We have Avation PLC here to present this morning. From the company, we have Tim Bacchus, the Director of IR, and Ashley Nicholas, excuse me, the Director of Corporate Finance. They are going to run through a presentation, and then we will do some Q&A at the end. If you do have any questions, please enter them through Zoom and we will get to as m any of those as possible. With that, I will hand it over to Tim and Ashley.
Thanks, Greg, and good morning to everyone. Thank you for joining the Avation PLC Group presentation for the Sidoti Conference. I am Director of Investor Relations, and I am also joined by Ashley Nicholas, who is Director of Corporate Finance. Ashley has been with the company for 11 years and handles our bank and relationships under the corporate finance functions, including dealing with our bondholders. I have joined more recently to the company. My background is around 20 years as a sell-side equity analyst for bulge bracket firms out of Asia Pacific, and I have also done work with risk management for other leasing companies, aircraft debt, and some transac tion advisory as well in aviation. Let's get started. Avation, just set the table, we are an aircraft leasing company. We are an on-balance sheet lessor, so we are not doing the asset management model. We own our aircraft.
We are putting these aircraft out on dry operating leases to airlines as well as some finance leases. Those finance leases would have options to purchase at the end of those leases. We make our money in this industry by the spread between the rental yields that we can achieve in the marketplace and our financing cost. We also make money as well secondarily by trading aircraft assets, so booking gains on our assets. We are primarily in this business as an asset owner and an asset trader. We have been around for 20 years. We just passed our 20 year anniversary last month, and we have an extremely experienced management team that has been through many, many cycles. You can imagine 2008, 2009, we have gone through COVID, and so we were battle-tested. Why should you be looking at Avation now?
I think the main background in terms of the macro is that we are in a supply and demand imbalance. The OEMs, Boeing, Airbus, Embraer, ATR, et cetera, cannot produce aircraft as quickly as the market is demanding. If you actually have aircraft in what is very much a seller's market, you are in a very good position. Aircraft lessors who have aircraft slots available are in demand, and beca use there is a delay in aircraft deliveries as well, it means that your older aircraft are also in demand. We are also benefiting from rising aircraft leases in terms of rates. We are also benefiting from rising market values.
Now, if you have an order book in this environment, you are in a good position because as we go through the rest of this decade, as the OEMs again are going to take time for those supply chains to heal, if you have an order book, you are in a great shape. As we go through the decade, fewer and fewer lessors have an order book. Our order book is going to lock in at least 10% fleet CAGR growth for the rest of the decade. We are actively de-risking our business as well. We are diversifying our customer base, which is improving our overall metrics in terms of how the rating agencies look at us. Lastly, in terms of scarcity, there are very few players or pathways for investors to play this current sweet spot i n terms of the supply-demand imbalance in the cycle.
We are one of only four listed. There is one listed in Hong Kong. Two listed in Hong Kong, sorry. Ourselves, we are listed in the London Stock Exchange. The largest one in the space is AerCap, listed in New York. We are also at a point where we look the most attractive in terms of valuations amongst all of these lessors. We see the value in our own shares, so we have been buying bac k stock. We have also been buying back some of our bonds as well. So a quick snapshot. We have 33 aircraft on the balance sheet. Those are with 17 customers around the world in 17 jurisdictions.
In rough terms, if you look at our balance sheet, we have got around 10% on the wide-body space, 60% in narrow body, and 30% with the ATR 72 turboprop aircraft, which make up around half of our fleet in terms of unit terms. Average aircraft age, nine years or so. Our lease terms, which is around four years now, but we expect as we go through the decade and as we begin to gro w the business, we are going to see that number improve and tick up. We are around a billion-dollar business today. Around $750 million of that is in aircraft assets and another $86 million or so as of December 31 is in intangible, which we will talk about later. It is our aircraft purchase rights. What is our strategy? How are we going to grow the business, essentially?
