Good morning, everyone, and thank you for joining today's Avation investor call. My name is Reagan, and I'll be your moderator today. All lines will be muted during the presentation portion of today's call, with an opportunity for questions and answers at the end. If you'd like to ask a question, you can do so by pressing star one on your telephone keypad. Additionally, if you're streaming today's call, please dial in and press star one to ask a question. I will now pass the conference over to our host, Adam Hyder, with Wells Fargo Securities. Please proceed.
Thank you, Reagan. Hello, everyone, and good morning, good afternoon, or good evening, depending on where you are in the world. This is Adam Hyder with Wells Fargo Securities, and today I have the pleasure of kicking off the proposed $300 million senior unsecured notes issuance by Avation PLC. Before we begin, I'd ask that everyone please refer to slide two of the investor presentation for important notices related to the transaction and these materials. As shown on slide three, I'm joined today by several members of Avation PLC's talented and experienced management team, each of whom has decades of relevant experience. Today's presenters include Jeff Chatfield, Avation PLC's Founder and Executive Chairman, Rod Mahoney, the company's Non-Executive Director, Chief Financial Officer Iain Cawte, Ashley Nicholas, Avation PLC's Director of Corporate Finance, and Peter Davis, the company's DCM Project Manager. Gentlemen, thank you for joining today's call.
Flipping to the executive summary on slide five, by way of background, Avation PLC is an aircraft lessor that currently manages a fleet of 33 commercial passenger aircraft, including turboprop, wide-body, and narrow-body styles that are leased to 16 airline customers in 14 countries across Europe and Asia. As you'll hear from management, Avation PLC benefits from numerous characteristics that combine to create a compelling credit story, including a favorable aircraft industry leasing environment and the company's attractive fleet with full utilization rates. It also benefits from a proven full-service leasing platform and comprehensive systems that help the company maximize recoverable value, its established relationships with airline customers, and perhaps most importantly, a seasoned management team with extensive experience. Over its nearly 20-year operating history, Avation PLC has successfully navigated a variety of economic and operating backdrops, including the global financial crisis as well as the COVID era.
Most recently, during fiscal year 2025, the company generated revenue of $110 million and adjusted EBITDA of $107 million, both up roughly 20% versus fiscal year 2024, highlighting the company's continued momentum. As stated, Avation PLC is seeking to issue $300 million of new five-and-a-half-year senior notes, the proceeds of which will be used, along with a modest amount of cash, to refinance the company's senior notes due in 2026 and to pay transaction-related fees and expenses. As noted, the proposed offering will allow Avation to extend its debt maturity profile and maintain leverage of just 2.5 x on a net debt-to-equity basis, which is consistent with the company's current low leverage. A detailed sources and uses and capitalization for the transaction can be found on slide six.
As shown, the company will issue $300 million of senior unsecured notes due in 2031 and use $3 million of cash to refinance the $298 million of outstanding senior unsecured notes that are due in 2026 and for transaction-related fees and expenses. On this slide, I point to the leverage-neutral nature of the transaction, with current and pro forma net debt-to-equity of just 2.5 x, which aligns with management's stated policy of maintaining modest leverage and solid interest coverage ratios. A summary of the key terms of the offering is included on slide seven, some of which I've already covered, but to quickly touch on those terms that I haven't mentioned yet, the first call price will be at par + 50% of the coupon, with standard step-downs thereafter, and the notes will feature a standard 40% equity call at par plus the coupon during that non-call period.
Investors will receive a typical 101 change of control put right, and the negative covenants will be similar to those that govern the 2018 senior unsecured notes at the time that those notes were issued, which are usual and customary for an offering of this type. The distribution type here is 144A Reg S for life, and as far as ratings, which is not included on the slide, earlier today, the agencies released ratings as follows: Moody’s assigned the proposed senior unsecured notes a B2 rating, S&P assigned a preliminary B rating to the proposed notes, while also placing the B- long-term issuer rating for Avation on CreditWatch Positive, and Fitch published expected ratings of B on the proposed notes.
I'd encourage you to read those write-ups, and for greater detail on the terms, I'd ask that you please refer to the OM and other associated documents that have been posted. As far as timing, as shown on slide eight, we're launching the offering today and expect the notes to price on Thursday, October 23, and settle on a T plus 10 schedule. With all that said, I'll hand things over to management. Gentlemen, thank you again for joining, and please go ahead.
