AnnuAl RepoRt 2022
65 Kampong Bahru Road
Singapore 169370
www.avation.net
L I S T E D
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Index:
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AVAp.ln
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FtSe Sector:
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FtSe Sub Sector: transportation Services
AnnuAl RepoRt
2022
AVATION PLC
DIRECTORS’ REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
30 JUNE 2022
REGISTERED NUMBER: 05872328 (ENGLAND & WALES)
AVATION PLC
CONTENTS
FOR THE YEAR ENDED 30 JUNE 2022
Company Information ..................................................................................................................... 1
Chairman’s Statement ............................................................................................................... 2 – 4
Strategic Report ...................................................................................................................... 5 - 15
Directors’ Report ................................................................................................................... 16 – 20
Directors’ Remuneration Report .............................................................................................. 21 – 30
Directors’ Responsibilities Statement ....................................................................................... 31 - 32
Auditor’s Report .................................................................................................................... 33 - 43
Consolidated Statement of Profit or Loss ......................................................................................... 44
Consolidated Statement of Comprehensive Income .......................................................................... 45
Consolidated Statement of Financial Position ................................................................................... 46
Company Statement of Financial Position ........................................................................................ 47
Consolidated Statements of Changes in Equity ......................................................................... 48 – 49
Company Statements of Changes in Equity............................................................................... 50 - 51
Consolidated Statement of Cash Flows ............................................................................................ 52
Company Statement of Cash Flows ................................................................................................. 53
Notes to the Financial Statements ......................................................................................... 54 - 129
AVATION PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 30 JUNE 2022
DIRECTORS:
COMPANY SECRETARIES:
REGISTERED OFFICE:
PRINCIPAL PLACE OF BUSINESS:
AUDITOR:
SOLICITORS:
REGISTRAR:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
Duncan Gerard Stephen Scott
Jasmine Siow Fui San
5 Fleet Place
London EC4M 7RD
United Kingdom
65 Kampong Bahru Road
Singapore 169370
Ernst & Young
EY Building
Harcourt Centre
Harcourt Street
2 Dublin
Ireland
Charles Russell Speechlys LLP
5 Fleet Place
London EC4M 7RD
United Kingdom
Computershare Investor Services PLC
The Pavilions
Bridgewater Road
Bristol BS99 6ZZ
United Kingdom
1
AVATION PLC
CHAIRMAN’S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
Overview
Profit after tax of $17.1 million (2021: $84.9 million loss);
Earnings per share of 24.7 cents (2021: Loss per share 131.2 cents);
(cid:120)
(cid:120)
(cid:120) Net asset value per share increased 63% to £2.68 (2021: £1.64);
(cid:120) Revenue and other income reduced by 3% to $116.4 million (2021: $120.1 million);
(cid:120) Net indebtedness was reduced by 14% to $792.9 million (2021: $922.6 million);
(cid:120) Unrestricted cash and cash equivalents increased by 41% to $35.3 million (2021: $25.1 million), with
(cid:120)
total cash and bank balances of $119.2 million (2021: $122.5 million); and
Profit before tax (before non-cash loan modification charges) of $34.9 million (2021: Loss before tax
$120.5 million).
Operational highlights
(cid:120) Warehouse loan facility maturity date extended to 30 September 2026;
(cid:120)
Five aircraft were sold during the year, comprising an Airbus A220-300, an Airbus A321-200 and
three ATR 72 turboprops;
Placed one ex-Virgin Australia ATR 72 aircraft on lease;
Three leases extended including two ATR 72 turboprops and one Airbus A320 jet aircraft;
Transitioned an Airbus A320 to a new customer;
(cid:120)
(cid:120)
(cid:120)
(cid:120) Repossessed a Boeing 737-800;
(cid:120)
Philippine Airlines (“PAL”) restructuring completed with a Boeing 777-300ER remaining on lease with
the airline.
Business review
In the year ended 30 June 2022 Avation has returned to profitability, increased net asset value per share,
maintained liquidity, materially lowered net indebtedness and clearly enunciated its new low CO2 strategy.
The Company is well positioned to execute its business strategy as the aviation sector returns to pre-
pandemic levels of activity.
The 2022 financial results reflect the end of the pandemic and the return to a high level of utilisation for
Avation’s aircraft fleet. There has been a significant recent recovery in passenger numbers and the airline
industry. The Company is optimistic about a future for the leasing industry characterised by high demand
for aircraft as the global fleet builds and transitions to low CO2 technology in the coming years.
Fleet utilisation has improved as unutilised aircraft have been repositioned or sold. The significant impacts
of airline insolvencies and the restructuring of some of Avation’s customers have mostly been reflected in
previous periods and distributions to creditors from these insolvencies are being received.
The Company is seeing increased levels of interest from airlines to buy or lease aircraft at sustainable
lease rates, senior lenders willing to lend against aircraft assets and improved utilisation of aircraft. These
factors confirm the emergence of the industry from the pandemic.
The Company’s strategy will focus on leasing modern, low CO2 emissions, fuel-efficient aircraft in the
future. Avation is supportive of the aviation industry’s goal of becoming more sustainable through a
transition to new technology more fuel-efficient aircraft engines and the use of sustainable aviation fuel to
reduce CO2 emissions.
The Company will position itself for a return to growth through opportunistic aircraft trading and
deliveries from its orderbook in the post pandemic environment.
2
AVATION PLC
CHAIRMAN’S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
Airline customers subject to restructuring or insolvency
Insolvency proceedings impacted two airlines during the period, Virgin Australia and PAL.
Virgin Australia
Avation’s claim against Virgin Australia has been adjudicated by the Trustee of the Creditors Trust in the
sum of AUD101.4 million. Avation was notified of an initial distribution from the Creditors Trust of 5.4
cents in the dollar on 15 September 2022.
A further distribution based on funds withheld by the Trustee is expected. In addition to this distribution
further funds may be made available to creditors should Virgin Australia meet performance targets in
the financial year ended 30 June 2023. The potential total of these additional distributions is estimated
to be in the range of 1.0 - 2.0 cents in the dollar.
Philippine Airlines
The PAL restructuring plan became effective on 31 December 2021. Pursuant to the restructuring plan,
PAL has retained a Boeing 777-300ER aircraft on lease from Avation. The lease for this aircraft will
continue until the original scheduled termination date.
PAL has met its commitments under the restructuring agreement and continues to meet the ongoing
lease terms. Avation has received shares in PAL as part of the restructuring arrangement and may seek
to realise the value of these shares in the future.
Accounting impact (non-cash) of Bond extension and Warehouse Facility Extension
In the year ended 30 June 2021 Avation completed a process to extend the maturity date of Avation
Capital S.A.’s Senior Notes (“Notes”) from May 2021 to October 2026. The extension of the maturity
date and other revisions to the terms and conditions of the Notes were accounted for as a substantial
modification of the terms of a debt instrument in accordance with IFRS 9 which led to a non-cash gain
of $50.3 million being recognised in the statement of profit or loss in the year ended 30 June 2021.
Under IFRS 9 this gain is required to be amortised over the term of the extension of the Notes. Investors
should note that in the current financial year ended 30 June 2022 amortisation of this gain led to a non-
cash charge of $8.8 million being recognised in finance expenses. A further non-cash charge of $3.5
million was recorded when Avation successfully extended the maturity date of its aircraft warehouse loan
facility to 30 September 2026.
Market Positioning
Avation’s long-term strategy is to target growth and diversification by adding new airline customers,
while maintaining a low average aircraft age and long remaining lease term metrics. Avation focuses on
new and relatively new commercial passenger aircraft on long-term leases.
Avation supports and recognises the transition of the aircraft industry towards aircraft using 100%
sustainable aviation fuel to produce low CO2 emissions on a net basis. Low CO2 emissions will advantage
airlines in terms of taxes and government imposts and are key to providing a sustainable future for
global aviation.
The Company’s business model involves rigorous investment criteria that seeks to mitigate the risks
associated with the aircraft leasing sector. Avation will typically sell mid-life and older aircraft and
redeploy capital to newer assets. This approach is intended to mitigate technology change risk,
operational and financial risk, support sustained growth and deliver long-term shareholder value.
Avation is an active trader of aircraft and from time to time will consider the acquisition or sale of
individual or smaller portfolios of aircraft, based on prevailing market opportunities and consideration of
risk and revenue concentrations.
3
AVATION PLC
CHAIRMAN’S STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
Funding of asset acquisitions is traditionally sourced from capital markets, asset-backed bank lending,
operational cash flows and disposals of selected aircraft. Access to acceptably priced funding is a key
factor in aircraft leasing. Specific risks which are inherent in the aircraft leasing industry include, but are
not limited to, ongoing pandemic impacts on travel, government regulations, the creditworthiness of
airline customers, over-production of new aircraft and market saturation, technology change, residual
value risks, competition from other lessors and the risk of impairment of aircraft assets.
Outlook
The global aviation industry’s emergence from the pandemic continues. The rapid resurgence of
passenger numbers has been particularly evident in the period to the date of this announcement. Current
trading and collection of arrears remain steady. In the Company’s opinion, the recent improvement in
travel is due to a combination of the Omicron variant being less severe and high vaccination rates that
have allowed governments to drop mask mandates and ease travel restrictions. This trend is evident in
regional and domestic travel and is being followed by a recovery in international travel.
Avation’s recent focus has necessarily been directed towards maintaining liquidity, re-positioning or sale
of unutilised aircraft and reducing leverage. In the six-month period to 30 June 2022 material events
that have impacted Avation’s financial position include the completion of PAL’s restructuring, completion
of the sale of three ex-Virgin Australia ATR 72 aircraft and the extension to 30 September 2026 of the
Company’s warehouse loan facility. The Company will maintain focus on these key elements of the
business in the short term. However, given that a significant number of pandemic related issues have
been resolved, the Company is optimistic about opportunities in the post pandemic environment.
During the period to the date of this announcement, Avation has developed a sustainable, low emissions
aircraft growth strategy. This initiative was supported by the recent release of the new lower emissions
PW127XT engine and announcement that future variants of the ATR 72 aircraft will include hybrid
technology and use 100% Sustainable Aviation Fuel (“SAF”). In addition, an ATR 72 aircraft has also
completed the first 100% SAF commercial flight. The Company’s future business strategy will be to focus
on leasing modern, low CO2 emissions, fuel-efficient aircraft. We anticipate gradually trading out of older
aircraft types and focussing on aircraft types such as the Airbus neo and A220 series in addition to ATR
72 aircraft with the recently announced new generation engines. The Company’s portfolio already
comprises a significant proportion of Airbus A220 and ATR 72 aircraft showing our commitment to new
technology, fuel-efficient aircraft types.
Future ATR 72 deliveries from Avation’s orderbook will be powered by the new Pratt and Whitney Canada
PW127XT engine which promises 20% lower maintenance costs, extended time on wing, 3% lower fuel
consumption and 5% more power compared with the current engine. The manufacturer expects that the
PW127XT engine will be certified to operate with 100% SAF from 2025. When using SAF net emissions
of CO2 will be reduced by 80%.
Industry data suggests that airlines will require significant numbers of leased aircraft following the
pandemic due to the large number of older aircraft that have been retired and the impact of the pandemic
on airline balance sheets, reducing their ability to purchase aircraft directly. This supports the Company’s
strategy of focussing on young and popular commercial aircraft.
Avation’s functional currency is the US Dollar. As at 30 June 2022 the net asset value per share was
$3.27, equivalent to £2.68 based on a GBP:USD exchange rate of 1.22.
Robert Jeffries Chatfield
Executive Chairman
Singapore
3 November 2022
4
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
The Directors present their strategic report for the year ended 30 June 2022.
BUSINESS OVERVIEW
Avation PLC and its subsidiaries (“Avation”, the “Group”) is a commercial passenger aircraft leasing group
managing a fleet of 39 aircraft, as of 30 June 2022. Avation was founded in 2006 and has now been in
operation for 16 years. Avation leases aircraft to 17 airline customers spread across 14 countries in
Europe and the Asia-Pacific region. Major customers include Vietjet Air, airBaltic, EVA Air and Philippine
Airlines. The Group’s fleet includes 14 narrow-body jets, two twin-aisle jets and 23 ATR 72 twin-engine
turboprop aircraft. An analysis of the fleet is provided below under “Fleet Overview”.
Avation operates from its headquarters in Singapore where it is tax resident and, since 17 April 2014, a
beneficiary of the Singapore Aircraft Leasing Scheme (“ALS”) tax incentive. On 17 April 2019 Avation
was granted a five-year extension to its ALS tax incentive at a reduced 8% tax rate.
Avation’s management team has extensive experience in the aviation industry and has the expertise to
select, acquire and manage aircraft that have achieved strong operational performance for our customers
and generated stable returns for our shareholders. The company maintains in-house commercial, legal,
technical and finance teams and operates as a full-service aircraft leasing platform.
Avation aims to grow its fleet and continue to diversify its customer base over the coming years. The
Group has two ATR 72-600 aircraft on order from the manufacturer, which are currently scheduled to be
delivered in April and May 2024. The Group also holds purchase rights for a further 28 aircraft. The
Group may also acquire additional new and second-hand jet aircraft on an ad-hoc basis. Older aircraft
are sold when opportunities arise with the aim of maintaining a low average fleet age.
Avation’s shares are traded on the Standard Segment of the Main Market of the London Stock Exchange
under the ticker symbol LSE: AVAP.
BUSINESS MODEL
Avation aims to grow its fleet and build long-term shareholder value by focussing on a) new turboprop
regional aircraft, principally the popular and fuel-efficient ATR 72-600 model and b) new and second-
hand narrow-body jets, in particular the popular Airbus A320/A321 neo, A220 and Boeing 737 MAX
aircraft families. The Group will also consider acquiring additional twin-aisle aircraft as part of its strategy
to build a diversified portfolio of aircraft. Owning a diversified portfolio of aircraft types is intended to
mitigate overall market and residual value risk. As the fleet grows, the Group seeks to continually
diversify its customer base as part of its overall credit risk management strategy.
Avation has developed a sustainable, low emissions aircraft growth strategy. This initiative was supported
by the recent release of the new lower emissions PW127XT engine and announcement that future
variants of the ATR 72 aircraft will include hybrid technology and use 100% Sustainable Aviation Fuel.
In addition, an ATR 72 aircraft has also completed the first 100% Sustainable Aviation Fuel commercial
flight.
The Company’s future business strategy will be to focus on leasing modern, low CO2 emissions, fuel-
efficient aircraft. We anticipate gradually trading out of older aircraft types and focussing on aircraft
types such as the Airbus A320/A321 neo and A220 series in addition to ATR 72 aircraft with the recently
announced new generation engines. The Company’s portfolio already comprises a significant proportion
of Airbus A220 and ATR 72 aircraft showing our commitment to new technology, fuel-efficient aircraft
types.
Future ATR 72 deliveries from Avation’s orderbook will be powered by the new Pratt and Whitney Canada
PW127XT engine which promises 20% lower maintenance costs, extended time on wing, 3% lower fuel
consumption and 5% more power compared with the current engine. The manufacturer expects that the
PW127XT engine will be certified to operate with 100% SAF from 2025. When using SAF net emissions
of CO2 will be reduced by 80%.
5
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Industry data suggests that airlines will require significant numbers of leased aircraft following the
pandemic due to the large number of older aircraft that have been retired and the impact of the pandemic
on airline balance sheets, reducing their ability to purchase aircraft directly. This supports the Company’s
strategy of focussing on young and popular commercial aircraft.
The Group finances the acquisition of new aircraft using internally generated cash flows, senior and junior
secured debt finance, the issuance of unsecured notes under its Global Medium-Term Note programme
and the issuance of new ordinary shares. The Group manages debt issuance with the overall aim of
achieving the lowest possible overall cost of debt, while maintaining appropriate leverage ratios. Debt
on older aircraft may be re-financed when there is an opportunity to reduce the Group’s overall cost of
debt, and to release equity for investment in new aircraft.
The Board applies prudent financial management principles to manage risk when acquiring aircraft by
seeking to match lease and financing in both term and currency. Interest rate risk is managed using
mostly fixed or hedged interest rate debt. Secured loans are amortised to conservative balloon payments
over the terms of the underlying leases.
The Avation fleet of 39 aircraft (as of 30 June 2022) has a weighted average age of 5.6 years and
weighted average remaining lease term of 5.7 years, serving a diversified customer base of airlines in
Europe and the Asia-Pacific region.
MARKET TRENDS AND FUTURE DEVELOPMENTS
Aircraft leasing is a growth industry which, historically, has taken an increasing share of ownership of
the commercial passenger aircraft fleet. Avation expects that the percentage of leased aircraft in the
global fleet will remain high in future due to the flexibility that the leasing model provides for airlines
and also due to increased access to financial capital for leasing companies.
The global aviation industry continues to emerge from the COVID-19 pandemic. The rapid resurgence of
passenger numbers has been particularly evident in the period to the date of this announcement. Current
trading and collection of arrears remain steady. In the Company’s opinion, recent improvements in travel
demand are due to a combination of the Omicron variant being less severe and high vaccination rates
that have allowed governments to drop mask mandates and ease travel restrictions. This trend is evident
in regional and domestic travel and is being followed by a recovery in international travel.
Air travel is expected to return to pre COVID-19 levels between 2023 and 2025.
The aircraft leasing industry benefits from good long-term fundamentals including growth in global
demand for air travel, capital constraints amongst airlines and normal cycles of aircraft replacement.
6
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
The world fleet of commercial passenger aircraft is predicted to grow substantially with aircraft traffic
expected to double every 15 years. Airbus forecasts that 39,500 aircraft (replacement and growth) will
be required over the next 20 years, of which 45% are expected to be in Asia-Pacific, 21% in Europe, 18%
in North America, and of the total, 80% are expected to be single aisle. 1
Around 20% of the current global commercial aircraft fleet are new generation more fuel-efficient types
such as the Airbus A220 and A320/A321 neo types. Over the next 20-year period 95% of the global
fleet to expected to transition to new generation aircraft types.
Avation expects that this trend will support the company’s future strategy of gradually trading out of
older aircraft types and focussing on aircraft types such as the Airbus neo and A220 series in addition to
ATR 72 aircraft with the recently announced new generation engines.
1 Airbus Global Market Forecast 2022
7
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
PRINCIPAL RISKS AND UNCERTAINTIES
The aircraft leasing sector is highly competitive and Avation is exposed to a number of market related,
operational and financial risks. The Group is committed to mitigating business risk through the application
of prudent risk management policies. The risks and uncertainties described below are those that the
Group has identified as most significant to the business. Avation’s Board of Directors is responsible for
managing risk and reviews risk management policies regularly.
Market related risks:
Exposure to the airline industry
The Group’s customers are commercial airlines which are financially exposed to the demand for
passenger air travel. The financial condition of commercial airlines may weaken due to several factors
including but not limited to local and global economic conditions, increased competition between airlines,
speculative ordering of new aircraft, war, terrorism, pandemics and natural disasters. If the financial
condition of the Group’s airline customers weakens for any reason, the Group may be exposed to
increased risks of lessee default and lower lease rates for its aircraft.
Asset value risk
Fluctuations in the supply and demand for aircraft and aircraft travel may impact values of and lease
rates for the Group’s aircraft. Market forces and prevailing economic conditions may change over the
economic lives of the Group’s aircraft and could have a positive or negative impact on aircraft valuations.
Advances in aircraft technology may create obsolescence in the fleet before the end of aircrafts’ current
estimated useful lives. The Group regularly obtains independent third-party valuations for its fleet and
may dispose of aircraft in order to reduce its exposure to certain aircraft types. Avation has a policy of
investing in popular aircraft types on the basis that asset values and lease rates will be supported by
continuing high demand for these aircraft. Avation will consider acquiring additional twin-aisle aircraft,
in addition to narrow-body jets and turboprops, as part of its strategy to build a diversified portfolio of
aircraft. Twin-aisle aircraft have a risk profile which may be more exposed to technology change factors
and the introduction of new more fuel-efficient models.
Operational risks:
Economic, legal and political risks
Avation leases aircraft to lessees in many different jurisdictions. As such the Group is exposed to
economic, legal and political risk in those jurisdictions. Avation’s aircraft are subject to operational risks
specific to the aviation sector resulting from war, acts of terrorism or the threat of terrorism, and natural
disasters. The Group mitigates these risks by requiring airline lessees to maintain adequate insurance
over the aircraft.
Regulatory risks
Avation’s fleet operates in many jurisdictions and complies with tax and other regulatory requirements
in those jurisdictions. There is a risk that changing tax and regulatory regimes may have an impact on
the business and the Group’s financial results.
Lessee risks
Avation’s airline lessees are responsible for all maintenance and safety checks. The requirements for
each airline lessee to service and maintain the aircraft are set out in the lease agreements. There is a
risk that airlines may not properly maintain aircraft which may lead to an impairment of the aircraft’s
value. In order to mitigate this risk, the Group closely monitors each airline’s usage of aircraft and their
compliance with agreed maintenance schedules. Avation requires that some lessees make maintenance
reserve payments to ensure that there is adequate funding at all times for proper maintenance of the
aircraft.
8
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Financial risks:
Avation’s financial risk management objectives and policies are set out in note 7 to the financial
statements and are as follows:
(cid:120) Airline industry risks
(cid:120) Credit risk
(cid:120)
(cid:120)
(cid:120)
(cid:120) Capital risk
Interest rate risk
Foreign currency risk
Liquidity risk
FINANCIAL REVIEW
Revenue
Other income
Operating profit/(loss)
Total profit/(loss)
Net cash from operating activities
Total assets
Total equity
Basic earnings per share (US cents)
Dividend per share (US cents)
2022
US$’000s
2021
US$’000s
112,232
4,152
90,184
17,127
54,480
117,738
2,406
(62,714)
(84,885)
62,285
1,217,020
227,093
24.65
-
1,282,934
157,010
(131.15)
-
Revenue decreased by 4.7% to US$112.2 million (2021: US$117.7 million) primarily as a result of
change in the fleet and reduced rents receivable following defaults by airlines entering administration.
Other income increased by US$1.8 million to US$4.2 million (2021: US$2.4 million) primarily due to an
increase in fees charged for late payments and higher foreign currency exchange gains.
Depreciation decreased by 15.0% to US$39.3 million (2021: US$46.3 million) as a consequence of
changes to the aircraft fleet and reduced depreciation applied to certain aircraft following impairment
charges recorded in the year ended 30 June 2021.
During the current year the Group sold three nine-year-old ATR 72-600 aircraft, a three-year-old Airbus
A220-300 aircraft and a nineteen-year-old Airbus A321-200 aircraft recognising total losses on sale of
US$2.4 million (2021: US$6.9 million).
During the year the Group recognised an unrealised gain on revaluation of aircraft purchase rights of
US$38.3 million (2021: loss of US$0.2 million). The Group holds 28 (2021: 28) purchase rights for ATR
72-600 aircraft for delivery prior to 30 June 2027.
The group reversed US$9.2 million of impairment charges booked in prior periods and recorded new
impairment charges of US$15.4 million during the year ended 30 June 2022, resulting in a net
impairment charge of US$6.2 million (2021: US$87.4 million).
The reversal of prior impairment charges resulted from a general improvement in residual values for
aircraft during the year. New impairment charges recorded in the current year primarily result from a
US$9.1 million impairment charges recorded against two narrowbody aircraft which were re-valued
following redelivery from leases.
In the prior year the company recognised an impairment loss of US$28.7 million in relation to a widebody
aircraft on lease to Philippine Airlines following the airline’s announcement of its intention to restructure
9
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
operations under a bankruptcy court process. Philippine Airlines filed a petition for voluntary
restructuring under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for
the Southern District of New York on 3 September 2021 and exited administration on 31 December 2021.
Impairment losses of US$28.4 million were recognised in relation to 11 aircraft formerly leased to Virgin
Australia who defaulted on leases and filed for administration in April 2020. The Group also recorded
impairment losses of US$30.3 million in relation to a general softening in residual values for other
aircraft.
Administrative expenses were unchanged at US$9.5 million (2021: US$9.5 million). Staff costs included
within administrative expenses increased by 6.3% to US$6.8 million (2021: US$6.4 million), primarily
as a result of reinstating the company’s cash bonus scheme which was suspended during the COVID-19
pandemic.
The group reversed US$7.8 million of expected credit losses booked in prior periods and recorded new
expected credit losses of US$5.8 million during the year ended 30 June 2022, resulting in a net reversal
of expected credit losses of US$2.0 million (2021: US$25.4 million expense). New expected credit losses
totalling US$5.6 million were recorded against receivables from three airlines in default.
Expected credit losses in the year ended 30 June 2021 included US$12.3 million in relation to receivables
from Philippine Airlines, US$6.2 million in relation to receivables from Virgin Australia and US$3.1 million
in relation to receivables from Vietjet.
Other expenses were US$5.5 million (2021: US$4.6 million). Other expenses in the current period
include aircraft repossession costs of US$nil (2021: US$0.6 million) and maintenance costs of US$5.5
million (2021: US$1.1 million) primarily resulting from the default of Virgin Australia. Other expenses in
the year ended 30 June 2021 also include US$2.9 million of pre-delivery payments expensed in
connection with a restructuring of the Company’s contract with Avions de Transport Regional for the
supply of ATR 72 aircraft.
