HALF YEAR FINANCIAL RESULTS 31 DECEMBER 2019

AVATION PLC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 31 DECEMBER 2019

 

This interim condensed consolidated financial statements for Avation PLC for the six months ended 31 December 2019 were authorised for issue in accordance with a resolution of the Directors on 27 February 2020.

 

1          CORPORATE INFORMATION

 

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

 

The Group's principal activity is aircraft leasing. 

 

 

2          BASIS OF PREPARATION AND ACCOUNTING POLICIES

 

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

 

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

 

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

 

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

 

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

 

Several other amendments and interpretations which apply for the first time in the six months ended 31 December 2019 do not have an impact on the Group's interim condensed consolidated financial statements.

 

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

 

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

 

The interim condensed consolidated financial statements are unaudited and reviewed by the auditors.

 

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

 

 

 

3           NEW STANDARDS AND INTERPRETATIONS NOT APPLIED AND STANDARDS IN EFFECT IN 2019

 

(a)                 New standards and interpretations not applied

 

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

 

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

 

International Accounting Standards (IAS/IFRS)                              Effective Date

                                                                                                                                  (accounting periods

                                                                                                                               commencing after)

 

IFRS 17 Insurance contracts                                                                        1 January 2021

 

Amendments to References to the Conceptual Framework in

  IFRS Standards                                                                                     1 January 2020

 

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

  Benchmark Reform                                                                                   1 January 2020

 

Amendments to IFRS 3 : Definition of a Business                                          1 January 2020

 

Amendments to IAS 1 and IAS 8 : Definition of Material                                 1 January 2020

 

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

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

 

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

 

(b)     Standard in effect in 2019

 

The Group has adopted all new standards that have come into effect during the six months ended 31 December 2019.

 

IFRS 16 Leases

 

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

 

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

 

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

 

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

 

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

 

(b)        Standard in effect in 2019 (continued)

 

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

 

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

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

 

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

 

Leases previously accounted for as operating leases

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

 

The Group also applied the available practical expedients wherein it:

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

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

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

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

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

 

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

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

 

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

 

(b)        Standard in effect in 2019 (continued)

 

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

 

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

 

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

 

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

 

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

 

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

 

•   Whether an entity considers uncertain tax treatments separately

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

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

•   How an entity considers changes in facts and circumstances

 

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

 

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

 

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

 

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

 

(b)        Standard in effect in 2019 (continued)

 

Annual Improvements 2015-2017 Cycle

 

•         IFRS 3 Business Combinations

 

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

 

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

 

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

 

•         IFRS 11 Joint Arrangements

 

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

 

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

 

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

 

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

 

•         IAS 12 Income Taxes

 

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

 

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

 

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

 

 

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

 

(b)        Standard in effect in 2019 (continued)

 

Annual Improvements 2015-2017 Cycle (continued)

 

•         IAS 23 Borrowing Costs

 

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

 

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

 

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

 

(c)        New accounting policies

 

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

 

Group as a lessee

 

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

 

i)          Right-of-use assets

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)        New accounting policies (continued)

 

ii)         Lease liabilities

 

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

 

Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

 

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

 

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

 

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

 

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

 

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

 

 

4          FAIR VALUE MEASUREMENT

 

The fair value of a financial instrument is the amount at which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm's length transaction, other than a forced or liquidation sale.

 

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

 

	31 Dec 2019		30 Jun 2019
	Carrying amount	Fair value	Carrying amount	Fair value
	US$'000s	US$'000s	US$'000s	US$'000s
Financial assets:
Finance lease receivables - non-current	68,554	66,495	37,137	35,661
Aircraft purchase rights	36,980	36,980	-	-
Financial liabilities:
Deposits collected - non-current	15,440	14,397	13,979	13,273
Loans and borrowings other than unsecured note- non-current	691,709	669,000	660,727	644,726
Unsecured notes	346,318	365,502	344,966	358,327

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

 

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

 

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

 

 

4          FAIR VALUE MEASUREMENT (continued)

 

Non-financial assets measured at fair value:

			31 Dec 2019	30 Jun 2019
			US$'000s	US$'000s
Fair value measurement using significant unobservable inputs
Aircraft			1,127,537	1,225,285

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

 

Classification of financial instruments:

			31 Dec 2019	30 Jun 2019
			US$'000s	US$'000s
Financial assets measured at amortised cost:
Cash and cash balances			140,049	107,448
Trade and other receivables			12,185	12,616
Finance lease receivables			75,795	44,358
			228,029	164,422
Financial liabilities measured at amortised cost:
Trade and other payables			23,987	19,324
Loans and borrowings			1,117,164	1,078,288
Maintenance reserves			49,438	32,491
			1,190,589	1,130,103
Derivative used for hedging:
Derivative financial assets			156	363
Derivative financial liabilities			(10,457)	(10,174)
Financial assets fair value through profit or loss:
Aircraft purchase rights			36,980	-

 

 

5          REVENUE

 

	31 Dec 2019	31 Dec 2018 (restated)
	US$'000s	US$'000s
Lease rental revenue	65,046	58,232
Interest income on finance leases	1,318	499
Maintenance reserves released	1,242	-
	67,606	58,731

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

 

Geographical analysis

        

					Europe		Asia Pacific		Total
					US$'000s		US$'000s		US$'000s
31 Dec 2019					21,115		46,491		67,606
31 Dec 2018 (restated)					14,165		44,566		58,731

 

Operating lease commitments

 

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

 

	31 Dec 2019	31 Dec 2018
	US$'000s	US$'000s
Within one year	129,744	120,582
In the second to fifth years inclusive	410,929	435,863
More than five years	287,665	358,296

 

6          OTHER INCOME

 

	31 Dec 2019	31 Dec 2018
		(restated)
	US$'000s	US$'000s
Foreign currency exchange gain	42	-
Others	71	84
	113	84

 

 

7          OTHER EXPENSES

 

	31 Dec 2019	31 Dec 2018
	US$'000s	US$'000s
Aircraft repossession expenses	1,237	-
Expected credit loss on trade receivables	123	-
Foreign currency exchange loss	-	110
Others	3	-
	1,363	110

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

 

 

8          FINANCE INCOME

 

	31 Dec 2019	31 Dec 2018 (restated)
	US$'000s	US$'000s
Interest income	503	327
Fair value gain on derivatives	-	778
Finance income from discounting non-current deposits to fair value	214	181
Interest rate swap break gain	-	174
Loan modification gain	-	370
	717	1,830

 

9          FINANCE EXPENSES

 

	31 Dec 2019	31 Dec 2018
	US$'000s	US$'000s
Interest expense on borrowings	13,935	13,159
Interest expense on unsecured notes	11,375	10,445
Amortisation of loan transaction costs	2,554	2,032
Amortisation of interest expense on non-current deposits	220	186
Finance charges on early full repayment on borrowings	-	1,362
Others	160	363
	28,244	27,547

 

 

10        RELATED PARTY TRANSACTIONS

 

Significant related party transactions:

 

	31 Dec 2019	31 Dec 2018
	US$'000s	US$'000s
Entities controlled by key management personnel (including directors):
Rental expenses paid	(145)	(152)
Consulting fee paid	(174)	(417)
Service fee received	52	-

 

11       PROPERTY, PLANT AND EQUIPMENT

 

	Furniture and equipment	Jet aircraft	Turboprop aircraft	Total
	US$'000s	US$'000s	US$'000s	US$'000s
31 December 2019:
Cost or valuation:
At 1 July 2019	80	916,534	450,439	1,367,053
Additions	11	-	57,615	57,626
Reclassified as held under finance leases	-	-	(37,887)	(37,887)
Reclassified as asset held for sale	-	(106,124)	-	(106,124)
Revaluation recognised in equity	-	(863)	-	(863)
At 31 December 2019	91	809,547	470,167	1,279,805
Representing:
At cost	91	-	-	91
At valuation	-	809,547	470,167	1,279,714
	91	809,547	470,167	1,279,805
Accumulated depreciation and impairment loss:
At 1 July 2019	41	73,065	68,623	141,729
Depreciation expense	10	16,932	7,290	24,232
Reclassified as asset held for sale	-	(16,189)	-	(16,189)
Impairment loss	-	2,456	-	2,456
At 31 December 2019	51	76,264	75,913	152,228
Net book value:
At 1 July 2019	39	843,469	381,816	1,225,324
At 31 December 2019	40	733,283	394,254	1,127,577

 

 