Thank you so much, Adam and Reagan, and thank you, investors, for joining this call. We'll try and keep it moving quite promptly so that you can ask questions at the end. My name's Jeff Chatfield. I'm here to help you and direct questions around as appropriately. At a glance on page 10, we're a commercial aircraft lessor with a proven track record. We have almost 20 years' business experience of the company. We're headquartered in Singapore, listed on the London Stock Exchange. We own 33 commercial aircraft, all of which are currently utilized. We have longstanding relationships with the manufacturers and airlines as well as financiers. What's important in our business is the weighted average aircraft age. Of our $1.1 billion worth of assets, 33 aircraft, the aircraft weighted average age is eight and a half years.
We have a 3.9-year weighted average remaining lease term, which we're confident will extend as aircraft come off lease. We're getting longer leases. To generate all this, we have $361 million unearned contracted receivables. That's money that airline will pay us in rent. We have, at the moment, record cash levels of $148.5 million. We do all types of aircraft, and if people are interested, we can discuss that later. We do wide-body, turboprop, and narrow-body aircraft. By value, the bulk of the fleet is narrow-body commercial aircraft. By geography, we have a lot in Asia-Pacific and 18% in Europe. If I move forward to page 11, which talks about the history, the purpose of this slide is to demonstrate that we've been in business a long time and also navigated various challenges along the way.
We went through the COVID era and the great financial crisis and continued to overall grow and trade and sell aircraft, reduce profits, self-generate lots of revenue, pay down debt. It's been a remarkable journey, and we're in a great position to continue to prosper. Page 12 describes the business model. We buy aircraft through one of the four traditional ways of acquisition. We exercise purchase rights from the OEM. We all buy direct. We often do sale and leasebacks from airlines, which is a delivery of aircraft. We also occasionally buy from other operating lessors. We've got a great track record in that. We've purchased 73 aircraft in our history, which therefore means we've sold a lot, which I'll come to. We lease aircraft for sort of 6 to 12 years, typically on a fixed-rate basis.
We obviously, on expiry or close to expiry, will either release or occasionally sell the aircraft. We have a lot of certainty in terms of revenue and cash flows because aircraft leases are not cancelable. Currently, our lease yields are better than 10%. At the moment, they're 11.3%, which means that we've got a good strong spread over our cost of funding. In terms of disposal, once we like new aircraft, that's our sort of forte. Once aircraft reach midlife, say, 12, 13, 14 years, we tend to sell them. Occasionally, very occasionally, we'll sell new aircraft if we want to monetize something. In our track record, we've sold 42 aircraft. We have transitioned 15 aircraft between lessees and extended 22 aircraft since inception. We've sold a lot, made a lot of money selling them, and done very well in terms of extensions.
Typically, we'll be talking every couple of months to airlines, and then, 6 to 12 months before the plane's due back, we'll be aggressively talking about extending a lease. Moving forward to page 13, the current fleet, the bulk of the fleet by value is in narrow-body commercial aircraft. We had two wide-body aircraft. We recently sold one, which was a Boeing 777-300. The reason for that was a sort of a compelling price and also the fact that that aircraft is out of production. It's an out-of-production type. We had a view on risk that it was the appropriate time to exit that lease. We also have a group of ATRs. ATRs are turboprop aircraft. They're monopoly aircraft built by a subsidiary of Airbus. We have 17 in the fleet. We have 10 on order, and we have 24 of what's called purchase rights.
Those purchase rights are quite valuable because we established our order back when we effectively, 13 years ago, did a big order for Australia for what became what was Sky West and later became Virgin Australia, which gave us a very advantageous position in terms of delivery price with the manufacturer, which we've maintained escalating ever since. That has an advantage over the current market price. They're a very valuable order book. Unfortunately, though, that runs over 10 years. It's a very slow process to release that value. We are one of the few lessors with an order book for new commercial aircraft. Moving ahead to some of the credit highlights on page 15, at the moment, we're in a remarkably strong aircraft leasing environment for lessors. That's due to a number of factors. We have a very attractive fleet portfolio that's fully utilized.
We happen to have a full-service platform, so we can do all of the things that lessors need to do to maintain and develop and grow and responsibly operate as a lessor. We've got great systems in place to maximize the recoverable value from aircraft. We've got the relationships, and we have a very strong management team with extensive experience. Some of the details on that page 16 talk about the leasing environment. What's happened is in the world, passenger travel is now above pre-COVID levels, so it's fully recovered. During COVID, not many aircraft were built, so there's a shortage of aircraft that will take years to be dealt with. As I said earlier, we do all of the types of aircraft. We do regional aircraft, turboprops, wide bodies, as well as narrow body.