Investors look at this business primarily on NAV, on a price-to-book basis, the key for us is to grow that NAV and to grow the fleet. We have got that order book, as I mentioned. It is 13 aircraft on firm order through the end of the decade. We have another further 19 purchase rights, which we can exercise out to 2034. We are also looking very seriously at how we can grow in terms of the s econdary market. How can we turbocharge our growth through asset and selective asset opportunities from trading with other airlines or with other leasing companies? I mentioned that we are diversifying our customers, we are extending our lease terms, and we are also looking closely at how we want to optimize our capital structure.
In terms of the portfolio, I mentioned that we have 33 aircraft. 19 of those are ATR aircraft, and those are the aircraft for which we have the order book. We also have one engine as well. We began to look at that as a potential further business line. In terms of the countries and the operatives that we are located, you can see around the world, we are heavily focused on Asia-Pacific. 80% or so is in Asia-Pac. We have our first new customer in the Americas in the last year. We have also got some good exposure in terms of European airlines, some names which will be household names. There is a lot of information on this slide. I think the key message here is that we have been through a period where we had a decline in COVID, which of course, was a massive event for the entire aviation ecosystem.
We have recovered very nicely such that things like our net debt to equity is down below where we were pre-COVID. Our EBIT, our interest cover is equal or better. Our net cash flow is better. You can see in the lower right as well, or l ower left, that our fleet did shrink, but we have been on a growth path, and we will discuss that at the next slide. Actually, the next slide is our anniversary slide. Just to give you an idea of what we have done over the last 20 years. We have acquired around 80 aircraft, around $2 billion valuation. We make money by selling, as I mentioned, so we have sold 45 of those aircraft, for gross proceeds of $1.2 billion. Leases with 38 airlines around the world.
We transitioned 22 aircraft between lessees, raised 80 million plus on the London Stock Exchange, and just in the debt capital markets alone on the bond side, 800 million. If you look at over the next decade, we have got another 750 million in those purchase rights or firm orders, which will double our aircraft asset base. Recent highlights. I am going to go through these really quickly.
I do not think these are too important in the terms of. We did a bond refinancing last year, which is important, pushing out our wall of liquidity out to 2031 in terms of our debt financings. We have improved our credit ratings. We have also got a new rating from one of the agencies as well. Nine aircraft transitions or transactions, including five transitions, a couple of new deliveries, et cetera. We also sold one aircraft, which is a large aircraft for us.
It was a Boeing 777-300ER, on which we did a nice cash gain. Middle East slide, not a terrible amount to talk about. Obviously, the conflict is continuing to rage in the Middle East, but we are not directly impacted by that. We do not have direct exposure to fuel prices. All of our leases are in full force. We have only one aircraft directly in the Middle East. The biggest area or impact would be in terms of our customers' cash flows. Of course, margins are tightening in terms of increased costs across the airline space. But for the lessors, this is no t a big event. I mentioned our order book. So we recently converted five of our purchase orders, that which we went from 14 - 19 in terms of those purchase rights. 13 orders for delivery.
We've got a couple scheduled for delivery in the second half of this year, some further into next year. All of our new aircraft are very green in terms of being 100% SAF compatible, which is not necessarily true of other aircraft types. The future purchase rights are valued over $400 million. This is an important slide, and it shows how our CAGR looks, both an upper bound and a lower bound. At the lower bound, that's the 10% CAGR, which I mentioned purely on the basis of our order book. If we, in fact, do as we've done historically a nd buy two aircraft per year in the secondary market, and these generally tend to be bigger aircraft. We go for narrow bodies and in some cases, wide bodies.
We will be growing at 14% CAGR through to 2030, and our year-end is a June 30th year-end. We were around 48 aircraft at our peak size pre-COVID. We shrunk as we sold aircraft off in the marketplace, and we will get back to that 48 aircraft by June 2029 if we continue to purchase in the secondary market, but we will get there even without those secondary purchases by June 203 0. In terms of lease expiry, not much coming up in the next sort of 18 months or so. We've got one aircraft expiring in the current fiscal year, which just began July 1. The three aircraft, which are ATR 72-500s in black for next year, are actually the ones on finance lease, and the airline operator in Australia will purchase those. So those are not new marketing events for our team.
