TIDMAVAP

RNS Number : 2900R

Avation PLC

29 June 2020

AVATION PLC

("Avation" or "the Company")

Financial Results for the Nine MONTHS ended 31 March 2020

Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company, announces unaudited financial results for the nine months ended 31 March 2020.

Key Financial Results

   --   Revenue increased by 14% to $99.6 million; 
   --   Profit before tax increased by 173% to $46.6 million; 
   --   Profit after tax increased by 151% to $38.3 million; 
   --   Earnings per share increased by 152% to 60.6 cents; and 
   --   Net asset value per share increased by 10% to GBP3.24. 

Executive Chairman, Jeff Chatfield, said:

"Avation is pleased to present its unaudited financial results for the nine months ended 31 March 2020. Revenue from the aircraft leasing business grew steadily throughout the first nine months of the year and the Company is in a strong financial position.

"The Company is releasing these unaudited interim accounts to provide investors with an up to date report on the business as we progress through the COVID-19 pandemic. This one-off presentation was undertaken to provide updated information about Avation's position at a time of uncertainty in financial markets.

"Immediately at the outset of the COVID-19 pandemic Avation instituted a programme of support for some of its airline customers to defer for later payment certain portions of their rent in the short term. The cashflow impact of this support programme has been mitigated by adjusting the amortisation profiles of the relevant financings with the agreement of lenders. Since the outbreak of COVID-19 the Company has also reduced administration costs and has instituted a pause on capital expenditure with the goal of maximising cashflow.

"Avation has a strong cash balance of $131.6 million as at 31 March 2020. The Company is fortunate that some of its largest customers are in countries where there has been comparatively lower impact from the pandemic. We are now observing a gradual return to service of certain customers including VietJet, airBaltic, EVA Air and Mandarin Airlines which presently represent over 60% of Avation's future unearned contracted leasing revenue.

"Avation is optimistic about the long term opportunity for airline travel particularly the turboprop and narrow-body aircraft sectors. "

Aircraft Fleet

 
 Aircraft Type       31 March 2020 
 Boeing 777-300ER          1 
 Airbus A330-300           1 
 Airbus A321-200           7 
 Boeing 737-800NG          1 
 Airbus A320-200           2 
 Airbus A220-300           6 
 Fokker 100                2 
 ATR 72-600               22 
 ATR 72-500                6 
                    -------------- 
 Total                    48 
 

Financial Highlights and Analysis (Unaudited)

 
                                                9 mths to    9 mths to 
                                                  31 Mar       31 Mar       Change 
                                                   2020         2019 
                                                 US$ 000's    US$ 000's 
 Revenue                                          99,595       87,191       14% 
 Depreciation                                    (35,502)     (29,963)      18% 
 Administrative expense                          (9,551)      (8,226)       16% 
                                                                              % 
 Other income and expenses (net)                  (395)         (20) 
---------------------------------------------  -----------  ----------- 
 Operating Profit excluding Unrealised gain 
  on purchase rights, Gains on disposal and 
  impairment loss on aircraft                     54,147       48,982       11% 
 Finance expenses (net of finance income)         41,823       38,437        9% 
---------------------------------------------  -----------  ----------- 
 Profit before tax excluding Unrealised gain 
  on purchase rights, Gains on disposal of 
  aircraft and Impairment loss on aircraft        12,324       10,545       17% 
 Unrealised gain on aircraft purchase rights      40,990         - 
 Gains on disposal of aircraft                    3,530        6,543 
 Impairment loss on aircraft                     (10,223)        - 
---------------------------------------------  -----------  ----------- 
 Profit before taxation                           46,621       17,088       173% 
 Taxation                                        (8,294)      (1,814) 
---------------------------------------------  -----------  ----------- 
 Total profit after tax                           38,327       15,274       151% 
 EPS                                            60.6 cents   24.0 cents     152% 
 Dividends per share                            2.1 cents    2.0 cents       5% 
 
                                                  As at        As at 
                                                  31 Mar       30 June 
                                                   2020         2019 
                                                 US$ 000's    US$ 000's 
 Fleet assets (1)                               1,279,586    1,269,682       1% 
 Total assets                                   1,475,190    1,392,750       6% 
 Cash and bank balances                          131,610      107,448       22% 
 
 Net asset value per share (US$) (2)              $4.01        $3.74         7% 
 Net asset value per share (GBP) (3)             GBP3.24      GBP2.95       10% 
 

1. Fleet assets are defined as property, plant and equipment plus assets held for sale plus finance lease receivables.

2. Net asset value per share is total equity divided by the total number of shares in issue, excluding treasury shares, at period end.

   3.   Based on GBP:USD exchange rate as at 31 March 2020 of 1.24 (30 June 2019 : 1.27) 

Forward Looking Statements

This release contains certain "forward looking statements". Forward looking statements may be identified by words such as "expects," "intends," "anticipates," "plans," "believes," "seeks," "estimates," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for Avation's future business and financial performance. Forward looking statements are based on management's current expectations and assumptions, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially due to global political, economic, business, competitive, market, regulatory and other factors and risks. Further information on the factors and risks that may affect Avation's business is included in Avation's regulatory announcements from time to time, including its Annual Report, Full Year Financial Results and Half Year Results announcements. Avation expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in its views or expectations, or otherwise.

-S -

Enquiries:

   Avation PLC - Jeff Chatfield, Executive Chairman                                      +65 6252 2077 

Avation welcomes shareholder questions and comments and advises the email address is: investor@avation.net

More information on Avation is available at www.avation.net.

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE NINE MONTHSED 31 MARCH 2020

 
                                                            31 Mar     31 Mar 
                                                   Note      2020       2019 
                                                           US$'000s   US$'000s 
 Continuing operations 
 Revenue                                             5       99,595     87,191 
 Other income                                        6        1,014        212 
                                                            100,609     87,403 
 
 Depreciation                                       11     (35,502)   (29,963) 
 Gain on disposal of aircraft                       11        3,530      6,543 
 Unrealised gain on aircraft purchase rights        16       40,990          - 
 Impairment loss on aircraft                       11,18   (10,223)          - 
 Administrative expenses                                    (9,551)    (8,226) 
 Other expenses                                      7      (1,409)      (232) 
 Operating profit                                            88,444     55,525 
 
 Finance income                                      8          929      3,024 
 Finance expenses                                    9     (42,752)   (41,461) 
 Profit before taxation                                      46,621     17,088 
 
 Taxation                                                   (8,294)    (1,814) 
 Profit from continuing operations                           38,327     15,274 
 
 Profit attributable to: 
 Equity holders of the Company                               38,326     15,273 
 Non-controlling interests                                        1          1 
                                                             38,327     15,274 
                                                          ---------  --------- 
 Earnings per share for profit 
  attributable to equity holders of the Company 
                                                              60.58      24.00 
 Basic earnings per share                                     cents      cents 
                                                              60.21      23.93 
 Diluted earnings per share                                   cents      cents 
                                                          ---------  --------- 
 

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE NINE MONTHSED 31 MARCH 2020

 
                                                                31 Mar     31 Mar 
                                                       Note      2020       2019 
                                                               US$'000s   US$'000s 
 