The intention there is to match the real-world demand, and often, airlines will take two of the three types. It is useful to be involved in all three. At the moment, there's sort of infinite demand for aircraft. If you have aircraft, it's a great time as a lessor because there's airlines looking for everything. We're well-positioned in Asia-Pacific. Clearly, there's plenty of opportunity in the world's fastest-growing travel region. If you look at the bottom right-hand side of page 16, there is an aircraft shortage. Manufacturers like Boeing, ATR, and Airbus manufacture aircraft and deliver some each month. The backlog that's due to replacement, as well as COVID, is substantial. For example, Airbus has got a backlog of 8,658 aircraft, and they're making something like 75 a month. You'd have to check the statistics, but I believe that's approximately accurate.
There will be many years before the backlogs clear, which means that asset values of existing aircraft are really very, very high and in some cases, dramatically increasing. If you go to page 17, we are fully utilized. In doing the turboprop, the narrow body, and the wide body, we're only one of probably four key lessors in the turboprop space, which is useful in a recovery situation. When there's a crisis, turboprops tend to recover quicker than anything else because a lot of the utilization is special mission. You know, it's not leisure travel. It's government or medical or things that, you know, people have to travel. Narrow body is sort of the bulk of the market in the industry, and you know, there's a lot of liquidity there, and investors love it, as do lessors because it's a very liquid sector.
Wide bodies have very strong, reliable, long-term cash flows, but clearly, they're big amounts of money and risk. If you look at our top right of slide 17, it talks about our yield. Anything over 10% is good, and that's on a fleet basis, on an overall basis. When you're 100% utilized, as we are at the moment, our yield's 11.3%, which is quite adequate and satisfactory in terms of generating a spread. We have been extending the lease durations by extending leases, and as they come closer to expiry, we've done a lot of lease extensions lately and are working on some at the moment. Clearly, that's important to lower the risk in the whole business. If you'd look at the bottom right, in case you don't know, commercial aircraft sort of have a commercial life of 25 years.
Ours is at 8.5 years, and therefore, there's plenty of economic life left. Page 18, we talk about our ability to grow and monetize. We've sold a lot of aircraft. On average, we've made over $1 million a plane that we've sold. We recently sold a couple of ATRs before we even touched them because it's not our business to do that, but it was an opportunity to do so. We have a fairly pedestrian delivery stream of 10 aircraft between now for Q2 2025 and Q2 2028, which are easy to place. We've announced several placements of those, the first few deliveries out in time. We can grow organically. We like organic growth, which is from the order book, as well as a couple of acquisitions of modern narrow-body commercial aircraft from time to time. If you look at our history, we've been recovering and starting to grow again.
Our net cash from operating activities has been building up. Net debt's been going down. We've paid off a lot of debt. Since COVID, we've paid off something like $400 million worth of debt organically, which is a remarkable effort. If you look at the next slide, page 19, from FY2020, sort of the height of COVID to June of this year, we paid off something like $400 million in debt. The top right of page 19 displays the maturity profile. Clearly, the big number there is the unsecured bond, which is what we're talking about today. When we published our numbers, it was $310 million. It's currently $298 million. The purpose of this transaction is to move that unsecured note out to the right to sort of FY2031 effectively. That's what we're talking about today. In terms of the funding mix, basically, we go fixed-rate funding.
We have a little bit of floating leases, but not materially. In the event we have floating rate funding, we have a floating rate lease that matches. We're typically looking towards a balance of 50/50 between secured and unsecured debt. We do use a lot of bank debt because it's sort of on the face of it cheaper, which means that we can compete with anyone. Our blended cost of finance is within a percent of anyone in the business, which means that we can compete. Page 20, this is the what-have-its-in-bad situation slide. We like to have a lot of what are called, we have a lot of security deposits, as well as a lot of maintenance reserves that effectively cover the depreciation and future maintenance of the aircraft.
That money belongs to the company and can be applied in the event of a default or can be drawn down if the airline fixes up the planes during the time and for certain ways. It's a very important cash asset, and we have a lot of those. We have a lot of good systems and policies now. We try to work with good geographies. We try to work within the countries that more or less have takedown convention. We have done super well when we've recovered aircraft in remarketing them. We've been able to fly them around, get them fixed up at MROs, and then place them.
We've had a lot of case studies, and we can provide, Wells Fargo can give you more information if you want, that we've dealt with Virgin Australia, Garuda, Thomas Cook, and others, and managed to recover the aircraft and either sell them or release them. In terms of relationships, page 21, we have done super well in bringing down from $46 million to $6.9 million as of FY2025 any arrears. The biggest borrowers from that time, if you think of it, the airlines have all paid back their debt plus interest. We like to have sort of two, three, four aircraft with each airline. You see a list of airlines on page 21 where there's a lot of ones there that we'd like to have another one with. We gradually diversify away from airlines that we have too many with.
