Good morning, and welcome to the Noble Capital Markets Virtual Equity Conference. I am Joe Gomes, Managing Director and Senior Analyst at Noble Capital. Today, I have the pleasure of introducing Avation. Following the presentation, we will have time for Q&A. With us today from the company is Tim Bacchus, Director, Investor Relations. The floor is yours, Tim.
Thanks, Joe. Good morning to everyone. Thank you for taking the time to join our presentation. I am Investor Relations Director for Avation PLC, and I am joined by Ashley Nicholas, who is our Corporate Finance Director handling our bank relationships. Let's get into it. If you are not familiar with aircraft leasing and our company, Avation PLC is an aircraft lessor, an on-balance-sheet lessor. The way we earn our money is on the spread between owning assets, between the rental yields we get from leasing out to airlines, and the cost of funds. We also earn money by trading those assets, so profitable gains on basically taking residual value risk. Why should you be looking at Avation now? The macro backdrop is that we are in an era of supply and demand imbalance.
The OEMs, such as Boeing and Airbus, are not able to supply the market with the airlines' demands for air travel, which has been extremely strong coming out of COVID. That means if you actually have an aircraft right now, as the lessors do, you are in a very good sweet spot. We expect this situation to last at least through the end of the decade while the supply chains of the OEMs repair themselves and heal. It is also exacerbated by engines situations in terms of engine immaturity on the new technology engines, certification delays from the FAA, and also suppliers like seats and other components which go into the aircraft. So we have an order book, and that means that we are in an even better spot.
Many lessors do not take speculative orders with the OEMs, and they are then forced to try to grow and deploy capital in a market which is a seller's market and may be overpaying for aircraft. The order book that we have with ATR locks us in to at least a 10% fleet CAGR growth through the end of the decade. We have 13 aircraft on order and another 19 purchase options, which will take us out into 2034. We have been actively de-risking our business. This is something that the rating agencies are looking at very closely in terms of how we can improve our credit rating and go up the rating scale. We are diversifying our customer base. We have gone from something like four aircraft per lessee pre-COVID to now two aircraft per lessee. In the process, gaining new customers.
And of course, during an upcycle that we are in, like we are in right now, you are able to actually upgrade your credits as well, given the high demand for bids for each aircraft that comes available. So in this environment where the supply and demand imbalance is going to last for a number of years, how do you play the cycle? Well, there is a very big scarcity, if you will, on listed aircraft lessors. There is only four of us remaining in the world that are listed. One is AerCap in New York, BOC Aviation and China Aircraft Leasing in Hong Kong, and then there is us listed in London. And amongst these, we are the only lessor which has not recovered its pre-COVID valuation. We are trading at a significant discount to our NAV.
And it is a great time to be talking to you today because we just issued a great set of results two days ago, printing a new NAV as of June 30th at our year-end, and that means that the discount to the NAV is even greater than it was just a week ago when you are looking at December 31. So we see a lot of value in our shares. We have been buying back shares. We bought about 20% of the company back over the last two fiscal years, and we are also buying back bonds as well, which have traded down. So the great results that I mentioned are operating profit was up 38% last year. We returned to the black. We had some non-cash items in the FY 2025 results, but solid return to profitability. We raised our dividend by 50%.
And key for the industry, which looks at this on a price-to-book basis, is that we have increased our NAV per share by 20%. So around 12% of that came from the share buybacks and 8% due to the profitability and other elements. We fixed our debt as well at 97%, which is very important. Obviously, there is a lot of rate uncertainty at the moment, but we fixed a lot of that debt in May.
Our unrestricted cash is up, our net debt is down, and our revenue was stable despite selling a large ticket item, a wide-body 777 aircraft last year. So a quick snapshot. Again, on balance sheet, we have 33 aircraft. At June, we had 16 airline customers in 16 countries. So again, around two aircraft per lessee. We also on our fleet side, the way we are exposed is we have got about a 30% exposure to turboprops.