   Profit from continuing operations                             38,327     15,274 
 
 Other comprehensive income: 
 Items may be reclassified subsequently to profit 
  or loss: 
 Net loss on cash flow hedge                                   (10,979)    (7,695) 
                                                               (10,979)    (7,695) 
 Items may not be reclassified subsequently 
  to profit or loss: 
 Revaluation loss on property, plant and equipment, 
  net of tax                                                    (3,924)          - 
 Other comprehensive income, net of tax                        (14,903)    (7,695) 
 
 Total comprehensive income for the period                       23,424      7,579 
                                                              ---------  --------- 
 
 Total comprehensive income attributable to: 
 Equity holders of the Company                                   23,423      7,578 
 Non-controlling interests                                            1          1 
                                                                 23,424      7,579 
                                                              ---------  --------- 
 

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2020

 
                                                         31 Mar      30 June 
                                                 Note      2020        2019 
                                                        US$'000s    US$'000s 
 ASSETS: 
 Non-current assets 
 Property, plant and equipment                    11    1,089,513   1,225,324 
 Trade and other receivables                      12       11,710       8,930 
 Finance lease receivables                        13       85,400      37,137 
 Goodwill                                         14        1,902       1,902 
 Derivative financial assets                      15            -         363 
 Aircraft purchase rights                         16       40,990           - 
                                                       ----------  ---------- 
                                                        1,229,515   1,273,656 
 Current assets 
 Trade and other receivables                      12        9,392       4,425 
 Finance lease receivables                        13        7,315       7,221 
 Cash and bank balances                           17      131,610     107,448 
                                                       ----------  ---------- 
                                                          148,317     119,094 
 Assets held for sale                             18       97,358           - 
                                                       ----------  ---------- 
                                                          245,675     119,094 
                                                       ----------  ---------- 
 Total assets                                           1,475,190   1,392,750 
                                                       ----------  ---------- 
 
 EQUITY AND LIABILITIES 
 Equity 
 Share capital                                    19        1,108       1,104 
 Share premium                                             57,747      56,912 
 Treasury shares                                  19      (7,811)     (1,147) 
 Merger reserve                                             6,715       6,715 
 Asset revaluation reserve                                 30,468      34,392 
 Capital reserve                                            8,876       8,876 
 Other reserves                                          (22,560)    (11,809) 
 Retained earnings                                        177,000     145,644 
                                                       ----------  ---------- 
 Equity attributable to equity holders of the 
  parent                                                  251,543     240,687 
 Non-controlling interest                                      71          70 
                                                       ----------  ---------- 
 Total equity                                             251,614     240,757 
                                                       ----------  ---------- 
 
 Non-current liabilities 
 Loans and borrowings                             20    1,004,184   1,005,693 
 Trade and other payables                                  18,870      16,091 
 Derivative financial liabilities                 15       25,939      10,174 
 Maintenance reserves                             21       52,939      31,325 
 Deferred tax liabilities                                   7,832         179 
                                                       ----------  ---------- 
                                                        1,109,764   1,063,462 
 Current liabilities 
 Loans and borrowings                             20       78,078      72,595 
 Trade and other payables                                  17,902      11,964 
 Maintenance reserves                             21        6,234       1,166 
 Income tax payables                                        1,315       2,806 
                                                       ----------  ---------- 
                                                          103,529      88,531 
 Liabilities directly associated with assets 
  held for sale                                   18       10,283           - 
                                                       ----------  ---------- 
                                                          113,812      88,531 
                                                       ----------  ---------- 
 Total equity and liabilities                           1,475,190   1,392,750 
                                                       ----------  ---------- 
 
 
 
                                                           Attributable to shareholders of the parent 
                  Note    Share      Share     Treasury     Merger       Asset      Capital     Other     Retained      Total      Non-controlling     Total 
                          capital   premium      Shares    reserve    revaluation    reserve   reserves    earnings                    interest        equity 
                                                                        reserve 
                         US$'000s   US$'000s   US$'000s    US$'000s    US$'000s     US$'000s   US$'000s   US$'000s     US$'000s       US$'000s        US$'000s 
 
 Balance at 1 
  July 
  2019                      1,104     56,912     (1,147)      6,715        34,392      8,876   (11,809)     145,644      240,687                70      240,757 
 Effect of 
  adoption 
  of IFRS 16 
  Leases            3b          -          -           -                        -          -          -       (199)        (199)                 -        (199) 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 As at 1 July 
  2019 
  (adjusted)                1,104     56,912     (1,147)      6,715        34,392      8,876   (11,809)     145,445      240,488                70      240,558 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 Profit for the 
  period                        -          -           -          -             -          -          -      38,326       38,326                 1       38,327 
 Other 
  comprehensive 
  income                        -          -           -          -       (3,924)          -   (10,979)           -     (14,903)                 -     (14,903) 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 Total 
  comprehensive 
  income                        -          -           -          -       (3,924)          -   (10,979)      38,326       23,423                 1       23,424 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 Dividends paid    24           -          -           -          -             -          -          -     (6,773)      (6,773)                 -      (6,773) 
 Issue of new 
  shares           19           4        835           -          -             -          -       (69)           -          770                 -          770 
 Purchase of 
  treasury 
  shares           19           -          -     (6,664)          -             -          -          -           -      (6,664)                 -      (6,664) 
 Share warrant 
  expense                       -          -           -          -             -          -        299           -          299                 -          299 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 Total 
  transactions 
  with owners 
  recognised 
  directly in 
  equity                        4        835     (6,664)          -             -          -        230     (6,773)     (12,368)                 -     (12,368) 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 Expiry of 
  share 
  warrants                      -          -           -          -             -          -        (2)           2            -                 -            - 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 Total others                   -          -           -          -             -          -        (2)           2            -                 -            - 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 Balance at 31 
  March 2020                1,108     57,747     (7,811)      6,715        30,468      8,876   (22,560)     177,000      251,543                71      251,614 
                        ---------  ---------  ----------  ---------  ------------  ---------  ---------  ----------  -----------  ----------------  ----------- 
 
 
 

AVATION PLC

   CONDENSED   CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE NINE MONTHSED 31 MARCH 2020

Other reserves consist of capital redemption reserve, warrant reserve, fair value reserve and foreign currency translation reserve.

AVATION PLC

   CONDENSED   CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE NINE MONTHSED 31 MARCH 2019

 
 
                                                          Attributable to shareholders of the parent 
                  Note    Share      Share     Treasury    Merger       Asset      Capital     Other     Retained      Total     Non-controlling     Total 
                          capital   premium     Shares    reserve    revaluation    reserve   reserves    earnings                   interest        equity 
                                                                       reserve 
                         US$'000s   US$'000s   US$'000s   US$'000s    US$'000s     US$'000s   US$'000s   US$'000s    US$'000s       US$'000s       US$'000s 
 
