe they don't require the discount in the future cash flows. Would you consider this type of move? Do you know what difference it would have made on your 2020 results?
Well, Iain can. Our opinion on that is, we've had a bad year. It is what it is. Selectively changing accounting standards to make your valuations look better is probably not a sustainable business tactic. We are fairly transparent. We are IFRS. We do have to look at it plane by plane. We deal in these assets, and in our view, some of our peers might be a little bit aggressive in not impairing stuff that obviously should be impaired. We certainly wouldn't jurisdiction hop to try and fluff up our results. That's not something we would do. Iain, you can jump in here because he is an expert on this stuff.
Yeah, sure. I'm not quite sure which company you're referring to, but there might be other reasons why they'd want to switch to U.S. GAAP. The obvious one would be somebody contemplating raising money in the U.S., perhaps via an equity issue. I do know that the exercise of switching from one set of standards to another is a huge task because it's not just a case of recasting your balance sheet. You have to go back through your historical financials and get everything re-audited. It's a huge task. It's expensive. Okay, yes, there are different accounting treatments, in particular for impairment. I think U.S. GAAP allows you to group assets for the impairment test. Whether that would make a big difference to our accounts, I've got no idea, frankly. I don't think it's something that we're contemplating at the moment.
Yeah. Interesting.
No, we're not contemplating it.
Yeah. Thanks, Jeff. Thanks, Iain.
The next question comes line of John Cummins with WH Ireland. Please go ahead.
Good afternoon, gentlemen. A couple of questions, if I may. First one, could you just give a bit more detail around the aircraft impairment and the expected credit loss? I think, Jeff, you mentioned Philippines being majority, but I just wonder whether you could give a bit more detail around how that was split by the customers.
Iain would love to help you with that, John.
Yeah. Sure, no problem. Hi, John.
Hi.
As was explained in the call earlier, most of these impairments and credit losses relate to the three airlines that are either gone into administration or are restructuring. On the impairment side, 90% of the total relates to those three customers. On the credit losses, it's actually 97%. Basically, all of it is down to those airlines that have gone into administration or restructuring.
Okay, thank you. Just following on, and Jeff, you touched on it, but it was just as far as the aircraft, what you're seeing out in the market. You mentioned that actually credit quality was very much driving that. I just wondered whether there were any aircraft type at this point that you are seeing as being particularly attractively valued or whether it really is just that credit quality point.
That what we are seeing is different to normal. What we're seeing is credit qualities of the airline is driving decision-making. Narrow-body valuations have held up extremely well. There's a lot of interested buyers of modern narrow-body commercial aircraft. Probably the reason for that is, there had been a bit of an undersupply going into COVID. The Max hadn't delivered, there was a lot of backlog. Airlines, the survivors may be thinking that coming out of COVID, they'll need lots of capacity. I'd say the most popular type is modern narrow-body commercial aircraft. The driver is the credit quality of the airlines.
Okay. Thank you.
That's a good question.
The next question comes line of Gert Zonneveld with Canaccord Genuity. Please go ahead.
Thank you. I just wanted to go back to the statement you put out on the 9th of February, and talk about your existing leases, if I may. You noted in that statement that between March and September, you extended several leases, which together represented about 10% of the monthly revenue run rate, at rates which were sitting between 5% and 19% below those prior contracts. Can you give us a little bit more detail about that? For example, how many leases were extended, or which aircraft types did it involve, or which customers? The second part of that question is, do you have any leases coming up for renewal over the next, say, 12- 18 months? Should we assume further pressure on renewed lease rates compared with higher existing rates in the near term? Thank you.
We don't have many expiries, if any, in the next 12 or so months. Rod would like to answer the question on the extensions that we've negotiated over the last period of time. Rod, why don't you jump in?
Yeah. Am I allowed to go into names of airlines?
I think Gert's probably happy with the generalized comments.
Correct. Yes, okay. Well, we extended one 737 for four years. We extended some ATRs. We extended ATRs with three airlines, one for a period of two years, and the other one for a period of four years, and another airline just for a period of several months. Those are the bulk of the extensions that come to mind.
Okay, thanks. If I can just squeeze in sort of one final question. You currently have, I think it's seven ex-Virgin Australia ATRs off lease, which you're in the process of either selling or leasing, subject to various maintenance things that still need to be done. Can you talk a little bit about sort of the current demand and supply balance in the market for regional turboprops? Realistically, how long it might take you to find a new home for these aircraft, be it buyers or lessees with a decent credit quality?
Do you want me to answer that, Jeff?
Well, our view at the moment is we're looking to sell a few of those aircraft because it's a lot of work to market them. You can always market an aircraft. There's demand for everything. It's the question of the lease rate. At the moment, lease rates are under pressure because of COVID, and there's opportunistic players. Our sort of desire is to sell them, but in parallel, we're marketing them, and maybe Rod can jump in now and talk about the dynamics of that process.
Yes, okay. That's what I was going to say as well. I think it's always a trade-off between how long you wait and what the market rate is. Obviously, right in the middle of the crisis, the market rate's going to be lower. Hopefully, as we're all hoping, by come northern hemisphere summer, travel will pick up again, and therefore demand for aircraft will pick up again, and rates will pick up again. Most of the aircraft from Virgin need a little bit of maintenance as well. Rather than just accepting rock bottom prices here now today, we would like to try to get better lease rates and longer leases. We'd prefer to wait just a couple of months to see how the market's evolving.