In terms of the market outlook, I think there's a lot of forecasts out there. All the OEMs put in forecasts out there. The airline group, IATA, puts out forecasts. The bottom line, I think, is that we continue to be in a nice growth market. The activity is in places where we're exposed, so in Asia-Pacific and Middle East, where the highest CAGR growths are raised. I think maybe another key point here is that if you look at the upper right corner, that because of that supply-demand imbalance with OEMs, we've seen a much lower rate of aircraft retirement. In other words, aircraft that maybe would be coming back to lessors or just being retired completely are actually being extended by the airlines, and that's contributing to a very healthy market. We're well-placed to meet that demand.
Our exposure, as you can see from the lower left, is in the fastest-growing markets in Asia-Pacific. At the same time, we've got 18% in other parts of the world, and we're continuing to focus very closely on that geographic and customer diversification to get new customers in the Americas, for example, and to grow our European base. But when you look at the air travel overall, you look at how COVID hit and even prior big events that were disruptive to passenger traffic, we always return to trend line growth, basically, as you see in the upper left. Market values. These are the aircraft types which are in our fleet. It's been a very healthy market. This is the market purely for used aircraft. So these are 10-year-old aircraft of the last three years.
If we added the 2026 bar the first half of the year, we'd see continued strength in those markets. Again, very much a seller's market if you're holding onto assets. ATR, I won't spend too much time on this. Basically, there's a very large replacement cycle, and it's where we're exposed. The nice thing about that exposure is that we have the largest backlog of any aircraft lessor. There' s only three lessors that have direct orders with ATR, and this is a monopoly product. There's very little, if any thing, in the marketplace that can compete with an ATR. If you need a new one, you have to get this aircraft. They're also the largest in terms of the existing operator base as well. That's this slide. It's 200 operators. It's more operators globally than even a 737 aircraft. A quick look at our financial metrics.
I think the key thing, looking at our first half of the year, which ended December 31, revenue you'd say relatively stable. Operating profit, very good growth. The operating cash flow is stable as well. The key thing that I impart here is that we sold a very large aircraft asset in ter ms of how much it comprised our balance sheet and also our revenue. Despite that sale, which happened i n the first quarter, essentially, of last year, we were able to maintain and even show growth. We were backfilling that with other new deliveries of aircraft. Steady growth in net asset value. As I pointed out, that's a key metric.
Our yield, which is amongst the highest of all the lessors globally, given that we're exposed to those turboprop assets, which actually can generate greater asset yields because there's less competition in that side of the market. Ratings agencies, mentioned that before. You look at how we're doing in terms of our net debt. We've increased our ability to finance, because we've got mor e unencumbered aircraft. We've got a relatively steady asset base, despite the sale of that wide body, and ou r cash looks good. We're quite proud of our credit metrics as well. We've got very solid numbers in terms of almost investment grade type numbers. Our debt maturity, I mentioned the financing's been pushed out, and that's out to 2031. We've got some other debt in 2028, which we expect to be rolled over, attached to some VietJet Air aircraft.
The investment thesis, just kind of summing all this back up again. We've had scarcity in the marketplace, strong macro backdrop, very few plays in which to play this cycle and this growth. We have the order book and the largest ATR order book. Our valuation, we're trading at a very big discount to our net value, with 50% discount on closing price as of last week. If you exclude th e intangible asset on our balance sheet, which is our aircraft purchase rights, which we value using t he Black-Scholes model, those 19 and 24 aircraft purchase rights. We are at around a 20%-25% discount to the marketplace. Again, we don't see any reason in this point in the cycle and compared to where our peers are, that we should be trading at such a gap.