The Group recognised an operating profit of US$90.2 million (2021: loss of US$62.7 million) as a result
of the foregoing.
Finance expenses increased by 12.1% to US$67.5 million (2021: US$60.2 million) and total interest
expense within finance expenses increased to US$54.0 million (2021: US$53.5 million). The increases
in finance expenses and total interest expense were primarily attributable to a revised interest rate
applied to the Group’s unsecured notes following an extension of the maturity date on revised terms
concluded on 25 March 2021. Interest expense on the unsecured notes issued under the Company’s
Global Medium-Term Note programme (“GMTN”) was US$29.9 million (2021: US$26.6 million). The
interest rate applicable to the notes was revised to either 6.5% cash and 2.5% payable in kind or 8.25%
payable in cash only from 25 March 2021. The choice of interest rate is at the option of the Company
at each semi-annual coupon payment date.
In the year ended 30 June 2022 the Group recognised a loss on debt modification of US$3.5 million
derived from the extension of the maturity date of the Group’s warehouse loan credit facility to
September 2026.
In the year ended 30 June 2021 the Group recognised a gain on debt modification of US$50.3 million
derived from the extension of the maturity date of the Group’s unsecured notes on revised terms. Under
IFRS accounting rules the extension was recorded as the extinguishment of the existing unsecured notes
liability of US$342.3 million and the recognition of a new liability at fair value estimated to be US$281.0
million. Transaction costs of US$7.5 million and share warrants expense of US$3.5 million were also
accounted for as components of the net gain on debt modification.
Finance income was US$3.3 million (2021: US$2.4 million). Finance income includes a fair value gain
on financial derivatives of US$2.5 million in the year ended 30 June 2022 and a gain on repurchases of
unsecured notes of US$1.9 million in the year ended 30 June 2021.
10
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Most of the Group’s operations are based in Singapore and are included in Singapore’s Aircraft Leasing
Scheme (“ALS”), benefitting from a concessionary tax rate. Taxation expense for the year was US$5.4
million (2021: US$14.7 million) which includes a net increase in deferred tax liabilities of US$4.8 million
(2021: US$14.6 million). In the year ended 30 June 2021 a deferred tax liability of US$12.5 million was
recognised in relation to the gain on debt modification of US$50.3 million discussed above.
Net cash from operating activities decreased by 12.5% to US$54.5 million (2021: US$62.3 million)
primarily due to lower rental revenue.
Total profit after tax for the financial year was US$17.1 million (2021: loss of US$84.9 million).
Basic earnings per share was 24.7 US cents (2021: loss of 131.2 US cents).
The Company confirms that there have been no changes to its accounting policies other than the adoption
of new IFRS standards and interpretations as set out in the notes to the financial statements.
FLEET OVERVIEW
Type
1 July 2021
Additions
Disposals
30 June 2022
On order
Purchase
rights
ATR 72-500
ATR 72-600
A220-300
A320-200
A321-200
A330-300
B737-800
B777-300ER
Total
5
21
6
2
7
1
1
1
44
-
-
-
-
-
-
-
-
-
-
3
1
-
1
-
-
-
5
5
18
5
2
6
1
1
1
39
-
2
-
-
-
-
-
2
-
28
-
-
-
-
-
28
The Company sold three nine-year-old ATR 72-600 aircraft, a three-year-old Airbus A220-300 aircraft
and a nineteen-year-old Airbus A321-200 aircraft during the year. As of 30 June 2022, the weighted
average age of the fleet was 5.6 years (2021: 4.8 years) and the weighted average remaining lease
term was 5.7 years (2021: 6.4 years).
The aircraft fleet was valued as of 30 June 2022 by a third-party valuer using lease encumbered basis
in accordance with the Group’s accounting policy. The revaluation of the fleet resulted in impairment
charges of US$6.2 million (2021: US$87.4 million) and a net positive adjustment of aircraft net book
values of US$17.5 million recognised in the consolidated statement of changes in equity (2021: US$8.1
million).
Three ATR 72-500 aircraft are classified as leased under finance leases (2021: nil). Three ATR 72-600
aircraft are classified as leased under finance leases (2021: three).
Two ATR 72-600 aircraft and two Airbus A321-200 aircraft are classified as assets held for sale.
11
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
DEBT SUMMARY
Loans and borrowings
Cash and cash equivalents
Net indebtedness
Loan to value ratio
Weighted average cost of secured debt
Weighted average cost of total debt
2022
US$’000s
2021
US$’000s
828,130
35,267
792,863
68.0%
4.0%
5.7%
947,640
25,067
922,573
73.9%
3.9%
5.4%
Loans and borrowings and net indebtedness decreased due to loan repayments exceeding additional
secured debt issued during the year. The Group drew down a loan of US$17.5 million under a secured
warehouse loan credit facility during the year. A gain on debt modification of US$50.3 million was
recorded in the year ended 30 June 2021 in connection with the extension of the maturity date of the
Group’s unsecured notes on revised terms in March 2021. In the year ended 30 June 2022 US$8.8
million of the debt modification gain was amortised and added back to the book value of unsecured notes
included in loans and borrowings.
The weighted average cost of secured debt facilities increased to 4.0% as of 30 June 2022 (2021: 3.9%)
principally due to the impact on the average of repayments of lower cost debt.
The cost of unsecured notes is based on revised interest rate terms in effect since 25 March 2021 which
give the Group the option of paying either 6.5% cash and 2.5% payment in kind or 8.25% all cash
coupons at each semi-annual coupon payment date.
The weighted average cost of total debt was 5.7% as of 30 June 2022 (2021: 5.4%).
At the end of the financial year, Avation’s overall loan to value ratio (defined as total loans and borrowings
divided by total assets) was 68.0% (2021: 73.9%) and 90.0% of total debt was at fixed or hedged
interest rates (2021: 90.9%). The proportion of unsecured debt to total debt was 35.8% (2021: 29.9%).
In August 2022, S&P Global Ratings revised Avation’s issuer rating to B- (CCC+ for unsecured notes) on
improving capital structure and liquidity.
The Company’s current credit ratings are as follows:
Rating Agency
Corporate Credit Rating
Unsecured Notes Rating
Standard & Poor’s
B- (Stable outlook)
CCC+
Aircraft leasing is a capital-intensive industry. Avation manages interest rate risk is managed as outlined
in the risk management section of the note 7 in the notes to the financial statements. Any potential
future increases in interest rates could impact the level of profitability of any new business the group
undertakes although this could be mitigated by higher lease rates reflecting the current interest rate
environment.
12
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Avation is committed to environmental responsibility as part of its business strategy. This is achieved by
investing in leading-edge designs of commercial aircraft that offer improved fuel efficiency and therefore
lower emissions. A substantial percentage of our fleet are modern regional turboprop aircraft which
provide significant environmental benefits over comparable jet aircraft due to their more economical use
of fuel and consequently lower carbon dioxide emissions. The most recent additions to the fleet have
included 6 latest technology A220-300 aircraft, which provide significantly reduced fuel consumption and
emissions in comparison to older aircraft.
As of 30 June 2022, 72% of our overall fleet by number are latest technology ATR and Airbus A220
aircraft.
Avation is a member of the Aviation Working Group (AWG) which has developed the aviation industry
Aircraft Carbon Calculator, aimed at monitoring the carbon emissions of aircraft fleets. The AWG Aircraft
Carbon Calculator provides an industry standard methodology for calculating and comparing aircraft
carbon dioxide emissions. Use of the Aircraft Carbon Calculator will provide meaningful information and
assist in monitoring and reporting of aircraft emissions.
Avation’s Environmental, Social and Governance report is published on the Company’s website at:
https://www.avation.net/ESG.html.
As of 30 June 2022, Avation PLC has an MSCI ESG rating of BB (2021:BB).
Climate-Related Financial Disclosures
The Risk Committee makes recommendations to the Board on the principal risks of relevance to the
business. Climate-related risks are considered in terms of potential for contribution to these principal
risks. The issues considered include both the risk of physical disruption to the business from climate
change, and the risks and opportunities as the global economy transitions to significantly lower carbon
emissions. In the current period, the Risk Committee has assessed materiality and concluded that
climate related risks do not give rise to the level of a principal risk.
The Risk Committee recognises that the financial statements cannot capture all possible future outcomes,
as governmental and societal responses to climate change risk are still developing and are
interdependent upon each other. Future periods may be impacted by climate risks and certain older
technology or less efficient aircraft types may be more susceptible to climate risk than latest technology
and more efficient aircraft types. As of 30 June 2022, 28% of Avation’s fleet by number are older
technology aircraft types.
CORPORATE SOCIAL RESPONSIBILITY
Avation is committed to the principles of being a good corporate citizen. For the 2022 financial year the
group did not have any material matters to report on social, community and human rights issues.
CORPORATE ETHICS AND BEHAVIOUR
Avation operates the following policies governing corporate ethics and behaviour:
(cid:120) Anti-bribery policy
(cid:120) Gifts and entertaining policy
(cid:120) Modern salary policy
(cid:120) Whistleblowing policy
(cid:120)
Policy for dealing with Company securities
13
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
EMPLOYEES
A breakdown by gender of the number of persons who were Directors of the Company, senior managers
and other employees as of 30 June 2022 is set out below:
Directors of the Company
Senior managers
Other employees
SECTION 172(1) STATEMENT
Male
Female
4
4
10
-
-
5
On the following pages we have set out how the Board has acted in a way that promotes the success of
the Company for the benefit of its members as a whole, in accordance with the requirements of the
Companies (Miscellaneous Reporting) Regulations 2018, whilst having regard to the following matters
set out in s.172(1) of the Act.
The likely consequences of any decision in the long term
The board is mindful that it should make decisions which are the best for the Company in the long term.
The nature of the business of aircraft leasing is long-term, with typical aircraft leases being for ten or
twelve years duration for new aircraft. The Company does undertake the trading of aircraft where they
have reached a certain age and when market conditions are favourable. However, the transfer of an
aircraft with a lease attached to it is a transaction which would typically take three to five months to
complete and therefore such transactions are undertaken on strategic timeframes. Equity released from
the sale of aircraft is typically re-invested in financing or re-financing the purchase of aircraft.
The interests of the Group’s employees
The board actively engages with employees to ensure that staff are kept up to date and informed. The
Company has regular management meetings at which typically two of the Company’s executive directors
are present and which are attended by the majority of the Company’s employees.
Throughout the COVID-19 pandemic, staff have received regular communications and updates from the
Board to ensure that they are kept up to date and informed in respect of action being taken by the
business, and of the impact of the situation on business performance, with management meetings being
held on a daily basis.
The need to foster the Group’s business relationships with suppliers, customers and others
Suppliers
The Company has long-term relationships with its suppliers which are primarily comprised of commercial
lending organisations such banks and other financial institutions, as well as the manufacturers of aircraft
and aircraft engines.
Customers
The Company has seventeen airline customers and maintains close relationships with them, indeed this
is inherent in the nature of aircraft leasing. In particular, the Company needs to ensure that its customers
14
AVATION PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 30 JUNE 2022
are looking after and maintaining the aircraft and are otherwise complying with the terms of the
respective aircraft leases.
The impact of the Group’s operations on the community and the environment
The board recognises the importance of managing the community impact of the business and minimising
any adverse impact of our operations on the environment. The Company carried out a review of its
environmental, social and governance (ESG) performance and a copy of this report can be found on the
Company’s website at: www.avation.net/ESG.html
The desirability of the Group maintaining a reputation for high standards of business conduct
The board expects the highest standards of conduct throughout the business, both in respect of
employees and in respect of its suppliers, advisers and agents. The board receives regular updates in
respect of matters of regulatory compliance, and the business has policies, procedures and processes in
place in respect of modern slavery, bribery and corruption.
The need to act fairly as between members of the Company
The Company has a single class of ordinary shares so all shareholders are treated equally. Details of how
we engage with shareholders can be found in our corporate governance statement in the Directors’
Report.
On behalf of the board
Robert Jeffries Chatfield
Executive Chairman
3 November 2022
15
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2022
The Directors present their report and financial statements for the year ended 30 June 2022.
Principal activities and business review
The principal activity of the Group is aircraft leasing. Details of activities carried out by subsidiary
companies are set out in Note 23 to these financial statements.
The principal risks and uncertainties affecting the Group’s turnover are described in the Strategic Report.
The full business review including KPI’s can be found in the Strategic Report and in Note 7 to these
financial statements. The Group has reviewed environmental matters in the Strategic Report.
Results and dividends
The consolidated statement of profit or loss and the consolidated statement of other comprehensive
income for the year are set out on in these financial statements. The Company did not declare and pay
any dividend during the year.
Avation’s dividend policy is, subject to having the reserves to do so and within any restrictions imposed
by debt covenants, to declare a dividend if the Board considers that it is in the best long-term interests
of the Company and its shareholders. The dividend policy is progressive, in that if reserves are available
the dividend shall increase.
Directors and their interests
The Directors who served the Company during the year together with their interests and deemed interests
in the shares of the Company at the beginning and end of the year, were as follows:
Direct interest
Deemed interest
30 June
2022
1 July
2021
30 June
2022
1 July
2021
Ordinary shares of £0.01 each:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
1
856,667
25,000
50,000
1
856,667
25,000
50,000
11,995,000
-
-
-
11,995,000
-
-
-
16
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Significant shareholdings
Ordinary shares of £0.01 each:
JP Morgan Securities LLC
Goldman Sachs Securities (Nominees) Limited
Lynchwood Nominees Limited
Luna Nominees Limited
HSBC Global Custody Nominee (UK) Limited
HSBC Global Custody Nominee (UK) Limited
Pershing Nominees Limited
HSBC Global Custody Nominee (UK) Limited
Equal Opportunities Policy
Ordinary
shares
Percentage
16,224,318
23.35%
5,684,860
5,475,940
5,030,000
5,014,415
5,013,635
5,010,089
2,092,788
8.18%
7.88%
7.24%
7.22%
7.22%
7.21%
3.01%
It is the Group's policy to employ individuals with the necessary qualifications without regard to sex,
marital status, race, creed, colour, nationality or religion. Full and fair consideration is given to
applications for employment made by disabled persons having regard to their particular aptitudes and
abilities.
The Group recognises the great importance of the contribution made by all employees and aims to keep
them informed of matters affecting them as employees and developments within the Group.
Communication and consultation is achieved by a variety of means both within individual companies or
branches and on a group-wide basis.
Future Developments
In accordance with s414C(11) of the Companies Act 2006, the Directors have chosen to include
information about future developments in the Chairman’s Statement and Strategic Report.
Financial Instruments
See Note 7 to these financial statements.
17
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Going Concern
The Directors’ assessment of the Group’s ability to continue as a going concern is detailed in Note 3(e)
to the financial statements. The Note in its entirety is deemed to be incorporated into and form part of
the Directors’ Report.
Greenhouse Gas Emissions Statement
Usage of the Company’s aircraft is under the control of lessees who are not required to provide emissions
data to the Company.
Carbon emissions are estimated by converting the Company's energy usage in kilowatt hours (KWh) into
kilograms (Kg) of carbon dioxide emitted using Singapore's Grid Emission Factor (GEF), a measure of
the amount of carbon dioxide emitted per kilowatt hour of electrical energy generated in
Singapore. Energy usage is based on electricity consumption at the Company's sole office in Singapore.
In the year ended 30 June 2022 the Company used 32,496 KWh of energy (2021: 28,012 KWh) which
was converted to estimated carbon emissions of 13,258 Kg (2021: 11,443 Kg) using a GEF of 0.4080
(2021: 0.4085).
Capital Structure
Details of the Company’s issued share capital, together with details of the movements therein during the
financial year are shown in Note 31. The Company has one class of ordinary shares which carry no right
to fixed income. Each share carries the right to one vote at general meetings of the Company.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both
governed by the general provisions of the Articles of Association and prevailing legislation. The Directors
are not aware of any agreements between holders of the Company’s shares that may result in restrictions
on the transfers of securities or on voting rights.
Details of employees share option schemes are set out in Note 38.
No person has any special rights of control over the Company’s share capital and all issued shares are fully
paid.
With regards to the appointment and replacement of Directors, the Company is governed by its Articles of
Association, the Companies Act and related legislation. The Articles themselves may be amended by special
resolution of the shareholders.
Corporate Governance Statement
The Board is accountable to the shareholders for the good corporate governance of the Group. The
principles of corporate governance and a code of best practice are set out in the UK Corporate
Governance Code issued in July 2018. The Company is not required to comply with the Code in full nor
state any areas with which it does not comply. The Board has adopted policies that it considers to be
appropriate for the Company’s size and nature.
The Board acts as the administrative, management and supervisory body overseeing the operation of
the Group. The Board consist of two Executive Directors (Robert Jeffries Chatfield and Roderick Douglas
Mahoney) and two Non-Executive Directors (Stephen John Fisher and Derek Sharples). The Board meets
at least six times a year; matters for discussion at formal meetings are clearly laid down and decisions
recorded. The Board is responsible for overall corporate strategy; the reviewing and approval of
acquisition and divestment opportunities; the approval of significant capital expenditures; the review of
budgets; trading performance; and all significant financial and operational issues.
18
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2022
The Company operates the following committees whose members are detailed below:
(cid:120) Audit Committee - Robert Jeffries Chatfield, Stephen John Fisher and Derek Sharples; and
(cid:120) Risk Committee – Derek Sharples, Stephen John Fisher, Iain Cawte (non-Board member),
Duncan Scott (non-Board member) and Richard Wolanski (non-Board member); and
(cid:120) Remuneration Committee - Robert Jeffries Chatfield, Roderick Douglas Mahoney, Stephen John
Fisher and Derek Sharples
The Board is responsible for identifying and evaluating the major business risks faced by the Company
and for determining and monitoring the appropriate course of action to manage these risks. The key
risks the Company faces are described in the risk assessment section of this annual report and accounts.
The Board conducts a review of the effectiveness of the Company’s systems of internal control and risk
management on an annual basis. Following this review, it has concluded that the Company’s financial,
operational and compliance controls, and risk management procedures are appropriate and suitable to
enable the Board to safeguard shareholders’ investments and the Company’s assets.
The process and systems of internal control are designed to manage, rather than eliminate, the risk of
failure to achieve the Company’s objectives, and can therefore only provide reasonable and not absolute
assurance against material misstatement or loss.
Statement as to disclosure of information to auditors
(cid:120) So far as the Directors are aware, there is no relevant audit information of which the Company's
auditors are unaware, and
(cid:120)
They have taken all the steps that they ought to have taken as Directors in order to make
themselves aware of any relevant audit information and to establish that the Company's auditors
are aware of that information.
Auditor
Ernst & Young have indicated their willingness to continue in office and in accordance with s489 of the
Companies Act 2006. A resolution proposing that they be reappointed as auditors of the Company will be
put to the Annual General Meeting.
Purchase of own shares
During the financial year ended 30 June 2022, the Company did not buy any treasury shares.
By a resolution passed at the Annual General Meeting held on 1 December 2021, the Company’s Directors
are authorised to buy back shares not exceeding 30 per cent of the total number of shares in issue on
that date. Share buy backs may be at market prices but not under £0.75 and not exceeding a price equal
to the higher of (i) 105% of the average of the middle market quotations for the share price for the five
business days preceding the buy-back date and (ii) the higher of the price for the last independent share
trade and the amount stipulated pursuant to Article 5(6) of the Market Abuse Regulation (EU) No.
596/2014 (as in force in the United Kingdom pursuant to the European Union (Withdrawal) Act 2018),
and in any case, not exceeding £3.00 per share, excluding brokerage, commissions and other related
expenses.
19
AVATION PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Subsequent events
See Note 43 to these financial statements.
Information to be included in annual report
In accordance with the UK Financial Conduct Authority’s Listing Rules (LR 9.8.4C), the following table
provides references to where the information to be included in the annual report and accounts, where
applicable, under LR 9.8.4, is set out.
Listing Rule requirement
Reference
Details of any long-term incentive schemes as required
by LR 9.4.3 R.
Directors’ Remuneration report and Notes to the
Financial Statements – Note 38 Share Based Payments
Details of any contract of significance subsisting during the
period under review to which the listed company, or one of
its subsidiary undertakings, is a party and in which
a Director of the listed company is or was materially
interested.
On behalf of the board
Notes to the Financial Statements – Note 8, Related
Party Transactions
Robert Jeffries Chatfield
Executive Chairman
20
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Introduction
This report has been prepared in accordance with Schedule 8 of the Large and Medium Companies and
Groups (Accounts and Reports) Regulations 2008 as amended in August 2013. As required a resolution to
approve the Directors’ remuneration will be proposed at the forthcoming Annual General Meeting of the
Company at which the financial statements will be approved. The vote will have advisory status, will be in
respect of the remuneration policy and overall remuneration packages and will not be specific to the
individual levels of remuneration.
The information in the Directors’ Remuneration Report is not audited, unless specifically stated that the
section is subject to audit.
Statement by the Chair of the Remuneration Committee
The Company’s remuneration policy remains substantially unchanged for 2022. Key aspects of the policy
are to attract and retain executives; be consistent with best practices and to ensure alignment between
performance and compensation.
Remuneration (audited)
The components of remuneration are:
(cid:120)
(cid:120)
(cid:120)
basic salary and benefits determined by the Remuneration Committee which are included in
employment agreements and reviewed annually;
bonuses based upon performance of the Company and the individual concerned; and
share warrants.
Component Purpose
Operation & framework used to assess performance
Salary and
benefits
To provide the core reward for the
role at a sufficient level to recruit
and retain
the
necessary competence to execute
the company’s business strategy.
individuals of
Operation:
Salaries are typically set after considering salary levels in
companies of a similar size and complexity, the responsibilities
of each individual role, progression within the role, individual
performance and an individual’s experience. Our overall policy,
having had due regard to the factors noted, is normally to
target salaries at the market median level.
Salaries may be adjusted in line with the market and
adjustments out of line with the market may be awarded in
certain circumstances such as where there is a change in
responsibility, progression in the role, experience or a
significant increase in the scale of the role and/or size, value
and/or complexity of the Group. Salary levels for current
incumbents are set out elsewhere in this report.
Framework used to assess performance:
The remuneration committee considers individual salaries at
the appropriate committee meeting each year after having due
regard to the factors noted in operating the salary policy. No
recovery provisions apply to salary.
21
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Bonuses
incentivise and
recognise
To
execution of the business strategy
on a semi-annual basis.
Operation:
Bonuses are paid in cash twice yearly to Directors based on a
target percentage of the employee’s basic salary. All bonus
payments are at the discretion of the Committee, as shown
following this table.
Framework used to assess performance:
The remuneration committee will assess company and
individual performance compared
to prior year and
expectations for the current year. Individual performance will
also be assessed against key performance metrics established
for each executive. Metrics considered in awarding bonuses
include share price appreciation; increase in the Company’s
earnings per share; reliable and high quality financial
reporting; growth in asset value and profits; and dividend
growth.
Share
Warrants
incentivise and
recognise
To
execution of the business strategy
over the long-term.
Operation:
Each year share warrants and/or performance shares awards
may be granted subject to the achievement of performance
targets. Awards normally vest over a three-year period.
Framework used to assess performance:
Same as for bonus.
Individual Director’s remuneration was as follows:
Executive Directors:
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Non-Executive Directors:
Stephen John Fisher
Derek Sharples
Salaries
and fees
US$’000s
Bonuses
Taxable
benefits
US$’000s US$’000s
Share
warrants
US$’000s
Total
2022
US$’000s
Total
2021
US$’000s
711
388
45
45
-
220
-
-
70
-
-
-
443
269
1,224
877
1,394
907
-
-
45
45
45
45
1,189
220
70
712
2,191
2,391
Bonuses are subject to the discretion of the Remuneration Committee and are awarded after assessing
company and individual performance compared to prior years and expectations for the current year.
Individual performance is also assessed against key performance metrics established for each executive.
Taxable benefits mainly relate to housing expenses, medical expenses and private car expenses.
The information in this part of the Directors’ Remuneration Report is subject to audit.
22
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Service contracts
The employment contracts of the Executive Directors with the Company are terminable by either party
with the notice in writing to the other detailed in the table below.
The Directors’ service contracts are as follows:
Date of contract
term
Unexpired
Compensation
payable on
early
termination
Notice
period
Robert Jeffries Chatfield
Roderick Douglas Mahoney
Stephen John Fisher
Derek Sharples
29 April 2013
21 February 2022
29 April 2014
15 November 2016
Indefinite
Indefinite
Indefinite
Indefinite
4 months
2 months
1 month
1 month
-
-
-
-
Share warrants (audited)
The Group has an ownership-based compensation scheme for employees of the Group.
Warrants are granted to employees of the Group to promote:
Improvement in the Company’s earnings per share;
(cid:120)
(cid:120) Reliable and high quality financial reporting;
(cid:120) Growth in asset value and profits; and
(cid:120) Growth in dividends.
Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are paid
or are payable by the recipient on receipt of the warrant. The warrants carry neither rights to dividends
nor voting rights. There are no performance conditions that need to be met before warrants can be
exercised.
Warrants granted to Directors on 5 September 2018 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 6 September 2019
On 6 September 2019 and before 6 September 2020
On 6 September 2020 and before 6 September 2021
On 6 September 2021 to 6 October 2021
Proportion of total share options that are
exercisable
0 per cent
Up to 33 per cent of the grant
Up to 33 per cent of the grant or up to 66 per cent of
the grant if warrants were not exercised after the first
vesting year
Balance or 100 per cent of the grant if warrants were
not exercised after the first and second vesting years
The exercise price for the warrants granted on 5 September 2018 was re-priced on 23 December 2020
from 232 pence to 130 pence.
23
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Warrants granted to Directors on 8 March 2019 have a 3-year vesting schedule with details as follows:
Vesting period
Before 9 March 2020
On 9 March 2020 and before 9 March 2021
On 9 March 2021 and before 9 March 2022
On 9 March 2022 to 9 April 2022
Proportion of total share options that are
exercisable
0 per cent
Up to 33 per cent of the grant
Up to 33 per cent of the grant or up to 66 per cent of
the grant if warrants were not exercised after the first
vesting year
Balance or 100 per cent of the grant if warrants were
not exercised after the first and second vesting years
Warrants granted to Directors on 20 September 2019 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 21 September 2020
On 21 September 2020 and before 21 September 2021
On 21 September 2021 and before 21 September 2022
On 21 September 2022 to 21 October 2022
Proportion of total share options that are
exercisable
0 per cent
Up to 33 per cent of the grant
Up to 33 per cent of the grant or up to 66 per cent of
the grant if warrants were not exercised after the first
vesting year
Balance or 100 per cent of the grant if warrants were
not exercised after the first and second vesting years
Warrants granted to Directors on 21 November 2019 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 22 November 2020
On 22 November 2020 and before 22 November 2021
On 22 November 2021 and before 22 November 2022
On 22 November 2022 to 22 December 2022
Proportion of total share options that are
exercisable
0 per cent
Up to 33 per cent of the grant
Up to 33 per cent of the grant or up to 66 per cent of
the grant if warrants were not exercised after the first
vesting year
Balance or 100 per cent of the grant if warrants were
not exercised after the first and second vesting years
24
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Warrants granted to Directors on 23 December 2020 have a 3-year vesting schedule with details as
follows:
Vesting period
Before 23 December 2021
On 23 December 2021 and before 23 December 2022
On 23 December 2022 and before 23 December 2023
On 23 December 2023 to 23 January 2024
Proportion of total share options that are
exercisable
0 per cent
Up to 33 per cent of the grant
Up to 33 per cent of the grant or up to 66 per cent of
the grant if warrants were not exercised after the first
vesting year
Balance or 100 per cent of the grant if warrants were
not exercised after the first and second vesting years
The following share warrants issued to Directors were outstanding at the year-end:
Director
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Robert Jeffries
Chatfield *
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Roderick Douglas
Mahoney
Date granted
(re-priced)
Warrant
price
(re-priced)
Balance at
beginning
of year
Granted
during the
year
Expired during
the year
Balance at
end of year
5 Sep 2018
(23 Dec 2020)
232.0p
(130.0p)
760,000
8 Mar 2019
294.5p
250,000
20 Sep 2019
296.0p
450,000
21 Nov 2019
274.5p
300,000
23 Dec 2020
130.0p
1,200,000
5 Sep 2018
(23 Dec 2020)
232.0p
(130.0p)
450,000
8 Mar 2019
294.5p
150,000
20 Sep 2019
296.0p
180,000
21 Nov 2019
274.5p
120,000
23 Dec 2020
130.0p
750,000
-
-
-
-
-
-
-
-
-
-
(760,000)
(250,000)
-
-
-
(450,000)
(150,000)
-
-
-
-
-
450,000
300,000
1,200,000
-
-
180,000
120,000
750,000
* Robert Jeffries Chatfield was granted the share warrants and assigned these to Epsom Assets Limited.
The closing market price of the shares subject to warrants at the year-end was 75.0 pence. The highest
and lowest closing market prices during the year were 110.0 pence and 61.5 pence.
25
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Company’s performance
The graph below shows the total shareholder return on a holding of shares in the Company as against
the average total shareholder return of the companies comprising the FTSE100 index. The FTSE 100
Index was selected because in the opinion of the Board it is the most appropriate for the Company for
the purposes of a benchmark.
26
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Remuneration of Executive Chairman
2022
2021
2020
2019
2018
Executive Chairman single figure
remuneration (US$’000)
Annual bonus pay-out (as % of
maximum)
1,224
1,394
-
-
908
-
803
-
682
-
The table above shows the prescribed remuneration data for the Director, Robert Jeffries Chatfield,
Executive Chairman undertaking the role of Group Chief Executive Officer during each of the last five
financial years.
Percentage change in remuneration of Chief Executive Officer and annual percentage
change in remuneration for directors and employees
The table below sets out the percentage change in the remuneration of the Executive Chairman who is
undertaking the role of Group Chief Executive Officer and directors compared to that of all employees of
the Group.
Change in remuneration
from 2021 to 2022
Base salary and
fees
Bonus
Taxable
benefits
Warrants
expense
Executive Chairman:
Robert Jeffries Chatfield
Executive Director:
Douglas Roderick Mahoney
Non-executive Director:
Stephen Fisher
Non-executive Director:
Derek Sharples
All employees
-1%
0%
-18%
-25%
-15%
105%
0%
0%
2%
0%
0%
0%
0%
0%
-22%
0%
0%
254%
-18%
-17%
Change in remuneration
from 2020 to 2021
Base salary and
fees
Bonus
Taxable
benefits
Warrants
expense
Executive Chairman:
Robert Jeffries Chatfield
Executive Director:
Douglas Roderick Mahoney
Non-executive Director:
Stephen Fisher
Non-executive Director:
Derek Sharples
All employees
10%
12%
0%
0%
-2%
0%
69%
192%
-52%
0%
0%
0%
0%
0%
229%
0%
0%
-71%
69%
191%
27
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Percentage change in remuneration of Chief Executive Officer and annual
percentage change in remuneration for directors and employees (continued)
Change in remuneration
from 2019 to 2020
Base salary and
fees
Bonus
Taxable
benefits
Warrants
expense
Executive Chairman:
Robert Jeffries Chatfield
Executive Director:
Douglas Roderick Mahoney
Non-executive Director:
Stephen Fisher
Non-executive Director:
Derek Sharples
8%
9%
0%
0%
0%
28%
0%
0%
-3%
0%
0%
0%
41%
17%
0%
0%
All employees
10%
33%
-3%
24%
Relative importance of spend on pay
The Chart below displays the relative expenditure of the Company on various matters, as required (in
the case of remuneration for group employees and shareholder distributions) by the relevant
remuneration regulations:
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
140,396
58%
88,712
5%
6,431
6,771
0%
0
0
Total remuneration for group
employees
Debt Repayment
Dividend paid & Share buybacks
2021 US$ '000
2022 US$ '000
28
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Directors’ remuneration policy
The Company applies a policy for Directors’ remuneration which is designed to meet the following
objectives:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
provide a fair and transparent remuneration policy that is in alignment with shareholders’
interests;
provide both immediate and incentive remuneration that is sufficient to attract and retain
executives;
be consistent with best practice for governance of stock exchange listed companies;
allow claw-back of incentives from executives should previous performance be found to have
led to future adverse circumstances for the Company; and
(cid:120)
ensure alignment between performance and compensation.
The Company targets the following outcomes in applying its policy to ensure alignment of Directors’
remuneration and shareholders’ interests:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
share price appreciation;
increase in the Company’s earnings per share;
reliable and high quality financial reporting;
growth in asset value and profits; and
dividend growth.
Remuneration of the Company’s Executive Directors is comprised of the following components:
(cid:120)
(cid:120)
base salary;
short-term incentives in the form of a cash bonus linked to performance against individual key
performance indicators; and
(cid:120)
long-term incentives in the form of share warrants and/or performance shares.
Remuneration of the Company’s Non-Executive Directors is comprised of fixed Directors’ Fees.
Payments for loss of office
No provisions are made under the Directors’ service contracts for any payments beyond the applicable
notice period.
29
AVATION PLC
DIRECTORS’ REMUNERATION REPORT
FOR THE YEAR ENDED 30 JUNE 2022
Statement of consideration of employment conditions elsewhere in the company
Pay and employment conditions of other employees in the company were taken into account when setting
the policy for Directors’ remuneration. Similar remuneration polices are in place for Directors and
employees of an equivalent level.
Shareholders' vote on remuneration
Votes cast in favour
Votes cast against
Total votes cast in favour or against
Votes withheld
Note:
Share Count
31,432,495
3,654,964
35,087,459
10,800
% of
vote cast
89.58%
10.42%
100%
-
The Board as a whole considers the remuneration of the Directors and has not engaged external advisers.
The remuneration report for the year ended 30 June 2021 was approved at the Annual General Meeting
held on 1 December 2021.
On behalf of the Board
Robert Jeffries Chatfield
Executive Chairman
30
AVATION PLC
DIRECTORS’ RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
The Directors are responsible for preparing the Annual Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that
law the Directors are required to prepare the Company and Group financial statements in accordance
with UK-adopted International Accounting Standards (“IFRSs”) in conformity with the requirements of
the Companies Act 2006.
Under company law the Directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of the affairs of the Company and of the Group and the
financial performance and cash flows of the Group for that year.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
(cid:120)
(cid:120) make judgements and accounting estimates that are reasonable and prudent;
(cid:120)
prepare the accounts on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
present information, including accounting policies, in a manner that provides relevant reliable,
comparable and understandable information.
provide additional disclosures when compliance with the specific requirements in IFRSs adopted
are insufficient to enable the users to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and financial performance.
properly select and apply accounting policies.
(cid:120)
(cid:120)
(cid:120)
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s and the Group’s transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company's website. Legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation in other jurisdictions.
31
AVATION PLC
DIRECTORS’ RESPONSIBILITIES STATEMENT
FOR THE YEAR ENDED 30 JUNE 2022
We confirm that to the best of our knowledge:
(cid:120)
(cid:120)
(cid:120)
the financial statements, prepared in accordance with IFRSs inconformity with the Companies
Act 2006, give a true and fair view of the assets, liabilities and financial position of the Company
and of the Group and of the Group’s profit for the year;
the strategic report includes a fair review of the development and performance of the business
and the position of the Company and of the Group, together with a description of the principal
risks and uncertainties that they face; and
The annual report and financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for the shareholders to assess the Group’s
position, performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 3 November 2022 and is signed
on its behalf by Robert Jeffries Chatfield.
Robert Jeffries Chatfield
Executive Chairman
32
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC
Opinion
In our opinion:
•
•
•
•
Avation plc’s group financial statements and parent company financial statements (the “financial
statements”) give a true and fair view of the state of the group’s and of the parent company’s affairs
as at 30 June 2022 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with UK adopted
international accounting standards;
the parent company financial statements have been properly prepared in accordance with UK
adopted international accounting standards as applied in accordance with section 408 of the
Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements of Avation plc which comprise:
Group
Parent company
Consolidated statement of profit and loss for
the year then ended
Consolidated statement of comprehensive
income for the year then ended
Consolidated statement of financial position as
at 30 June 2022
Company statement of financial position as at 30
June 2022
Consolidated statement of changes in equity
for the year then ended
Company statement of changes in equity for the
year then ended
Consolidated statement of cash flows for the
year then ended
Company statement of cash flows for the year then
ended
Related notes 1
financial
to 44
statements, including a summary of significant
accounting policies
the
to
Related notes 1 to 44 to the financial statements,
including a summary of significant accounting
policies
The financial reporting framework that has been applied in their preparation is applicable law and UK
adopted international accounting standards and as regards to the parent company financial statements,
as applied in accordance with section 408 of the Companies Act 2006.
33
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report below. We are independent
of the group and parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the
directors’ assessment of the group and parent company’s ability to continue to adopt the going concern
basis of accounting included:
•
In conjunction with our walkthrough of the Group’s financial statements close process, we
confirmed our understanding of the going concern assessment process and engaged with
management to ensure all key factors were considered in their assessment.
• We obtained management’s going concern assessment, including their covenant assessment and
cashflow analysis and forecast for a period of 12 months from the expected date of signing of the
financial statements.
• We reviewed the sources of cash inflows available to the Group and the various scenario
analyses performed by management. We noted that in management’s most stressed scenario,
management’s forecasted minimum cash requirement would still be generated by the Group.
• We have considered the assumptions included in the cashflow analysis prepared, including
management assessment for the potential impact of Covid-19. We considered the
appropriateness of the methods used within the cashflow analysis and determined through
inspection and testing of the methodology and calculations that the methods utilised were
appropriate.
• We have further stressed managements’ sensitivities downwards in order to test the resilience
of the Group’s business under more pessimistic scenarios.
• We have reviewed the appropriateness of the disclosures made by management as detailed
under Note 3 (e) of the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to
events or conditions that, individually or collectively, may cast significant doubt on the group and parent
company’s ability to continue as a going concern for a period of 12 months from when the financial
statements are authorised for issue. Going concern has also been determined to be a key audit matter.
Our responsibilities and the responsibilities of the directors with respect to going concern are described
in the relevant sections of this report. However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern.
34
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Overview of our audit approach
Key
matters
audit
• Valuation of aircraft
• Valuation of aircraft purchase rights
• Expected credit loss (ECL) on trade and other receivables
Audit scope
• We performed an audit of the complete financial information of Avation Plc
in accordance with the materiality thresholds as set out below.
Materiality
• Overall group materiality of US$2.27 million which represents 1% of the total
equity as of 30 June 2022.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality
determine our audit scope for each entity within the Group. Taken together, this enables us to form an
opinion on the consolidated financial statements. We take into account size, risk profile, the organisation
of the group and effectiveness of group wide controls, changes in the business environment and other
factors when assessing the level of work to be performed at each entity.
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
Climate Change
There has been increasing interest from stakeholders as to how climate change will impact companies.
The Group has determined that the most significant future impacts from climate change on its operations
will be the risk of disruptions to its business and the risks and opportunities as the global economy
transitions to lower carbon emissions. These are explained on page 13 in the strategic report, which
form part of the “Other information,” rather than the audited financial statements. Our procedures on
these disclosures therefore consisted solely of considering whether they are materially inconsistent with
the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be
materially misstated.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate
opinion on these matters.
35
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Key observations
communicated to
the
Audit
Committee
Our planned audit
procedures were
completed without
material exception.
Risk
Our response to the risk
of
(2022:
Valuation
US$813.89 million, 2021: US$961.47
million)
Aircraft
Refer to the Accounting policies (page
54); and Note 19 of the Consolidated
Financial Statements (page 98)
The carrying value of jet and turboprop
aircraft represent the most significant
asset in the financial statements of
Avation Plc. As at 30 June 2022, the
carrying value of aircraft reported is
US$813.89 million (2021: US$961.47
million) as detailed in Note 19 of the
financial statements.
As set out within Notes 3 (f) and 3 (g)
‘Summary of Significant Accounting
Policies’, aircraft are measured at fair
value on a Lease Encumbered Value
basis (“LEV”). As detailed in Note 4 (b)
‘Critical Accounting Estimates and
to
Judgments’, management need
apply estimation and judgment as part
of
fair value assessment of
their
aircraft.
For the purposes of determining the
valuation, the carrying value of each jet
and turboprop is compared to the
computed LEV. LEV is determined by
discounting the lease income streams
associated with the lease and the
expected future residual value of the
aircraft at the end of the lease adjusted
lease
conditions
for
termination using an appropriate
discount rate.
return
at
We have assessed each aircraft as they
are deemed to be individually material to
the financial statements.
In obtaining sufficient audit evidence we:
• Obtained an understanding of the
process for the valuation of aircraft
on an LEV basis and performed a
process,
walkthrough
including controls over the inputs
and assumptions of calculation, and
evaluated the design of controls in
relation to the identified risk.
the
of
•
• Assessed and evaluated the key
assumptions used (discount rate,
lease income streams and residual
values).
our
Involved
valuations and business modelling
team to assess the reasonableness
of
in
discounting the future cash flows of
aircraft in the model.
the discount
rates used
specialists
from
• Evaluated the independence and
competence of experts engaged by
management in valuing the lease
encumbered values in accordance
with the requirements of auditing
standards. We obtained external
aircraft valuation reports validating
the calculation of the LEV including
residual values.
• Assessed
calculations
the
underpinning the LEV model by
checking that the data and the
assumptions input into the model
were in agreement with those that
we had evaluated.
• Assessed the appropriateness and
presentation of disclosures in the
financial statements for compliance
with
accounting
relevant
the
standards.
36
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Key
observations
communicated to the Audit
Committee
Our procedures were completed
exception.
without material
There were no material items
highlighted to the Group Audit
Committee.
Risk
Our response to the risk
of
Valuation
Purchase Rights
US$65.28 million,
US$26.96 million)
Aircraft
(2022:
2021:
to
Refer
the Accounting
policies (page 54); and Note 25
of the Consolidated Financial
Statements (page 113)
We have determined that the
valuation of aircraft purchase
rights represent a significant
risk. The fair value of aircraft
purchase rights may not be
correctly valued and recorded
in accordance with IFRS 13,
Fair Value Measurement.
As set out within Note 3 (h)
‘Summary
Significant
of
Accounting Policies’, aircraft
purchase rights are measured
at fair value through profit or
loss. The Group values aircraft
purchase
the
Black Scholes price model.
Critical assumptions made in
determining the fair value of
the aircraft purchase rights
include
the market value
volatility rates used.
rights using
During the financial year ended
30 June 2022, the fair value
recorded for aircraft purchase
rights
is US$65.28 million
(2021: US$26.96 million) as
detailed in Note 25 of the
financial statements.
obtaining
In
evidence we:
sufficient
audit
• Obtained an understanding of
the aircraft purchase rights
valuation process, performed a
walkthrough of the process and
design
evaluated
effectiveness
controls
related to the risk identified.
the
of
• Assessed
the assumptions
used by management and
evaluated the appropriateness
and accuracy of inputs such as
the
future market values,
volatility and the discount rate;
Involved specialist from our
valuation team to assess the
reasonableness
the
valuation model.
of
•
• Evaluated the competence and
independence of the external
appraisers as management
experts for the external market
provided. We
appraisals
external
obtained
these
valuation reports to validate the
market inputs to the valuation
calculation.
• Assessed the presentation of
disclosures
financial
in
statements for compliance with
accounting
the
standards.
relevant
the
37
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Key
observations
communicated to the Audit
Committee
Our procedures were completed
exception.
without material
There were no material items
highlighted to the Group Audit
Committee.
Risk
Our response to the risk
Trade
Expected credit loss (ECL)
and Other
on
Receivables (2022: US$11.34
million,
2021: US$25.91
million)
to
Refer
the Accounting
policies (page 54); and Note 20
of the Consolidated Financial
Statements (page 104)
other
We have determined
that
expected credit loss on trade
and
receivables
represents a significant risk
because there is a high volume
of rent deferrals in 2021 and
2022 arising from the COVID-
19 pandemic and its effect on
the industry. The allowance for
expected credit losses may not
recognised
be adequately
during the financial year.
As set out within Note 3 (u)
of
‘Summary
Significant
the
Policies’,
Accounting
Group applies the simplified
approach to provide for ECLs
for all trade receivables. The
simplified approach requires
the
to be
measured at an amount equal
to lifetime ECLs.
loss allowance
the
As of 30 June 2022,
provision for ECL recorded is
US$11.34 million (2021: US$
25.91 million) as detailed in
financial
Note 20 of
statements.
the
obtaining
In
evidence we:
sufficient
audit
• Obtained an understanding of
the process for assessing the
credit profile of airlines and the
expected credit loss model.
• Performed a walkthrough of the
the
process and evaluated
design
of
controls identified.
effectiveness
• Obtained
management’s
assessment of the ECL and
their evaluation of the risks
associated with each airline
customer.
•
• Reviewed the security deposits
and letters or credit held for
lessee, which were
each
credit
as
treated
enhancements in determining
the net exposure at default.
Independently checked
the
credit rating of relevant lessees
and validated management's
inputs.
• Evaluated
management’s
overall approach in conjunction
with the guidance of IFRS 9 for
reasonableness.
• Assessed the appropriateness
and presentation of disclosure
in the financial statements for
compliance with the relevant
accounting standards.
38
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of
identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably
be expected to influence the economic decisions of the users of the financial statements. Materiality
provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be US$2.3 million (2021: US$1.6 million), which is 1% (2021:
1% of the equity) of the equity as at 30 June 2022. The users of the financial statements are concerned
with the liquidity and/or solvency position of the Group. Therefore, we believe that total equity provides
us with the most relevant measure used by investors and other stakeholders when assessing the
performance of the Group.
We determined materiality for the Parent Company to be US$1.7 million (2021: US$1.5 million), which
is 0.5% of total assets (2021: 0.5% of total assets).
During the course of our audit, we reassessed initial materiality and no changes were required.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce
to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessment, together with our assessment of the Group’s overall control
environment, our judgement was that performance materiality was 50% (2021: 50%) of our planning
materiality, namely US$1.1 million (2021: US$785 thousand). We have set performance materiality at
this percentage due to our expectations of a higher likelihood of misstatements in the current year.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in
excess of US$113 thousand (2021: US$79 thousand), which is set at 5% (2021: 5%) of planning
materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
39
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
We evaluate any uncorrected misstatements against both the quantitative measures of materiality
discussed above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report, including the Chairman’s
Statement (set out on pages 2-4), Strategic Report (set out on pages 5-15), Directors’ Report (set out
on pages 16-20), Directors’ Remuneration Report (set out on pages 21–30) and Directors’
Responsibilities Statement (set out on page 31-32) other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there
is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared
in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which
the financial statements are prepared is consistent with the financial statements; and
the strategic report and directors’ report have been prepared in accordance with applicable legal
requirements.
40
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its
environment obtained in the course of the audit, we have not identified material misstatements in the
strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act
2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for
our audit have not been received from branches not visited by us; or
•
the parent company financial statements and the part of the Directors’ Remuneration Report to be
audited are not in agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on pages 31-32, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the group and parent
company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
41
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The
risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the company and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the
group and determined that the most significant are:
o Companies Act 2006
o Tax Legislation (governed by HM Revenue and Customs and Inland Revenue Authority
of Singapore)
• We understood how Avation plc is complying with those frameworks holding discussions with
general counsel, external counsel and service providers. We inquired as to any known instances
of non-compliance or suspected non-compliance with laws and regulations.
• We assessed the susceptibility of the group’s financial statements to material misstatement,
including how fraud might occur by holding discussions with senior management, including the
Chief Executive Officer, Chief Financial Officer, Audit Committee members and General
Counsel.
• Based on this understanding we designed our audit procedures to identify non-compliance with
such laws and regulations. Our procedures involved inquiring of key management and reviewing
key policies.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
42
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)
Other matters we are required to address
• We were appointed by the company on 20 December 2017 to audit the financial statements for the
year ended 30 June 2018 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is
5 years, covering the period from our appointment through 30 June 2022.
•
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or
the parent company and we remain independent of the group and the parent company in
conducting the audit.
•
The audit opinion is consistent with the audit results report to the audit committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part
16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
John McCormack (Senior statutory auditor)
for and on behalf of Ernst & Young, Statutory Auditor
Dublin
03 November 2022
Notes:
The maintenance and integrity of the Avation plc web site is the responsibility of the directors;
1.
the work carried out by the auditors does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may have occurred to the financial statements
since they were initially presented on the web site.
2.
statements may differ from legislation in other jurisdictions.
