Avation PLC (LON:AVAP) has updated on its leasing deal with Asian airline Vietjet, which has now taken delivery of a factory-new Airbus A321-200 aircraft.
It is a 230 passenger A321-200, the highest seat density available, and it is expected to be deployed by Vietjet in its expanding route network of domestic and international destinations from multiple bases in Vietnam.
Avation told investors that the long term lease terms are typical for an aircraft of this type.
The aircraft is the latest in a series to be produced on the company’s behalf from the Airbus production facility in Hamburg, Germany.
How does Avation aircraft leasing business work?
The Avation business model is rather like the one employed by property firms.
Avation, and such firms like its US rivals Airlease, Aircastle and Avolon, buy an aircraft then lease it out – the airline will then take care of all the maintenance, rather than Avation.
Avation finances its acquisitions using 75% senior, secured bank debt. A typical plane might be leased on the basis of repaying back to Avation around 144% of the acquisition price over 12 years of a typical contract.
Even when that lease is up, the plane can then be leased out for another 12 years, albeit at lower rate than a brand new airliner.
Avation mitigates the risk posed by a sharp rise in interest rates by borrowing over the term of the lease, rather than over two or three years and constantly refinancing.
That way it always knows it will receive more in lease payments than it pays to the banks.
They, meanwhile, are keen to finance leasing deals because a new plane appreciates in value when it is leased out.