In our opinion, there's sort of 200 airlines in the world that you could do business with. You probably wouldn't, but you could. Therefore, you need to have aircraft that match what the real world wants. You're going a long list of customers, which is a good thing, with a few aircraft on each. When there's a problem, you can get the aircraft and move it around. Very important. That gives us a pathway to growth because clearly, what we can do when we grow is look at, "Oh, that lessor over there has got too many aircraft with some airline. They may sell two or three to diversify. We might look at buying one, two, or three." It's a good way to grow your business to deal with other lessors, especially with a narrow-body market.
That's a very common thing and a common way to grow in the narrow-body market and why people like us and investors really enjoy narrow-body growth. I think we're pretty competitive in the narrow-body space. We've won the top two there, VietJet and AirBaltic, for example. We won in sale and leaseback competitions with other lessors. We were competitive enough to win those deals. More diversification is very important because if a customer goes bust, you've got to get the aircraft and remarket it. It's easy to do with two or three, in our case, but it's hard to deal with 10 or 20. Coming to the people that do the work, page 22. I'm on the top left. Mark looks after our technical side. He's very competent in terms of the financial side as well.
He was the CFO of a public company as well as CEO of an airline. In the middle there, you've got a number of industry experts. Rod Mahoney on the left was ex-Airbus. He happened to sell the world's first A380, sign the world's first A380 sale for Airbus. He's a veteran and knows what he's doing. Derek's been Chairman of Airbus in Indonesia, Japan, Thailand, and on the board of various parts of Airbus and others. Ian's on the phone. He's an accountant. He's been involved in the company a long time, and he's very senior in the business. Sorin was ex-AerCap, which is currently the world's sort of biggest lessor. He knows a lot about leasing aircraft and also selling aircraft because he did work studies for it at Airbus. Ashley has done something like 200 aircraft transactions in terms of finance over his career.
Michael is very key. He's the Head of Technical. He deals with, he's an employee of Singapore Airlines, but he deals with the MROs and the transitions and employs teams of people to check aircraft as well as repossess them when necessary. The financial overview section, I think I'll pass to Iain to continue with this, page 24.
Thank you, Jeff. Thanks to everybody on the call for joining us today. If you turn to slide 24, we'll have a look at our financial policies. We are listed on the London Stock Exchange, where we can issue ordinary shares. We've issued over $50 million of follow-on capital on the London Stock Exchange over our history. We also fund ourselves with a mixture of secured and unsecured debt. We're currently around 55% secured, 45% unsecured, with a total average funding cost of around 6.6%, which we try to optimize here. We try to optimize the capital structure for cost of debt and cash flow. We currently have a fairly conservative leverage metric. We are currently at a 2.5 x ratio of net debt-to-equity and an interest coverage ratio of 2.4 x. We aim to maintain those ratios below 3x and above 2 x, respectively.
We typically match the terms of our senior loans against the terms of the leases. We try and avoid, within lease term, refinancing risk that way. We currently have a lease yield of around 11.3%, which is quite stable. That gives us a meaningful spread above our cost of debt, currently 6.6%. Most of our leases are fixed-rate leases. We do have a couple of floating-rate leases, but they are set to expire shortly. We'll principally be a fixed-rate lease lessor. We match those fixed-rate leases with mostly fixed-rate debt to maintain that spread. Turning to liquidity, we've established a very strong liquidity position over the recent years. We've currently built up a cash balance of around $148 million. That obviously gives us good flexibility in managing the business and the ability to grow. As a listed company, we do declare and pay dividends out of retained earnings.
The dividends are currently at a very low level. We recently declared a $0.01 dividend, which will cost the company around, I think, $650,000 in cash. That's very manageable. It represents something like a 0.5% payout ratio on the current share price. We like to be hedged against interest rate fluctuations. We currently have around 84% of our debt either at a fixed rate or hedged with an interest rate swap. As I mentioned before, we're mostly a fixed-rate lease lessor. Having fixed-rate debt protects our spread. We are predominantly a U.S. dollar lessor, although we do currently have seven aircraft leased in euros. We hedge the currency exposure on those leases by financing those aircraft in euros. We're essentially hedged, you're substantially hedged against interest rate movements and also against currency rate movements. On slide 25, you'll see some of the historical financial performance metrics.