Legislation in the United Kingdom governing the preparation and dissemination of financial
43
AVATION PLC
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 30 JUNE 2022
Continuing operations
Revenue
Other income
Depreciation
Loss on disposal of aircraft and aircraft engine
Unrealised gain/(loss) on aircraft purchase rights
Impairment loss on aircraft
Expected credit losses
Administrative expenses
Legal and professional fees
Other expenses
Operating profit/(loss)
(Loss)/gain on debt modification
Finance income
Finance expenses
Profit/(loss) before taxation
Taxation
Profit/(loss) from continuing operations
Profit/(loss) attributable to:
Shareholders of Avation PLC
Non-controlling interests
Earnings per share for profit/(loss)
attributable to shareholders of Avation PLC
Basic earnings per share (US cents)
Diluted earnings per share (US cents)
Note
2022
US$’000s
2021
US$’000s
9
10
19
19
25
19,30
20,21
11
11
12
34
13
14
16
17
112,232
4,152
116,384
(39,304)
(2,396)
38,320
(6,158)
1,980
(9,465)
(3,698)
(5,479)
90,184
(3,545)
3,344
(67,481)
22,502
117,738
2,406
120,144
(46,332)
(6,948)
(150)
(87,394)
(25,428)
(9,485)
(2,561)
(4,560)
(62,714)
50,270
2,441
(60,218)
(70,221)
(5,375)
17,127
(14,664)
(84,885)
17,126
1
17,127
(84,886)
1
(84,885)
18
18
24.65
24.65
(131.15)
(131.15)
44
AVATION PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2022
Note
2022
US$’000s
2021
US$’000s
Profit/(loss) from continuing operations
17,127
(84,885)
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Net gain on cash flow hedge, net of tax
Items that may not be reclassified subsequently to profit or loss:
Revaluation gain on property, plant and equipment, net of tax
Other comprehensive income, net of tax
24
32
35,387
35,387
16,209
51,596
1,686
1,686
7,440
9,126
Total comprehensive income/(loss) for the year
68,723
(75,759)
Total comprehensive income/(loss) attributable to:
Shareholders of Avation PLC
Non-controlling interests
68,722
1
68,723
(75,760)
1
(75,759)
45
AVATION PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2022
ASSETS
Non-current assets
Property, plant and equipment
Finance lease receivables
Trade and other receivables
Derivative financial assets
Aircraft purchase rights
Lease incentive assets
Goodwill
Current assets
Finance lease receivables
Trade and other receivables
Investment in equity, fair value through profit or loss
Lease incentive assets
Cash and bank balances
Assets held for sale
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Treasury shares
Merger reserve
Asset revaluation reserve
Capital reserve
Other reserves
Retained earnings
Equity attributable to shareholders of Avation PLC
Non-controlling interests
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Derivative financial liabilities
Maintenance reserves
Deferred tax liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Maintenance reserves
Income tax payable
Liabilities directly associated with assets held for sale
Total equity and liabilities
Approved by the board and authorised for issue on 3 November 2022
………………………….
Robert Jeffries Chatfield - Executive Chairman
46
Note
2022
2021
US$’000s
US$’000s
19
21
20
24
25
28
22
21
20
26
28
29
30
31
31
32
33
34
35
24
36
37
34
35
36
30
813,908
963,304
55,208
19,388
5,920
65,280
310
1,902
45,836
8,857
-
26,960
6,661
1,902
961,916
1,053,520
5,624
13,202
3,715
137
119,171
141,849
113,255
255,104
4,154
35,112
-
1,377
122,471
163,114
66,300
229,414
1,217,020
1,282,934
1,203
67,681
(7,811)
6,715
51,730
8,876
14,174
84,519
227,087
6
227,093
764,230
18,274
1,055
75,131
25,437
1,203
67,681
(7,811)
6,715
37,602
8,876
(21,382)
64,058
156,942
68
157,010
505,018
16,472
20,161
89,279
17,138
884,127
648,068
63,900
15,940
10,156
658
90,654
15,146
105,800
442,622
16,449
12,202
666
471,939
5,917
477,856
1,217,020
1,282,934
AVATION PLC
COMPANY STATEMENT OF FINANCIAL POSITION
FOR THE YEAR ENDED 30 JUNE 2022
ASSETS
Non-current assets
Property, plant and equipment
Trade and other receivables
Derivative financial assets
Investment in debt instrument, fair value through profit or loss
Investment in subsidiaries
Aircraft purchase rights
Current assets
Trade and other receivables
Cash and bank balances
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Treasury shares
Merger reserve
Other reserves
Retained earnings
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Derivative financial liabilities
Deferred tax liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Note
2022
US$’000s
2021
US$’000s
19
20
24
27
23
25
20
29
31
31
33
34
35
24
37
34
35
-
100,238
1,281
5,925
3,328
65,280
176,052
145,491
9,709
155,200
1,814
8,380
-
6,089
14,147
26,960
57,390
231,369
5,513
236,882
331,252
294,272
1,203
67,681
(7,811)
6,715
1,089
70,849
139,726
113,086
33,061
1,055
9,680
156,882
16,353
18,291
34,644
1,203
67,681
(7,811)
6,715
(4,050)
33,061
96,799
-
123
8,202
2,720
11,045
143,600
42,828
186,428
Total equity and liabilities
331,252
294,272
The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 not to present the
Company statement of profit or loss and other comprehensive income. The Company’s profit for the year was US$36.5
million (2021: US$15.3 million loss).
Approved by the board and authorised for issue on 3 November 2022
………………………….
Robert Jeffries Chatfield
Executive Chairman
47
AVATION PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Note
Share
Share
Treasury
Merger
Asset
Capital
Other
Retained
Total
Non-
Total
capital
premium
Shares
reserve
revaluation
reserve
reserves
earnings
controlling
equity
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
reserve
interest
Attributable to shareholders of Avation PLC
Balance at 1 July 2021
1,203
67,681
(7,811)
6,715
37,602
8,876
(21,382)
64,058
156,942
68
157,010
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends paid to non-
controlling interest
Share warrant expense
33
Total transactions with owners
recognised directly in equity
Release of revaluation reserve
32
upon sale of aircraft
Expiry of share warrants
33
Total others
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,209
16,209
-
-
-
(2,081)
-
(2,081)
-
-
-
-
-
-
-
-
-
-
17,126
35,387
35,387
-
17,126
-
1,423
1,423
-
(1,254)
(1,254)
-
-
-
2,081
1,254
3,335
Balance at 30 June 2022
1,203
67,681
(7,811)
6,715
51,730
8,876
14,174
84,519
227,087
17,126
51,596
68,722
-
1,423
1
-
1
17,127
51,596
68,723
(63)
-
(63)
1,423
1,423
(63)
1,360
-
-
-
-
-
-
6
-
-
-
227,093
Other reserves consists of capital redemption reserve, share warrant reserve, fair value reserve and foreign currency translation reserve.
The merger reserve arose on acquisition of additional shares of the Company’s subsidiary Capital Lease Aviation Limited through the allotment of ordinary shares in the year ended
30 June 2015. The merger reserve represents the difference between the fair value and the nominal value of the shares issued by the Company.
48
AVATION PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
Note
Share
Share
Treasury
Merger
Asset
Capital
Other
Retained
Total
Non-
Total
capital
premium
Shares
reserve
revaluation
reserve
reserves
earnings
controlling
equity
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
US$’000s
reserve
interest
Attributable to shareholders of Avation PLC
Balance at 1 July 2020
1,108
57,747
(7,811)
6,715
30,162
8,876
(24,302)
148,455
220,950
72
221,022
Loss for the year
Other comprehensive income
Total comprehensive income
-
-
-
-
-
-
Issue of new shares
31
95
9,934
Dividends paid to non-
controlling interest
Share warrant expense
33
Total transactions with owners
recognised directly in equity
Expiry of share warrants
33
Total others
-
-
95
-
-
-
-
9,934
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,440
7,440
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,686
1,686
-
-
1,723
1,723
(489)
(489)
-
(84,886)
(84,886)
-
9,126
(84,886)
(75,760)
10,029
-
1,723
-
-
-
-
489
489
1
-
1
-
(5)
-
(84,885)
9,126
(75,759)
10,029
(5)
1,723
11,752
(5)
11,747
-
-
-
-
-
-
Balance at 30 June 2021
1,203
67,681
(7,811)
6,715
37,602
8,876
(21,382)
64,058
156,942
68
157,010
49
AVATION PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2022
Note
Share
capital
US$’000s
Share
Premium
US$’000s
Treasury
shares
US$’000s
Merger
reserve
US$’000s
Other
reserves
US$’000s
Retained
earnings
US$’000s
Total
US$’000s
1,203
67,681
(7,811)
6,715
(4,050)
33,061
Balance at 1 July 2021
Profit for the year
Other comprehensive income
Total comprehensive income
Share warrants expense
Total transactions with owners, recognised directly
in equity
Expiry of share warrants
Total others
Balance at 30 June 2022
33
33
36,534
-
36,534
-
-
1,254
1,254
96,799
36,534
4,970
41,504
1,423
1,423
-
-
70,849
139,726
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,203
67,681
(7,811)
6,715
-
4,970
4,970
1,423
1,423
(1,254)
(1,254)
1,089
50
AVATION PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
Note
Share
capital
US$’000s
Share
Premium
US$’000s
Treasury
shares
US$’000s
Merger
reserve
US$’000s
Other
reserves
US$’000s
Retained
earnings
US$’000s
Total
US$’000s
Balance at 1 July 2020
Loss for the year
Other comprehensive income
Total comprehensive income
Issue of new shares
Share warrants expense
Total transactions with owners, recognised
directly in equity
Expiry of share warrants
Total others
Balance at 30 June 2021
1,108
57,747
(7,811)
6,715
(7,789)
-
-
-
95
-
95
-
-
-
-
-
9,934
-
9,934
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,505
2,505
-
1,723
1,723
(489)
(489)
47,875
(15,303)
-
(15,303)
-
-
-
489
489
97,845
(15,303)
2,505
(12,798)
10,029
1,723
11,752
-
-
1,203
67,681
(7,811)
6,715
(4,050)
33,061
96,799
31
33
33
51
AVATION PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
Cash flows from operating activities:
Profit/(loss) before income tax
Adjustments for:
Amortisation of lease incentive asset
Depreciation expense
Depreciation of right-of-use assets
Expected credit losses
Finance income
Finance expense
Loss/(gain) on debt modification
Loss on disposal of aircraft and aircraft engine
Interest income from finance leases
Impairment loss on aircraft
Pre-delivery payments expensed
Share warrants expense
Unrealised (gain)/loss on aircraft purchase rights
Operating cash flows before working capital changes
Movement in working capital:
Trade and other receivables and finance lease receivables
Trade and other payables
Maintenance reserves
Cash from operations
Finance income received
Finance expense paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from disposal of aircraft and aircraft engine
Net cash from investing activities
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
Dividend paid to non-controlling interest of a subsidiary
Decrease/(increase) of restricted cash balances
Proceeds from loans and borrowings, net of transactions costs
Repayment of loans and borrowings
Transaction costs for modification of unsecured notes
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
2022
US$’000s
2021
US$’000s
22,502
(70,221)
9
19
20,21
13
14
34
9
19,30
12
15
25
19
34
34
29
29
1,383
39,304
218
(1,980)
(3,344)
67,481
3,545
2,396
(2,918)
6,158
-
1,423
(38,320)
2,069
46,332
215
25,428
(2,441)
60,218
(50,270)
6,948
(2,364)
87,394
2,850
1,723
150
97,848
108,031
12,923
1,562
(7,124)
105,209
1,581
(51,700)
(610)
54,480
(40,757)
8,390
34,879
110,543
2,172
(49,935)
(495)
62,285
(17)
65,636
(104)
20,187
65,619
20,083
-
(63)
13,500
17,060
(140,396)
-
10,029
(5)
(18,109)
11,747
(88,712)
(7,541)
(109,899)
(92,591)
10,200
25,067
35,267
(10,223)
35,290
25,067
52
AVATION PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2022
Cash flows from operating activities:
Profit/(loss) before taxation
Adjustments for:
Dividend income
Depreciation expense
Depreciation of right-of-use assets
Expected credit losses
Fair value loss/(gain) on investment in debt instrument
Finance income
Gain on receivables modification
Finance expense
Loss on debt modification
Loss on disposal of aircraft and aircraft engine
Impairment loss on aircraft
Pre-delivery payments expensed
Share warrant expense
Unrealised (gain)/loss on aircraft purchase rights
Operating cash flows before working capital changes
Movement in working capital:
Trade and other receivables
Trade and other payables
Cash used in operations
Finance income received
Finance expense paid
Income tax paid
Note
2022
US$’000s
2021
US$’000s
42,476
(16,029)
19
20
27
19
25
(8,941)
87
74
354
164
(10,719)
(3,517)
11,224
3,545
452
-
-
1,423
(38,320)
(1,698)
(8,429)
2,420
(7,707)
7,644
(10,961)
-
(1,214)
90
74
381
(841)
(7,451)
-
12,941
-
4,105
1,838
2,850
1,723
150
(1,383)
(5,606)
6,020
(969)
6,004
(7,489)
233
Net cash used in operating activities
(11,024)
(2,221)
Cash flows from investing activities:
Dividends received
Return of capital from a subsidiary
Loans to subsidiary
Transfer of a subsidiary
Investment in debt instrument, fair value through profit or loss
Purchase of property, plant and equipment
Proceeds from disposal of aircraft and aircraft engine
23
27
19
8,941
10,819
-
-
-
-
1,275
1,214
-
(19,768)
(1,278)
(5,248)
(104)
13,727
Net cash from/(used in) investing activities
21,035
(11,457)
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares
Proceeds from loans and borrowings
Repayment of loans and borrowings
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
-
41,268
(47,083)
(5,815)
4,196
5,513
9,709
10,029
31,515
(23,774)
17,770
4,092
1,421
5,513
29
29
53
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
1
GENERAL
Avation PLC is a public limited company incorporated in England and Wales under the Companies
Act 2006 (Registration Number 05872328) and its shares are traded on the Standard Segment of
the Main Market of the London Stock Exchange. The address of the registered office is given on
page 1.
As disclosed in the Directors’ Report, the Group’s principal activity is aircraft leasing. Details of
the activities of subsidiary companies are set out in Note 23 to these financial statements.
2
STATEMENT OF COMPLIANCE
These financial statements have been prepared in accordance with UK-adopted International
Accounting Standards (“IFRSs”) in conformity with the requirements of the Companies Act 2006.
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION – The financial statements have been prepared in accordance with
UK-adopted International Accounting Standards (“IFRSs”) in conformity with the requirements of
the Companies Act 2006.
(a)
The financial statements have been prepared on a going concern basis and have been
prepared in accordance with the historical cost convention, as modified by the revaluation
of certain assets and liabilities.
The financial statements are presented in United States Dollars and all values are rounded
to the nearest thousand (US$’000s) unless otherwise indicated. The year-end exchange rate
for Pounds Sterling to United States Dollars is 1.22 (2021: 1.38).
The preparation of financial statements in conformity with UK-adopted International
Accounting Standards (“IFRSs”) requires the use of significant accounting judgements,
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the financial period. Although these
estimates are based on management’s best knowledge of current events and actions, actual
results may ultimately differ from those estimates.
The accounting policies set out below have been applied consistently throughout the
financial period presented in these financial statements by the Company and its subsidiaries,
unless otherwise disclosed.
54
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) BASIS OF CONSOLIDATION - The consolidated financial statements comprise the financial
statements of the Company and its subsidiaries, together the Group as at 30 June 2022.
Subsidiaries are all entities over which the Group has control. Control is achieved when the
Group is exposed, or has rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
(cid:120)
(cid:120)
(cid:120)
Power over the investee (i.e. existing rights that give it the current ability to direct the
relevant activities of the investee)
Exposure, or rights, to variable returns from its involvement with the investee, and
The ability to use its power over the investee to affect its returns
When the Group has less than a majority of the voting or similar rights of an investee, the
Group considers all relevant facts and circumstances in assessing whether it has control over
an investee, including:
The contractual arrangement with the other vote holders of the investee
(cid:120)
(cid:120) Rights arising from other contractual arrangements
The Group’s voting rights and potential voting rights
(cid:120)
Whether or not the Group controls an investee is re-assessed if facts and circumstances
indicate that there are changes to one or more of the three elements of control. Consolidation
of a subsidiary begins when the Group obtains control over the subsidiary and ceases when
the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the statement of
comprehensive income from the date the Group gains control until the date the Group ceases
to control the subsidiary.
Profit or loss and each component of other comprehensive income (“OCI”) are attributed to
the shareholders of Avation PLC and to the non-controlling interests, even if this results in
the non-controlling interests having a deficit balance. When necessary, adjustments are
made to the financial statements of subsidiaries to bring their accounting policies into line
with the Group’s accounting policies. All intra-group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for
as an equity transaction. If the Group loses control over a subsidiary, it:
(cid:120) Derecognises the assets (including goodwill) and liabilities of the subsidiary
(cid:120) Derecognises the carrying amount of any non-controlling interests
(cid:120) Derecognises the cumulative translation differences recorded in equity
(cid:120) Recognises the fair value of the consideration received
(cid:120) Recognises the fair value of any investment retained
(cid:120) Recognises any surplus or deficit in profit or loss
(cid:120) Reclassifies the parent’s share of components previously recognised in OCI to profit or
loss or retained earnings, as appropriate, as would be required if the Group had directly
disposed of the related assets or liabilities.
Investments in subsidiaries are stated at cost less impairment in the Company’s separate
financial statements.
55
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) BUSINESS COMBINATIONS - Business combinations are accounted for using the
acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at acquisition date fair value and the amount
of any non-controlling interests in the acquiree. For each business combination, the Group
elects whether to measure the non-controlling interests in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are
expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the identifiable assets and liabilities
assumed for appropriate classification and designation in accordance with the contractual
terms, economic circumstances and pertinent conditions as at the acquisition date. This
includes the separation of embedded derivatives in host contracts held by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value
at the acquisition date. Contingent consideration classified as equity is not remeasured and its
subsequent settlement is accounted for within equity. Contingent consideration classified as an
asset or liability that is a financial instrument and within the scope of IFRS 9 Financial
Instruments is measured at fair value with the changes in fair value recognised in profit or
loss. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair
value at each reporting date with changes in fair value recognised in profit or loss.
(d) GOODWILL- Goodwill is initially measured at cost, being the excess of the aggregate of the
consideration transferred and the amount recognised for non-controlling interests, and any
previous interest held, over the net identifiable assets acquired and liabilities assumed. If
the fair value of the net assets acquired is in excess of the aggregate consideration
transferred, the Group re-assesses whether it has correctly identified all of the assets
acquired a n d all of the liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the re-assessment still results in an
excess of the fair value of net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment
losses. For the purpose of impairment testing, goodwill acquired in a business combination
is, from the acquisition date, allocated to each of the Group’s cash-generating units that are
expected to benefit from the combination, irrespective of whether other assets or liabilities
of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-generating unit and part of the operation within
that unit is disposed of, the goodwill associated with the disposed operation is included in
the carrying amount of the operation when determining the gain or loss on disposal. Goodwill
disposed in these circumstances is measured based on the relative values of the disposed
operation and the portion of the cash-generating unit retained.
56
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) GOING CONCERN
Covid-19:
The COVID-19 outbreak and the related decreased demand for air travel significantly
impacted the Group’s airline customers, leading to the inability of certain airlines to meet
their lease payment obligations to the Group. This led to deferrals of lease payments,
restructuring and cancellations of lease contracts with the Group, negatively affecting the
Group’s financial condition, cash flows and results from operating activities.
The Group engaged with its airline customers to arrange deferral of certain rental payments
in order to provide cash flow relief, while simultaneously engaging with lenders to arrange
deferral of certain loan payments to mitigate the reduced rental cash flows from airlines.
Most of the Group’s customers have now repaid amounts due under rent deferral
arrangements. An amount of US$25.9 million due from one major customer has been
converted into an interest bearing loan with repayment by 24 equal monthly instalments
starting from January 2023.
In addition, the Group restructured its orderbook with Avions de Transport Regional which
now comprises only two firm orders for ATR 72-600 aircraft to be delivered in 2024
The Group has been re-marketing 13 aircraft previously leased to Virgin Australia and as of
the date of this report has successfully re-leased or sold 11 of these aircraft. The Group
continues to market the remaining 2 aircraft for lease or sale.
Russia’s invasion of Ukraine
Russia’s invasion of Ukraine in February 2022, followed by the effective seizure of aircraft
leased to Russian airlines, has created instability in global aviation markets. Global energy
prices have increased dramatically since the invasion including the price of jet fuel which
has increased by more than 50% since the start of the year. Insurance rates for aircraft
are also expected to increase dramatically for this year’s renewals due to losses incurred by
insurers and a general increase in risk.
Increased costs will impact airlines’ cash flows and operating results at a time when many
of them are still recovering from the impacts of the COVID-19 pandemic.
While the Group has not been directly affected by the events in Ukraine, having no aircraft
leased to Russian or Ukrainian airlines, the impact of higher fuel, insurance and other costs
may negatively impact the Group’s customers.
Going concern basis of accounting
The Directors have considered the impact on the Group, in the context of the Group’s use
of the going concern basis of preparation at the date of signing of these financial statements
by evaluating all cash inflows and outflows of the Company and its subsidiaries, over the
coming year under the following assumptions:
- Current unrestricted cash on hand balance available,
-
-
Projected collections of receivable balances and contracted asset sales,
Forecasted cash outflows for all contractual debt and lease obligations and selling,
general and administrative expenses for the next 12 months,
57
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) GOING CONCERN (continued)
-
Sensitivity of cash flows to changes in base assumptions around rent collection rates
and other significant factors.
In addition, the directors have considered the maturity profiles of all loans and borrowings
and have evaluated the Group’s compliance with financial and non-financial covenants.
Based on this analysis and all information available at present, the Directors believe that
the actions that they have taken and intend to take will ensure that the Group has sufficient
liquidity to meet its obligations as they fall due and that it continues to be appropriate to
prepare the financial statements on a going concern basis of preparation.
(f)
FAIR VALUE MEASUREMENT – The Group measures financial instruments, such as
derivatives, investment in equity and non-financial assets, such as aircraft and aircraft
purchase options in excess of the Group’s usage requirements at fair values at each reporting
date.
Fair value 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. Fair value
measurement is based on the presumption that the transaction to sell the asset or transfer
the liability takes place either:
(cid:120)
(cid:120)
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset
or liability
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's
ability to generate economic benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
58
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(f)
FAIR VALUE MEASUREMENT (continued)
In the case of aircraft, unless otherwise disclosed, the assets are valued using lease
encumbered value (“LEV”). Under such a valuation, which reflects highest and best use given
the fact that the aircraft are held for use in a leasing business, the income streams associated
with the lease and the expected future market value of the aircraft at the end of the lease are
discounted to current values. The valuers prepare their valuation report based on the market
for second hand aircraft, which is active, known and measurable.
All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy, described as follows, based on the lowest level
input that is significant to the fair value measurement as a whole:
(cid:120)
(cid:120)
(cid:120)
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or
liabilities
Level 2 – Valuation techniques for which the lowest level input that is significant to the
fair value measurement is directly or indirectly observable
Level 3 – Valuation techniques for which the lowest level input that is significant to the
fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis,
the Group determines whether transfers have occurred between Levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
The Group’s management determines the policies and procedures for both recurring fair value
measurement, such as aircraft, aircraft purchase options and for non-recurring measurement,
such as assets held for sale in discontinued operations.
External valuers are involved for valuation of significant assets, such as aircraft, aircraft
purchase options and significant liabilities, such as contingent consideration.
At each reporting date, management analyses the movements in the values of assets and
liabilities which are required to be re-measured or re-assessed as per the Group’s
accounting policies. For this analysis, management verifies the major inputs applied in the
latest valuation by agreeing the information in the valuation computation to contracts and
other relevant documents so far as possible.
Management, in conjunction with the Group’s external valuers, also compares the changes
in the fair value of each asset and liability with relevant external sources to determine
whether the change is reasonable.
For the purpose of fair value disclosures, the Group has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the asset or liability and the
level of the fair value hierarchy as explained above.
59
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(g) PROPERTY, PLANT AND EQUIPMENT – All items of property, plant and equipment are
initially recorded at cost. The cost of an item of property, plant and equipment is recognised
as an asset if, it is probable that future economic benefits associated with the item will flow
to the Group and the cost of the item can be measured reliably.
Subsequent to recognition, aircraft are stated in the statement of financial position at their
revalued amount. All items of property plant and equipment other than aircraft are
measured at cost less any accumulated depreciation and accumulated impairment losses.
Revaluations are performed with sufficient regularity such that the carrying amount does
not differ materially from that which would be determined using fair values at the reporting
date. However, these aircraft have been reviewed for impairment.
Any revaluation increase arising on the revaluation of such aircraft is credited to the asset
revaluation reserve, except to the extent that it reverses a revaluation decrease for the
same asset previously recognised in profit or loss, in which case the increase is credited to
profit or loss to the extent of the decrease previously charged. A decrease in carrying
amount arising on the revaluation of such aircraft is charged to profit or loss to the extent
that it exceeds the balance, if any, held in the assets revaluation reserve relating to a
previous revaluation of that asset.
Depreciation on revalued aircraft is charged to profit or loss. On the subsequent sale or
retirement of a revalued aircraft, the attributable revaluation surplus remaining in the asset
revaluation reserve is transferred directly to retained earnings.
Depreciation is charged so as to write off the cost or valuation of assets less residual values,
over their estimated useful lives, using the straight-line method, on the following bases:
Narrow-body jets and turboprops
Twin-aisle jets
Aircraft engines
Furniture and equipment
25 years from date of manufacture
23 years from date of manufacture
15 years from date of acquisition
3 years
Residual values, useful lives and depreciation methods are revised and adjusted if
appropriate, at each reporting date. Residual values are based on 15% of cost for new
aircraft, estimated scrap values for second hand aircraft and 33% of cost for new aircraft
engines.
Fully depreciated assets still in use are retained in the financial statements until they are
disposed of or retired.
The gain or loss arising on the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.
60
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(h) AIRCRAFT PURCHASE RIGHTS – Purchase rights to acquire aircraft which are over and
above the Group’s requirement for use in the leasing business will be disposed of. The Group
values these excess aircraft purchase rights using the Black Scholes model. Aircraft purchase
rights are measured at fair value through profit or loss.
