Singapore-based lessor Avation announced on Friday the removal of five Virgin Australia aircraft from the carrier’s fleet. The lessor has decided to take back three ATR 72-500s and two Fokker 100s since Virgin Australia entered administration in April.
In a statement sent to Simple Flying, the aircraft leasing company has entered into commercial arrangements for the five aircraft. According to Jeff Chatfield, Executive Chairman of Avation, the COVID-19 situation has not deterred its marketing team from securing deals with new clients.
“Given this unusual and disrupted environment, Avation is pleased and grateful that its marketing team was able to establish a lease with a new client,” Chatfield explained.
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Where will the aircraft go?
Regarding two of the three turboprops, Avation made arrangements with an undisclosed commercial airline in Australia. Thus, the airline in question will receive two of the ATR 72-500s until the end of 2021.
Avation signed a conditional letter of intent for the last ATR 72-500. Another airline will receive the aircraft under a five-year lease.
All the established turboprop deals were at current market lease rates.
For the two Fokker 100 jets under Virgin Australia’s regional fleet, the lessor secured financial leases over the period to September at 6% above book value.
Although Avation has managed to secure deals with no lingering issues, the lessor remains strategic. It still has ATR 72-600s with Virgin Australia that it does not plan to remove. In an official statement, Chatfield said,
“We are optimistic that Virgin Australia will be sold by the Administrator and that the eventual buyer should see the value in maintaining and indeed growing the regional network using Avation’s remaining ATR 72-600s as a part of the future business. We feel it prudent to mitigate our overall risk by selling down and transitioning certain of the aircraft given the uncertainty that surrounds the present COVID-19 environment.”
Virgin Australia’s downfall
The Australian airline went into voluntary administration in April. It struggled badly amid the virus outbreak as well as previous financial debt amounting to almost $7bn. However, the airline continues to operate domestic and international flights for now.
After narrowing down buyers for the airline to just two private equity firms – Bain and Cyrus Capital, the final bid outcome will be revealed by the end of Monday. Virgin’s administrators aim to appoint a new owner for the airline by next week.
However, as Simple Flying reported today, there’s a new twist to the saga. Virgin Australia bondholders have come forward to present a new deal to the carrier’s administrators. Led by advisory board Faraday and Company, the offer seeks to substitute debt for equity and inject more cash into Virgin. This new offer might even push Bain and Cyrus out of the running.
Avation’s confidence pays off
The leasing firm was no stranger to the effects of the pandemic. Just last month, it was hanging on by a thread and was in talks to sell the company.
However, according to FlightGlobal, Avation walked away from the sale on May 27. At that point, the company ended discussions with any involved parties.
The commercial passenger aircraft leasing company believed that a sale during the current economic climate would not be fair, citing that it would be unlikely to “produce an outcome that accurately reflects the long-term value of the company and at a value that is attractive to shareholders.”
Although the global economic outlook remains unpredictable, the company was confident that it could come out stronger. In fact, Avation believes it will be “one of the best-performing lessors” post-pandemic.
Less than a month later, Avation’s gamble seems to have paid off. The lessor’s deal to lease five aircraft is a considerable feat considering the industry’s uncertainty brought about by COVID-19.
What do you think about Avation’s move to lease out five former Virgin Australia aircraft? Let us know in the comments.