What's worth pointing out here is that the 2025 financial year was really an inflection point for Avation. You'll have seen that since the COVID pandemic, metrics have been picking up. In particular, in the 2025 financial year, we had our fleet fully utilized for the first time probably since the pre-COVID era. That's given us increasing revenue, a stable EBITDA margin, and obviously an improvement in the average lease yield across the fleet. Fleet assets currently stand at $820 million. With our order book and purchase rights and the intention to add additional narrow-body aircraft in the future, we would expect the fleet assets to steadily grow from here. Looking at our credit metrics on slide 26, you'll have seen that since FY2021, in particular, the credit metrics have shown steady improvement. We now have a very conservative leverage metric of 2.5 x net debt-to-equity.
We're well above the minimum of 2x interest coverage ratio that we aim to maintain at all times. Our corporate current credit ratings are currently B1 from Moody’s, B from Fitch, and B- with a positive watch from S&P. The issue ratings for the current issue that we're discussing are B2, B, and B. Moving to looking at sources of liquidity, as mentioned, we're listed on the London Stock Exchange and have the ability to issue shares, having raised more than $50 million in additional equity over our history. We have a very strong liquidity position with over $148 million in total cash. We have six unencumbered aircraft at the moment. That's a mixture of A321s and ATRs. The unencumbered aircraft give us a bit of financial flexibility. Obviously, those aircraft could be disposed of or financed at a future point in time should we need to add liquidity.
We've typically sold aircraft at a premium to book value. The recent sale of the 777-300 is an example where we've managed to generate a material profit above book value and generate a lot of liquidity from that sale. We have very good long-standing relationships with our secured lenders. We currently have loans in place from eight lenders. I think we've dealt with somewhere in the region of 15 lenders over the last three years. Obviously, those secured loan LTVs are currently quite low, so there is some flexibility there. Just turning to the right-hand side of that slide, this is just something to illustrate potential recovery value. On the left, the left-hand column shows that in June, we had $652 million of total debt, financing about $1.1 billion of total assets, including $820 million of aircraft and $149.9 million of cash.
On the far right, you'll see the items that are in addition to the aircraft and cash: $361 million of future rents receivable, an estimated $163 million of surplus cash maintenance reserves, and the value of the purchase rights, which we valued at $92 million in our recent annual report. I'll now turn you back to Jeff for the industry overview section. Thank you.
Thank you, Iain. That was a good overview. I mean, on the bank side, we have plenty of support from the banks. Indeed, with the management estimates, we could substantially, from within the facilities we've got, add a couple of hundred million dollars of aircraft if we wanted to. We certainly have the opportunity to grow without doing too much work on the banking side. Clearly, we've got to maintain the overall leverage and sort of the leverage target of 2.5 is where we want to be at, and certainly not above 3. Going back to the macro, most of you would be familiar with this. There's a lot of growth out there. GDP growth drives travel. As people get more money, they like to travel. The most growth is obviously in the Asia-Pacific because people are transitioning to sort of a middle-income, middle-class, developed economies.
There's plenty of growth there. The recovery from crisis happens fairly quickly. The GFC happened very quickly. COVID, there was the rebated travel mode. Lots of growth, great place to be, the correct industry to invest in at the moment because, with those manufacturing levels, you've got sort of 8 to 10 years of an undersupply of aircraft. If you own them, they're valuable, and they'll generate plenty of rent. Moving on to the airline industry, this slide just emphasizes the Asia-Pacific story. Something like half of global traffic is involved in Asia-Pacific or is going to be involved in Asia-Pacific, up from 34% in 2023. You'll see people traveling more. We're in the right sort of geography, which is a good thing. Demand, page 31. What happened in COVID? Nothing was built. Aircraft have been extended. Now, clearly, they've got older.
A lot of aircraft have gone over that 25 years that need to be retired and replaced. The interesting slide for an investor is sort of the bottom of page 31, bottom left. You've got lessors roughly financed something like 50% of all aircraft. There's something like 45,000 that will be delivered in terms of growth, replacement, or growth and replacement over the next 20-odd years. It's a massive amount of business opportunity. It's a significant amount of opportunity for investors to deploy money. Certainly, for the next 10 years, it should be a very great industry to be involved in. Page 32, some key highlights. We're in a really good environment, great leasing environment. We have an order book, which is important. We've got a diversified fleet. We try to match the real world in terms of regional, you know, narrow body and twin aisle.