We are about 60% to narrow body, and 10% is the one wide body. So we have a competitive edge in the turboprop space, and I will get into that a little bit more later. But essentially, most lessors do not really compete in that space, and therefore we are in a less competitive position in the market, overweight that position, and we are able to get higher yields on those aircraft because there is less competition in that space.
Our credit ratings are basically B and B+. We had a new rating from Moody's last year and an upgrade from S&P. Our average age of our fleet, nine years versus a global age of around 15 years. Four years remaining on our leases, but that number is going to be ticking up as we grow the fleet throughout this decade. We are signing new leases at 10 and 12 years.
Lease extensions because of the strong demand for used aircraft. Airlines are keeping their used aircraft longer, and therefore we're signing extensions of four, six, eight years, and that's very long compared to pre-COVID period. The balance sheet's about $1 billion, and uncontracted revenue $300 million. A quick look at the portfolio. I already mentioned where the pie chart is in terms of our exposure. We're heavily focused, obviously, on the ATR product, which is a monopoly product. There is no other manufacturer of regional turboprop aircraft in the world, and we're one of three lessors that have an order book with that manufacturer. It's a great position to be in as we go through this decade and the next decade. Narrow-body aircraft, heart of the market. Wide-body, the single wide-body. These are where our customers are.
It was 16 at December, or sorry, at June 30th, but it's 17 now. We've signed Finnair, as we transition two aircraft from an airline that was in rehabilitation or administration back in the spring to Finnair. Again, a better credit. That's an example of improving the credit profile. We are 20 years old. What that means is we've been through many cycles. We've been through the great financial crisis, we've been through COVID. We've come out stronger. Over those 20 years, we've acquired 78 aircraft. And just to show that we are an asset trader, we've disposed of 45. So more than half of what we've actually taken on, we've also disposed for good profits. You can see $2 billion acquisition cost and $1.2 billion on the sales.
Key there, I think, as well is that $800 million in debt that we've totally raised, of which we've repaid $500 million in debt. So we currently have a $300 million bond out that we refinanced last October. Just looking quickly at the results that just came out on Wednesday. Again, we went to profitability. I mentioned the NAV and the dividend. I mentioned also the notes that we've issued, the $300 million notes, which pushed out that wall of liquidity out to 2031, improved credit ratings. And I think the new thing here on this slide is that we've recently signed with a Japanese bank, a new committed, undrawn, $100 million warehouse facility, which can give us ammunition for growth, essentially. And that can be upsized to $150 million. On the operational side, a very busy year.
In the year to June 2026, we had nine total transactions, two new deliveries, five transitions to actually three new customers. And those, again, are on six- to eight-year leases. We sold the 777 for a $4 million accounting gain, but the cash gain was something more like $30 million cash after paying down debt. And we extended one, our wide body Airbus, because that's a very good asset for us. It's producing high rents. I mentioned that we have 13 remaining firm orders with the ATRs out to the end of the decade. And then we've got the 19 additional purchase rights, which will be exercised and will take us out to 2034. We signed the new customer, Finnair. We've also signed another new lease just last month, but we haven't announced the customer for that aircraft yet. What's interesting here, the lease yield.
The lease yield, we actually amongst 10 aircraft lessors that publicly disclose their data, there is about eight investment grade, and then there is us and the one listed in Hong Kong. We have the highest lease yields amongst those lessors, and that is because we have the biggest overweight position in turboprops, the higher yielding assets, which can get you a yield closer to 12%. Narrow-body is heart of the market, more like 8%-9% yield on 737s and A320s. Debt to equity is down, although with the warehouse, that will pop back up to 2.6%. Our target is to always keep that below 3 x. Other credit ratings or ratios are moving in the right direction. Liquidity wise, I think important to note that we spent $29 million last year on share buybacks and bond repurchases, so that is a big chunk of the total cash decline.