 Balance at 1 
  July 
  2018                      1,080     53,083          -      6,715        27,847      8,876      6,389     124,119     228,109                69     228,178 
 Profit for the 
  period                        -          -          -          -             -          -          -      15,273      15,273                 1      15,274 
 Other 
  comprehensive 
  income                        -          -          -          -             -          -    (7,695)           -     (7,695)                 -     (7,695) 
                        ---------  ---------  ---------  ---------  ------------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 Total 
  comprehensive 
  income                        -          -          -          -             -          -    (7,695)      15,273       7,578                 1       7,579 
                        ---------  ---------  ---------  ---------  ------------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 Dividends paid    24           -          -          -          -             -          -          -     (5,840)     (5,840)                 -     (5,840) 
 Issue of new 
  shares           19          24      3,829          -          -             -          -      (628)           -       3,225                 -       3,225 
 Purchase of 
  treasury 
  shares           19           -          -      (380)          -             -          -          -           -       (380)                 -       (380) 
 Share warrant 
  expense                       -          -          -          -             -          -        206           -         206                 -         206 
                        ---------  ---------  ---------  ---------  ------------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 Total 
  transactions 
  with owners 
  recognised 
  directly in 
  equity                       24      3,829      (380)          -             -          -      (422)     (5,840)     (2,789)                 -     (2,789) 
                        ---------  ---------  ---------  ---------  ------------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 Expiry of 
  share 
  warrants                      -          -          -          -             -          -       (31)          31           -                 -           - 
                        ---------  ---------  ---------  ---------  ------------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 Total others                   -          -          -          -             -          -       (31)          31           -                 -           - 
                        ---------  ---------  ---------  ---------  ------------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 Balance at 31 
  March 2019                1,104     56,912      (380)      6,715        27,847      8,876    (1,759)     133,583     232,898                70     232,968 
                        ---------  ---------  ---------  ---------  ------------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 
 

AVATION PLC

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHSED 31 MARCH 2020

 
                                                            31 Mar     31 Mar 
                                                   Note      2020        2019 
 
                                                           US$'000s   US$'000s 
 Cash flows from operating activities: 
 Profit before taxation                                      46,621      17,088 
 Adjustments for: 
    Depreciation expense                            11       35,502      29,963 
    Depreciation of right-of-use assets                         163           - 
    Share warrants expense                                      299         206 
    Impairment loss on aircraft                    11,18     10,223           - 
    Expected credit loss on trade receivables                   162           - 
    Fair value gain on investments                                -       (104) 
    Gain on disposal of aircraft                            (3,530)     (6,543) 
    Unrealised gain on aircraft purchase rights            (40,990)           - 
    Interest income on finance leases                5      (2,290)       (948) 
    Finance income                                   8        (929)     (3,024) 
    Finance expense                                  9       42,752      41,461 
                                                          ---------  ---------- 
    Operating cash flows before working capital 
     changes                                                 87,983      78,099 
 Movement in working capital: 
    Trade and other receivables and finance 
     lease receivables                                        4,367     (8,922) 
    Trade and other payables                                  3,530       1,021 
    Maintenance reserves                                     26,817       5,195 
                                                          ---------  ---------- 
    Cash from operations                                    122,697      75,393 
 Interest income received                                     2,591       2,182 
 Interest expense paid                                     (33,076)    (31,542) 
 Income tax paid                                            (1,792)     (2,782) 
                                                          ---------  ---------- 
 Net cash from operating activities                          90,420      43,251 
                                                          ---------  ---------- 
 
 Cash flows from investing activities: 
 Purchase of property, plant and equipment                 (58,592)   (169,110) 
 Proceeds from disposal of aircraft                               -      54,274 
 Purchase of investment                                           -    (10,000) 
                                                          ---------  ---------- 
 Net cash used in investing activities                     (58,592)   (124,836) 
                                                          ---------  ---------- 
 
 Cash flows from financing activities: 
 Net proceeds from issuance of ordinary shares                  770       3,225 
 Dividends paid to shareholders                     24      (6,773)     (5,840) 
 Purchase of treasury shares                                (6,664)       (380) 
 Placement of restricted cash balances                     (26,118)     (7,240) 
 Proceeds from loans and borrowings, net 
  of transactions costs                                      76,530     210,805 
 Repayment of loans and borrowings                         (71,529)    (79,976) 
                                                          ---------  ---------- 
 Net cash (used in)/from financing activities              (33,784)     120,594 
                                                          ---------  ---------- 
 
 Net (decrease)/increase in cash and cash 
  equivalents                                               (1,956)      39,009 
 Cash and cash equivalents at beginning of 
  financial period                                           61,689      57,950 
                                                          ---------  ---------- 
 Cash and cash equivalents at end of financial 
  period                                            17       59,733      96,959 
                                                          ---------  ---------- 
 

AVATION PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHSED 31 MARCH 2020

This interim condensed consolidated financial statements for Avation PLC for the nine months ended 31 March 2020 were authorised for issue in accordance with a resolution of the Directors on 26 June 2020.

   1          CORPORATE INFORMATION 

Avation PLC is a public limited company incorporated in England and Wales under the Companies Act 2006 (Registration Number 05872328) and is listed as a Standard Listing on the London Stock Exchange.

The Group's principal activity is aircraft leasing.

   2          BASIS OF PREPARATION AND ACCOUNTING POLICIES 

These interim condensed consolidated financial statements have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority and in accordance with International Accounting Standard (IAS) 34 'Interim Reporting'.

The interim condensed consolidated financial statements do not include all the notes of the type normally included within the annual report and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financial and investing activities of the consolidated entity as the annual report.

It is recommended that the interim condensed consolidated financial statements be read in conjunction with the annual report for the year ended 30 June 2019 and considered together with any public announcements made by Avation PLC during the nine months ended 31 March 2020.

The accounting policies and methods of computation are the same as those adopted in the annual report for the year ended 30 June 2019 except for the changes in accounting estimates of residual values of aircraft (see note 11) and the adoption of new accounting standards effective as of 1 July 2019.

The Group has applied IFRS 16 Leases for the first time in these interim condensed consolidated financial statements. As required by IAS 34, the nature and effect of these changes are disclosed in Note 3b.

Several other amendments and interpretations which apply for the first time in the nine months ended 31 March 2020 do not have an impact on the Group's interim condensed consolidated financial statements.

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expenses, assets and liabilities and disclosure of contingencies at the date of the Interim Report, actual results may differ from these estimates.

The statutory financial statements of Avation PLC for the year ended 30 June 2019, which carried an unqualified audit report, have been delivered to the Registrar of Companies and did not contain any statements under section 498 of the Companies Act 2006.

The interim condensed consolidated financial statements are unaudited.

The interim condensed consolidated financial statements do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

   3          NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2019 
   (a)        New standards and interpretations not applied 

The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements.

The Group intends to apply these standards and interpretations when they become effective.

   International Accounting Standards (IAS/IFRS)                          Effective Date 

(accounting periods

commencing after)

Amendments to IAS 1 : Classification of liabilities as Current or

Non-current 1 January 2022

IFRS 17 Insurance contracts 1 January 2021

Amendments to References to the Conceptual Framework in

IFRS Standards 1 January 2020

Amendments to IFRS 9, IAS 39 and IFRS 7 : Interest Rate

Benchmark Reform 1 January 2020

   Amendments to IFRS 3 : Definition of a Business                                   1 January 2020 
   Amendments to IAS 1 and IAS 8 : Definition of Material                         1 January 2020 

Amendments to IFRS 10 and IAS 28 Sale or contribution of assets

   between an investor and its associates or joint venture                           To be determined 

The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Group in future periods.

   (b)     Standard in effect in 2019 

The Group has adopted all new standards that have come into effect during the nine months ended 31 March 2020.

IFRS 16 Leases

The Group adopted IFRS 16 Leases on 1 July 2019. The changes in accounting policies are as follows:

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the balance sheet.

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where the Group is the lessor.

3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2019 (continued)

   (b)        Standard in effect in 2019 (continued) 

The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application as an adjustment to the opening balance of retained earnings and the comparative figures are not re-stated. The Group elected to use the transition practical expedient to not reassess whether a contract is, or contains a lease at 1 July 2019. Instead, the Group applied the standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application.

