Avolon ‘well positioned’ to benefit from recovery after scale backs

It will take time for the aviation industry to recover from the Covid-19 pandemic but Irish headquartered Avolon, the international aircraft leasing company, is now "well positioned to benefit" when that happens, its chief executive has said.

The company issued an update for the fourth quarter and full year of 2020 on Monday. Its chief executive, Dómhnal Slattery, said 2020 was “the most challenging year the commercial aviation industry has ever faced”.

He said the level of airline distress “truly tested” the resilience of the leasing sector business model.

“Through Avolon’s decisive actions to reduce our capital commitments, strengthen our liquidity and reduce our future obligations, the business is now well positioned to benefit from the recovery,” he continued.

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“We steadfastly supported our airline partners through temporary deferrals during the year and have seen cash flows improve in the second half of the year from a low in the second quarter.

“It will take time for the aviation industry to recover. The pace and scale of recovery will not just be determined by the roll-out of vaccines, but also by rapid testing programmes and the depth of coordination between governments.

“Air travel will drive economic recovery. It is clear there is a strong desire to travel and latent demand in markets across the world. It is incumbent on governments to provide appropriate policies to facilitate that demand and drive recovery.

“We are well positioned and looking forward to building on continued positive momentum as the recovery takes hold through 2021.”

In the fourth quarter of 2020, Avolon closed a private offering of $1 billion of senior unsecured notes maturing in 2026 and successfully tendered for $723 million of notes maturing in 2022 and 2023.

It raised $675m of new secured term loan debt maturing in 2027, the proceeds of which were used to repay existing revolving secured debt.

The group executed a total of 31 lease transactions in the quarter comprising of new aircraft leases, follow-on leases and lease extensions; and delivered a total of 21 new aircraft in the quarter to seven customers and transitioned three aircraft to follow-on lessees.

In terms of its 20202 highlights, it owned and managed a fleet of 572 aircraft at year end, with total orders and commitments for 270 fuel-efficient, new technology aircraft.

The group also further reduced its aircraft purchase commitments in the 2020-2023 timeframe by a net 100 aircraft through a combination of cancellations and deferrals.

It entered into sale and leaseback commitments for 44 aircraft; sold 29 aircraft, three of which were managed; executed 28 sale agreements; and a total of 141 lease transactions comprising new aircraft leases, follow-on leases, and lease extensions.

On the financial side, it successfully raised $4.4 billion of debt, including $3.4 billion of senior unsecured notes, and $675 million of secured term loan debt.

It reduced near-term debt maturities by $1.4 billion through a tender offer for $723m of notes maturing in 2022 and 2023, as well as the execution of the buyback of $651 million of Avolon senior unsecured notes maturing between 2021-2026 at a discount to par.

Avolon ended 2020 with $4.7 billion of revolving debt capacity, with maturities from 2024 onwards and an undrawn balance of US$4.2 billion.

It closed the sale of 19 aircraft to the Sapphire 2020-1 vehicle, which were acquired from the Avolon fleet following the issuance of $620 million of senior secured notes and a majority equity investment from a third-party investor.

It also declared a dividend to shareholders in the first quarter of $193 million, $65 million of which was withheld due to the holdback provisions in Avolon’s shareholder agreement, bringing the total withheld amount to $167 million.