But the important thing is that our unrestricted cash that is not held in maintenance reserve accounts, is actually up about 9%. In terms of additional liquidity sources, certainly we can secure finance on anything, new deliveries. We have got about four deliveries coming up this year. We have got unencumbered aircraft, went from 6 to 10 last year, although we have sold one of those unencumbered since this print date. And it is nine at the moment, but still gives us more liquidity sources. Debt analysis. I think the key on this slide is to see that the net debt has come down by a significant amount, about $80 million, from $604 million to $523 million. Our weighted average cost of debt has ticked up a bit. Part of that was the coupon on the 8.5% bond that we put out in October.
Secured debt is still relatively flat, but of course, with base rates rising, we are seeing new financings come up a bit above that number. Debt maturity profile. The bond, as you can see, out in 2031. We have got an existing warehouse due in 2028, but the existing lenders already told us that they will roll that over, so that really, it is just the continued normal secured loan debt maturities that we focus on. A quick look on strategy and outlook. I think I have already discussed most of this, that the board and the management are focused on growing the fleet. We were larger pre-COVID, and then during COVID, we did shrink from 48 aircraft down to the current 33. We will be back up to 48, and I will show you that on the next slide soon.
Diversifying customers, we have talked about that, and the new lease terms, et cetera. Optimizing the capital structure. With such a large discount to NAV on our common equity, we will not be issuing new equity, but buying back shares rather. But anything that we need to grow the business beyond sort of the current organic plan would need to be some other form of capital. The focus for the coming year, taking delivery around four ATRs.
We have only got one lease expiry coming up, and we have got new homes for that place. airBaltic, you may be aware that they entered Chapter 11 in mid-September. We have got good potential outcomes, and we could actually come out looking even better if we take back our aircraft or if we extend the aircraft with airBaltic. We are looking obviously to grow the business through those secondary channels, but it is a seller's market.
We're not going to overpay. Looking to the funding, excuse me, the funding plan. This is a very important slide, and it shows what we can project to the market confidently in terms of the growth. The 10% CAGR I mentioned at the outset covers all of our contracted flows with ATR. Beyond that, the dotted lines at the top of the bar charts here are if we're able to find good economic deals in the marketplace, two aircraft per year, in line with our historical average. Over the last 10 years, we've bought 19 aircraft, and many of those aircraft were actually pre-COVID. The average would be higher excluding COVID. If we just project in two aircraft per year, we will get to our pre-COVID fleet size by middle of 2029. If not, we'll be there by 2030.
This is looking at moving the balance sheet from the $1 billion it is today to around $1.5 billion, getting us back to where we were in FY 2019. Lease expiries, I kind of mentioned this. There's only one this year, the red square on the left. The three in the black are finance leases, which the airline is purchasing at the end of the finance lease. Investment thesis. I'll just kind of wrap it up basically with the last few number of slides here. There's a scarcity in the marketplace, and we're in a very, very strong upcycle, and we just do not see the justification. While we are a smaller listed company compared to these other aircraft lessors, we are a microcosm of the bigger companies. We're operating in the same industry. We've got a very strong management team.
There is maybe some discount for scale, but nothing on the order of 40%-60% discount to NAV. If you're looking to invest in the space, we're the ones to go for. We've got that order book I mentioned, the largest backlog amongst the three that have the ATR 72, and that's a monopoly product. Nobody's making regional turboprop aircraft other than ATR. I mentioned the discount to NAV. If we exclude our purchase rights, which we carry on the balance sheet as an intangible asset, even then, we're still at 40% discount. Excluding that, we'd be at $185 million net tangible asset value. Our market cap is somewhere in the $110 million-$115 million range. There'd be 65%-70% upside just to the NTAV, not even looking at the whole NAV. We have been buying back shares.