11        PROPERTY, PLANT AND EQUIPMENT (continued)

 

	Furniture and equipment	Jet aircraft	Turboprop aircraft	Total
	US$'000s	US$'000s	US$'000s	US$'000s
30 June 2019:
Cost or valuation:
At 1 July 2018	346	713,142	374,876	1,088,364
Additions	8	211,548	117,014	328,570
Disposals/written-off	(274)	(18,624)	-	(18,898)
Reclassified as held under finance leases	-	-	(39,631)	(39,631)
Revaluation recognised in equity	-	10,468	(1,820)	8,648
At 30 June 2019	80	916,534	450,439	1,367,053
Representing:
At cost	80	-	-	80
At valuation	-	916,534	450,439	1,366,973
	80	916,534	450,439	1,367,053
Accumulated depreciation and impairment:
At 1 July 2018	292	51,341	55,555	107,188
Depreciation expense	23	27,920	13,068	41,011
Disposals/written-off	(274)	(6,196)	-	(6,470)
At 30 June 2019	41	73,065	68,623	141,729
Net book value:
At 1 July 2018	54	661,801	319,321	981,176
At 30 June 2019	39	843,469	381,816	1,225,324

 

Assets pledged as security

 

The Group's aircraft including those classified as assets held for sale with carrying values of US$1,161.3 million (30 June 2019 : US$1,122.0 million) are mortgaged to secure the Group's borrowings (Note 20).

 

Additions and Disposals

 

During the six months ended 31 December 2019, the Group acquired 3 turboprop aircraft and 2 turboprop aircraft were reclassified as held under finance leases. A gain on transfer of the aircraft to finance lease of US$2.2 million was recorded and included within the gain on disposal of aircraft.

 

During the six months ended 31 December 2019, 2 jet aircraft were reclassified as held for sale.

 

11       PROPERTY, PLANT AND EQUIPMENT (continued)

 

Valuation

 

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

 

During the six months ended 31 December 2019, a downward revaluation of US$0.9 million to equity and an impairment loss of US$2.5 million was recognised to write down the book value of 2 jet aircraft to its fair value prior to reclassify as held for sale.

 

Changes in accounting estimates of residual values of aircraft

 

During the six months ended 31 December 2019, the Group revised the residual values of its old technology widebody aircraft to reflect the likely decrease in future residual values for old technology widebody aircraft with effect from 1 July 2019.  The effect of this change is an increase in depreciation expense of approximately US$0.9 million for the six months ended 31 December 2019.

 

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

 

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

 

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

 

	31 Dec 2019		30 Jun 2019
	Jets	Turbo props	Jets	Turbo props
	US$'000s	US$'000s	US$'000s	US$'000s
Cost	792,891	449,586	776,330	552,544
Accumulated depreciation and impairment	(76,495)	(72,449)	(58,706)	(81,504)
Net book value	716,396	377,137	717,624	471,040

 

Geographical analysis

 

31 Dec 2019		Europe	Asia Pacific	Total
		US$'000s	US$'000s	US$'000s
Capital expenditure		20,007	37,619	57,626
Net book value - aircraft		352,310	775,227	1,127,537

 

30 Jun 2019					Europe		Asia Pacific		Total
					US$'000s		US$'000s		US$'000s
Capital expenditure					223,058		105,512		328,570
Net book value - aircraft					415,139		810,146		1,225,285

 

12        TRADE AND OTHER RECEIVABLES

 

	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s
Current
Trade receivables	4,884	3,954
Less:
Allowance for estimated credit loss	(330)	(207)
	4,554	3,747
Other receivables:
-Third parties	167	106
Interest receivables	40	12
Deposits	47	47
Prepaid expenses	573	513
	5,381	4,425

 

Non-current
Deposits for aircraft	7,377	8,704
Prepaid expenses	384	226
Right-of-use assets	845	-
	8,606	8,930

 

13        FINANCE LEASE RECEIVABLES

 

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

 

	31 Dec 2019		30 Jun 2019
	Minimum lease payments	Present value of payments	Minimum lease payments	Present value of payments
	US$'000s	US$'000s	US$'000s	US$'000s
Within one year	9,823	7,241	8,440	7,221
Later than one year but not more than five years	70,321	59,610	13,848	10,566
More than five years	9,295	8,944	28,534	26,571
Total minimum lease payments	89,439	75,795	50,822	44,358
Less: amounts representing interest income	(13,644)	-	(6,464)	-
Present value of minimum lease payments	75,795	75,795	44,358	44,358