The effect of adoption IFRS 16 as at 1 July 2019 (increase/(decrease) is, as follows:

 
                                US$'000s 
 Assets: 
 Right-of-use assets                 945 
                               --------- 
 Total assets                        945 
 Liabilities: 
 Lease liabilities                 1,144 
                               --------- 
 Total liabilities                 1,144 
 Total adjustment on equity: 
 Retained earnings                 (199) 
                                   (199) 
                               --------- 
 
 

The Group has lease contracts for offices. Before the adoption of IFRS 16, the Group classified these leases (as lessee) as operating leases. The Group did not have short-term leases and leases of low-value assets before the adoption of IFRS 16.

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases. The standard provides specific transition requirements and practical expedients, which have been applied by the Group.

Leases previously accounted for as operating leases

The Group recognised right-of-use assets and lease liabilities for lease contracts for offices previously classified as operating leases. The right-of-use assets for most leases were recognised based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. In some leases, the right-of-use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the weighted average of cost of debt of the Group of 4.6% at the date of initial application .

The Group also applied the available practical expedients wherein it:

-- Used a single discount rate to a portfolio of leases with reasonably similar characteristics

-- Relied on its assessment of whether leases are onerous immediately before the date of initial application

-- Applied the short-term leases exemptions to leases with lease term that ends within 12 months of the date of initial application

-- Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application

-- Used hindsight in determining the lease term where the contract contained options to extend or terminate the lease

3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2019 (continued)

   (b)        Standard in effect in 2019 (continued) 

The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as of 30 June 2019, as follows:

 
                                                   US$'000s 
 
 Operating lease commitments as at 30 June 2019       1,278 
 Weighted average of cost of debt as at 1 July 
  2019                                                 4.6% 
                                                  --------- 
 Discounted operating lease commitments and 
  lease liabilities as 
  at 1 July 2019                                      1,144 
                                                  --------- 
 
 

Amendments to IAS 28: Long-term interests in associates and joint ventures

The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in IFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures .

These amendments had no impact on the consolidated financial statements as the Group does not have long term interests in its associate and joint venture.

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes . It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

   --   Whether an entity considers uncertain tax treatments separately 

-- The assumptions an entity makes about the examination of tax treatments by taxation authorities

-- How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates

   --   How an entity considers changes in facts and circumstances 

The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.

The Group applies significant judgement in identifying uncertainties over income tax treatments. Since the Group operates in a complex multinational environment, it assessed whether the Interpretation had an impact on its consolidated financial statements.

Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions, particularly those relating to transfer pricing. The Company's and the subsidiaries' tax filings in different jurisdictions include deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The Group determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have an impact on the consolidated financial statements of the Group.

3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2019 (continued)

   (b)        Standard in effect in 2019 (continued) 

Annual Improvements 2015-2017 Cycle

   --         IFRS 3 Business Combinations 

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted.

These amendments had no impact on the consolidated financial statements of the Group as there is no transaction where joint control is obtained.

   --         IFRS 11 Joint Arrangements 

An entity that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in IFRS 3.

The amendments clarify that the previously held interests in that joint operation are not remeasured.

An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted.

These amendments had no impact on the consolidated financial statements of the Group as there is no transaction where joint control is obtained.

   --         IAS 12 Income Taxes 

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally recognised those past transactions or events.

An entity applies the amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. When the entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period.

Since the Group's current practice is in line with these amendments, they had no impact on the consolidated financial statements of the Group.

3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2019 (continued)

   (b)        Standard in effect in 2019 (continued) 

Annual Improvements 2015-2017 Cycle (continued)

   --         IAS 23 Borrowing Costs 

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.

The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted.

Since the Group's current practice is in line with these amendments, they had no impact on the consolidated financial statements of the Group.

   (c)        New accounting policies 

These accounting policies are applied on and after the initial application date of IFRS 16:

Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

   i)          Right-of-use assets 

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

The right-of-use assets are also subject to impairment.

The Group's lease arrangements do not contain an obligation to dismantle and remove the underlying asset, restore the site on which it is located or restore the underlying asset to a specified condition.

The Group's right-of-use assets are included in trade and other receivables.

3 NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2019 (continued)

   (c)        New accounting policies (continued) 
   ii)         Lease liabilities 

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

The Group's lease liabilities are included in trade and other payables.

   iii)         Short-term leases and leases of low-value assets 

The Group applies the short-term lease recognition exemption to its short-term leases of equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value.

Lease payments on short-term leases and leases of low value assets are recognised as expense on a straight-line basis over the lease term.

   4          FAIR VALUE MEASUREMENT 

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The carrying amounts of cash and cash equivalents, trade and other receivables, finance lease receivables - current, trade and other payables - current, loans and borrowings - current and lease liabilities- current are a reasonable approximation of fair value either due to their short-term nature or because the interest rate charged closely approximates market interest rates or that the financial instruments have been discounted to their fair value at a current pre-tax interest rate.

 
                                                                     31 Mar 2020             30 Jun 2019 
                                                                Carrying                Carrying 
                                                                 amount    Fair value    amount    Fair value 
                                                                US$'000s    US$'000s    US$'000s    US$'000s 
-------------------------------------------------------------  ---------  -----------  ---------  ----------- 
 
 Financial assets: 
 Finance lease receivables - non-current                          85,400       82,602     37,137       35,661 
 Aircraft purchase rights                                         40,990       40,990          -            - 
 
 Financial liabilities: 
 Deposits collected - non-current                                 16,119       15,176     13,979       13,273 
 Loans and borrowings other than unsecured note- non-current     657,197      628,549    660,727      644,726 
 Unsecured notes                                                 346,987      325,840    344,966      358,327 
 
 
 

The fair values (other than aircraft purchase rights and the unsecured notes) above are estimated by discounting expected future cash flows using a market incremental lending rate for similar types of lending, borrowing or leasing arrangements at the end of the reporting period, classified as level 2.

The fair value of the unsecured notes is based on level 1 quoted prices (unadjusted) in active market that the Group can access at measurement date.

The fair values of aircraft purchase rights are classified as level 3 and are estimated by discounting expected future cash flows using the Group's weighted average cost of capital (WACC) at the end of the reporting period. Expected future cash flows include an assumed sale of the relevant aircraft at delivery. Assumed aircraft sales values are based on independent third party valuations of the relevant type at estimated future delivery dates. The assumed sales values of aircraft less the assumed purchase price presents the fair value recorded for the aircraft purchase rights.

   4          FAIR VALUE MEASUREMENT (continued) 

Non-financial assets measured at fair value:

 
 
                                                                    31 Mar      30 Jun 
                                                                      2020        2019 
                                                                   US$'000s    US$'000s 
--------------------------------------------------------------    ----------  ---------- 
 
 Fair value measurement using significant unobservable inputs 
 Aircraft                                                          1,087,572   1,225,285 
 
 
 

Aircraft were valued at 30 June 2019. Refer to Note 11 for the details on the valuation technique and significant inputs used in the valuation.