Because of that gap, we bought back roughly 22% of the company over the last two fiscal years. I mentioned yields. We have the highest yields of these 10 lessors, eight of which are investment grade lessors. We are quite proud of that. Again, a lot of this has to do with the fact that other lessors are more heavily competing in the narrow body space. That is a space where you c annot get as strong of an asset yield. We get basically an LRF of one times, which is one month's rent divided by the asset value, whereas the narrow body space is anywhere from 0.7- 0.8x . Ratios, again, we have some of the lowest in our peer group, net debt to EBITDA, total debt to total assets. We are right in there in terms of other metrics with investment grade lessors.
This slide just shows how we are trading in terms of that discount to book. Prior to COVID, pre-2019, we were trading in line with most other lessors in sort of the 0.8- 0.9 to one time sort of book. We are the only one that has not recovered that previous valuation. Wrapping things up here, hopefully time for some questions. We have got the growth opportunities via the order boo
k. We have got the purchase rights. That is locked-in growth. We have been de-risking the business. We have extended that bond maturity out, improved credit metrics, and we see value in our instruments, and so we have been buying those back. I think I will stop there and look to see if we will take some questions.
All right. Thanks for that, Tim. I will kick it off. You talked about your growth forecast in terms of the number of aircraft, but you also talked about maybe some supply issues across the industry. How does that maybe impact your ability to source those aircraft, either new builds or secondary market acquisitions?
Yeah, thanks, Greg. That is a great question. I think the key thing is that while all the OEMs are having their issues with the supply chain, and there is many of the same suppliers that make up that supply chain, the del ays for new deliveries from the ATR and the tur boprop side are much shorter, if you will, than they are on the narrow body side. 737s, A320s, sort of the heart of the market, you are seeing somewhere anywhere between six to nine months delays on those aircraft being delivered to customers. We are seeing more like zero, one, two, three months, something like that. Our ability to grow or the delay in that growth is not as material, I guess, is one way to put it.
Another way to put it is that there is a kind of a double-sided sword here in that the less that, or the fewer aircraft that the OEMs produce and deliver, the greater that supports the market for used aircraft or other new aircraft that we actually get when they're actually delivered. We're able to maybe not grow as fast as a community of lessors, but we're also able to make up for that potentially on the revenue side and on the earnings side. Net-net, it's a positive for us because w e're not as exposed to those narrow body delays as much. We're taking advantage in the marketplace. I think in terms of the secondary acquisitions, this one is an interesting one because we want to grow, but we don't want to grow for growth's sake.
We definitely want it to be profitable growth, and so we have to be very selective. We see a lot of opportunities come across our plate in the commercial side, but we need to look at ones that make sense from an economic point of view, in terms of purchase price, et cetera, and the existing rental yields. When were those leases written, et cetera, and do the purchase prices make sense? We do believe we can grow. We have a lot of opportunities we're examining right now, but we do need to be cautious and careful of that sort of sellers market.
Okay. Are your new planes leased before you take delivery? Or do you take them on spec and then have to go lease them out? How does that work from a timing perspective, from getting the new plane to monetizing it?
We are in the so-called speculative order and lessor space. I mentioned that there are fewer and fewer of those as we go through the decade. I think there were something like 15 lessors in 2025 which had order books. By the end of the decade, it'll be half that, something like seven or eight, including us. In that speculative space, we're always ordering aircraft, generally speaking, b efore we know who the customer is. But there's a lead time in terms of how long the OEMs take to build the airplanes and then when do we start to market them. But generally speaking, you could start marketing 24 months out, if it's a very strong market like it is today. It's more likely 18 months or so, which you'd start to sort of market those delivery slots.
In today's environment, we're probably placing those airplanes, I would say a year in advance. Or we've got multiple options that we can go with for those slots. The aircraft are placed well before delivery.
Okay. You mentioned that discount to net asset value, in the presentation. Is there any particular reason why you see that in the market? Why you think the market is valuing the company the way it is?