We're looking to increase our remaining lease term by extensions and new leases. We have a sustainable growth program with the prudent order book. We've had, as I said earlier, from COVID to now, we've paid back sort of $400 million in debt. We've managed to consistently reduce leverage through the cycles. We have the ability to sell, transition, repossess, help get planes when we need to, which does happen from time to time in this business. It's a key thing that lessors need to demonstrate the ability to repossess and transition a plane, and we've done that. We're looking to keep diversifying through our relationships as well as new customers. We have a good management team. We have people with lots of experience that can do market and repossess and finance aircraft. That's the end of the formal part of the presentation.
I want to thank you for your attention so far. Finally, hand it back to Reagan and Adam for your questions. Thank you very much.
Thank you. We'll now begin our Q&A session. If you'd like to ask a question, you can do so by pressing star one on your telephone keypad. If you'd like to remove your question for any reason, you can do so by pressing star two. Additionally, if you're streaming today's call, please dial in and press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We'll briefly pause here as questions are registered. We have a question from Vicky Ismurlian from Bain Capital. Your line is now open.
Hi. Thank you for taking the question. I just wanted to ask, what's the timeline for you executing your options on the order book?
I'll answer that. Thank you very much for the question. Regrettably, there's only 36 ATRs made a year, and they're sort of sold out. They've got a backlog of 150. Our cadence, which I think is what you're asking, is sort of two to three a year. We have exercised 10, so we've got 10 firm, and we've got dates for those firm. In probably, I don't know, a year or two out from now, we can exercise more. Occasionally, as opportunities come up to advance that schedule because there might be a really interesting client or a good business opportunity. I see there's a lot of activity in the U.S. now with ATRs. FedEx is a big operator and a lot of operators in Canada, and that's a key market for them, for example. They might make allowances for that sort of stuff.
Typically, the cadence is two to three a year, and then we'd revisit the order book every year or two. That answers your question.
Thank you. Could you just give a little bit more detail as to how you think about the fact that you're increasing your exposure, your relative exposure to the ATR aircraft?
We don't intend to. We intend to keep it in balance. We will buy, I mean, one narrow body is like three ATRs. For us to do three ATRs, it's equivalent to doing one narrow body. If you buy one or two narrow bodies, clearly, you're actually increasing your exposure to the narrow body market. What we're not doing probably is too many wide bodies because there's a lot of big money risk at the step down when there's a technology change in our view. I mean, we love them. They're great revenue, but they're big amounts of money. The field of operators is relatively small, and there's plenty of risk there. Whereas the narrow bodies, you can buy, sell, trade, place every day. The ATR markets, there's actually more ATR operators in the world than there are 737NG operators.
There's plenty of places you can place an ATR if you need to, but they're small relative values. When we talk about two or three planes a year, it's really, it's not that material. It's like one narrow body. By value, we're principally a narrow body commercial lessor.
Thank you.
Thank you. Once again, to ask a question, please press star one on your telephone keypad. Our next question comes from Danielle DePippo of Janus Henderson. Your line is now open.
Thank you. Can you talk about how you think about liquidity management? Kind of away from the ability to sell certain aircraft, do you have a target on sources to uses, or how do you manage that?
Iain would like to answer that one.
Yeah. Hi there. I mean, we do have some cash covenants in our secured lending agreements. You know, we are obviously in compliance with all of those covenants today and have substantial headroom. The business itself, to operate the business itself, if you ignore CapEx, doesn't take a lot of working capital because the structure of the contract is that rents are paid upfront, and then the principal outgoings are debt service costs, which tend to be paid in arrears. There's not a huge sort of working capital requirement. Really, what we're managing around is the CapEx. Currently, for the 10 aircraft order book, we've got around, I think it's $207 million of committed CapEx over the next roughly three-year period to take delivery of those 10 aircraft.
We're already sort of managing around meeting the stage payments, called pre-delivery payments for those aircraft, and the equity requirement on delivery of each aircraft, which, for an ATR, is not insignificant, but it's a very manageable investment. I mean, we typically expect to fund around 80% of the cost of an ATR delivery with debt of one form or another. Really, we're sort of managing liquidity around our growth plans.
Thank you.
Question, maybe?
There are currently no questions waiting at this time. As another reminder, it is star one to ask your question. We have a question from Isabella Freeman of Beach Point Capital Management. Your line is now open.
Hi. Thanks for taking my question. I'm a little newer to the story, but wanted to ask, on that $207 million of CapEx that you referenced, how do you plan to fund that over the next three years? Can you talk about funding?