Classification of financial instruments:

 
 
 
                                                               31 Mar      30 Jun 
                                                                 2020        2019 
                                                              US$'000s    US$'000s 
-----------------------------------------------------   ---  ----------  ---------- 
 
 Financial assets measured at 
  amortised cost: 
 Cash and cash balances                                         131,610     107,448 
 Trade and other receivables                                     19,276      12,616 
 Finance lease receivables                                       92,715      44,358 
                                                                243,601     164,422 
                                                             ----------  ---------- 
 
 Financial liabilities measured at amortised cost: 
 Trade and other payables                                        28,142      19,324 
 Loans and borrowings                                         1,082,262   1,078,288 
 Maintenance reserves                                            59,173      32,491 
                                                              1,169,567   1,130,103 
                                                             ----------  ---------- 
 
 Derivative used for hedging: 
 Derivative financial assets                                          -         363 
 Derivative financial liabilities                              (25,939)    (10,174) 
 
 Financial assets fair value through profit or loss: 
 Aircraft purchase rights                                        40,990           - 
 
 
   5          REVENUE 
 
 
                                       31 Mar     31 Mar 
                                        2020       2019 
                                      US$'000s   US$'000s 
-----------------------------------  ---------  --------- 
 
 Lease rental revenue                   97,107     86,243 
 Interest income on finance leases       2,290        948 
 Maintenance reserves released             198          - 
 
                                        99,595     87,191 
                                     ---------  --------- 
 
 

The maintenance reserves revenue relates to the recovery of maintenance reserve from an insolvent airline customer that defaulted on its lease payments. See Note 21.

Geographical analysis

 
                         Europe    Asia Pacific    Total 
                        US$'000s     US$'000s     US$'000s 
--------------  -----  ---------  -------------  --------- 
 
 31 Mar 2020              28,166         71,429     99,595 
 31 Mar 2019              21,527         65,664     87,191 
 
 
 
 

Operating lease commitments

The Group leases out aircraft under operating leases. The maturity analysis of the undiscounted lease payments to be received under operating leases are as follows:

 
 
                                            31 Mar     31 Mar 
                                             2020       2019 
                                           US$'000s   US$'000s 
----------------------------------------  ---------  --------- 
 
 Within one year                            128,860    122,870 
 In the second to fifth years inclusive     398,832    421,810 
 More than five years                       263,588    337,700 
                                          ---------  --------- 
 
 
   6          OTHER INCOME 
 
 
                                    31 Mar     31 Mar 
                                     2020       2019 
                                   US$'000s   US$'000s 
--------------------------------  ---------  --------- 
 
 Foreign currency exchange gain          55          - 
 Fair value gain on investment            -        104 
 Deposit released                       718          - 
 Others                                 241        108 
 
                                      1,014        212 
                                  ---------  --------- 
 
 
   7          OTHER EXPENSES 
 
 
                                               31 Mar     31 Mar 
                                                2020       2019 
                                              US$'000s   US$'000s 
-------------------------------------------  ---------  --------- 
 
 
 Aircraft repossession expenses                  1,244          - 
 Expected credit loss on trade receivables         162          - 
 Foreign currency exchange loss                      -        232 
 Others                                              3          - 
 
                                                 1,409        232 
                                             ---------  --------- 
 
 

The aircraft repossession expenses relate to the repossession of the 2 aircraft previously leased to an insolvent airline customer.

   8          FINANCE INCOME 
 
 
                                                                        31 Mar     31 Mar 
                                                                         2020       2019 
                                                                       US$'000s   US$'000s 
--------------------------------------------------------------------  ---------  --------- 
 
 Interest income from financial institutions                                664        781 
 Interest income from non-financial institutions                              -        228 
 Fair value gain on derivatives                                              12        811 
 Finance income from discounting non-current deposits to fair value         253        470 
 Interest rate swap break gain                                                -        174 
 Loan modification gain                                                       -        370 
 Others                                                                       -        190 
 
                                                                            929      3,024 
                                                                      ---------  --------- 
 
 
   9          FINANCE EXPENSES 
 
 
                                                           31 Mar     31 Mar 
                                                            2020       2019 
                                                          US$'000s   US$'000s 
-------------------------------------------------------  ---------  --------- 
 
 Interest expense on borrowings                             20,909     19,546 
 Interest expense on unsecured notes                        17,063     16,151 
 Amortisation of loan transaction costs                      3,915      4,418 
 Interest expense on non-current deposits                      263        488 
 Finance charges on early full repayment on borrowings         357        166 
 Others                                                        245        692 
 
                                                            42,752     41,461 
                                                         ---------  --------- 
 
 
   10        RELATED PARTY TRANSACTIONS 

Significant related party transactions:

 
 
                                                     31 Mar     31 Mar 
                                                      2020       2019 
                                                    US$'000s   US$'000s 
-------------------------------------------------  ---------  --------- 
 
 Entities controlled by key management personnel 
  (including directors): 
 
 Rental expenses                                       (217)      (222) 
 Consulting fee expenses                               (376)      (417) 
 Service fee income                                       80          - 
                                                   ---------  --------- 
 
 
   11       PROPERTY, PLANT AND EQUIPMENT 
 
 
                         Furniture           Aircraft           Jet      Turboprop 
                       and equipment          engine         aircraft    aircraft      Total 
                          US$'000s           US$'000         US$'000s    US$'000s    US$'000s 
--------------------  ---------------  -------------------  ----------  ----------  ---------- 
 
 31 March 2020: 
 Cost or valuation: 
 At 1 July 2019                    80       -                  916,534     450,439      1,367,053 
 Additions                         12   1,925                        -      57,605         59,542 
 Reclassified as 
  held 
  under finance 
  leases                            -       -                        -    (56,913)       (56,913) 
 Reclassified as 
  asset 
  held for sale                     -       -                (106,124)           -      (106,124) 
 Revaluation 
  recognised 
  in equity                         -       -                  (4,265)           -        (4,265) 
 
 At 31 March 2020                  92   1,925                  806,145     451,131      1,259,293 
 
 Representing: 
 At cost                           92   1,925                        -           -          2,017 
 At valuation                       -       -                  806,145     451,131      1,259,076 
 
                                   92   1,925                  806,145     451,131      1,259,293 
 
 Accumulated 
 depreciation 
 and impairment 
 loss: 
 At 1 July 2019                    41       -                   73,065      68,623     141,729 
 Depreciation 
  expense                          15      20                   24,488      10,979      35,502 
 Reclassified as 
  asset 
  held for sale                     -       -                 (16,189)           -    (16,189) 
 Impairment loss                    -       -                    8,738           -       8,738 
 
 At 31 March 2020                  56      20                   90,102      79,602     169,780 
 
 Net book value: 
 At 1 July 2019                    39       -                  843,469     381,816   1,225,324 
                      ---------------  ------  -----------------------  ----------  ---------- 
 At 31 March 2020                  36   1,905                  716,043     371,529   1,089,513 
                      ---------------  ------  -----------------------  ----------  ---------- 
 
 
 
   11        PROPERTY, PLANT AND EQUIPMENT (continued) 
 
                                                Furniture         Jet      Turboprop 
                                               and equipment    aircraft    aircraft     Total 
                                                 US$'000s      US$'000s    US$'000s    US$'000s 
-------------------------------------------  ---------------  ----------  ----------  ---------- 
 
 30 June 2019: 
 Cost or valuation: 
 At 1 July 2018                                          346     713,142     374,876   1,088,364 
 Additions                                                 8     211,548     117,014     328,570 
 Disposals/written-off                                 (274)    (18,624)           -    (18,898) 
 Reclassified as held under finance leases                 -           -    (39,631)    (39,631) 
 Revaluation recognised in equity                          -      10,468     (1,820)       8,648 
 