I think there's a couple of things to that. One is we're really ramping up our efforts to engage with the marketplace. Frankly, your conference is an integral piece to that. We didn't really have a proper sort of IR function or dedicated resource for four or five years post-COVID until I joined last year. We think it's partially our size. We're a micro cap, let's face it, in terms of how large we ar e, $110 millio n, $120 million US dollar market cap. It's a question of visibility. It's a question of engagement of the market, we believe, and there is something which I probably can expand upon here, which is that whether or not sectors of the marketplace would view that intangible asset, which is our Black-Scholes priced aircraft purchase rights on the balance sheet, whether people will look through that or not, right?
I put two different valuations in the slide, the 20% and the 50%, roughly speaking. What we would say to the market is this, that we have proven that we can monetize those purchase rights. As of December 31, they were roughly $3.6 million per aircraft. Obviously, the nearer-term ones, which have a shorter time to expire, you have a smaller valuation than the long-da ted ones. In the fiscal year 2025, we sold two aircraft, two airlines on delivery. Basically, it was like we exercised the purchase options or the purchase rights, and then just kind of funded it while they were being built. Then on delivery, we turned around and sold those. We had a $5 million cash gain on those, so $10 million total. Again, we're valuing roughly at $3.6 million.
We've shown to the market, or we believe we've shown we can monetize and that there clearly is a tangible value to those aircraft assets. But that could be another reason why some sectors of the market m ight look at us and say, "Well, maybe your NTAV is more likely where you ought to be trading." Certainly, th at's clear where we want to get our share price back to. That's a 25%-30% lift from where we are today.
Mm-hmm. Okay. A New York or a U.S. listing, is that in the cards?
I mentioned the capital stack in the beginning there. Yes, it's something certainly that we've been looking at. The board is very focused on this, our executive chairman is. Whether London Stock Exchange is the long-term answer for our company or whether we need to be dual listed and wher e any other listings ought to be. But certainly the U.S. is the deepest and most liquid capital pool in the world, so we certainly are very attracted to that.
Okay. I guess you mentioned the value of the rights. Do they ever expire without you exercising them?
Each-
Or do you always take them?
It's very unlikely that we would let any expire without exercising them.
Okay.
They are certainly sort of dated. I mean, the out years, the ones we haven't exercised, it's roughly five per year, sort of 2030 to 2034.
Okay. All right.
It is very-
Ashley, sorry, go. Go.
I was just going to say that it is very possible that we would work. We have a great relationship with ATR, and we could certainly extend if we needed to, I think, and negotiate if anything came up on expiry. For example, it was not a great market in the early 2030s or something like that. We just didn't want-
Yeah
to exercise at that time. Yeah.
Okay. All right, great. We're getting close to the end of our allotted time. I don't know, Ashley, if there's any questions I didn't get to in the list that you thought were relevant. But if not, I'll let you guys wrap it up and we can end the presentation here.
I think Tim covered many of the areas. But essentially, we're one of the few lessors that focus on ATR aircraft, which are very unique. By their smaller ticket size, they actually produce more diversification across the fleet. And they do, actually. So that helps on reducing concentration risk. At the same time, they also produce a superior lease yield compared to most of the other aircraft. So you're getting a better return for a lower risk when we're looking at those ATR aircraft. I think also, this is a very long-term industry, so we put a lot of aircraft on 10 year and 12 year leases. It's solid assets. They are hard assets that can be relocated from one country to another country and they're not sort of intangibles in terms of kind of software or sort of AI stuff, which has been a little overvalued.
We, on the other hand, are hard assets and consider ourselves to be undervalued. So we think there's a real opportunity there.
All right, great. Thanks. Thanks for that presentation, and look forward to seeing how the story develops over time. Thanks.
Yeah. Thanks, Greg. If anyone has any questions, please, our contact, our information is here, and we look forward to taking any other questions that you might have.
All right. With that, we will wrap it up. Thanks, everyone, for participating.
Thank you