(i) NON-CURRENT ASSETS HELD FOR SALE – Non-current assets (and disposal groups)
classified as held for sale are measured at the lower of carrying amount and fair value less
costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount
will be recovered through a sale transaction rather than through continuing use. This
condition is regarded as met only when the sale is highly probable and the asset (or disposal)
group is available for immediate sale in its present condition. Management must be
committed to the sale which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Property, plant and equipment are not depreciated or amortised once classified as held for
sale.
Assets and liabilities classified as held for sale are presented separately as current items in
the statement of financial position.
(j)
IMPAIRMENT OF NON-FINANCIAL ASSETS - At each reporting date the Group assesses
whether there is an indication that an asset may be impaired. If any indication exists, or
when an annual impairment testing for an asset is required, the Group makes an estimate
of the asset's recoverable amount.
An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value
less costs of disposal and its value-in-use and is determined for an individual asset, unless
the asset does not generate cash inflows that are largely independent of those from other
assets or group of assets. Where the carrying amount of an asset or cash-generating unit
exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value-in-use, the estimated future cash flows expected
to be generated by the asset are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks
specific to the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account, if available. If no such costs can be identified, an
appropriate valuation model is used.
61
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(j)
IMPAIRMENT OF NON-FINANCIAL ASSETS (continued)
Impairment losses are recognised in profit or loss to the extent that they do not reverse a
previous upwards revaluation. An assessment is made at each reporting date as to whether
there is any indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the Group estimates the asset's or cash-
generating unit's recoverable amount. A previously recognised impairment loss is reversed
only if there has been a change in the estimates used to determine the asset's recoverable
amount since the last impairment loss was recognised. If that is the case, the carrying
amount of the asset is increased to its recoverable amount. That increase cannot exceed
the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognised previously. Such reversal is recognised in profit or loss.
Impairment losses are recognised as an immediate expense. However, the impairment loss
shall be recognised in other comprehensive income to the extent of any credit balance
existing in the revaluation surplus in respect of that asset. The decrease recognised in other
comprehensive income reduces the amount accumulated in equity under the heading of
revaluation surplus.
(k) PROVISIONS - Provisions are recognised when the Group has a present obligation as a
result of a past event, and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the Directors’ best estimate of the expenditure
required to settle the obligation at the reporting date, and are discounted to present value
where the effect is material.
(l) MAINTENANCE RESERVES - Normal maintenance and repairs, airframe and engine
overhauls, and compliance with return conditions of the aircraft placed on operating leases
are provided by and paid for by the lessees. Certain lease agreements require the lessees
to make maintenance reserve contributions to the Group which subsequently can be drawn
on to pay for certain maintenance events carried out. These maintenance reserve balances
are accounted for as liabilities. Upon expiry of a lease, any shortfall that is identified in the
maintenance reserve liabilities for an aircraft as compared to the expected future
reimbursement obligations to a lessee, or any surplus, will be charged or released to profit
or loss. Upon sale of an aircraft, the maintenance reserve liability for that aircraft which is
not transferred to the buyer will be released to profit or loss.
62
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) SHARE-BASED PAYMENTS – The Group operates an equity-settled share-based
compensation plan. The value of the employee services received in exchange for the grant of
warrants is recognised as an expense in profit or loss with a corresponding increase in the
warrant reserve over the vesting period. The total amount to be recognised over the vesting
period is determined by reference to the fair value of the warrants granted on the date of the
grant using the binomial option pricing model method. Non-market vesting conditions are
included in the estimation of the number of shares under warrants that are expected to
become exercisable on the vesting date. At the end of each reporting period, the Group
revises its estimates of the number of shares under warrants that are expected to become
exercisable on the vesting date and recognises the impact of the revision of the estimates in
profit or loss, with a corresponding adjustment to the warrant reserve over the remaining
vesting period.
When the warrants are exercised, the proceeds received and the related balance previously
recognised in the warrant reserve are credited to share capital and share premium accounts
when new shares are issued to the employees.
(n) LEASES
Group as a lessor
The Group leases aircraft to airlines under operating leases. At lease inception or
modification date, the Group reviews all necessary criteria to determine proper lease
classification. Leases of aircraft where the Group retains substantially all risks and rewards
incidental to ownership are classified as operating leases. Rental income from operating
leases (net of any incentives given to the lessees) is recognised in profit or loss on a straight-
line basis over the lease term. The Group recognises contingent rents when they can be
reliably measured.
Where the Group transfers substantially all the risks and rewards of ownership of an asset,
the lease is classified as a finance lease. Lease receipts are apportioned between finance
income and reduction of the finance lease receivable so as to achieve a constant rate of
interest on the remaining balance of the asset. Finance income is credited to revenue.
For sales–type leases, the Group recognise the difference between the net book value of
the aircraft and the net finance lease receivables as a gain or loss on sale of aircraft, less
any initial direct costs. The unearned income is recognised as finance lease interest income
within revenue over the lease term in a manner that produces a constant rate of return on
the finance lease receivables.
Under the terms of certain lease agreements, lessees are required to make maintenance
contributions to the Group. At the end of a lease, when we are able to determine the
amount, if any, by which maintenance contributions received exceed the amount we are
required under the lease to reimburse to the lessee for heavy maintenance, overhaul or
parts replacement, the excess is recognised as maintenance revenue. End of lease
compensation payments made to the Group are recognised as revenue when a reliable
estimate of the expected compensation amount can be determined. The Group does not
recognise end of lease compensation as revenue if there is a reasonable expectation that
the lessee will extend the existing lease agreement rather than returning the aircraft at the
end of the current lease period.
63
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(n) LEASES (continued)
Lease maintenance contribution
Some of the Group’s leases contain provisions which may require the Company to pay a
portion of the lessee’s costs for heavy maintenance, overhaul, or replacement of certain
high-value components. The Group records liabilities for contractual obligations to
contribute to the lessee’s cost of major maintenance events expected to occur during the
lease. The Group regularly reviews the level of these contractual obligations under current
lease contracts and makes adjustments as necessary. Lessor maintenance contributions
represents a lease incentive and are recorded as a charge against lease rental income over
the life of the associated lease on a straight-line basis. When aircraft are sold the portion of
the accrued liability not specifically assigned to the buyer is derecognised from the
Consolidated Statement of Financial Position as part of the gain or loss on disposal of the
aircraft.
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.
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.
64
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(n) LEASES (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.
(o) BORROWING COSTS - Borrowing costs are capitalised as part of the cost of a qualifying
asset if they are directly attributable to the acquisition, construction or production of that
asset. Capitalisation of borrowing costs commences when the activities to prepare the asset
for its intended use are in progress and the expenditures and borrowing costs are incurred.
Borrowing costs are capitalised until the assets are substantially completed for their
intended use. All other borrowing costs are expensed in the period they occur. Borrowing
costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
65
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) REVENUE RECOGNITION – The Group as lessor, leases aircraft principally under both
operating leases and finance leases. Revenue which is not derived from leases is measured
as follows:
(i)
Interest income is accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset to that
asset’s net carrying amount.
(ii) Dividend income from investments is recognised when the company’s right to receive
payment has been established.
(q) CONTINGENCIES – A contingent liability is:
(i)
a possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Group; or
(ii)
a present obligation that arises from past events but is not recognised because:
i.
ii.
It is not probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; or
The amount of the obligation cannot be measured with sufficient reliability.
A contingent asset is a possible asset that arises from past events and whose existence will
be confirmed only by the occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the Group.
(r)
TAXATION - Taxation expense represents the sum of current tax and deferred tax.
Current tax is based on taxable profit for the financial period. Taxable profit differs from
profit as reported in profit or loss because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
66
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(r)
TAXATION (continued)
Deferred tax liabilities are recognised for taxable temporary differences arising on
investments in subsidiaries, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the
liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss,
except when it relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set
off current tax assets against current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
The Company is tax resident in Singapore.
(s)
FOREIGN CURRENCIES - The Group’s consolidated financial statements and Company
financial statements are presented in United States Dollars. The individual financial
statements of each Group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency) and United States Dollars
is the functional currency of most Group entities, including Avation PLC.
In preparing the financial statements of the individual entities, transactions in currencies
other than the entity’s functional currency (foreign currencies) are recorded at rates of
exchange prevailing on the dates of the transactions. At each reporting date, monetary
items denominated in foreign currencies are retranslated at rates prevailing on the reporting
date. Non-monetary items carried at fair value that are denominated in foreign currencies
are retranslated at rates prevailing on the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation
of monetary items, are included in profit or loss for the period. Exchange differences arising
on the retranslation of non-monetary items carried at fair value are included in profit or loss
for the period except for differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised directly in equity. For such non-monetary
items, any exchange component of that gain or loss is also recognised directly in equity.
67
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
FINANCIAL INSTRUMENTS
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised
cost, fair value through other comprehensive income (OCI), and fair value through profit or
loss.
The classification of financial assets at initial recognition depends on the financial asset’s
contractual cash flow characteristics and the Group’s business model for managing them.
With the exception of trade receivables that do not contain a significant financing component
or for which the Group has applied the practical expedient, the Group initially measures a
financial asset at its fair value plus, in the case of a financial asset not at fair value thought
profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised cost or fair value
thought OCI, it needs to give rise to cash flows that are solely payments of principal and
interest (‘SPPI’) on the principal amount outstanding. This assessment is referred to as the
SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its
financial assets in order to generate cash flows. The business model determines whether
cash flows will result from collecting contractual cash flow, selling the financial assets or
both.
All purchases and sales of financial assets are recognised or derecognised on the trade date
which is the date that the Group commits to purchase or sell the asset.
Subsequent measurement
For the purposes of subsequent measurement, financial assets are classified in four
categories:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Financial assets at amortised cost (debt instruments)
Financial assets at fair value through OCI with recycling of cumulative gains and
losses (debt instruments)
Financial assets designated at fair value through OCI with recycling of cumulative
gains and losses upon derecognition (equity instruments)
Financial assets at fair value through profit or loss
68
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
FINANCIAL INSTRUMENTS (continued)
(i)
Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group measures financial
assets at amortised cost if both of the conditions are met:
(cid:120)
(cid:120)
The financial asset is held within a business model with the objective to hold
financial assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specific dates to cash
flows that are solely payments of principal and interest on the principal amount
outstanding
Financial assets at amortised cost are subsequently measured using the effective
interest (EIR) method and are subject to impairment. Gains and losses are
recognised in profit or loss when the asset is derecognised, modified or impaired.
The Group’s financial assets at amortised cost are cash and bank balances, trade
and other receivables and finance lease receivables.
(ii)
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for
trading, financial assets designated upon initial recognition at fair value through
profit or loss, or financial assets mandatorily required to be measured at fair value.
Financial assets are classified as held for trading if they are acquired for the purpose
of selling or repurchasing in the near term. Derivatives, including separated
embedded derivatives, are also classified as held for trading unless they are
designated as effective hedging instruments. Financial assets with cash flows that
are not solely payments of principal and interest are classified and measured at fair
value through profit or loss, irrespective of the business model. Notwithstanding
the criteria for debt instruments to be classified at amortised cost or at fair value
through OCI, debt instruments may be designated at fair value though profit or loss
on initial recognition if doing so eliminates, or significantly reduces, an accounting
mismatch.
Financial assets at fair value through profit or loss are carried in the statement of
financial position at fair value with net changes in fair value recognised in the
statement of profit or loss.
The Group’s financial assets at fair value through profit or loss are options held for
trading, investment in equity and investment in debt instrument.
Derecognition
A financial asset is derecognised where the contractual right to receive cash flows from
the asset has expired. On derecognition of a financial asset in its entirety, the difference
between the carrying amount and the sum of the consideration received and any
cumulative gain or loss that had been recognised in other comprehensive income for
financial assets is recognised in profit or loss.
69
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(t)
FINANCIAL INSTRUMENTS (continued)
Financial liabilities
Initial recognition and measurement
Financial liabilities are recognised when, and only when, the Group becomes a party to the
contractual provisions of the financial instrument. The Group determines the classification
of its financial liabilities at initial recognition. Financial liabilities are recognised initially at
fair value, minus in the case of financial liabilities not at fair value through profit or loss,
directly attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their classification as follows:
(i)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities
held for trading and financial liabilities designated upon initial recognition at fair
value. Financial liabilities are classified as held for trading if they are acquired for
the purpose of selling in the near term. Subsequent to initial recognition, financial
liabilities at fair value through profit or loss are measured at fair value. Any gains
or losses arising from changes in fair value of the financial liabilities are recognised
in profit or loss.
(ii)
Financial liabilities at amortised cost
After initial recognition, financial liabilities that are not carried at fair value through
profit or loss are subsequently measured at amortised cost using the effective
interest method. Gains and losses are recognised in profit or loss when the
liabilities are derecognised, and through the amortisation process.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or
cancelled or expires. When an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a de-recognition of
the original liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognised in profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is presented in the
statement of financial position, when and only when, there is a currently enforceable legal
right to set off the recognised amounts and there is an intention to settle on a net basis,
or to realise the assets and settle the liabilities simultaneously.
70
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(u)
IMPAIRMENT OF FINANCIAL ASSETS - The Group recognises an allowance for expected
credit losses (“ECLs”) for all financial assets not held at fair value through profit or loss.
ECLs are based on the difference between the contractual cash flows due in accordance with
the contract and all the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected cash flows will include
cash flows from the sale of collateral held or other credit enhancements that are integral to
the contractual terms.
Loss allowances of the Group are measured on either of the following bases:
(cid:120) 12-month ECLs: these are ECLs that result from default events that are possible within
the 12 months after the reporting date (or for a shorter period if the expected life of
the instrument is less than 12 months); or
(cid:120)
Lifetime ECLs: these are ECLs that result from all possible default events over the
expected life of a financial instrument.
(i) Simplified approach
The Group applies the simplified approach to provide for ECLs for all trade receivables.
The simplified approach requires the loss allowance to be measured at an amount equal
to lifetime ECLs.
The Group established a provision matrix based on the Group’s historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the
economic environment.
(ii) General approach
The Group applies the general approach to provide for ECLs on finance lease receivables
and all other financial assets not held at fair value through profit or loss. Under the
general approach, the loss allowance is measured at an amount equal to 12-month
ECLs at initial recognition.
At each reporting date, the Group assesses whether the credit risk of a financial
instrument has increased significantly since initial recognition. When credit risk has
increased significantly since initial recognition, loss allowance is measured at an
amount equal to lifetime ECLs.
When determining whether the credit risk of a financial asset has increased significantly
since initial recognition and when estimating ECLs, the Group considers reasonable and
supportable information that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis, based on the
Group’s historical experience and informed credit assessment and includes forward-
looking information.
If credit risk has not increased significantly since initial recognition or if the credit
quality of the financial instruments improves such that there is no longer a significant
increase in credit risk since initial recognition, loss allowance is measured at an amount
equal to 12-month ECLs.
71
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
For the purpose of recognition of an allowance for ECL, the Group considers a financial asset
to be in default:
(cid:120) When the lessee does not pay the amounts due under its lease agreements to the Group
in excess of the security deposit or the value of the collateral. The Group will recognise
an allowance for ECL based on the historical observed default rates, current credit rating
of the customers, forecasted economic conditions to assess the amount of ECL
allowance required
.
Financial assets are written off when there is no reasonable expectation of recovery.
Indicators that there is no reasonable expectation of recovery include, amongst others,
the failure of a debtor to engage in a repayment plan with the Group, and a failure to
make contractual payments for a period of greater than 90 days past due or where the
trade receivables were in excess of the security packages held by the Group.
(cid:120)
(cid:120)
in the case where the financial asset is not secured, when the financial asset is more
than 90 days past due.
(v) CASH AND BANK BALANCES - Cash and bank balances comprise cash and cash
equivalents and restricted cash.
(cid:120) Cash and cash equivalents comprise cash at bank and on hand, demand deposits, and
short-term, highly liquid investments that are readily convertible to known amount of
cash and which are subject to insignificant risk of changes in value.
(cid:120) Restricted cash balances comprise bank balances which are pledged as security for
certain loan obligations.
(w) TRADE AND OTHER PAYABLES – Liabilities for trade and other payables which are
normally settled within 30 to 60 days credit terms, are initially carried at cost which is the
fair value of the consideration to be paid in the future for goods and services received,
whether or not billed to the Group and subsequently measured at amortised cost using the
effective interest method.
Gains and losses are recognised in profit or loss when the liabilities are derecognised as well
as through the amortisation process.
72
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(x)
LOANS AND BORROWINGS - Interest-bearing loans from banks and financial institutions
are initially measured at fair value, and are subsequently measured at amortised cost, using
the effective interest rate method. Any difference between the proceeds (net of transaction
costs) and the settlement or redemption of borrowings is recognised over the term of the
borrowings in accordance with the Group’s accounting policy for borrowing costs (see
above).
(cid:120) Modification of loans – The Group assesses whether the new terms of modified third
party loans results in a modification of contractual cash flows substantially different to
the original terms. In making this assessment, the Group considers, among others,
significant changes in the interest rate. If the terms are substantially different, the
Group derecognises the original financial liability and recognises a new financial liability
at fair value and recalculates a new effective interest rate for the liability. If the terms
are not substantially different, the modification does not result in derecognition, and
the Group recalculates the gross carrying amount based on the revised cash flows of
the liability recalculated by discounting the modified cash flows at the original effective
interest rate and recognises a modification gain or loss in profit or loss. The present
value of the modified cash flow of the financial liability is subsequently measured at and
amortised using the effective interest rate method over the remaining life of the loan
and recorded as part of finance expense in the consolidated statement of profit or loss.
(y) SHARE CAPITAL, SHARE ISSUANCE EXPENSES AND TREASURY SHARES - Proceeds
from issuance of ordinary shares in excess of the par value are recognised in share premium
in equity. Incremental costs directly attributable to the issuance of ordinary shares are
deducted from share premium.
Own equity instruments that are reacquired (treasury shares) are recognised at cost and
deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale,
issue or cancellation of the Group’s own equity instruments. Any difference between the
carrying amount and the consideration, if reissued, is recognised in share premium.
(z) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING – The Group uses derivative
financial instruments such as interest rate swap contracts and cross currency swap contracts
to hedge its risks associated with interest rate fluctuations. Such derivative financial
instruments are initially recognised at fair value on the date on which a derivative contract
is entered into, and are subsequently re-measured at fair value.
Any gains or losses arising from changes in fair value on derivatives that do not qualify for
hedge accounting are taken directly into profit or loss. At the inception of a hedge
relationship, the Group formally designates and documents the hedge relationship to which
the Group wishes to apply hedge accounting and the risk management objective and
strategy for undertaking the hedge.
73
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(z) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING (continued)
The documentation includes identification of the hedged item or transaction, the hedging
instrument, the nature of the risk being hedged and how the Group will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s (or
transaction’s) cash flows attributable to the hedged risk. Such hedges are expected to be
highly effective in achieving offsetting changes in cash flows, and are assessed on an
ongoing basis to determine that they have been highly effective throughout the financial
reporting periods for which they are designated.
Cash flow hedges
Hedges are classified as cash flow hedges when hedging the exposure to variability in cash
flows that is either attributable to a particular risk associated with a recognised asset or
liability or a highly probable forecast transaction and could affect profit or loss. The effective
portion of the gain or loss on the hedging instrument is recognised directly in the fair value
reserve, while the ineffective portion is recognised in profit or loss.
Amounts taken to the fair value reserve are transferred to profit or loss when the hedged
transaction affects profit or loss, such as when a forecast sale or purchase occurs. If the
hedged item is a non-financial asset or liability, the amounts taken to the fair value reserve
are transferred to the initial carrying amount of the non-financial asset or liability.
If the hedged future cashflows are no longer expected to occur, amounts previously
recognised in hedging reserve are transferred to profit or loss. If the hedging instrument
expires or is sold, terminated or exercised without replacement or rollover, or if its
designation as a hedge is revoked, amounts previously recognised in hedging reserve
remain in other comprehensive income until the future cash flows occur, if the hedged future
cash flows are still expected to occur.
(aa) SEGMENTAL REPORTING - Operating segments are reported in a manner consistent with
the internal reporting provided to the Board of Directors who are responsible for allocating
resources and assessing performance of the operating segment. The Group’s principal
activity is aircraft leasing and therefore there is only one reportable segment. The financial
results from this segment are equivalent to the financial statements of the Group as a whole.
74
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and assumptions concerning the future are made in the preparation of financial
statements. They affect the application of the Group’s accounting policies, reported amounts of
assets, liabilities, income and expenses and disclosures made. They are assessed on an ongoing
basis and are based on experience and relevant factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The key assumptions concerning the future at the reporting date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
(a)
Impairment and review of residual value of property, plant and equipment –
aircraft
The Group periodically evaluates its aircraft for impairment and also reviews the residual
value of the aircraft. Management exercises significant judgement in determining whether
there is any indication that any aircraft may have been impaired or if there are any
indications of changes in residual value. This exercise involves management considering
both internal and external sources of information which include but are not limited to:
observable indications that the value of the aircraft has declined during the period
significantly more than would be expected as a result of the passage of time or normal use;
significant adverse changes in the expected usage of the aircraft, technological or aviation
environment that have taken place or will take place in the near future; significant increase
in market interest rates; evidence of obsolescence or physical damage of the aircraft and
worse than expected economic performance of the aircraft.
The carrying amount of property, plant and equipment at the end of the reporting period is
disclosed in Note 19.
(b) Revaluation of property, plant and equipment – aircraft
The Group periodically revalues its aircraft using lease encumbered value (“LEV”). Under
such a valuation, which reflects the highest and best use given the fact that the aircraft are
held for use in a leasing business, the income streams associated with the lease and the
expected future market value of the aircraft at the end of the lease are discounted to current
values. Critical assumptions made in determining LEV are the discount rate applied to
cashflows associated with the lease and the expected future value of aircraft at the end of
the lease. The factors considered in estimating the undiscounted cash flows are impacted
by changes in future periods due to changes in projected lease rental and maintenance
payments, residual values, economic conditions, technology, airline demand for a particular
aircraft type and other factors.
The carrying amount of property, plant and equipment - aircraft at the end of the reporting
period is disclosed in Note 19.
(c)
Impairment of financial assets
The Group follows the guidance of IFRS 9 Financial Instruments in determining when a
financial asset is impaired, and this requires judgement on the correlation between historical
observed default rates and ECLs. The Group’s methodology for calculating ECLs is set out
in Note 7.
The carrying amount of financial assets at the end of the reporting period is disclosed in
Note 6.
75
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(d) Fair value estimation for aircraft purchase rights
The Group values aircraft purchase rights using the Black Scholes pricing model. Critical
assumptions made in determining the fair value of the aircraft purchase rights include the
assumed volatility of market prices.
The carrying amount of aircraft purchase rights at the end of the reporting period is
disclosed in Note 25.
(e)
Income taxes and deferred income taxes
a.
Commencing 17 April 2014, Avation Group (S) Pte. Ltd. (“AGS”) and its subsidiaries
were awarded a 5-year Aircraft Leasing Scheme incentive (“ALS”) by the Singapore
Economic Development Board, whereby income from the leasing of aircraft and
aircraft engines and qualifying activities was taxed at a concessionary rate of 10%.
Qualifying income during the period 17 April 2014 to 16 April 2019 was taxed at the
concessionary rate subject to meeting the terms and conditions of the incentive.
On 26 April 2019, Avation Group (S) Pte. Ltd. and its subsidiaries were awarded
another 5-year Aircraft Leasing Scheme incentive, where income from the leasing of
aircraft and aircraft engines and qualifying activities will be taxed at a concessionary
rate of 8%. The effective date is 17 April 2019. Accordingly, qualifying income derived
from the period 17 April 2019 to 16 April 2024 will be taxed at the 8% concessionary
rate subject to meeting the terms and conditions of the incentive. Management’s
judgement is required in the application of the concessionary tax rate of 8% in
determining the carrying amount of deferred tax assets and liabilities for temporary
differences that are expected to be realised or settled beyond 16 April 2024.
b.
Deferred tax assets are recognised for all unabsorbed capital allowances and
unutilised tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Management judgement is required
to determine the amount of deferred tax assets that can be recognised, based upon
the likely timing and level of future taxable profits.
(f)
Consolidation of special purpose entity (“SPE”) – Avation Airframe Holding Pte. Ltd.
Although the ultimate shareholder of the SPE is a trust, the Directors of Avation PLC consider
that they have the power to, and in practice, control the day to day activities of the SPE.
Furthermore, Avation PLC is entitled to the benefits and is exposed to the risks of the
activities of the SPE, which are consistent with the operations of the Group, and are
conducted on behalf of the Group according to the Group’s specific business needs.
Accordingly the SPE is consolidated as a subsidiary in these financial statements.
The Group would cease to control the SPE in the event of a “Relevant Event” as defined in
the financing agreement, for example, a delay in payment of interest. Were this to occur
consolidation would cease at that point although the Group has no intention, or anticipation,
that any such event will occur.