I think that our aircraft, those Virgin ATRs, are probably among the best aircraft, if not the best aircraft of a similar age available on the market in the world. We're kind of holding out for better rates. They've been operated by Virgin in a benign environment in Australia with a very strict regulator. They're in very good maintenance condition, and they've got low hours and cycles. We're confident that we will be able to place those aircraft, sooner or later, for reasonable rates.
Great. Thank you.
The next question comes from the line of Michael Ronzio with Caravel Asset Management. Please go ahead.
Hello. Sorry, I was on mute for a minute there. I was just curious, of the $100 million of contracted revenue for calendar year 2021, what proportion of that have you agreed to defer? I just wanted a bit of clarification. In your results release, it says seven of 19 airlines are paying normal rent, whereas in the presentation deck it says 14 airlines. I'm just curious what the difference is there. Thank you.
Iain can deal with both of those questions.
Sorry, I was also on mute. Yeah, in terms of the deferrals, let me just find the schedule that I was looking for. Yeah, we originally entered into deferred agreements with, I think it was 14 airlines. We've only got three airlines where we still have deferred agreements in place. The total amount that is due, or the deferred revenue is around, I think, $13 million. That was the first question you asked, I think. What was, sorry, the second question?
will do the second question.
Yeah, the second question was, in the financial statements it says seven of 19 airlines are currently paying normal rent. Whereas in the presentation slide, it said, I believe 14 airlines were current. I'm just curious what the difference in those numbers were.
Michael, the stats are that originally we made deals with 14 out of 18 customers. Obviously we didn't do any deals with four of those. There are 12 that are on normal rents. I'm not exactly sure of the two references there. There could be a typo there. I'll have a check at it. I'm just confirming there are 12 that are on normal rents out of 19, which include the four that we obviously didn't do a deferment arrangement with. We've also added one more customer on since then. It's 12 of 19 that are on normal rents, being charged on normal monthly rentals.
Okay. I appreciate that. I guess just one additional, just from a collection rate perspective. Is the right way to think about it, so you had about $61 million of revenue during the six-month period, and receivables went up by about $25 million. That equates to about a 59% cash collection rate. Is that the right way to think about that?
Iain's probably best to comment on that.
Yeah. I think that's a little bit of a false metric for this period, because what you've got to bear in mind is that one of our larger customers, Philippine Airlines, is about to enter into restructuring. Until they actually do that, we are continuing to bill them at the original contractual rate. They're not paying us. There's a big chunk of that sort of increase in receivables is ascribed to that arrangement with Philippine Airlines. Obviously, we expect that to reverse in the next accounting period, because we expect the customer to complete their restructuring and then start paying rent again. We feel that's a bit of a one-off increase in the receivables number.
Okay. I appreciate that color. Thanks a lot.
The next question is from the line of Matt with Atlantic Capital. Please go ahead.
Hey, guys. Just on the deferrals then. Just to clarify, there are seven of the 14 where deferrals were offered that are still either on deferrals or things are not back to normal. Did I hear you say that there is only $2 million-$3 million of deferred revenue left to be paid back? Is that correct? The second question I had was around Philippines. Sorry, do you want to go ahead, and I can ask the second question after?
No, you finish your question, please.
The second question was just on the Philippines. You're still charging them. Are you done writing that off? Is that included in the expected credit losses, or would you expect to take further credit losses when they announce their deal?
Their deal will come through, and they'll recommence paying some rent. Iain will answer the details of your question.
Yeah. On the deferred revenue, I said $13 million, and that's a mixture of, I think there's four which is sitting in accrued revenue, and the balance of that is in trade receivables.
Sorry. There's $13 million of the $26 million odd that you originally gave deferrals on that are still left to be repaid?
It is a combination of trade receivables and accrued revenue as well.
Got it. Then just in relation to Philippines, you're obviously still billing them, and you're recognizing that in revenues. Are you writing that off now, or should we expect a write-off in the next period in relation to the revenues that are being recognized for that?
We've made a provision against the receivables from Philippine Airlines, to the best of our knowledge, based on what's been discussed in terms of eventual recovery, which is obviously not going to be 100% of those invoices. A provision has been made, which we think is appropriate. We're not expecting to make further provisions against the 2020 invoices that we've raised against Philippine Airlines.
Got it. Okay, that's great. Thank you very much.
All right. Thank you. Is there more questions?
Ladies and gentlemen, we have no further questions. I will now turn the call back over to speakers for any closing remarks.
Thank you very much. On behalf of the company, clearly, this has been a very challenging time, but we are determined to survive and prosper. We're optimistic about the long-term opportunity for airline travel, and we believe it'll recover fairly quickly once the public perceives it's safe to travel. We also believe that airlines will need lessors more than they did in the past. I think the lessor sector in general will be a fantastic place for investors because you'll see less competition and more demand for our services. Thank you very much for your attention. That concludes our call for today. We look forward to speaking to you again during our full-year results call in September 2021, and I hope you all stay well and start traveling again. Thank you.
Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.