 

 

14       GOODWILL

 

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

 

15       DERIVATIVE FINANCIAL ASSETS/LIABILITIES

 

	Contract/ notional amount		Fair value
Group	31 Dec 2019	30 Jun 2019	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s	US$'000s	US$'000s
Non-current asset
Interest rate swap	59,648	63,185	156	363
Non-current liability
Interest rate swap	257,515	267,118	(10,405)	(10,117)
Cross-currency interest rate swap	4,000	4,000	(52)	(57)
	261,515	271,118	(10,457)	(10,174)

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

 

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

 

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

 

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

 

Changes in the fair value of these interest rate swap and cross-currency interest rate swap contracts are recognised in the fair value reserve. The net fair value loss of US$0.5 million
(31 December 2018: loss of US$4.37 million) on these derivative financial instruments was recognised in the fair value reserve for the six month period ended 31 December 2019.

 

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

 

 

16       AIRCRAFT PURCHASE RIGHTS

 

	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s
Aircraft purchase rights, at fair value	36,980	-

Prior to the six months period ended 31 December 2019, the Group held aircraft purchase rights for the purpose of acquiring aircraft to its fleet.  Aircraft purchase rights were accounted for as non-financial assets at amortised cost.  During the six months period ended 31 December 2019, the Group adopted a new business model for aircraft purchase rights and determined that it would seek to dispose of excess aircraft purchase rights over and above its requirement to acquire additional aircraft for its fleet.  To reflect this change, the Group now accounts for aircraft purchase rights through profit or loss. Disclosures about the fair value measurement of aircraft purchase rights are included in Note 4.

17       CASH AND BANK BALANCES

 

	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s
Fixed deposits	48,217	6,700
Other cash and bank balances	91,832	100,748
Total cash and bank balances	140,049	107,448
Less: restricted	(66,438)	(45,759)
Cash and cash equivalents	73,611	61,689

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

 

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

 

 

18       ASSETS HELD FOR SALE

 

As at 31 December 2019, the Group's aircraft which met the criteria to be classified as assets held for sale are as follows:

			31 Dec 2019	30 Jun 2019
			US$'000s	US$'000s
Assets held for sale:
Property, plant and equipment - aircraft
At 1 July 2019/ 1 July 2018			-	48,745
Additions			89,935	-
Disposals			-	(48,745)
At 31 Dec/30 June			89,935	-
Lease incentive asset			8,908	-
			98,843	-
Liabilities directly associated with assets held for sale:
Deposit collected			200	-
Lessor maintenance contribution			8,908	-
			9,108	-

 

 

19        SHARE CAPITAL AND TREASURY SHARES

 

(a)     Share capital

 

	31 Dec 2019			30 Jun 2019
	No of shares	US$'000s		No of shares		US$'000s
Allotted, called up and fully paid Ordinary shares of 1 penny each:
At 1 July 2019/ 1 July 2018	64,609,939	1,104	62,760,246		1,080
Issue of shares	270,003	4	1,849,693		24
At 31 Dec/30 June	64,879,942	1,108	64,609,939		1,104

During the six months period ended 31 December 2019, the Company issued 270,003 ordinary shares of 1 penny each at 2.15p to 2.32p following the exercise of warrants by warrant holders raising total gross proceeds of US$0.8 million.

 

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

 

(b)     Treasury shares

 

	31 Dec 2019		30 Jun 2019
	No of treasury shares	US$'000s	No of treasury shares	US$'000s
At 1 July 2019/ 1 July 2018	300,000	1,147	-	-
Acquired during the period	1,870,000	6,548	300,000	1,147
At 31 Dec/30 June	2,170,000	7,695	300,000	1,147

(c)      Net asset value per share

 

			31 Dec 2019	30 Jun 2019
Net asset value per share (US$) (1)			$4.29	$3.74
Net asset value per share (GBP) (2)			£3.25	£2.95

(1)        Net asset value per share is total equity divided by the total number of shares issued and         outstanding at period end.

(2)        Based on GBP:US$ exchange rate as at 31 Dec 2019 of 1.32 (30 June 2019 : 1.27).

