Avolon raises full-year trading forecast

Net income at Dublin based aircraft lessor Avolon rose by 133 per cent in the second quarter as it reaffirmed its full year expectations and said it is eyeing up opportunities in Iran.

Net income rose by 133 per cent to $56 million in the three months to end June 2015, driven by a very strong performance on trading activity and an improved financing costs. The company reported a 13.3 per cent gain on aircraft disposals and said its 2016 commitments now stand at almost $1.4 billion, with all deliveries placed until July 2018.

Domhnal Slattery, Avolon chief executive, said that a key driver behind the company’s performance has been its ability to reduce the cost of debt funding. Avolon has cut the average interest rate it pays on debt to 3.5 per cent at end Q2, down from 3.8 per cent at end 2014, and 4.5 per cent at end 2012.

“We have been able to command tighter spreads which are reflective of Avolon’s improving credit profile,” Mr Slattery said.

Avolon has grown its book value by about 27 per cent in the year to end Q2, which now stands at $6.4bn, up from $5bn in 2014, positioning it as the eighth largest lessor worldwide.

Growth in Q2 was “right across the globe”, Mr Slattery said, as he cited future opportunities such as the opening up of Iran following its nuclear deal with the US.

While acknowledging the cyclicality of the aviation industry, Mr Slattery said he is very bullish on the outlook for the sector.

“All the metrics are the strongest they’ve been for decades,” he said.

Avolon is forecasting net trading gains for 2015 of $60 million to $65 million, $5m above prior guidance.

Deal update

Mr Slattery declined to comment on two rival bids for the company that value it at $30 and $31 a share respectively, but said:“I would describe the bidders as highly credible, serious signficant investors on a global scale who are capable of completing a transaction of scale”.

It’s understood that the original offer of $30 a share is led by AVIC Capital, a unit of Aviation Industry Corp of China, in conjunction with China’s sovereign wealth fund, China Investment Corp, while the latter offer came from Global Aviation Leasing, a subsidiary of China’s Bohai Leasing, which had already agreed to a tender offer at $26 a share to acquire a 20 per cent stake in Avolon.

Brokers covering the sector have suggested that another bidder might yet emerge, and while refusing to comment specifically, Mr Slattery said that the situation was “dynamic” .