 At 30 June 2019                                          80     916,534     450,439   1,367,053 
 
 Representing: 
 At cost                                                  80           -           -          80 
 At valuation                                              -     916,534     450,439   1,366,973 
 
                                                          80     916,534     450,439   1,367,053 
 
 Accumulated depreciation and impairment: 
 At 1 July 2018                                          292      51,341      55,555     107,188 
 Depreciation expense                                     23      27,920      13,068      41,011 
 Disposals/written-off                                 (274)     (6,196)           -     (6,470) 
 
 At 30 June 2019                                          41      73,065      68,623     141,729 
 
 Net book value: 
 At 1 July 2018                                           54     661,801     319,321     981,176 
                                             ---------------  ----------  ----------  ---------- 
 At 30 June 2019                                          39     843,469     381,816   1,225,324 
                                             ---------------  ----------  ----------  ---------- 
 

Assets pledged as security

The Group's aircraft including those classified as assets held for sale with carrying values of US$1,120.4 million (30 June 2019 : US$1,122.0 million) are mortgaged to secure the Group's borrowings (Note 20).

Additions and Disposals

During the nine months ended 31 March 2020, the Group acquired 3 turboprop aircraft and 1 aircraft engine. 3 turboprop aircraft were reclassified as held under finance leases. A gain on transfer of the aircraft to finance lease of US$3.5 million was recorded and included within the gain on disposal of aircraft.

During the nine months ended 31 March 2020, 2 jet aircraft were reclassified as held for sale.

   11       PROPERTY, PLANT AND EQUIPMENT (continued) 

Valuation

The Group's aircraft were valued in June 2019 by independent valuers on lease-encumbered basis ("LEV'). LEV takes into account the current lease arrangements for the aircraft and estimated residual values at the end of the lease. These amounts have been discounted to present value using discount rates ranging from 5.75% to 7.75% per annum for jet aircraft and 6.00% to 9.25% per annum for turboprop aircraft. Different discount rates are considered appropriate for different aircraft based on their respective risk profiles.

During the nine months ended 31 March 2020, a downward revaluation of US$0.9 million to equity and an impairment loss of US$2.5 million was recognised to write down the book value of 2 jet aircraft to its fair value prior to reclassify as held for sale.

During the nine months ended 31 March 2020, a downward revaluation of US$3.4 million to equity and an impairment loss of US$6.2 million was recognised to write down the book value of 2 old technology widebody aircraft.

Changes in accounting estimates of residual values of aircraft

During the nine months ended 31 March 2020, the Group revised the residual values of its old technology widebody aircraft to reflect the likely decrease in future residual values for old technology widebody aircraft with effect from 1 July 2019. The effect of this change is an increase in depreciation expense of approximately US$1.3 million for the nine months ended 31 March 2020.

The table below outline the effect of these changes in estimate on the current financial year depreciation charge and subsequent years:

 
                              30 Jun     30 Jun     30 Jun     30 Jun       30 Jun 
                               2020       2021       2022       2023      2024 onwards 
                             US$'000s   US$'000s   US$'000s   US$'000s     US$'000s 
--------------------------  ---------  ---------  ---------  ---------  -------------- 
 
 Increase in depreciation 
  charge                        1,781      1,781      1,781      1,781          28,068 
                            ---------  ---------  ---------  ---------  -------------- 
 
 

If the aircraft were measured using the cost model, carrying amounts would be as follows:

 
                                                31 Mar 2020           30 Jun 2019 
                                                        Turbo                 Turbo 
                                              Jets       props      Jets       props 
                                            US$'000s   US$'000s   US$'000s   US$'000s 
-----------------------------------------  ---------  ---------  ---------  --------- 
 
 Cost                                        792,891    430,551    776,330    552,544 
 Accumulated depreciation and impairment    (90,064)   (75,967)   (58,706)   (81,504) 
 Net book value                              702,827    354,584    717,624    471,040 
                                           ---------  ---------  ---------  --------- 
 
   11       PROPERTY, PLANT AND EQUIPMENT (continued) 

Geographical analysis

 
 31 Mar 2020                    Europe    Asia Pacific     Total 
                               US$'000s     US$'000s     US$'000s 
---------------------------   ---------  -------------  ---------- 
 
 Capital expenditure             21,922         37,620      59,542 
 Net book value - aircraft 
  and engine                   331,999         757,478   1,089,477 
 
 
 
 30 Jun 2019                           Europe    Asia Pacific     Total 
                                      US$'000s     US$'000s     US$'000s 
----------------------------  -----  ---------  -------------  ---------- 
 
 Capital expenditure                   223,058        105,512     328,570 
 Net book value - aircraft            415,139         810,146   1,225,285 
 
 
 
   12       TRADE AND OTHER RECEIVABLES 
 
 
                                         31 Mar     30 Jun 
                                          2020       2019 
                                        US$'000s   US$'000s 
-------------------------------------  ---------  --------- 
 
 Current 
 Trade receivables                         8,585      3,954 
 Less: 
 Allowance for estimated credit loss       (369)      (207) 
                                       ---------  --------- 
                                           8,216      3,747 
 Other receivables: 
 -Third parties                              275        106 
 Interest receivables                         21         12 
 Deposits                                    165         47 
 Prepaid expenses                            715        513 
                                       ---------  --------- 
                                           9,392      4,425 
                                       ---------  --------- 
 
 
 Non-current 
 Deposits for aircraft    10,599   8,704 
 Prepaid expenses            334     226 
 Right-of-use assets         777       - 
                         -------  ------ 
                          11,710   8,930 
                         -------  ------ 
 
   13        FINANCE LEASE RECEIVABLES 

Future minimum lease payments receivable under finance leases are as follows:

 
                                                             31 Mar 2020                   30 Jun 2019 
                                                                        Present                       Present 
                                                         Minimum        value of       Minimum        value of 
                                                      lease payments    payments    lease payments    payments 
                                                        US$'000s       US$'000s       US$'000s       US$'000s 
--------------------------------------------------  ----------------  ----------  ----------------  ---------- 
 
 Within one year                                              10,243       7,315             8,440       7,221 
 Later than one year but not more than five years             89,556      76,857            13,848      10,566 
 More than five years                                          8,740       8,543            28,534      26,571 
 
 Total minimum lease payments                                108,539      92,715            50,822      44,358 
 
 Less: amounts representing interest income                 (15,824)           -           (6,464)           - 
 
 Present value of minimum lease payments                      92,715      92,715            44,358      44,358 
                                                    ----------------  ----------  ----------------  ---------- 
 
   14       GOODWILL 

The Group performs its annual impairment test in June and when circumstances indicate the carrying value may be impaired. For the purpose of these financial statements there was no indication of impairment. The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual consolidated financial statements for the year ended 30 June 2019.

   15       DERIVATIVE FINANCIAL ASSETS/LIABILITIES 
 
                                           Contract/            Fair value 
                                        notional amount 
                                       31 Mar     30 Jun     31 Mar     30 Jun 
                                        2020       2019       2020       2019 
                                      US$'000s   US$'000s   US$'000s   US$'000s 
-----------------------------------  ---------  ---------  ---------  --------- 
 
 Non-current asset 
 Interest rate swap                          -     63,185          -        363 
 
 Non-current liability 
 Interest rate swap                    310,359    267,118   (25,541)   (10,117) 
 Cross-currency interest rate swap       4,000      4,000      (398)       (57) 
                                     ---------  ---------  ---------  --------- 
 
                                       314,359    271,118   (25,939)   (10,174) 
                                     ---------  ---------  ---------  --------- 
 
 

Hedge accounting has been applied for interest rate swap contracts and cross-currency interest rate swap contracts which have been designated as cash flow hedges.