Yeah. I'll quickly do that. We recently sold two brand new ATR 72-600 on delivery without ever touching the planes. One of the reasons we did that is it released $10 million in cash. That was either profits or what are called PDPs. The order book of those 10 aircraft only ever, at most, only ever requires $10 million. In fact, we've probably funded the bulk of what we'd ever need to fund with that in equity terms already. What happens is with aircraft, you would typically take leverage on them at that finance up to, say, 80% at most. We often don't. For example, if we do this, if we issue this bond today, hypothetically, and the next couple of aircraft, we could pay with bond money, which is there and have more unencumbered aircraft.
You typically lever up a plane to sort of 80% of its value and pay for the rest in equity. The business generates a lot of enough free cash just from operations or trading to be able to pay for that sort of order book. It's not problematic at all. The sources of funding are like the bond money, for example. We could easily pay for a couple of aircraft with bond money and therefore have unencumbered aircraft. There's what's called export credit financing, which is the governments of Canada, France, and Italy provide guarantees to banks or lend the money for ATR aircraft. The banks themselves, asset-backed finance. We do a mixture of those things. We do asset-backed lending. We do ECA. We also do, obviously, the bonds. That's answered your question. Thank you.
Okay. In terms of maintenance capex, what is that for you guys? I'm seeing it's pretty low, but anyway, with $63 million kind of CapEx, do you think that that's a run rate? How should I think about maintenance capex?
It is really at zero. Airlines pay the maintenance. What happens is an airline will have to pay all of the maintenance to the aircraft. They pay us what's called maintenance rent, which we keep on account for them. For example, if they fix up an engine on a scheduled basis for $5 million or whatever, they can see it. If it's in accordance with the lease, they can draw down $5 million after they fixed it up. It is not really an expense. It is money that we've kept in reserve because if we give them a new plane, we either want a new plane back or the money. Ideally, we want the money. If you engineer your leases correctly, there is always surplus maintenance rent. The reason for that is, obviously, maintenance rents are accrued at catalog prices. Often, airlines do not spend catalog prices.
They pay less than that. It is not our money; we are not spending the money. The airlines are. They pre-fund all maintenance.
Got it. Thank you. That's it for me.
Thank you.
Thank you. We have a follow-up from Danielle DePippo of Janus Henderson. Your line is now open.
Thank you. You had mentioned aiming for maybe two to four aircraft per customer. When you look right now at the mix at VietJet and AirBaltic, is there something about those two companies that gave you more comfort to kind of have bigger exposure to those two names than you normally would? How do we think about that concentration?
I think you should think about them as things that we would diversify away from over a period of time. What we've had the best experience with is leasing one or two or three aircraft to an airline for a whole pile of reasons. One of the reasons is when they want more aircraft, they come to you. You have opportunities to lease them more aircraft. On that list of customers, whenever any of them want more aircraft, they say to their existing lessors, "Do you want to do this sale and lease back?" or, "Have you got one of these?" or, "Do you want to get involved in that?" That's a great way to grow. A really fantastic, I mean, I shouldn't say this publicly, but a fantastic way to grow is to buy one aircraft from another lessor and get the customer.
When the customer wants more aircraft, you can help them out. Probably in the case of the first, those ones you mentioned, we might be slightly concentrated. As we grow, the relative proportion may diminish, or we may trade out of them. They're both great customers with a current, don't owe us any money. We've got lots of reserves and deposits. They're really good aircraft. They're very valuable. Clearly, as we grow, we want to continue to diversify the customer base. I can assure investors that's what you'll see. You'll see us continuing to add names. We recently added Clic Air, for example, in Colombia. We are continuing to diversify.
Okay. One more if I can. Following this issuance, are you comfortable with the overall mix of the debt profile as it relates to secured versus unsecured?
Iain can do this one.
Yeah. I mean, I think I suppose the rule of thumb for us would be 50/50. As the secured loans tend to pay down, I mean, every month we pay down secured debt, we'll probably be at 50/50 even after this issuance. That is something that gives us a nice mix of, you know, perhaps lower cost secured debt and then the cash flow advantages of unsecured debt, which doesn't amortize. Obviously, that provides us with nice organic cash flow, which we can then use to grow the fleet. I think 50/50 is a nice balance. If anything, we might prefer to go a little bit above 50% with the unsecured because we are trying to grow the fleet. We've got the order book. You know, cash flow is very valuable for us. You know, we've stated our desire to add additional narrow-body aircraft as well.
For now, I think 50/50, we're very comfortable at that level.
Thank you. That's it for me.
Thank you. Our next question comes from the line of David Jiang of PGIM. Your line is now open.
Hi. Thanks. Just a question on the ratings and the momentum from the agencies. Outside of paying or refinancing this debt maturity, what else are they looking for in terms of getting you up the rating scale timing-wise?