We've bought back around 20% of the company, spent around $32 million doing that. Just to show you how we compare to those other lessors, the 10 I mentioned. There are eight investment-grade lessors, and then there's also China Aircraft Leasing Holdco, another high-yield lessor. We have the highest yields amongst these reporting lessors. Again, the reason for that is we're more focused on the turboprops than any other lessor here. In fact, of all these other lessors, only DAE Capital in Dubai has an ATR portfolio, and it's no coincidence that they're then the second highest in terms of lease yields. If you look at our ratios, we compare very, very well. Even though we're smaller scale, we're not investment grade.
If you look at where we sit in net debt to EBITDA, you look at where we do net debt to total assets, we are the lowest actually of the peer group. On the net debt to equity side, we are sitting right in the middle. Interest coverage, we are looking pretty good as well. In fact, that number of course has come up in the last fiscal year. These data all relate to the 12 months ending December 2025. Really the outlier here is China Aircraft Leasing. They have a much more levered balance sheet, yet they are also trading at a much lower discount to NAV than we are.
You look at where we traded in the 2010s, the 2015 to 2019 pre-COVID period, when we were growing, just as we are now, we were trading in line with everybody else, basically sort of the 0.8x, 0.9x, 1x par valuations. Today, of course, we are at that, depending on how you look at it, 40%-60% discount to NAV. So I will just conclude here to make sure that we have plenty of time for questions. Look, summarizing, we have got growth opportunities in the order book. We are in a period when both used and new aircraft values and rents are increasing. We have got the purchase rights to grow beyond this decade. We have that competitive edge in the turboprop asset class with the ATRs. That is a market where even ATR cannot fulfill the entire market demand.
They are making something like 40- 50 airplanes per year, and their forecasts are for 100 new airplanes per year. So that makes our order book and our existing fleet even more valuable in this environment. Mentioned de-risking the business, the improved credit metrics, and look, the board is very focused on growth, and we are looking at ways we can move beyond the growth of that organic plan that I already showed you on the previous slide. If we cannot do that, we are certainly going to take surplus liquidity, surplus cash that we have, and we will buy back equity and debt as we see the value in the marketplace. With that, I think let us open the floor up to some Q&A.
Thanks, Tim. Great presentation. So let us start off, I will roll a couple together here. What is the company seeing regarding the current market strength for lease rates and values? You mentioned the airBaltic, I think they had four planes there. If you had to take back those planes, could you re-lease them at higher rates than where they currently are? Maybe just talk a little bit about the whole strength for lease rates and values.
Yeah. Across the board, I have one appendix shows a little bit. These are the aircraft in our fleet. These are the December year-end figures in terms of just 10-year-old aircraft. These are used aircraft, not even new aircraft, which are obviously in even greater demand to some extent. You can see the movement upwards and to the right in every single asset type. The lease rates or the rental rates are in the same direction as well. It has been a very positive and strong market environment. Again, used aircraft in demand because airlines are keeping their aircraft longer because they do not have the certainty from the OEMs as to when their aircraft will be delivered.
If they want to maintain growth, they do not want to be cutting routes, et cetera, they need to maintain even existing schedules, they are extending the airplanes they have. With the A220 and airBaltic, I think that this is obviously a question we are getting a lot these days. It is the topic du jour. The answer is that we are in a really, really strong position, no matter the outcome of the Chapter 11 process. It is four aircraft out of a 33-aircraft fleet, and it is a little bit slightly larger ticket size than the ATR, so it is above that 4/33rd fraction in terms of exposure. The thing that we need to tell the market is that we hold significant cash against those airplanes.
We have the security deposits from the original commencement of the leases in 2018 and 2019, and those are on multiple months for each aircraft, as well as cash maintenance reserves, which the airlines pay into us. Nearly all of our leases are on a cash MR basis. The airlines pay cash to us, we keep it, they bill us then later when an actual maintenance event happens for engines or landing gear, APUs, et cetera, and then we return that cash back. But we nearly always will make a profit on that situation. You can see in our results how much cash we take back to the P&L.