76
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
5
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
(a)
Standards and interpretations adopted during the year
The Group has adopted all new standards that have come into effect during the year ended 30 June
2022. The adoption of these standards did not have any material effect on the financial performance
or position of the Group and the Company.
Interest Rate Benchmark Reform — Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7,
IFRS 4 and IFRS 16
The amendments provide temporary reliefs which address the financial reporting effects when an
interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR).
The amendments include the following practical expedients:
• A practical expedient to require contractual changes, or changes to cash flows that are directly
required by the reform, to be treated as changes to a floating interest rate, equivalent to a
movement in a market rate of interest
• Permit changes required by IBOR reform to be made to hedge designations and hedge
documentation without the hedging relationship being discontinued
• Provide temporary relief to entities from having to meet the separately identifiable
requirement when an RFR instrument is designated as a hedge of a risk component.
The Group intends to use the practical expedients in future periods if they become applicable. The
adoption of this standard did not have any material effect on the financial performance or position
of the Group and the Company. The Group expects that its LIBOR related exposures that primarily
relate to derivatives financial instruments as per Note 24 will be replaced by a benchmark
exposure on an economically equivalent basis as such the effect of the transition will not be
material.
(b)
New standards and interpretations not yet adopted
The Group has not adopted the following new or amended standards and interpretations which
are relevant to the Group that have been issued but are not yet effective:
Description
Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a
Contract
Amendments to IAS 16: Property, Plant and Equipment,
Proceeds before Intended Use
AIP (2018-2020 cycle): IFRS 9 Financial Instruments – Fees in
the ’10 per cent’ Test for Derecognition of Financial Liabilities
Amendments to IFRS 3: Reference to the Conceptual
Framework
Amendment to IAS 8 – Definition of Accounting Estimates
Amendment to IAS 1 and IFRS Practise statement 2 - Disclosure
of accounting policies
Amendment to IAS 12 -Deferred tax related to assets and
liabilities arising from single transaction
Effective date
(period beginning)
1 January 2022
1 January 2022
1 January 2022
1 January 2022
1 January 2023
1 January 2023
1 January 2023
Lease liability in a Sale and Leaseback Amendments to IFRS 16
1 January 2024
Amendments to IAS 1: Classification of Liabilities as Current or
Non-current
Amendments to IFRS 10 and IAS 28: Sale or Contribution of
Assets between an Investor and its Associate or joint venture
No earlier than 1 January
2024
Postponed indefinitely
77
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
5
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS (continued)
Based on a preliminary assessment using currently available information, the Group does not
expect the adoption of the above standards to have a material impact on the financial statements
in the period of initial application. These preliminary assessments may be subject to changes
arising from ongoing analyses when the Group adopts the standards. The Group plans to adopt
the above standards on the effective date.
6
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 bank balances, trade and other receivables, finance lease
receivables – current, trade and other payables - current and loans and borrowings – 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.
The fair value of maintenance reserves is not disclosed in the table below as the timing and cost of
the settlement of maintenance reserves cannot be determined with certainty in advance and hence
the fair value of maintenance reserves cannot be accurately measured.
Group
2022
2021
Carrying
amount
US$’000s
Fair value
US$’000s
Carrying
amount
US$’000s
Fair value
US$’000s
Financial assets:
Finance lease receivables – non-current
Derivative financial assets
Investment in equity, fair value
through profit or loss
Financial liabilities:
Deposits collected – non-current
Loans and borrowings other than
unsecured notes – non-current
Unsecured notes
Derivative financial liabilities
55,208
5,920
53,979
5,920
3,715
3,715
45,836
-
-
45,290
-
-
13,692
12,893
13,897
12,742
468,030
296,200
1,055
436,864
275,893
1,055
221,765
283,253
20,161
210,465
283,536
20,161
78
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
6
FAIR VALUE MEASUREMENT (continued)
Company
2022
2021
Carrying
amount
US$’000s
Fair value
US$’000s
Carrying
amount
US$’000s
Fair value
US$’000s
Financial assets:
Derivative financial assets
Financial liabilities:
Loans and borrowings - non-current
Derivative financial liabilities
1,281
1,281
-
-
113,086
1,055
105,161
1,055
-
8,202
-
8,202
The fair values (other than for unsecured notes, investment in debt instrument, fair value through
profit and loss and derivative financial liabilities) above are estimated by discounting expected future
cash flows at market incremental lending rate for similar types of lending, borrowing or leasing
arrangements at the end of the reporting period, which is classified under level 2 of the fair value
hierarchy.
The fair value of the unsecured notes is based on level 1 quoted prices (unadjusted) in an active
market that the Group can access at the measurement date.
The fair value of the derivative financial instruments is determined by reference to marked-to-
market values provided by counterparties. The fair value measurement of all derivative financial
instruments is classified under level 2 of the fair value hierarchy, for which inputs other than quoted
prices that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) are included as inputs for the determination of fair value.
Assets measured at fair value classified under level 3:
Group
Company
2022
2021
US$’000s
US$’000s
2022
US$’000s
2021
US$’000s
Fair value measurement using
significant unobservable inputs:
Aircraft
Aircraft purchase rights
Investment in equity, fair value through
profit or loss
813,885
65,280
961,474
26,960
-
65,280
-
26,960
3,715
3,715
-
-
Aircraft were revalued at 30 June 2022 and 30 June 2021. Refer to Note 19 for the details on the
valuation technique and significant inputs used in the valuation.
79
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
6
FAIR VALUE MEASUREMENT (continued)
Information about significant unobservable
measurements.
inputs used
in
level 3 fair value
The following table provides the information about the fair value measurements using unobservable
inputs (level 3):
Sensitivity of the
input to fair value
Jet
5% (2021 : 5%)
increase in the
discount rates will
results in a decrease in
fair value by US$8.6
million (2021 :
decrease of US$9.9
million)
5% (2021 : 5%)
increase in the inflation
rate will result in an
increase in fair value
by US$2.7 million
(2021 : increase of
US$15.1 million)
Turboprops
5% (2021 : 5%)
increase in the
discount rates will
result in a decrease in
fair value by US$2.8
million (2021 :
decrease of US$2.5
million)
5% (2021 : 5%)
increase in the inflation
rate will result in an
increase in fair value
by US$0.8 million
(2021 : increase of
US$6.1 million)
5% (2021 : 5%)
increase in the
volatility rates will
result in an increase in
fair value by US$0.1
million (2021: US$0.9
million)
Description
Valuation
techniques
Unobservable
inputs
Aircraft
Lease-
encumbered
basis
Discount rates
Range
(weighted
average)
2022
5.50% to
7.00% for
Jets (6.04%)
Range
(weighted
average)
2021
5.50% to
8.00% for
Jets (6.13%)
5.50% to
8.00% for
Turboprops
(6.31%)
5.50% to
8.00% for
Turboprops
(6.50%)
Aircraft
purchase
rights
Black
Scholes
model
Volatility rates
2.91%
5.63%
80
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
6
FAIR VALUE MEASUREMENT (continued)
Information about significant unobservable
measurements. (continued)
inputs used
in
level 3 fair value
Description
Valuation
techniques
Unobservable
inputs
Investment
in equity,
fair value
through
profit or loss
Market
approach
Discount for
lack of
marketability
Range
(weighted
average)
2022
Range
(weighted
average)
2021
25.00%
Nil
Sensitivity of the
input to fair value
5% (2021 : nil)
increase in the
discount for lack of
marketability will result
in a decrease in fair
value by US$0.06
million (2021:nil)
A reconciliation of liabilities arising from financing activities is as follows:
Group
Loans and borrowings:
Current
Non-current
Unsecured notes:
Non-current
Group
Loans and borrowings:
Current
Non-current
Unsecured notes:
Current
Non-current
Cash flows
Non-cash/
2021
US$’000s
US$’000s
other
US$’000s
2022
US$’000s
442,622
221,765
(97,292)
(26,044)
(281,430)
272,309
63,900
468,030
283,253
947,640
-
(123,336)
12,947
3,826
296,200
828,130
2020
US$’000s
Cash flows
*
US$’000s
Non-cash/
other
US$’000s
2021
US$’000s
190,327
534,755
(51,513)
(20,967)
303,808
(292,023)
442,622
221,765
346,656
(12,026)
(334,630)
-
-
283,253
1,071,738
(84,506)
(39,592)
-
283,253
947,640
* includes the transaction costs for modification of unsecured notes
81
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
6
FAIR VALUE MEASUREMENT (continued)
Company
2021
Cash flows
Non-cash/
other
2022
US$’000s
US$’000s
US$’000s
US$’000s
Loans and borrowings (Note 34):
Current
Non-current
143,600
(11,918)
(115,329)
-
-
113,086
16,353
113,086
Trade and other payables (Note 35):
Interest bearing payable due to subsidiaries
28,147
6,103
-
34,250
Company
Loans and borrowings (Note 34):
Current
Non-current
Trade and other payables (Note 35):
Interest bearing payable due to
171,747
(5,815)
(2,243)
163,689
2020
US$’000s
Cash flows
US$’000s
Non-cash/
other
US$’000s
2021
US$’000s
12,717
125,779
1,469
-
129,414
(125,779)
143,600
-
subsidiaries
21,875
6,272
-
28,147
160,371
7,741
3,635
171,747
The ‘other’ column includes the amortisation of loan insurance premium and reclassification of non-
current portion of loans and borrowings due to passage of time.
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s activities expose it to a number of market related, operational and financial risks.
Risk is mitigated through the application of prudent risk management policies. The risks described
below are those that the Group has identified as the most significant risks to the business. The
Directors are responsible for managing risk and review risk management policies regularly.
The Group utilises derivative financial instruments as part of its overall risk management strategy.
(a) Airline Industry Risks
The Group faces risks specific to the aviation sector including war, terrorism, equipment failure
and the Covid-19 pandemic. These exposures are managed through the requirement for the
airlines that lease the Group’s assets to maintain insurance, adequate maintenance policies
and/or contribute to a maintenance reserve for the major maintenance events for each
aircraft.
82
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(b) Credit risk
Credit risk refers to the risk that debtors will default on their obligations to repay amounts
owing to the Group.
The Group has adopted a prudent credit policy towards extending credit terms to customers
and in monitoring those credit terms. This includes assessing customers’ credit standing and
periodic reviews of their financial status to determine appropriate credit limits. The Group
generally requires its customers to pay rentals in advance and provide collateral in the form
of cash or letters of credit as security deposits for leases.
The maximum exposure to credit risk in the event that counterparties fail to perform their
obligations in relation to each class of financial assets is the carrying amount of those assets
as stated in the statement of financial position.
The maximum exposure to credit risk for trade receivables at the reporting date by
geographical area is:
Asia-Pacific
Europe
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
3,663
13
3,676
20,218
417
20,635
18
4
22
165
4
169
For trade receivables, the Group has applied the simplified approach and has calculated
ECLs based on lifetime expected losses. The Group has established a provision matrix based
on the Group’s historical credit loss experience, adjusted for forward-looking factors specific
to the debtors and the economic environment.
Trade receivables that are neither past due nor impaired amounting to US$0.2 million
(2021: US$0.5 million) are substantially due from companies with a good payment track
record.
Financial assets that are past due and/or impaired
There is no class of financial assets that are past due and/or impaired except for trade
receivables and interest bearing receivables. An allowance for expected credit losses of
US$8.7 million (2021: US$23.0 million) has been provided in relation to trade receivables
past due and impaired of US$9.9 million (2021: US$41.9 million). An allowance for expected
credit losses of US$2.8 million (2021: US$1.0 million) has been provided in relation to
interest bearing receivables.
83
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(b) Credit risk (continued)
The age analysis of trade receivables past due but not impaired is as follows:
Past due less than 3 months
Past due 3 to 6 months
Past due over 6 months
Group
2022
US$’000s
2021
US$’000s
1,503
594
237
681
-
331
2,334
1,012
Bank deposits that are neither past due or impaired are mainly deposits with banks with
strong credit–ratings from international credit-rating agencies. While cash and bank
balances are also subject to the impairment requirements of IFRS 9, the identified
impairment loss was immaterial.
Other receivables from subsidiaries are low in default credit risk as these subsidiaries are
financially sound and with good payment track records.
For finance lease receivables, the Group applied the general approach under the standard.
The Group’s finance lease receivables are considered to have low credit risk and the loss
allowance recognised during the period was therefore limited to 12 months expected credit
losses on non-secured amounts. The loss allowance for finance lease receivables are
recognised in profit or loss and reduce carrying amounts of the finance lease receivables.
As the value of aircraft that secures the Group’s finance lease receivables exceeds the value
of the finance lease receivables, the Group has recognised a loss allowance of US$1.9 million
in respect of its finance lease receivables during the year ended 30 June 2022 (2021:
US$0.1 million).
(c) Interest rate risk
The Group is exposed to interest rate risk through the impact of interest rate changes on
floating rate interest bearing liabilities and assets.
The Group seeks to reduce its exposure to interest rate risk by fixing interest rates on the
majority of its loans and borrowings. As at 30 June 2022, 90.0% (2021: 90.9%) of the
Group’s loans and borrowings are at fixed or hedged interest rates. Interest rate risk is not
material and therefore no sensitivity analysis presented.
Interest rates and repayment terms for financial assets and financial liabilities are disclosed
in the respective notes to the financial statements as of 30 June 2022.
84
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk
Foreign currency risk arises from transactions and cash balances that are not denominated in
the Group’s functional currency. The Group’s foreign currency exposures arose mainly from
movements in the exchange rate for Singapore Dollars and Euros against the United States
Dollar.
The Group aims to mitigate foreign currency risk by holding the majority of its cash balances
in United States Dollars. From time to time the Group utilises forward foreign currency
contracts to hedge its exposure to specific currency risks.
The Group’s foreign currency exposure is as follows:
Group
2022:
Pound sterling
Australian dollar
Euro
Singapore dollar
2021:
Pound sterling
Australian dollar
Euro
Singapore dollar
Company
2022:
Pound sterling
Australian dollar
Euro
Singapore dollar
2021:
Pound sterling
Australian dollar
Euro
Singapore dollar
Cash and
bank
balances
US$’000s
Other
financial
assets
US$’000s
Other
financial
liabilities
US$’000s
Net
currency
exposure
US$’000s
150
12
6,298
278
20
132
21,657
126
(208)
(1,059)
(37,581)
(570)
(38)
(915)
(9,626)
(166)
6,738
21,935
(39,418)
(10,745)
210
-
7,088
238
64
188
26,745
91
(150)
(78)
(48,428)
(572)
124
110
(14,595)
(243)
7,536
27,088
(49,228)
(14,604)
Cash and
bank
balances
US$’000s
Other
financial
assets
US$’000s
Other
financial
liabilities
US$’000s
Net
currency
exposure
US$’000s
97
-
-
47
20
2
43,210
53
(159)
(7)
(43,124)
(20)
(42)
(5)
86
80
144
43,285
(43,310)
119
191
-
-
33
23
2
52,503
24
(118)
-
(52,142)
(28)
96
2
361
29
224
52,552
(52,288)
488
85
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(d) Foreign currency risk (continued)
The table below illustrates the effect on total profit and total equity that would result from a
strengthening of foreign currencies against the United States Dollar by 10% (2021: 10%)
with all other variables including tax rate being held constant:
Foreign currency:
Pound sterling
Australian dollar
Euro
Singapore dollar
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
(4)
(92)
(963)
(17)
12
11
(1,460)
(24)
(4)
(1)
9
8
10
-
36
3
A weakening of the respective currencies by 10% against the United States Dollar would have
an equal and opposite effect.
The Group entered into Euro denominated lease agreements for aircraft and subsequently
arranged Euro denominated financing and cross-currency swap contracts in order to hedge
exposure to foreign exchange risk associated with Euro denominated lease revenue by
offsetting Euro cash inflows and outflows over the lease term. See note 24.
(e)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations
due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from
mismatches of the maturities of financial assets and liabilities. The Group monitors and
maintains a level of cash and cash equivalents that management deems adequate to finance
the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-term
funding is obtained from loan facilities.
86
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Group’s financial liabilities at the
end of the reporting period based on contractual undiscounted repayment obligations:
Group
2022:
Financial liabilities:
Trade and other payables
Loans and borrowings*
Maintenance reserves
2021:
Financial liabilities:
Trade and other payables
Loans and borrowings
Maintenance reserves
One year or
One to five
Over five years
Total
less
US$’000s
years
US$’000s
US$’000s
US$’000s
3,814
107,263
10,156
3,163
862,571
75,131
14,752
136,867
-
21,729
1,106,701
85,287
121,233
940,865
151,619
1,213,717
3,497
480,916
12,202
5,438
257,237
89,279
11,375
490,248
-
20,310
1,228,401
101,481
496,615
351,954
501,623
1,350,192
* The maturity profile on loans and borrowings include maturity analysis of derivative
financial liabilities.
Refer to Note 34 for details on the loans and borrowings classified as current liability as
due to covenant breaches.
87
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(e)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Company’s financial liabilities at the
end of the reporting period based on contractual undiscounted repayment obligations:
Company
2022:
Financial liabilities:
Trade and other payables
Loans and borrowings
2021:
Financial liabilities:
Trade and other payables
Loans and borrowings
One year or
less
US$’000s
One to five
years
US$’000s
Over five
years
US$’000s
Total
US$’000s
20,786
21,340
41,677
124,472
42,126
166,149
41,935
149,161
191,096
128
-
128
-
-
-
-
-
-
62,463
145,812
208,275
42,063
149,161
191,224
88
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
7
FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(f)
Capital risk
For the purpose of the Group’s capital management, capital includes debt and equity items
such as issued capital, share premium and all other equity reserves attributable to the equity
holders of the parent.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue
as a going concern and to maintain a suitable capital structure so as to fund growth and
maximise shareholder value. In order to maintain or achieve an optimal capital structure, the
Group may adjust the amount of dividend payments, return capital to shareholders, issue new
shares, buy back issued shares, incur new borrowings or sell assets to reduce borrowings.
Management monitors capital based on a gearing ratio. The gearing ratio is calculated as net
indebtedness divided by total assets. Net indebtedness is calculated as loans and borrowings
less unrestricted cash and bank balances.
The Group calculates its gearing ratio on the basis of net indebtedness divided by total assets.
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
Net indebtedness
Total assets
792,863
1,217,020
922,573
1,282,934
119,730
331,252
138,087
294,272
Gearing ratio:
65.1%
71.9%
36.1%
46.9%
89
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
8
RELATED PARTY TRANSACTIONS
In addition to related party information disclosed elsewhere in these financial statements, the
following transactions took place between the Group and related parties at terms agreed between
the parties.
(a) Remuneration of key management personnel
The remuneration of Directors and key management includes fees, salary, bonus, commission
and other emoluments (including benefits-in-kind) based on the cost incurred by the Company
and the Group, and where the Company or Group did not incur any costs, the value of the
benefits. Key management remuneration is as follows:
Group
Company
2022
2021
2022
2021
US$’000s
US$’000s
US$’000s
US$’000s
Key management:
Short-term employee benefits
4,172
4,179
1,074
1,227
The amount above includes remuneration in respect of the highest paid Director as follows:
Group
2022
US$’000s
2021
US$’000s
Aggregate emoluments
1,224
1,394
The Directors do not receive any pension contribution from the Company.
Refer to Directors’ remuneration report for details.
90
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
8
RELATED PARTY TRANSACTIONS (continued)
(b) Significant related party transactions:
Group
Company
2022
2021
2022
2021
US$’000s
US$’000s
US$’000s
US$’000s
Entities controlled by key
management personnel
(including Directors):
Lease liability paid
Consulting fee expense
Maintenance services
Service fee income
(290)
(223)
(376)
106
(269)
(265)
(39)
102
(97)
(223)
-
-
(90)
(265)
-
-
During the period, a director of the company has purchased US$0.2 million (2021: US$nil) in
aggregate nominal value of Avation Capital S.A. 8.25% senior notes due 2026 issued under
the global medium term note programme. The notes were purchased through the market at
a price of 83 per cent of nominal value.
(c)
Significant transactions between the Company and its subsidiaries:
Sale of aircraft
Dividend income
Interest income
Gain on receivables modification
Management fee income
Return of capital
Interest expense
Transfer of a subsidiary
Company
2022
US$’000s
2021
US$’000s
-
13,727
8,941
8,210
3,517
1,457
10,819
(3,060)
-
1,214
7,331
-
1,378
-
(2,983)
(1,278)
91
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
9
REVENUE
Lease rental revenue
Less: amortisation of lease incentive asset
Interest income on finance leases
Deposits released revenue
Maintenance reserves revenue
End of lease return compensation revenue
Group
2022
US$’000s
2021
US$’000s
93,352
(1,383)
91,969
2,918
-
13,207
4,138
116,405
(2,069)
114,336
2,364
822
216
-
112,232
117,738
Deposits released revenue relates to security deposits released from insolvent airline customers that
defaulted on lease payments.
Maintenance reserves revenue relates to the recovery of maintenance reserve from airline customers
and upon sale of aircraft. See Notes 30 and 36.
End of lease return compensation represents contingent rents as set out in the revenue recognition
accounting policy.
Geographical analysis
Europe
Asia Pacific
Group
2022
US$’000s
2021
US$’000s
35,341
76,891
35,358
82,380
112,232
117,738
During the year ended 30 June 2022, five customers individually represented more than 5% of
the Group’s total revenue (2021: five) of which four are based in Asia-Pacific (2021: four) and
one is based in Europe (2021: one). The largest customer, who is based in Asia-Pacific, accounts
for US$25.4 million or 22.6% of the Group’s total revenue (2021: US$25.7 million or 21.8%).
92
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
10
OTHER INCOME
Aircraft purchase option activation fee
Aircraft late delivery compensation
Deposit released
Fees for late payment
Foreign currency exchange gain
Others
Group
2022
US$’000s
2021
US$’000s
-
540
200
1,940
1,018
454
1,182
-
-
547
338
339
4,152
2,406
During the year, the Group recognised US$0.2 million (2021: nil) of deposit released due to
forfeiture of reservation deposits for aircraft lease as other income.
11
ADMINISTRATIVE EXPENSES
Staff costs (note 15)
Other administrative expenses
Group
2022
US$’000s
2021
US$’000s
6,771
2,694
6,431
3,054
9,465
9,485
Legal and professional fees of US$2.6 million were included within administrative expenses in the
statement of profit or loss for the year ended 30 June 2021.
Legal and professional fees of US$3.7 million are disclosed as a separate line item in the statement
of profit or loss for the year ended 30 June 2022 and the comparative figures have been changed
to conform presentation.
93
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
12
OTHER EXPENSES
Aircraft repossession expenses
Aircraft maintenance expenses
Pre-delivery payments expensed
Group
2022
US$’000s
2021
US$’000s
-
5,479
-
641
1,069
2,850
5,479
4,560
Aircraft repossession expenses were incurred due to insolvent airline customers that defaulted on
their lease payments. Pre-delivery payments with a value of US$2.9 million were expensed during
the previous year in connection with a reduction in and re-scheduling of the Company’s orders for
ATR 72-600 aircraft.
13
FINANCE INCOME
Interest income from financial institutions
Interest income from non-financial institutions
Fair value gain on financial derivatives
Finance income from discounting non-current deposits to fair value
Gain on repurchases of unsecured note
Group
2022
US$’000s
2021
US$’000s
-
281
2,492
571
-
4
119
-
445
1,873
3,344
2,441
During the previous year, the gain on repurchases of unsecured note arose when the Group
repurchased its unsecured notes through the market at prices ranging from 65.0 cents to 76.0 cents.
14
FINANCE EXPENSES
Interest expense on borrowings
Interest expense on unsecured notes
Amortisation of loan transaction cost
Amortisation of IFRS 9 gain on debt modification of the unsecured notes
Amortisation of interest expense on non-current deposits
Finance charges on early full repayment of borrowings
Others
Group
2022
US$’000s
2021
US$’000s
24,062
29,913
2,226
8,805
539
731
1,205
26,937
26,582
5,109
-
414
19
1,157
67,481
60,218
Amortisation of IFRS 9 gain on debt modification of unsecured notes of US$8.8 million (2021:
nil) relates to the gain on debt modification of the unsecured notes in 2021 which was amortised
as part of the effective interest rate method.