The biggest thing they look for is scale. Our, if you like, operating metrics are now sort of better than they were back in 2018. We were sort of double B then. They have told us over and over again that they like to see scale, which people have different opinions about. I like to see quality for a whole pile of reasons. The ratings agencies like to see scale. I think the ratings question and the cadence of it, I think Wells Fargo could answer because, clearly, they're closer to the U.S. ratings agencies on a regular basis than we are. Maybe Chip, you could jump in here.
Yeah, I don't know if Chip's on. This is Adam. Look, the metrics in terms of the upgrade and downgrade triggers are sort of laid out by each of the agencies. I would refer you to those write-ups specifically.
I think this gentleman asked about the timing. I mean, you know the time. What's it take, 6 or 12 months to change?
I mean, I think, certainly, we've been dealing with S&P over the last few years. They're basically doing an annual review of the rating unless there is a substantial change in the business model. I would expect that sort of cycle to continue. Obviously, the current bond issue that we're discussing at the moment is potentially a substantial change as far as S&P are concerned because it takes away a significant debt maturity in the near future. You'll have seen that S&P have already put our rating on, or our corporate rating on CreditWatch Positive. Once we complete the refinancing of the bonds, you might see S&P review the rating again. Given that our growth strategy is quite conservative, we're not looking to make huge changes inorganically. We're just looking to grow the business organically, conservatively, while maintaining credit metrics, while maintaining good lease yields and cash flows.
I wouldn't expect the rating to suddenly change in either a negative or positive direction apart from the annual reviews. Obviously, what we're doing is going to lead to positive momentum for the credit ratings. As Jeff mentioned, the agencies are looking for a scale in the business. We are going to add scale, but we're going to do it conservatively. We're not looking to go and double the size of the fleet in six months. We're looking to add two, three, four aircraft a year. That will eventually lead to, I believe, a positive change in the rating. It's really an annual review process for the agencies.
In addition to scale, they're looking for diversification, right? Equity and debt investors are aligned in that. They want scale, they want diversity, and as Jeff mentioned, they obviously all want quality.
That's right. Yeah, scale and diversification.
I mean, the lessor concentration, is that a big deal? Is that a big gating item for them? I mean, it's going to take a while to diversify it out of some of these concentrated names over time.
I think it goes hand in hand with the scale question. As we add aircraft and as we add customer names, we naturally will chip away at concentrations with VietJet and airBaltic in particular. It's not something that we're going to suddenly change overnight.
Okay, thank you.
Thank you. Our next question comes from the line of Michael Plancey of BlackRock. Your line is now open.
Hi. Good afternoon. In 2025, you guys had a nice big step up in revenue from maintenance reserves. Was there any one-time thing in there that made it significantly higher than it was in 2024, or is that a good number going forward?
The technical answer to the question is the maintenance reserves are received at catalog rates and spent at airline rates. There's always a surplus, and it depends on where you are in the maintenance cycle of the aircraft. You can't rely on the number per se, but you can rely that there'll always be sort of a positive amount. If you look at other lessors over their history as well as us, there's always cash released or value released at the end of leases, transition points. If the lessor collects cash reserves from the reserves, I don't know that you could, I guess we could do a fly-forward analysis and estimate it, but it would only be an estimate. Iain, do you want to jump in here and help the gentleman?
Yeah. I mean, the maintenance reserve revenue is going to be a significant contributor to total revenue over the remaining lease terms, principally because we collect cash maintenance reserves from the majority of our lessees. We're not going to give out forecast information on future revenue inflows on this call. The accounting policy for maintenance reserve revenue is designed to smooth out recognition of that revenue over the lease term compared to the previous accounting policy we had for it, which was to wait until the end of the lease term and then book a lump sum. I think, to try and answer your question, you can expect maintenance reserve revenue to normalize and be sort of perhaps less volatile over future years as we progress through the leases.
Great, thank you.
If I can just add briefly, we love customers that pay us cash reserves. We're not that excited about customers that promise to maybe pay us at the end. We try to collect monthly cash reserve and put it in the bank. That's the safest way of operating in this business because anything happens, there's no real issue.
Thank you. There seem to be no questions at this time. I'll pass it back over to management for any closing or further remarks.
Look, thank you for your attention. Where we are is after midnight, so some of you will be in the same boat. Thank you very much for joining the call. I noticed a huge number of attendees, which we appreciate. I'm sure if you reach out to Wells Fargo Securities Fargo or HSBC team, they'll be able to channel through questions and get back to you with any answers. Once again, thank you very much for your support and interest.
Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your line.