The reason for that is that the leases, in terms of the MR cash that they pay in, are at contracted catalog rates with the OEMs, but they are able to find better deals in the marketplace, and so they only get back what they actually pay in a competitive MR environment. The cash we hold for airBaltic covers way more than the time we would need to re-market the airplanes if we had to take them back. airBaltic is looking at returning potentially 18 aircraft out of a 54-odd numbered fleet, and that is 33%. Translated to our exposure, that is one to two airplanes. We could re-lease those planes. As to the rates that we would be able to get, I have looked at this data from one of the appraisers.
They're giving around, I don't know, $210,000- $230,000 per month for a 2018 and maybe $215,000- $240,000 on a 2019, against a base value of $223 million and $225 million. Those are very high-yielding rates. In other words, they're more than 10% yields. I don't know that we could get higher than the existing rental rate in absolute terms, but we would certainly be getting one, I think, at a higher yield. It's still a good outcome because we could move it to a better credit. We could just reduce our exposure to airBaltic from four to two or whatever it might be. We could have a longer extended lease term. There's multiple good outcomes for us.
Okay, thanks for that. From the audience, the upcycle at the moment, can you talk to us about risk management? What if an event like a COVID happened again?
Well, I think COVID-like events, the one thing that it's very hard to plan for. We're in a relatively low-risk business. Long-lived mobile US dollar assets, fixed-rate leases. We're able to secure debt against them for 75%-80%. The risks there in our business are quite low. We're a hard asset business. We're not necessarily AI, or biotech or something like that. I don't know, Ashley, maybe just to involve you, want to jump in and talk about that? I think COVID would be the one thing where we'd lose a little bit of sleep. We came through it well.
Yeah, COVID is a one in a 50 to 100 year type of scenario where the effect is global. Typically, what we have is situations around the world from time to time. The beauty of an aircraft compared to say a property is that you can't move a property if there's a problem in a city, whereas, with an aircraft, if there's a problem in Africa, you can move it to Europe or from Europe to America or wherever it needs to go, where the market is stronger. The beauty of aircraft leasing is the aircraft are mobile. Just to touch a little bit on your lease rate question, the situation is that lease rates often follow things like interest rates. Also the other impact is the supply-demand imbalance.
As we've seen with interest rates rising, that tends to feed through to slightly higher lease rates. There's a slight lag, maybe three to six months, but it does feed through to higher rates. On the supply-demand side, the backlog for aircraft with Airbus and Boeing is 10 years. With ATR it's approaching five years. If you want an aircraft today, it's hard to get hold of. The demand for aircraft is still strong. So those lease rates and also the aircraft values are pretty firm, and we're not expecting them to go down, particularly anytime soon.
Okay. Then let's talk about the valuation gap. What do you attribute that to? How might Avation close that valuation gap in the near term?
I think, Joe, there's probably two elements here. One is our size, so scale. We're willing to accept some small, I don't know if it's 5% or 10% discount to an investment grade lessor like BOC Aviation or AerCap. But I think the numbers that we see in the actual quoted price are not justifiable. Whether we are visible enough, whether we are in the right venue in terms of being listed in London, these are probably elements to the answer. As a micro-cap company, we were flying under the radar. We haven't had a dedicated IR resource until I joined the company about 10, 11 months ago. So we probably were underexposed coming out of COVID and that probably has been a piece of it as well.
But participating in events like the Noble Conference and the number of events that we're doing in the second half of this year is looking to close that gap. Lastly, I think we just need to keep producing good results and executing the plan and we expect that that gap will close.
Great. Well, Tim and Ashley, we have come to the end of our allotted time. We covered a lot of ground today and got significant insight into what Avation does, its markets, and opportunities. We appreciate you taking the time to participate in our conference, and we wish you and the company the best in the future. Thanks again.
Thank you. Thanks for having us, Joe.