94
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
15
STAFF COSTS
Salaries and fees
Bonuses
Defined contribution plans
Benefits
Warrants expense
Group
2022
US$’000s
2021
US$’000s
4,320
814
144
70
1,423
4,292
230
100
86
1,723
6,771
6,431
The average number of Directors of the Company for the year is 4 (2021: 4). The average number
of other employees for the year is 19 (2021: 19) and in the following departments:
Administrative
Commercial
Finance
Legal
Technical
Group
2022
2021
3
4
5
4
3
3
4
5
4
3
19
19
16
PROFIT BEFORE TAXATION
Profit before taxation for the year is stated after charging/(crediting) the following:
Group
2022
2021
US$’000s
US$’000s
39,304
(1,018)
46,332
(338)
281
285
566
-
-
-
338
318
656
-
-
-
Depreciation of property, plant and equipment
Foreign currency exchange (gain)
Audit fees:
Fees payable to the Company’s auditor and their associates
for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates
for audits of the Company’s subsidiaries’ annual accounts
Total audit fees
Auditors’ remuneration for non-audit services:
- Tax compliance services
- All other assurance services
Total fees for non-audit services
95
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
17
TAXATION
From continuing operations
Current tax expense:
- Singapore
- Overseas
Overprovision in prior years current tax expense:
- Singapore
- Overseas
Deferred tax expense:
- Singapore
- Overseas
(Over)/under provision in prior years deferred tax expense:
- Singapore
- Overseas
Income tax expense
Group
2022
US$’000s
2021
US$’000s
-
892
(3)
(287)
6
708
(233)
(378)
7,985
(2,805)
1,570
12,999
(435)
28
76
(84)
5,375
14,664
Income tax differs from the amount of income tax expense determined by applying the Singapore
tax rate of 17% to profit before income tax as a result of the following differences:
Group
2022
US$’000s
2021
US$’000s
Profit/(loss) before income tax
22,502
(70,221)
Tax calculated at 17% (2021: 17%)
3,825
(11,937)
Effects of:
Overprovision in prior years current tax expense
- Singapore
- Overseas
(Over)/under provision in prior years deferred tax expense:
- Singapore
- Overseas
Non-deductible items
Income not subject to tax
Different tax rates of other countries
Deferred tax asset not recognised
Utilisation of deferred tax asset not recognised
Effect of concessionary tax rate at 8%
Effect of tax exemption and tax relief
Others
Income tax expense
(3)
(287)
(435)
28
3,818
(2,214)
1,603
1,081
(1,033)
(968)
-
(40)
(233)
(378)
76
(84)
3,888
(325)
9,028
7,686
(65)
6,942
(2)
68
5,375
14,664
96
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
17
TAXATION (continued)
The Group has unutilised tax losses of approximately US$15.6 million (2021: US$7.9 million) and
unabsorbed capital allowances of approximately US$114.6 million (2021: US$114.6 million) that
are available for offset against future taxable profits, for which no deferred tax asset is recognised
due to uncertainty of its recoverability. The use of these unutilised losses and capital allowances is
subject to the agreement of tax authorities and compliance with certain provisions of tax legislation
of the countries in which the Group operates.
18
EARNINGS PER SHARE
(a) Basic earnings per share (“EPS”)
EPS is calculated by dividing total profit attributable to shareholders of Avation PLC by the
weighted average number of ordinary shares in issue during the year.
Company
2022
US$’000s
2021
US$’000s
Net profit/(loss) attributable to shareholders of Avation PLC
17,126
(84,886)
Weighted average number of ordinary shares (‘000s)
69,488
64,725
Basic earnings per share (US cents)
24.65
(131.15)
(b) Diluted earnings per share
For the purpose of calculating diluted earnings per share, total profit attributable to
shareholders of Avation PLC and the weighted average number of ordinary shares outstanding
are adjusted for the effects of all dilutive potential ordinary shares. The Company has one
category of dilutive potential ordinary shares warrants.
For warrants, the weighted average number of shares on issue has been adjusted as if all
dilutive share options were exercised. The number of shares that could have been issued
upon the exercise of all dilutive share option less the number of shares that could have been
issued at fair value (determined as the Company’s average share price for the year) for the
same total proceeds is added to the denominator as the number of shares issued for no
consideration.
Diluted earnings per share attributable to shareholders of Avation PLC is calculated as follows:
Company
2022
US$’000s
2021
US$’000s
Net profit/(loss) attributable to shareholders of Avation PLC
17,126
(84,886)
Weighted average number of ordinary shares (‘000s)
Adjustment for warrants (‘000s)
69,488
64,725
-
-
Weighted average number of ordinary shares (‘000s)
69,488
64,725
Diluted earnings per share (US cents)
24.65
(131.15)
The warrants are anti-dilutive for the years ended 30 June 2021 and 30 June 2022.
97
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
19
PROPERTY, PLANT AND EQUIPMENT
Group
Furniture and
equipment
US$’000s
Aircraft
engine
US$’000
Jet
aircraft
US$’000s
Turboprop
aircraft
US$’000s
Total
US$’000s
2022:
Cost or valuation:
At beginning of year
Additions
Disposal
Reclassified as held under
finance lease
Reclassified as asset held for
sale
Revaluation recognised in equity
At end of year
Representing:
At cost
At valuation
Accumulated depreciation and
impairment:
At beginning of year
Depreciation expense
Disposal
Reclassified as held under
finance lease
Reclassified as asset held for
sale
Impairment loss
At end of year
Net book value:
At beginning of year
At end of year
1,940
868,253
390,322
1,260,589
-
(1,940)
-
-
-
-
-
-
-
-
-
-
-
-
17
(1,940)
(53,344)
(53,344)
(106,124)
(38,874)
(144,998)
9,730
7,819
17,549
771,859
305,923
1,077,873
-
771,859
-
305,923
91
1,077,782
771,859
305,923
1,077,873
128
85
(213)
179,219
28,956
-
117,882
10,251
-
297,285
39,304
(213)
-
-
-
-
-
(33,071)
(33,071)
(28,124)
2,764
(16,374)
2,394
(44,498)
5,158
182,815
81,082
263,965
1,812
689,034
272,440
963,304
-
589,044
224,841
813,908
74
17
-
-
-
-
91
91
-
91
56
12
-
-
-
-
68
18
23
98
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Group
2021:
Cost or valuation:
At beginning of year
Additions
Reclassified from held under
finance leases
Reclassified from asset held for
sale
Disposal/written off
Reclassified as asset held for sale
Revaluation recognised in equity
Furniture
and
equipment
US$’000s
Aircraft
engine
US$’000
Jet
aircraft
US$’000s
Turboprop
aircraft
US$’000s
Total
US$’000s
92
-
-
-
(18)
-
-
1,940
-
814,749
-
441,799
104
1,258,580
104
-
-
-
-
-
-
41,433
41,433
106,124
-
(60,894)
8,274
-
(38,326)
(54,557)
(131)
106,124
(38,344)
(115,451)
8,143
At end of year
74
1,940
868,253
390,322
1,260,589
Representing:
At cost
At valuation
Accumulated depreciation and
impairment:
At beginning of year
Depreciation expense
Reclassified from asset held for
sale
Disposal/written off
Reclassified as asset held for
sale
Impairment loss
74
-
74
60
14
-
(18)
-
-
1,940
-
-
868,253
-
390,322
2,014
1,258,575
1,940
868,253
390,322
1,260,589
41
87
97,542
32,219
103,036
14,012
200,679
46,332
-
-
-
-
23,240
-
23,240
-
(11,191)
(11,209)
(19,594)
45,812
(29,557)
41,582
(49,151)
87,394
At end of year
56
128
179,219
117,882
297,285
Net book value:
At beginning of year
At end of year
32
18
1,899
717,207
338,763
1,057,901
1,812
689,034
272,440
963,304
99
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Company
2022
Cost or valuation:
At beginning of year
Disposal
At end of the year
Representing:
At cost
At valuation
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
Disposal
At end of the year
Net book value:
At beginning of the year
At end of the year
Furniture
and
equipment
US$’000
Aircraft
engine
US$’000s
Turboprop
aircraft
US$’000s
Total
US$’000s
5
5
5
-
5
3
2
-
5
2
-
1,940
(1,940)
-
-
-
-
128
85
(213)
-
1,812
-
-
-
-
-
-
-
-
-
-
-
-
-
1,945
(1,940)
5
5
-
5
131
87
(213)
5
1,814
-
100
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Company
2021
Cost or valuation:
At beginning of year
Additions
Disposal/written-off
At end of the year
Representing:
At cost
At valuation
Accumulated depreciation and impairment:
At beginning of year
Depreciation expense
Disposal/written-off
Impairment loss
At end of the year
Net book value:
At beginning of the year
At end of the year
Furniture
and
equipment
Aircraft
engine
Turboprop
aircraft
Total
US$’000
US$’000s
US$’000s
US$’000s
23
-
(18)
5
5
-
5
19
2
(18)
-
3
4
2
1,940
-
-
1,940
1,940
-
1,940
40
88
-
-
19,566
104
(19,670)
-
-
-
-
-
-
(1,838)
1,838
21,529
104
(19,688)
1,945
1,945
-
1,945
59
90
(1,856)
1,838
128
-
131
1,900
1,812
19,566
-
21,470
1,814
101
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
19
PROPERTY, PLANT AND EQUIPMENT (continued)
Assets pledged as security
The Group’s aircraft with carrying values of US$879.5 million (2021: US$939.7 million) are
mortgaged to secure the Group’s borrowings (Note 34).
Additions and Disposals
During the year, the Group sold one aircraft engine, three turboprop aircraft and two jet aircraft.
The five aircraft sold were classified as held for sale as of 30 June 2021. During the previous year,
the Group sold two turboprop aircraft.
A loss of US$1.4 million (2021: US$6.9 million) on the sale of the aircraft and aircraft engine was
recorded and included within the loss on disposal of aircraft and aircraft engine.
During the year, three turboprop aircraft were reclassified to assets held under finance leases. A
loss on transfer of the aircraft to finance leases of US$1.0 million was recorded and included within
the loss on disposal of aircraft and aircraft engine.
During the previous year, the Group transferred in two jet aircraft from assets held for sale and two
turboprop aircraft from finance leases to property, plant and equipment.
During the year, two turboprop aircraft and two jet aircraft were reclassified as held for sale.
During the previous year, three turboprop aircraft and two jet aircraft were reclassified as held for
sale.
Valuation
The Group’s aircraft were valued in June 2022 by independent valuers on a lease-encumbered value
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 5.50% to 7.00% (2021: 5.50% to 8.00%) per annum for jet aircraft
and 5.50% to 8.00% (2021: 5.50% to 8.00%) per annum for turboprop aircraft. Different discount
rates are considered appropriate for different aircraft based on their respective risk profiles.
Significant airline customer failures and uncertainty created by the pandemic followed by rapid
recovery in global air travel and improvements in airline credit worthiness have led to impairment
losses and its reversals during the years ended 30 June 2021 and 30 June 2022 respectively.
During the year, a reversal of impairment losses of US$2.0 million was recognised to adjust the
book values of two turboprop aircraft and two jet aircraft to their fair value prior to reclassification
as held for sale.
During the previous year, an upward revaluation of US$0.6 million to equity and an impairment loss
of US$15.6 million was recognised to adjust the book values of three turboprop aircraft and one jet
aircraft to their fair value prior to reclassification as held for sale.
During the year, an upward revaluation of US$17.5 million was recorded in equity and impairment
losses of US$7.2 million were recognised in the statement of profit or loss in relation to aircraft which
remain part of the fleet.
During the previous year, an upward revaluation of US$7.5 million was recorded in equity and
impairment losses of US$69.5 million were recognised in the statement of profit or loss in relation
to aircraft which remain part of the fleet.
During the previous year, an impairment loss of US$2.3 million was recognised prior to the sale of
two turboprop aircraft.
102
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
19
PROPERTY, PLANT AND EQUIPMENT (continued)
If the aircraft were measured using the cost model, carrying amounts would be as follows:
Group
2022
2021
Jets
US$’000s
Turbo
props
US$’000s
Jets
US$’000s
Turbo
props
US$’000s
Cost
Accumulated depreciation and impairment
723,469
(170,115)
286,983
(78,974)
829,593
(167,355)
379,201
(117,691)
Net book value
553,354
208,009
662,238
261,510
Company
Cost
Accumulated depreciation and impairment
Net book value
2022
2021
Jets
US$’000s
Turbo
props
US$’000s
Jets
US$’000s
Turbo
props
US$’000s
-
-
-
-
-
-
-
-
-
-
-
-
Geographical analysis
2022
Capital expenditure
Net book value – aircraft
2021
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
-
250,659
17
563,226
17
813,885
Europe
US$’000s
Asia
Pacific
US$’000s
Total
US$’000s
Capital expenditure
Net book value – aircraft and aircraft engines
104
291,913
-
671,373
104
963,286
103
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
20
TRADE AND OTHER RECEIVABLES
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
Current:
Trade receivables
Less:
Allowance for expected credit losses
Accrued revenue
Less:
Allowance for expected credit losses
Other receivables:
– subsidiaries
– third parties
Less:
Allowance for expected credit losses
Interest receivables:
– subsidiaries
– third parties
Less:
Allowance for expected credit losses
Deposits
Prepaid expenses
Non-current:
Other receivables:
– subsidiaries
- third parties
Less:
Allowance for expected credit losses
Deposits for aircraft
Prepaid expenses
Right of use assets
12,354
43,401
628
(8,678)
3,676
(22,766)
20,635
(606)
22
233
(64)
169
-
-
-
-
-
-
142,453
1,440
228,120
2,237
(815)
(892)
143,078
229,465
2,228
29
(25)
2,232
25
134
1,517
105
(39)
1,583
26
126
3,491
13,935
(374)
3,117
-
6,335
(910)
5,425
-
1,759
(2,055)
11,880
-
2,607
(892)
1,715
-
468
(1,373)
(101)
386
48
550
367
49
466
13,202
35,112
145,491
231,369
-
11,343
-
11,343
7,749
-
296
-
559
(97)
462
7,749
143
503
92,389
-
-
92,389
7,749
-
100
-
559
(97)
462
7,749
-
169
19,388
8,857
100,238
8,380
104
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
20
TRADE AND OTHER RECEIVABLES (continued)
Accrued revenue represents deferred lease receivables from customers with whom the Group has
agreed to defer lease payments for a short term period in view of Covid-19 pandemic.
Other receivables from subsidiaries includes interest bearing receivables of US$127.5 million (2021:
US$155.0 million). Current receivables from subsidiaries are unsecured and repayable upon
demand. Interest is charged at 4.0% to 6.0% (2021: 4.0% to 6.0%) per annum.
Other receivables from third parties include interest bearing receivables of US$16.3 million (2021:
US$2.6 million). Interest is charged at 5.0% to 6.0% (2021: 5.0% to 6.0%) per annum.
The average credit period generally granted to customers is 30 to 60 days. Rent for leased aircraft
is due in advance in accordance with the leases.
The movement in allowance for expected losses are set out below:
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
At beginning of year
(Reversal)/provision for expected credit
losses
Written off
Reclassified to assets held for sale
At end of year
25,911
1,021
1,092
(3,742)
(10,788)
(46)
11,335
25,338
(448)
-
25,911
354
-
-
1,446
1,092
711
381
-
-
During the year, the Group has written off US$10.8 million of receivables mainly due to reaching
agreements with customers on debt restructuring plans.
As at 30 June 2022, other receivables with net realisable value of US$6.5 million (2021 : US$nil)
has been reclassified as part of assets held for sale. The expected credit loss expense recognised
as part of these receivables amounted to US$0.1 million. Please refer to Note 30.
Trade and other receivables denominated in foreign currencies are as follows:
Pound sterling
Australian dollar
Euro
Singapore dollar
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
20
132
356
126
64
188
73
91
20
2
43,210
53
23
2
52,503
24
105
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
21
FINANCE LEASE RECEIVABLES
Finance lease receivables do not include any contingent rents or residual value guarantees.
Future minimum lease payments receivable under finance lease are as follows:
Group
Within one year
Less:
Allowance for expected credit losses
One to two years
Two to three years
Three to four years
Four to five years
Later than five years
2022
2021
Minimum
lease
payments
US$’000s
Present
value of
payments
US$’000s
Minimum
lease
payments
US$’000s
Present
value of
payments
US$’000s
11,729
7,476
6,465
4,244
(1,852)
(1,852)
(90)
(90)
9,877
7,695
31,565
10,615
11,357
-
5,624
5,306
29,044
9,763
11,095
-
6,375
5,681
5,681
31,419
8,185
-
4,154
4,024
4,218
29,458
8,136
-
Total minimum lease payments
71,109
60,832
57,341
49,990
Less: amounts representing interest
income
Present value of minimum lease
(10,277)
-
(7,351)
-
payments
60,832
60,832
49,990
49,990
The movement in allowance for expected losses are set out below:
At beginning of year
Provision for expected credit losses
At end of year
Group
2022
US$’000
2021
US$’000s
90
1,762
1,852
-
90
90
Finance lease receivables denominated in foreign currencies are as follows:
Euro
Group
2022
US$’000s
2021
US$’000s
21,301
26,672
106
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
22
GOODWILL
Cost:
At beginning and end of the year
Allowance for impairment:
At beginning and end of the year
Net carrying amount:
At beginning and end of the year
Impairment test of goodwill
Group
2022
US$’000s
2021
US$’000s
2,384
2,384
482
482
1,902
1,902
Goodwill is allocated to the cash generating unit ("CGU") of the Group which is the aircraft leasing
business.
The recoverable amount of the CGU has been determined based on value-in-use calculations. Cash
flow projections used in the value-in-use calculations were based on financial budgets approved
by management covering a two-year period.
Key assumptions used for value-in-use calculations:
Average cash flow growth rate
Terminal growth rate
Discount rate
2022
%
2021
%
2.0
2.0
6.0
2.0
2.0
6.0
Management determined cash flow growth based on past performance and its expectations of
market development. The terminal growth rate of 2% that was used to extrapolate cash flows
beyond the budget period did not exceed the long term average growth rate for the business in
which the CGU operates. Management has estimated that the recoverable amount of the CGU is
US$207.2 million (2021: US$240.4 million).
Management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of the CGU to materially exceed its recoverable amount.
107
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
23
INVESTMENT IN SUBSIDIARIES
Unquoted equity shares, at cost
At beginning of year
Additions
Return of capital
At end of year
Company
2022
US$’000s
2021
US$’000s
14,147
-
(10,819)
12,869
1,278
-
3,328
14,147
During the year, the Company’s subsidiary, Capital Lease Aviation Limited, distributed a dividend
and returned US$10.8 million to the Company.
During the previous year, the Company transferred Capital MSN 4033 II Limited from its subsidiary,
Capital Lease Aviation Limited to the Company. The Company assessed that the investments in
subsidiaries as of 30 June 2022 are not impaired (2021: not impaired)
Details of subsidiaries are as follows:
Name of entity
Country of
incorporation
Principal
activities
Ownership interest
2022
%
2021
%
Held directly by the Company:
Avation Capital S.A.
Capital Lease Aviation Limited
Avation Group (S) Pte. Ltd.
AVAP Leasing (Asia) Limited
AVAP Leasing (Asia) II Limited
AVAP Leasing (Asia) III Limited
AVAP Leasing (Asia) IV Limited
Capital MSN 4033 II Limited
Luxembourg
Financing
United Kingdom Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Singapore
Ireland
Ireland
Ireland
Ireland
Ireland
100.00
99.68
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.68
100.00
100.00
100.00
100.00
100.00
100.00
Held by Capital Lease Aviation Limited:
Capital Lease Malta Ltd.
Capital MSN 4033 Limited
(a)
Held by Avation Eastern Fleet Pte. Ltd.:
Airframe Leasing (S) Pte. Ltd.
Airframe Leasing (S) II Pte. Ltd.
(b)
Held by Avation Eastern Fleet II Pte. Ltd.:
Airframe Leasing (S) II Pte. Ltd.
Held by Avation Eastern Fleet III Pte. Ltd.:
Airframe Leasing (S) III Pte. Ltd.
Malta
Ireland
Aircraft leasing
Aircraft leasing
99.68
99.68
99.68
99.68
Singapore
Singapore
Aircraft leasing
Aircraft leasing
100.00
100.00
100.00
-
Singapore
Aircraft leasing
100.00
100.00
Singapore
Aircraft leasing
100.00
100.00
108
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
23
INVESTMENT IN SUBSIDIARIES (continued)
Name of entity
Country of
incorporation
Principal
activities
Ownership
interest
2022
2021
%
%
Held by Avation Group (S) Pte. Ltd.:
Avation Eastern Fleet Pte. Ltd.
Avation Eastern Fleet II Pte. Ltd.
Avation Eastern Fleet III Pte. Ltd.
Avation Pacific Leasing Pte. Ltd.
Avation Pacific Leasing II Pte. Ltd.
Avation Taiwan Leasing II Pte. Ltd.
Avation Taiwan Leasing III Pte. Ltd.
AVAP Leasing (Europe) II Pte. Ltd.
AVAP Leasing (Europe) III Pte. Ltd.
AVAP Leasing (Europe) VI Pte. Ltd.
AVAP Leasing (Europe) VII Pte. Ltd.
AVAP Leasing (Europe) VIII Pte. Ltd
AVAP Leasing (Europe) IX Pte. Ltd.
F100 Fleet Pte. Ltd.
MSN 1607 Pte. Ltd.
AVAP Aircraft Trading Pte. Ltd.
AVAP Aircraft Trading II Pte. Ltd.
AVAP Aircraft Trading III Pte. Ltd.
Avation Asia Fleet Pte. Ltd.
Avation Asia Fleet II Pte. Ltd.
Avation Asia Fleet III Pte. Ltd.
Avation Denmark Leasing Pte. Ltd.
Avation Capital II Pte. Ltd.
AVAP Leasing (Asia) VI Pte. Ltd.
AVAP Aircraft Leasing Pte. Ltd.
AVAP Aircraft Leasing II Pte. Ltd.
AVAP Aircraft Leasing III Pte. Ltd.
AVAP Aircraft Leasing IV Pte. Ltd.
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
Aircraft leasing
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
(a) In the process of being struck off
(b) During the year, Airframe Leasing (S) II Pte. Ltd. issued shares to Avation Eastern Fleet Pte.
Ltd. The share issuance resulted in Avation Eastern Fleet Pte. Ltd. becoming the immediate
holding company.
All companies as at 30 June 2022 are audited by member firms of Ernst & Young except for the
following:
(a) Audited by Moore, Malta
The registered office address of the companies incorporated in the following countries are as follows:
Ireland - 32 Molesworth Street, Dublin 2 D02 Y512, Ireland.
Luxembourg - 46A, Avenue J. F. Kennedy, L-1855 Luxembourg.
Malta – 15, Level 2 Corporate Suites, Naxxar, Birkirkara, BKR 9048, Malta.
Singapore - 65 Kampong Bahru Road, Singapore 169370.
United Kingdom - 5 Fleet Place, London EC4M 7RD, United Kingdom.
For all non-controlling interests, voting rights not controlled by the group are equivalent to
ownership interests.
109
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
24
DERIVATIVE FINANCIAL ASSETS/LIABILITIES
Group
Derivative financial assets
Interest rate swap
Cross-currency interest rate swap
Derivative financial liabilities
Interest rate swap
Cross-currency interest rate swap
Warrants
Company
Derivative financial assets
Interest rate swap
Derivative financial liabilities
Interest rate swap
Warrants
Contract/
notional amount
Fair value
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
248,384
4,000
252,384
-
-
-
-
-
-
-
279,884
4,000
-
283,884
5,470
450
5,920
-
-
1,055
1,055
-
-
-
16,427
240
3,494
20,161
Contract/
notional amount
Fair value
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
70,750
-
1,281
-
-
-
-
77,250
-
77,250
-
1,055
1,055
4,708
3,494
8,202
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.
The Group determines the economic relationship between the finance lease income, loans and
borrowings and the derivative by matching the critical terms of the hedging instrument with the
terms of the hedged item. The hedge ratio (the ratio between notional amount of the derivative
financial instrument to the amount of the finance lease income and loans and borrowings being
hedged) is determined to be 1:1. There were no expected sources of ineffectiveness on the Group’s
hedges as the critical terms of the derivative match exactly with the terms of the hedged item.
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 or 1-month SOFR 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 26 December 2023 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 gain net of tax of US$20.5 million (2021:
gain of US$10.1 million) on these derivative financial instruments was recognised in the fair value
reserve for the year.
110
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
24
DERIVATIVE FINANCIAL ASSETS/LIABILITIES (continued)
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 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 (that is, as prices) or indirectly
(that is, derived from prices) are included as inputs for the determination of fair value.
The Group entered into Euro denominated lease agreements which create exposure to variability in
cash flows due movements in the EUR:USD exchange rate. To hedge its exposure to variable cash
flows resulting from changes in EUR:USD spot rates, the Group has arranged Euro denominated
financing which reduces overall exposure to variable cash flows to the extent that lease receipts and
debt service cashflows are matched. The Group is making use of a non-derivative hedging
instrument and has designated the cash flows with respect to the loan interest and principal
repayment (hedging instrument) against a specific portion of the lease receivable (hedged item).
Unrealised foreign exchange gains and losses arising on Euro denominated loans designated as
cash flow hedges are recognised in the foreign currency hedge reserve. Unrealised foreign
exchange gains and losses recorded in the foreign currency hedging reserve are systematically
re-cycled through profit or loss over the remaining term of the related loan on a straight-line basis.