   15       DERIVATIVE FINANCIAL ASSETS/LIABILITIES (continued) 

The Group pays fixed rates of interest of 1.0% to 2.6% per annum and receives floating rate interest equal to 1-month to 3-month LIBOR under the interest rate swap contracts.

The Group pays fixed rates of interest of 3.1% to 4.9% per annum and receives floating interest equal to 3-month LIBOR under the cross-currency interest rate swap contracts.

The swap contracts mature between 23 September 2021 and 21 November 2030.

Changes in the fair value of these interest rate swap and cross-currency interest rate swap contracts are recognised in the fair value reserve. The net fair value loss of US$16.1 million

(31 March 2019: loss of US$10.5 million) on these derivative financial instruments was recognised in the fair value reserve for the nine month period ended 31 March 2020.

The fair value of the derivative financial instruments is determined by reference to marked-to-market values provided by counterparties. The fair value measurement of all derivative financial instruments for the Group is classified under Level 2 of the fair value hierarchy, for which inputs other than quoted prices that are observable for the asset or liability, either directly as prices or indirectly derived from prices are included as inputs for the determination of fair value.

   16       AIRCRAFT PURCHASE RIGHTS 
 
 
                                            31 Mar     30 Jun 
                                             2020       2019 
                                           US$'000s   US$'000s 
----------------------------------------  ---------  --------- 
 
 Aircraft purchase rights, at fair value     40,990          - 
                                          ---------  --------- 
 
 

Prior to the six months period ended 31 December 2019, the Group held aircraft purchase rights for the purpose of acquiring aircraft to its fleet. Aircraft purchase rights were accounted for as non-financial assets at amortised cost.

The Group adopted a new business model for aircraft purchase rights and determined that it would seek to dispose of excess aircraft purchase rights over and above its requirement to acquire additional aircraft for its fleet. To reflect this change, the Group now accounts for aircraft purchase rights through profit or loss. Disclosures about the fair value measurement of aircraft purchase rights are included in Note 4.

   17       CASH AND BANK BALANCES 
 
 
                                  31 Mar     30 Jun 
                                   2020       2019 
                                 US$'000s   US$'000s 
------------------------------  ---------  --------- 
 
 Fixed deposits                    30,405      6,700 
 Other cash and bank balances     101,205    100,748 
                                ---------  --------- 
 Total cash and bank balances     131,610    107,448 
 Less: restricted                (71,877)   (45,759) 
                                ---------  --------- 
 Cash and cash equivalents         59,733     61,689 
                                ---------  --------- 
 
 

The Group's restricted cash and bank balances have been pledged as security for certain loan obligations.

In the consolidated statement of cash flows, cash and cash equivalents comprises unrestricted cash and bank balances.

   18       ASSETS HELD FOR SALE 

As at 31 March 2020, the Group's aircraft which met the criteria to be classified as assets held for sale are as follows:

 
                                       31 Mar      30 Jun 
                                         2020       2019 
                                      US$'000s    US$'000s 
---------------------------------    ----------  --------- 
 
 Assets held for sale: 
 Property, plant and equipment 
  - aircraft 
 At 1 July 2019/ 1 July 
  2018                                        -     48,745 
 Additions                               89,935          - 
 Impairment loss                        (1,485)          - 
 Disposals                                    -   (48,745) 
                                       --------  --------- 
 At 31 March 2020/30 June 
  2019                                   88,450          - 
 
 Lease incentive asset                    8,908          - 
                                       --------  --------- 
                                         97,358          - 
   --------------------------------------------  --------- 
 
 Liabilities directly 
  associated with assets 
  held for sale: 
 Deposit collected                        1,240          - 
 Lessor maintenance contribution          8,908          - 
 Maintenance reserves                       135          - 
                                       --------  --------- 
                                         10,283          - 
 
 

An impairment loss of US$1.5 million was recognised to write down the book value of 2 jet aircraft to current market value during the nine months ended 31 March 2020.

   19        SHARE CAPITAL AND TREASURY SHARES 
   (a)     Share capital 
 
                             31 Mar 2020                30 Jun 2019 
                       No of shares   US$'000s   No of shares    US$'000s 
--------------------  -------------  ---------  -------------  ----------- 
 
 Allotted, called 
  up and fully paid 
  Ordinary shares 
  of 1 penny each: 
 At 1 July 2019/ 
  1 July 2018            64,609,939      1,104     62,760,246      1,080 
 Issue of shares            270,003          4      1,849,693         24 
 
 At 31 March 2020 
  /30 Jun e2019          64,879,942      1,108     64,609,939      1,104 
                      -------------  ---------  -------------  --------- 
 
 
 

During the nine months period ended 31 March 2020, the Company issued 270,003 ordinary shares of 1 penny each at 2.15p to 2.32p following the exercise of warrants by warrant holders raising total gross proceeds of US$0.8 million.

The holders of ordinary shares (except for treasury shares) are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions.

   (b)     Treasury shares 
 
                                       31 Mar 2020                 30 Jun 2019 
                                No of treasury              No of treasury 
                                    shares       US$'000s       shares       US$'000s 
-----------------------------  ---------------  ---------  ---------------  --------- 
 
 At 1 July 2019/ 1 July 2018           300,000      1,147                -          - 
 Acquired during the period          1,910,000      6,664          300,000      1,147 
 At 31 Mar 2020 /30 Jun 2019         2,210,000      7,811          300,000      1,147 
                               ---------------  ---------  ---------------  --------- 
 
 
   (c)     Net asset value per share 
 
 
                                              31 Mar    30 Jun 
                                                2020      2019 
-------------------------------------   ---  --------  -------- 
 
 Net asset value per share (US$) (1)            $4.01     $3.74 
 Net asset value per share (GBP) (2)          GBP3.24   GBP2.95 
                                             --------  -------- 
 
 
   (1)   Net asset value per share is total equity divided by the total number of shares issued and outstanding at period end. 
   (2)   Based on GBP:US$ exchange rate as at 31 Mar 2020 of 1.24 (30 June 2019 : 1.27). 
   20        LOANS AND BORROWINGS 
 
                                        31 Mar      30 Jun 
                                          2020        2019 
                                       US$'000s    US$'000s 
----------------------------------    ----------  ---------- 
 
 Secured borrowings                      735,275     733,322 
 Unsecured notes                         346,987     344,966 
 
 Total loans and borrowings            1,082,262   1,078,288 
 
 Less: current portion                  (78,078)    (72,595) 
 
 Non-current loans and borrowings      1,004,184   1,005,693 
                                      ----------  ---------- 
 
 
 
                                                   Weighted average 
                                                   interest rate per 
                              Maturity                   annum 
                         31 Mar       30 Jun      31 Mar      30 Jun 
                          2020         2019         2020       2019 
                                                     %          % 
--------------------  -----------  -----------  ----------  --------- 
 
 Secured borrowings    2020-2031    2019-2031         3.6%       3.7% 
 Unsecured notes          2021         2021           6.5%       6.5% 
 
 

Secured borrowings are secured by first ranking mortgages over the relevant aircraft, security assignments of the Group's rights under leases and other contractual agreements relating to the aircraft, charges over bank accounts in which lease payments relating to the aircraft are received and charges over the issued share capital of certain subsidiaries.