 

 

20        LOANS AND BORROWINGS

 

			31 Dec 2019	30 Jun 2019
			US$'000s	US$'000s
Secured borrowings			770,846	733,322
Unsecured notes			346,318	344,966
Total loans and borrowings			1,117,164	1,078,288
Less: current portion			(79,137)	(72,595)
Non-current loans and borrowings			1,038,027	1,005,693

 

	Maturity		Weighted average interest rate per annum
	31 Dec 2019	30 Jun 2019	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s	%	%
Secured borrowings	2019-2031	2019-2031	3.7%	3.7%
Unsecured notes	2021	2021	6.5%	6.5%

 

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

 

 

 

 

21       MAINTENANCE RESERVES

 

	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s
Current	730	1,166
Non-current	48,708	31,325
Total maintenance reserves	49,438	32,491
	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s
At 1 July 2019/ 1 July 2018	32,491	23,544
Contributions	21,091	15,413
Utilisations	(2,902)	(1,558)
Released to profit or loss	(1,242)	-
Transferred to buyer upon sale of aircraft	-	(4,908)
At 31 Dec/30 June	49,438	32,491

During the six months ended 31 December 2019, maintenance reserve of US$1.2 million were released to profit or loss as revenue due to the recovery of maintenance reserves from an insolvent airline customer that defaulted on its lease payments. See Note 5.

 

 

22       CAPITAL COMMITMENTS

 

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

 

	31 Dec 2019	30 Jun 2019
	US$'000s	US$'000s
Property, plant and equipment	111,175	169,034

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

 

As at 31 December 2019, the Group has commitments to purchase six ATR 72-600 aircraft from the manufacturers with expected delivery dates from April 2020 to April 2022. 

 

 

23       CONTINGENT LIABILITIES

 

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

 

 

 

24       DIVIDENDS

 

	31 Dec	31 Dec
	2019	2018
	US$'000s	US$'000s
Dividends declared and/or paid during the six months ended 31 December 2019
Dividends on ordinary shares
- First interim exempt (one-tier) dividend for 8.50 US cents  (31 Dec 2018 : 7.25 US cents) per share	5,454	4,550
- Second interim exempt (one-tier) dividend for 2.10 US cents (31 Dec 2018 : 2.00 US cents) per share	1,319	1,290
	6,773	5,840

Dividends are recorded directly in equity when they are paid.  The second interim dividend of US$1.3 million was unpaid at 31 December 2019. The US$1.3 million was paid on 9 January 2020.

 

No dividends have been declared subsequent to 31 December 2019. 

 

 

25        RECLASSIFICATIONS AND COMPARATIVES

 

For the year ended 30 June 2019, in order to be more representative of the operating activities of the Group, interest income from finance leases had been reclassified from "Finance income" to "Revenue" and interest rate swap break gain has been reclassified from "Other income" to "Finance income".

 

As a result, comparative figures have been adjusted to conform to the current six-month period presentation for consolidated statement of profit or loss, consolidated statement of cash flows the related notes to the financial statements.

 

 

26        SUBSEQUENT EVENTS

 

On 6 January 2020, the Group announced that it is undertaking a comprehensive review of the strategic options open to it in order to maximise value for shareholders. These options include merger and acquisition activity, an aircraft portfolio sale or review etc., as well as a potential sale of the Group through the commencement of a "formal sale process" (as referred to in Note 2 on Rule 2.6 of the City Code on Takeovers and Mergers.

 

On 9 January 2020, the Group has delivered to Vietjet Air under a long-term operating lease the first of two Airbus A321 aircraft, which are being transitioned from a prior operator.

 

On 10 January 2020, the Group has completed the purchase of its first engine, which is now available for lease as a spare engine to commercial aircraft operators.

 

On 15 January 2020, the Group delivered to VietJet Air under a long-term operating lease the second of two Airbus A321 aircraft which are being transitioned from a prior operator.

 

On 16 January 2020, the Group has delivered the second in a series of five new ATR 72-600 turboprop aircraft to Braathens Regional Airways AB.

 

On 12 February 2020, the Group has converted two Purchase Rights from its order book into firm orders for two ATR 72-600 aircraft.  The aircraft will be leased to Bangladeshi airline US-Bangla.