The Group determine the hedging relationship between the hedging instruments and the hedged
item on a number of criteria including the reference interest rates, tenors, repricing dates and
maturities and to notional or par amounts. The Group assesses whether the derivative designated
in each hedging relationship is expected to be effective in offsetting changes in cash flows of the
hedged item using the hypothetical derivative method. In these hedge relationships, the main
sources of ineffectiveness are:
(cid:120) Differences in the pricing dates between the swaps and the borrowings
(cid:120) Differences in the timing of the cash flows of the hedged items and the hedging requirements
(cid:120)
The counterparties’ credit risk differently impacting the fair value movements of the hedging
instruments and the hedged items
(cid:120) Changes to the forecasted amount of cash flows of hedged items and hedging instruments
111
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
24
DERIVATIVE FINANCIAL ASSETS/LIABILITIES (continued)
During the year 30 June 2022, the effect of the cash flow hedge in the consolidated statement of
profit or loss and consolidated statement of other comprehensive income was as follows:
Group
Interest rate swap
Cross currency swap
Foreign currency hedge
Total hedging
gain/(loss)
recognised in
OCI, net of
tax
US$’000s
Amount
reclassified
from
OCI to profit
or (loss)
US$’000s
Line item
in the
statement of
profit or loss
19,804
691
14,892
(5,371)
(159)
Finance expense
Finance expense
140 Other income
35,387
(5,390)
During the year 30 June 2021, the effect of the cash flow hedge in the consolidated statement of
profit or loss and consolidated statement of other comprehensive income was as follows:
Group
Interest rate swap
Cross currency swap
Foreign currency hedge
Total hedging
gain/(loss)
recognised in
OCI, net of
tax
US$’000s
Amount
reclassified
from
OCI to profit
or (loss)
US$’000s
Line item
in the
statement of
profit or loss
9,854
230
(8,398)
(5,913)
(168)
(732) Other income
Finance expense
Finance expense
1,686
(6,813)
The warrants consist of 5,857,408 (2021: 6,000,000) warrants granted to the holder of the
unsecured notes to subscribe for ordinary shares of the Company exercisable to 31 October 2026
at a price of 114.5 pence per share (including cashless exercise option).
The warrants were valued using a binomial option pricing model. Expected volatility is based on
the historical share price volatility over the previous twelve months.
112
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
25
AIRCRAFT PURCHASE RIGHTS
Aircraft purchase rights, at fair value:
At beginning of year
Unrealised gain/(loss)
At end of year
Group and Company
2021
2022
US$’000s
US$’000s
26,960
38,320
65,280
27,110
(150)
26,960
The Group has determined that it would seek to dispose of excess aircraft purchase rights over and
above its requirement to acquire additional aircraft for its fleet. The Group accounts for aircraft
purchase rights at fair value through profit or loss. Disclosures about the fair value measurement of
aircraft purchase rights at fair value are included in Note 6.
26
INVESTMENT IN EQUITY, FAIR VALUE THROUGH PROFIT OR LOSS
Non-listed equity, at fair value
At beginning of year
Additions
At end of year
Group
2022
US$’000s
2021
US$’000s
-
3,715
3,715
-
-
-
The Group received 8,014,602 (2021: NIL) ordinary shares from an airline customer as part of
the airline’s restructuring plan to compensate and offset the amount due to the Group.
27
INVESTMENT IN DEBT INSTRUMENT, FAIR VALUE THROUGH PROFIT OR LOSS
Listed debt instrument, at fair value
At beginning of year
Additions
Fair value (loss)/gain
At end of year
Company
2022
US$’000s
2021
US$’000s
6,089
-
(164)
5,925
-
5,248
841
6,089
The Company holds 7,475,842 units (2021: 7,358,000 units) of its subsidiary, Avation Capital
SA’s 8.25% unsecured notes as of 30 June 2022.
113
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
28
LEASE INCENTIVE ASSETS
Current
Non-current
At beginning of year
Additions
Transfer (to)/from asset held for sale
Amortisation to profit or loss
At end of year
29
CASH AND BANK BALANCES
Group
2022
2021
US$’000s
US$’000s
137
310
447
8,038
-
(6,208)
(1,383)
447
1,377
6,661
8,038
-
1,723
8,384
(2,069)
8,038
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
Cash and bank balances
Less : restricted
Cash and cash equivalents
119,171
(83,904)
35,267
122,471
(97,404)
25,067
9,709
-
9,709
5,513
-
5,513
The Group’s restricted cash and bank balances have been pledged as security for certain loan
obligations.
The rate of interest for cash on interest earning accounts is approximately 0.01% to 0.25% (2021:
0.01% to 0.33%) per annum.
Cash and bank balances denominated in foreign currencies are as follows:
Pound sterling
Australian dollar
Euro
Singapore dollar
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
150
12
6,298
278
210
-
7,088
238
97
-
-
47
191
-
-
33
114
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
30
ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS
HELD FOR SALE
The Group’s aircraft which met the criteria to be classified as assets held for sale and the
associated liabilities were as follows:
Assets held for sale:
Property, plant and equipment - aircraft
At beginning of year
Additions
Impairment loss
Disposal
Transfer to property, plant and equipment
At end of year
Other receivables
Lease incentive asset
Liabilities directly associated with assets
held for sale:
Deposit collected
Lessor maintenance contribution
Maintenance reserves
Group
2022
US$’000
2021
US$’000s
66,300
100,500
(1,000)
(65,300)
-
100,500
6,547
6,208
82,884
66,300
-
-
(82,884)
66,300
-
-
113,255
66,300
935
8,769
5,442
15,146
776
-
5,141
5,917
During the year, an impairment loss of US$1.0 million was recognised to write down the book value
of 3 turboprop aircraft classified as held for sale in the previous year to current market value prior
to the sale.
Maintenance reserves of US$1.8 million (2021: US$nil) were released to profit or loss as revenue
following the sale of the aircraft.
Other receivables of US$6.5 million (2021: US$nil) is interest bearing. Interest is charged at 5.5%
(2021: Nil) per annum.
During the period, the board of directors decided to sell two turboprop aircraft and two jet aircraft.
The sales of aircraft are expected to be completed within a year from reporting date. The aircraft
were measured at fair value less cost to sell at the date of transfer to assets held for sale.
115
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
31
SHARE CAPITAL AND TREASURY SHARES
(a) Share capital
2022
2021
No of shares
US$’000s
No of shares
US$’000s
Allotted, called up and fully paid
Ordinary shares of 1 penny each:
At beginning of the year
Issue of shares
71,698,124
-
1,203
-
64,879,942
6,818,182
1,108
95
At end of the year
71,698,124
1,203 71,698,124
1,203
During the previous year, the Company issued 6,818,182 ordinary shares of 1 penny each at
110 pence by private placement and subscriptions raising total gross proceeds of US$10.5
million.
The holders of ordinary shares (except for treasury shares) are entitled to receive dividends
as and when declared by the Company. All ordinary shares carry one vote per share without
restrictions.
(b)
Treasury shares
2022
2021
No of shares
US$’000s
No of shares
US$’000s
At beginning and end of the year 2,210,000
7,811
2,210,000
7,811
(c) Net asset value per share
Net asset value per share (US$)(1)
Net asset value per share (GBP) (2)
2022
2021
$3.27
£2.68
$2.26
£1.64
(1) Net asset value per share is total equity divided by the total number of shares in issue excluding
treasury shares at period end.
(2) Based on GBP:US$ exchange rate as at 30 June 2022 of 1.22 (30 June 2021 : 1.38)
116
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
32
ASSET REVALUATION RESERVE
At beginning of year
Revaluation gain
Deferred tax (charge)/credit
Release of revaluation reserve upon sale of aircraft
At end of year
33
OTHER RESERVES
Group
2022
US$’000s
2021
US$’000s
37,602
17,549
(1,340)
(2,081)
30,162
8,143
(703)
-
51,730
37,602
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
Capital redemption reserve
Warrant reserve
Fair value reserve
Foreign currency hedge reserve
12
2,389
2,941
8,832
12
2,220
(17,554)
(6,060)
12
2,389
(1,312)
-
12
2,220
(6,282)
-
14,174
(21,382)
1,089
(4,050)
117
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
33
OTHER RESERVES (continued)
Movements in other reserves are as follows:
Group
Company
2022
2021
2022
2021
US$’000s
US$’000s
US$’000s
US$’000s
Warrant reserve:
At the beginning the year
Employee share warrant scheme:
- Value of employee services
- Issue of shares
- Expired
2,220
986
2,220
986
1,423
-
(1,254)
1,723
-
(489)
1,423
-
(1,254)
1,723
-
(489)
At end of the year
2,389
2,220
2,389
2,220
Fair value reserve:
At the beginning the year
Effective portion of changes in fair value
Net change in fair value reclassified to
profit or loss
(17,554)
14,965
(27,638)
4,003
(6,282)
3,380
(8,787)
707
5,530
6,081
1,590
1,798
At end of the year
2,941
(17,554)
(1,312)
(6,282)
Foreign currency hedge reserve:
At the beginning the year
Effective portion of changes in fair value
Net change in fair value reclassified to
profit or loss
(6,060)
15,032
2,338
(9,130)
(140)
732
At end of the year
8,832
(6,060)
-
-
-
-
-
-
-
-
118
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
34
LOANS AND BORROWINGS
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
Secured borrowings
Unsecured notes (a)
531,930
296,200
664,387
283,253
129,439
143,600
-
-
Less: current portion of borrowings
(63,900)
(442,622)
(16,353)
(143,600)
828,130
947,640
129,439
143,600
764,230
505,018
113,086
-
Maturity
interest rate per annum
Weighted average
2022
US$’000s
2021
US$’000s
2022
%
Secured borrowings
Unsecured notes (a)
2023-2031
2026
2022-2031
2026
4.0%
8.25%
2021
%
3.9%
8.25%
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.
Secured borrowings are subject to certain covenants that give lenders the right to demand
repayment if breached. The Group was in breach of a covenant to maintain a minimum ratio of
total equity to net debt of at least 20% of total assets and another covenant to maintain a
minimum ratio of tangible net worth to net debt of at least 23% as at 30 June 2021. The Group
subsequently obtained waivers of the breach of these covenants on 16 July 2021 and 8 September
2021. The carrying value of borrowings subject to these covenants of US$240.4 million has been
classified as a current liability as at 30 June 2021. The Group satisfied the loan covenant and there
is no breach as at 30 June 2022.
The Group incurred transaction costs and upfront fees of US$0.4 million during the year (2021:
US$0.3 million) that are capitalised into loans and borrowings.
During the year, the Group increased its secured borrowings by US$17.1 million (2021: US$11.7
million) to fund its business operations.
During the year, the Group repaid US$140.4 million (2021: US$88.7 million) of its secured
borrowings.
During the year, the Group extended the maturity date of the loans due on August 2022 to
September 2026. A loss on debt modification of US$3.5 million was recognised in the statement
of profit or loss during the year.
119
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
34
LOANS AND BORROWINGS (continued)
Secured loans and borrowings denominated in foreign currencies are as follows:
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
Euro
136,469
192,225
42,854
51,327
(a) In May 2015, the Company through its wholly-owned subsidiaries, Avation Capital S.A. and
Avation Group (S) Pte. Ltd. (together, "the Issuers") established a US$500 million global
medium term note programme (the "Programme") guaranteed by the Company.
Under the Programme, the Issuers may from time to time issue Notes (the “Notes")
denominated in any currency as agreed. All Notes issued under the Programme are listed on
the Singapore Stock Exchange (“SGX”).
During the previous year, the Company repurchased US$6.4 million unsecured notes through
the market at prices ranging from 65.0 cents to 76.0 cents.
During the previous year, the Company reached agreement with the holders of its unsecured
notes for a maturity extension and the following are the key terms of the extension:
(cid:120) Maturity extension of the notes from 15 May 2021 to 31 October 2026;
(cid:120) Cash coupon of 6.5% with, at the Company’s option, an additional 2.5% payment in kind
coupon or an additional 1.75% cash coupon;
Early bird consent fee of up to 75bps; late consent fee of 25bps
(cid:120)
(cid:120) Bondholders receive 6,000,000 warrants to subscribe for ordinary shares exercisable to
31 October 2026 at a price of 114.5 pence per share (including cashless exercise option);
The notes are callable at any time during their 5.5 year remaining duration, with the call
premium decreasing to par during year 5; and
(cid:120)
(cid:120) A general strengthening of the Notes’ covenants and the granting of additional guarantees
and security.
The maturity extension of the unsecured note resulted in a gain on debt modification of US$50.3
million in the previous year.
120
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
35
TRADE AND OTHER PAYABLES
Current:
Trade payables
Other payables:
- subsidiaries
- third parties
Deposits collected
Deferred lease income
Lease liability
Revenue received in advance
Accrued expenses
Non-current:
Other payables:
- subsidiaries
Deposits collected
Deferred lease income
Lease liability
Accrued expenses
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
2,218
676
191
439
-
276
1,120
607
284
4,584
6,851
-
608
1,031
354
264
5,908
7,608
17,354
251
120
-
94
-
281
40,822
998
200
-
87
-
282
15,940
16,449
18,291
42,828
-
13,692
3,776
106
700
-
13,897
2,194
381
-
32,329
-
-
32
700
-
-
-
123
-
18,274
16,472
33,061
123
Amounts due to subsidiaries are unsecured, interest free and without fixed repayment terms unless
otherwise stated.
Other payables due to subsidiaries includes interest bearing payables of US$34.3 million (2021:
US$28.1 million) which are unsecured, payable upon demand and bear interest at 5.8% to 8.2%
(2021: 5.8% to 8.2%) per annum.
The average credit period taken to settle non-related party trade payables is approximately 30 to
60 days.
Deposits collected are security deposits collected from customers in respect of aircraft lease
commitments, and have been discounted to present value at a current pre-tax rate that reflect the
risks specific to these deposits. Deposits will be refunded at the end of the respective lease term.
Trade and other payables denominated in foreign currencies are as follows:
Pound sterling
Australian dollar
Euro
Singapore dollar
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
208
1,059
3,621
570
150
78
4,956
572
159
7
270
20
118
-
815
28
121
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
36 MAINTENANCE RESERVES
Current:
Maintenance reserves
Non-current:
Maintenance reserves
Maintenance lease contribution
Group
2022
US$’000s
2021
US$’000s
10,156
12,202
72,607
2,524
75,131
77,846
11,433
89,279
Total maintenance reserves
85,287
101,481
At beginning of year
Contributions
Utilisations
Released to profit or loss
Transfer from liabilities directly associated with assets held for sale
Transfer to liabilities directly associated with assets held for sale
Group
2022
US$’000s
2021
US$’000s
90,048
13,109
(3,590)
(11,362)
-
(5,442)
60,977
38,937
(4,644)
(216)
135
(5,141)
At end of the year
82,763
90,048
During the year, maintenance reserves of US$11.4 million (2021: US$0.2 million) were released to
profit or loss as revenue following recovery from airline customers.
Maintenance lease contribution represents the contractual obligations of the Group to contribute to
the lessee’s costs for aircraft maintenance.
The Group also holds letters of credit for US$13.7 million (2021: US$4.7 million) as security for
lessees’ obligations under operating leases for the maintenance of aircraft.
122
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
37
DEFERRED TAX LIABILITIES
Recognised deferred tax liabilities are attributable to the following:
Group
Company
2022
US$’000s
2021
US$’000s
2022
US$’000s
2021
US$’000s
Property, plant and equipment
Tax losses carried forward
Gain on debt modification
Cash flow hedge
15,874
-
9,498
65
6,756
-
12,503
(2,121)
9,948
-
-
(268)
4,006
-
-
(1,286)
25,437
17,138
9,680
2,720
Movements in temporary differences are as follows:
Group
Property,
plant and
equipment
US$’000s
Tax
losses
carried
forward
US$’000s
Gain on debt
modification
US$’000s
Cash flow
hedge
US$’000s
Total
US$’000s
2022
At beginning of the year
Recognised in profit or loss
Recognised in equity
6,756
7,778
1,340
At end of the year
15,874
-
-
-
-
12,503
(3,005)
-
(2,121)
-
2,186
17,138
4,773
3,526
9,498
65
25,437
2021
At beginning of the year
Recognised in profit or loss
Recognised in equity
4,239
1,814
703
(244)
244
-
-
12,503
-
(3,297)
-
1,176
698
14,561
1,879
At end of the year
6,756
-
12,503
(2,121)
17,138
Company
2022
At beginning of the year
- Recognised in profit or loss
- Recognised in equity
Property,
plant and
equipment
US$’000s
Cash flow
hedge
US$’000s
Total
US$’000s
4,006
5,942
-
(1,286)
-
1,018
2,720
5,942
1,018
At end of the year
9,948
(268)
9,680
2021
At beginning of the year
- Recognised in profit or loss
- Recognised in equity
4,500
(494)
-
(1,799)
-
513
2,701
(494)
513
At end of the year
4,006
(1,286)
2,720
123
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
38
SHARE BASED PAYMENTS
The Group has an ownership-based compensation scheme for all employees of the Group.
Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are
paid or are payable by the recipient on receipt of the warrant. The warrants carry neither rights
to dividends nor voting rights.
Warrants are granted to employees of the Group to promote:
Improvement in share price;
Improvement in the Company’s earnings per share;
(cid:120)
(cid:120)
(cid:120) Reliable and high quality financial reporting;
(cid:120) Growth in asset value and profits; and
(cid:120) Growth in dividends.
Movement in warrants during the year
The following table illustrates the number (No.) and weighted average exercise prices (WAEP)
of, and movements in, warrants during the year:
2022
2021
No.
WAEP
No.
WAEP
Outstanding at beginning of the year
- Granted
- Exercised
- Expired
8,086,665
-
-
(2,606,665)
179.4p
-
-
177.3p
5,146,995
3,950,000
-
(1,010,330)
221.5p*
130.0p
-
200.8p
Outstanding at end of the year
5,480,000
180.4p
8,086,665
179.4p
Exercisable at end of the year
2,411,677
206.4p
2,221,682
208.0p
*The beginning WAEP for the outstanding warrants is re-adjusted due to re-pricing of warrants on
23 December 2020 for warrants granted on 5 September 2018 from exercise price of 232 pence
to 130 pence.
The weighted average fair value of warrants granted during the year was nil (2021: 59 pence).
The charge recognised in profit or loss in respect of share based payments is US$1.4 million
(2021: US$1.7 million).
During the year, no warrants were exercised (2021: Nil).
Warrants outstanding at the end of the year have the following expiry date and exercise price:
Warrant series granted on
Expiry date
Exercise
price
Number of warrants
2021
2022
5 September 2018
8 March 2019
20 September 2019
21 November 2019
23 December 2020
6 Oct 2021
9 Apr 2022
21 Oct 2022
22 Dec 2022
23 Jan 2024
130.0p
294.5p
296.0p
274.5p
130.0p
-
-
1,053,000
702,000
3,725,000
1,806,665
730,000
1,065,000
710,000
3,775,000
124
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
38
SHARE BASED PAYMENTS (continued)
Warrants granted on 5 September 2018 have a 3-year vesting schedule with details as follows:
Vesting period
Before 6 September 2019
On 6 September 2019 and before 6 September 2020
On 6 September 2020 and before 6 September 2021
On 6 September 2021 to 6 October 2021
Proportion of total share options that are
exercisable
0 per cent
Up to 33 per cent of the grant
Up to 33 per cent of the grant or up to 66 per
cent of the grant if warrants were not exercised
after the first vesting year
Balance or 100 per cent of the grant if warrants
were not exercised after the first and second
vesting years
The exercise price for the warrants granted on 5 September 2018 was re-priced on 23 December
2020 from 232 pence to 130 pence.
The warrants granted on 8 March 2019 have a 3-year vesting schedule and the details are as
follows:
Vesting period
Before 9 March 2020
On 9 March 2020 and before 9 March 2021
On 9 March 2021 and before 9 March 2022
On 9 March 2022 to 9 April 2022
Proportion of total share options that are
exercisable
0 per cent
Up to 33 per cent of the grant
Up to 33 per cent of the grant or up to 66 per
cent of the grant if warrants were not exercised
after the first vesting year
Balance or 100 per cent of the grant if warrants
were not exercised after the first and second
vesting years
Warrants granted on 20 September 2019 have a 3-year vesting schedule with details as follows:
Vesting period
Proportion of total share options that are
exercisable
Before 21 September 2020
On 21 September 2020 and before 21 September 2021 Up to 33 per cent of the grant
On 21 September 2021 and before 21 September 2022 Up to 33 per cent of the grant or up to 66 per
0 per cent
On 21 September 2022 to 21 October 2022
cent of the grant if warrants were not exercised
after the first vesting year
Balance or 100 per cent of the grant if warrants
were not exercised after the first and second
vesting years
125
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
38
SHARE-BASED PAYMENTS (continued)
Warrants granted on 21 November 2019 have a 3-year vesting schedule with details as follows:
Vesting period
Proportion of total share options that are
exercisable
Before 22 November 2020
On 22 November 2020 and before 22 November 2021 Up to 33 per cent of the grant
On 22 November 2021 and before 22 November 2022 Up to 33 per cent of the grant or up to 66 per
0 per cent
On 22 November 2022 to 22 December 2022
cent of the grant if warrants were not exercised
after the first vesting year
Balance or 100 per cent of the grant if warrants
were not exercised after the first and second
vesting years
Warrants granted on 23 December 2020 have a 3-year vesting schedule with details as follows:
Vesting period
Proportion of total share options that are
exercisable
Before 23 December 2021
On 23 December 2021 and before 23 December 2022 Up to 33 per cent of the grant
On 23 December 2022 and before 23 December 2023 Up to 33 per cent of the grant or up to 66 per
0 per cent
On 23 December 2023 to 23 January 2024
cent of the grant if warrants were not exercised
after the first vesting year
Balance or 100 per cent of the grant if warrants
were not exercised after the first and second
vesting years
The warrants were valued using a binomial option pricing model. Where relevant, the expected
life used in the model has been adjusted based on management’s best estimate for the effects of
non-transferability, exercise restrictions (including the probability of meeting market conditions
attached to the option), and behavioural considerations. Expected volatility is based on the
historical share price volatility over the previous twelve months.
126
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
38
SHARE-BASED PAYMENTS (continued)
Warrant series
granted on
23 December 2020
Warrant series
granted on
21 November 2019
Warrant series
granted on
20 September 2019
Inputs into the model:
Grant date share price
Exercise price
Expected volatility
Warrant life
Dividend yield
Risk free interest rate
132.5 pence
130.0 pence
77%
3 years
0.90%
-0.08% to -0.06%
274.5 pence
274.5 pence
15%
3 years
3.11%
0.53% to 0.58%
296.0 pence
296.0 pence
18%
3 years
3.11%
0.46% to 0.53%
Inputs into the model:
Grant date share price
Re-priced share price
Exercise price
Expected volatility
Warrant life
Dividend yield
Risk free interest rate
Warrant series
Warrant series
granted on
8 March 2019
granted on
5 September 2018
(Re-priced on
23 December 2020)
294.5 pence
-
294.5 pence
17%
3 years
2.45%
0.75% to 0.79%
232.0 pence
132.5 pence
130.0 pence
77%
0.79 years
0.90%
-0.08% to -0.06%
39
CAPITAL COMMITMENTS
Capital expenditure contracted for at the reporting date but not recognised in the financial
statements is as follows:
Group
2022
2021
US$’000s
US$’000s
Property, plant and equipment
31,230
31,230
Capital commitments represent amounts due under contracts entered into by the Group to
purchase aircraft. The company has paid deposits towards the cost of these aircraft which are
included in trade and other receivables.
As at the year end, the Group has commitments to purchase two ATR 72-600 aircraft from the
manufacturer with expected delivery dates in 2024.
127
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
40
OPERATING LEASE COMMITMENTS
The Group leases out aircraft under operating leases. The future minimum undiscounted lease
payments under non-cancellable leases are as follows:
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Later than five years
Group
2022
US$’000s
2021
US$’000s
86,929
88,669
86,070
77,313
64,371
112,713
96,276
98,390
92,114
90,276
84,134
206,678
516,065
667,868
The Group holds cash deposits of US$19.9 million (2021: US$17.3 million) and letters of credit for
US$3.0 million (2021: US$3.3 million) as security for lessees’ obligations under operating leases.
41
CONTINGENT LIABILITIES
Company
2022
2021
US$’000s
US$’000s
Guarantees
881,256
1,014,784
The maximum estimated amount that the Company could become liable for under guarantees for
loans and borrowings is as shown above.
128
AVATION PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2022
42
ULTIMATE HOLDING COMPANY
No party controls the Company.
43
SUBSEQUENT EVENTS
On 11 July 2022, the Group has repurchased US$4,392,889 Avation Capital S.A. Senior PIK Toggle
Notes due 2026 issued under Avation’s global medium term note programme. The notes were
acquired a price equal to 75 US cents of face value.
On 8 August 2022, the Company repurchased 100,000 ordinary shares through the market at a
price of 77.2 pence per share and will be held in treasury.
44
APPROVAL OF FINANCIAL STATEMENTS
The financial statements of the Company and the consolidated financial statements of the Group for
the year ended 30 June 2022 were authorised for issue by the Board of Directors on 3 November
2022.
129
AnnuAl RepoRt 2022
65 Kampong Bahru Road
Singapore 169370
www.avation.net
L I S T E D
S T A N D A R D
SHARES
Reuters/BBG
Index:
lSe
AVAp.ln
AVAp
FtSe Sector:
Industrial transportation
FtSe Sub Sector: transportation Services
AnnuAl RepoRt
2022