Published on May 10th, 2020 | by Mark Dwyer0
Avolon Q1 2020 Results
Dublin based aircraft lessor Avolon has published its Q1 results for 2020. Profit for the quarter was slightly down on last year but was still a healthy US$154 million while total lease revenue for the quarter was US$644 million. The company ended the quarter with US$5.5 billion of total available liquidity, including US$4 billion of unrestricted cash and US$1.55 billion of undrawn secured debt.
Operationally, they delivered 29 new aircraft to 9 customers and sold 18 aircraft during the quarter, including 2 managed aircraft. Avolon have committed to selling 21 narrowbody and widebody aircraft with an appraised value of $747 million to the Sapphire 2020-1 vehicle. Owned, managed and committed fleet now stands at 855 aircraft spread over 150 airline customers in 62 countries. The average fleet age of these aircraft is 5.0 years with and average remaining lease of 7.0 years.
During the quarter, Avolon materially re-profiled elements of its orderbook to better align to the current market outlook reducing future aircraft commitments in the 2020 to 2023 timeframe from 284 aircraft as at 31st December 2019 to 165 aircraft as at 31st March 2020. Those changes included:
- Cancellation of orders for 75 unplaced B737MAX aircraft in the 2020-23 timeframe and the removal of commitments to acquire 4 A330neo aircraft due to deliver in 2021; and
- Rescheduling the delivery of 16 B737MAX during the 2020-23 timeframe to 2024 or thereafter and the reprofiling of 9 A320neo family aircraft from 2020/21 to 2027.
Avolon has not escaped the effects of Covid-19. The company received requests from its customer base for relief from payment obligations under their leases during the quarter, which included:
- Requests for payment relief from more than 80% of its current owned and managed customer base. These lessees account for more than 90% of annualised contracted rental cashflow of the current owned and managed fleet;
- These requests have taken a number of forms including, but not limited to, requests for short term rent deferrals for part or all of monthly rental for a specified period of time;
- As at 31st March, Avolon was engaged in active dialogue with its customer base and had agreed a number of rent deferral arrangements for an average of three months. It is expected that some form of short term rental deferral arrangement will be agreed with a majority of our customers;
- Given the ongoing impact on our customers’ operations we anticipate that additional requests for rent relief will be received and that a number of lessees will fall behind on their rental obligations with a related increase in Avolon’s trade receivable balance.
During the quarter Fitch, Moody’s, S&P Global and KBRA affirmed Avolon’s issuer rating as BBB-, Baa3, BBB- and BBB+ respectively. All four moved Avolon’s rating outlook to negative.
Dómhnal Slattery, Avolon CEO, commented: “While Avolon entered 2020 in its strongest position as a company, the impact of COVID-19 has been severe for the aviation industry. The forced lockdown by governments around the world has resulted in the effective grounding of the global fleet. Consistent with our experience of managing through previous cycles, we acted swiftly and decisively during the quarter: significantly reducing our near-term capital commitments; re-alligning our orderbook with the new market outlook; and enhancing our liquidity position by drawing down on our unsecured revolving credit facility. Additionally, the prudent management of our balance sheet over the last number of years – specifically in increasing our unencumbered assets and operating with minimal near-term debt maturities – means we are well positioned for the medium-term.
Looking ahead, the COVID-19 global pandemic will materially reshape the commercial aviation industry for the foreseeable future. Uncertainty remains as to the length of this crisis and we expect that it will likely be some time before air traffic returns to more normalised levels. We remain confident in the ability of our team to navigate the current environment, and the resiliency of the aviation industry to recover.”