   21       MAINTENANCE RESERVES 
 
                                                31 Mar     30 Jun 
                                                 2020       2019 
                                               US$'000s   US$'000s 
--------------------------------------------  ---------  --------- 
 
 Current                                          6,234      1,166 
 Non-current                                     52,939     31,325 
 
 Total maintenance reserves                      59,173     32,491 
                                              ---------  --------- 
 
 
                                                31 Mar     30 Jun 
                                                 2020       2019 
                                               US$'000s   US$'000s 
--------------------------------------------  ---------  --------- 
 
 At 1 July 2019/ 1 July 2018                     32,491     23,544 
 Contributions                                   31,102     15,413 
 Utilisations                                   (4,222)    (1,558) 
 Released to profit or loss                       (198)          - 
 Transferred to buyer upon sale of aircraft           -    (4,908) 
 
 At 31 March 2020 /30 June 2019                  59,173     32,491 
                                              ---------  --------- 
 
 

During the nine months ended 31 March 2020, maintenance reserve of US$0.2 million were released to profit or loss as revenue due to the recovery of maintenance reserves from an insolvent airline customer that defaulted on its lease payments. See Note 5.

   22       CAPITAL COMMITMENTS 

Capital expenditure contracted for at the reporting date but not recognised in the financial statements is as follows:

 
                                   31 Mar     30 Jun 
                                    2020       2019 
                                  US$'000s   US$'000s 
-------------------------------  ---------  --------- 
 
 Property, plant and equipment     147,685    169,034 
                                 ---------  --------- 
 
 

Capital commitments represent amounts due under contracts entered into by the group to purchase aircraft. The company has paid deposits towards the cost of these aircraft which are included in trade and other receivables.

As at 31 March 2020, the Group has commitments to purchase eight ATR 72-600 aircraft from the manufacturers with expected delivery dates from April 2020 to April 2022.

   23       CONTINGENT LIABILITIES 

There were no material changes in contingent liabilities since 30 June 2019.

   24       DIVIDS 
 
                                                                               31 Mar     31 Mar 
                                                                                2020       2019 
                                                                              US$'000s   US$'000s 
---------------------------------------------------------------------------  ---------  --------- 
 
 Dividends declared and/or paid during the nine months ended 31 March 2020 
 Dividends on ordinary shares 
 
   *    First interim exempt (one-tier) dividend for 8.50 US 
        cents (31 Mar 2019 : 7.25 US cents) per share                            5,454      4,550 
 
   *    Second interim exempt (one-tier) dividend for 2.10 US 
        cents (31 Mar 2019 : 2.00 US cents) per share                            1,319      1,290 
                                                                             ---------  --------- 
                                                                                 6,773      5,840 
                                                                             ---------  --------- 
 
 

Dividends are recorded directly in equity when they are paid.

No dividends have been declared subsequent to 31 March 2020.

   25        SUBSEQUENT EVENTS 

On 6 April 2020, Braathens Regional Airways AB ("Braathens") entered into voluntary administration. The Group has two ATR72-600 aircraft on finance lease to Braathens. At the time of its entry into administration Braathens represented around 3% of the group's total monthly run-rate lease revenue. We are currently in discussion with the administrator of Braathens and expect to enter into revised operating leases for the two aircraft shortly.

On 20 April 2020, Virgin Australia Holdings Limited ("Virgin Australia") entered into voluntary administration. Avation has two Fokker 100 aircraft on finance lease and 11 ATR 72 aircraft on operating lease to Virgin Australia two of which are subleased to, and operated by, another airline. At the date of entry into administration, Virgin Australia represented around 19% of the group's total monthly run-rate lease revenue. We have subsequently signed new short-term finance leases for the two Fokker 100 aircraft and have signed new short-term operating leases for two ATR 72 aircraft with another operator which are expected to commence shortly.

On 15 May 2020, Avation entered into an agreement to extend the lease of a Boeing 737-800 aircraft by six years from its original lease termination date until June 2028. The lease extension rent is at a market rate.

On 2 and 3 June 2020, the Company repurchased US$1,000,000 Avation Capital S.A. 6.5% senior notes due 2021 issued under the Avation global medium term note programme. The notes were acquired through the market at a price of 76.25 per cent and will be cancelled.

On 13 June 2020, the Company entered into finance leases over the period to September 2020 for the sale two Fokker 100 aircraft.

On 17 June 2020 Avation entered into agreements to lease two ATR 72- 500 aircraft formerly leased to Virgin Australia to another commercial airline in Australia, until the end of 2021, at current market lease rates.

   25        SUBSEQUENT EVENTS (continued) 

Between 24 March and 18 June 2020 Avation entered into a series of short-term rent deferral agreements with its airline customers in response to requests made following the onset of the COVID-19 pandemic. The agreements allow airlines to defer a portion of rent payments for a short-term period, with the deferred amounts to be repaid to the company in the form of additional rent following the end of the deferral period. The company has entered into 13 rent deferral agreements with a total value of deferred rent of $16.3 million. The average deferral amount is 57% of monthly rent, the average deferral period is 3.4 months and the deferred rents are repayable in equal instalments over three to nine month periods following the end of the relevant deferral period.

Between 21 May and 18 June 2020 Avation entered into a series of short-term loan principal deferral agreements with its lenders in order to mitigate the impact on cashflow of granting rent deferrals to its customers following the onset of the COVID-19 pandemic. The agreements allow the company to defer up to 100% of loan principal payments on certain loans for periods of three to six months. The deferred loan principal payments have a total value of $9.2 million. The deferred loan principal payments are repayable to lenders in equal instalments over four to 12 month periods following the end of the relevant deferral period.

PRINCIPAL RISKS

The Group's risk management processes bring greater judgement to decision making as they allow management to make better, more informed and more consistent decisions based on a clear understanding of risk involved. We regularly review the risk assessment and monitoring process as part of our commitment to continually improve the quality of decision-making across the Group.

The principal risks and uncertainties which may affect the Group in the remaining three months of the financial year will include the typical risks associated with the aviation business, including but not limited to any downturn in the global aviation industry, fuel costs, finance costs, war and terrorism and the like which may affect our airline customers' ability to fulfil their lease obligations.

The business also relies on its ability to source finance on favourable terms. Should this supply of finance contract, it would limit our fleet expansion and therefore growth.

GOING CONCERN

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. The financial risk management objectives and policies of the Group and the exposure of the Group to credit risk and liquidity risk are discussed in the annual report for the Group for the year ended 30 June 2019.

DIRECTORS

The directors of Avation PLC are listed in its Annual Report for the year ended 30 June 2019. A list of the current directors is maintained on the Avation PLC website: www.avation.net

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that, to the best of their knowledge, this condensed consolidated interim financial information have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8 namely

-- an indication of important events that have occurred during the first nine months and their impact on the Interim Report, and a description required by the principal risks and uncertainties for the remaining three months of the financial year; and

-- material related party transactions in the first nine months and any material changes in the related party transactions described in the last annual report.

By order of the Board

Jeff Chatfield

Executive Chairman

Singapore, 26 June 2020

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

QRTKKFBNQBKKDAB

(END) Dow Jones Newswires

June 29, 2020 02:00 ET (06:00 GMT)

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