News Column

Capital Lease Aviation Slides Despite Pledge To Improve Profitability

September 4, 2014

Steve McGrath

LONDON (Alliance News) - Capital Lease Aviation PLC reported a lower profit for its last financial year due to one-off costs and higher administration charges, but revenue rose and it pledged to now focus on improving its debt position and capital structure so that it can boost profitability and add to its aircraft fleet.

The aircraft leasing company said it will continue to "aggressively" pay down existing high-cost debt facilities to lower the cost of debt against its existing assets, and will seek to re-leverage existing aircraft to lower the cost of debt and increase its gearing ration to release cash for further aircraft acquisitions.

"Further acquisitions are expected deliver economies of scale that will lead to an increase in profitability. The company will also seek to optimise structures for tax and finance purposes to increase returns to shareholders," it said.

It reported earnings per share of 2.83 cents for the year to June 30, down from 4.13 cents a year earlier, as operating and administrative expenses rose and finance costs rose. This more than offset an increase in revenue to USD12.4 million, from USD10.8 million in its previous financial year.

It made progress on paying down debt, with total liabilities decreasing to USD45.4 million, from USD52.6 million a year earlier. Net assets grew 5.6% to USD47.6 million.

Capital Lease Aviation was incorporated by Avation PLC in 2007 with the purpose of owning and leasing a portfolio of commercial jet aircraft to a wide customer base of regional and international airlines. It currently owns one Airbus A320-200 and three Airbus A321-200ís, which are leased to American and European airlines.

Last December, it extended the leases of two of the A321-200 aircraft, which are leased to a "major" European airline, to 2021.

It had previously warned that the extensions have resulted in slightly lower revenue and net income yield from the aircraft, a trade off for getting the extension. However, it expects to benefit from the current low interest environment when it re-finances the debt secured on the aircraft early next year.

"The two aircraft are significant components of the balance sheet and represent over 60% of the total assets of the group. This has resulted in a misalignment of the debt facility maturities associated with these aircraft, which will be refinanced on maturity," it said in its statement Thursday.

"The prevailing low interest rate environment will likely result in an improvement in the net yield upon the re-finance of the debt facilities which mature in early 2015," it added.

Capital Lease Aviation also cautioned that it may have to book a charge if its is unsuccessful in being exempted from a withholding tax in Singapore.

It is currently not included in Singapore's Aircraft Leasing Scheme, unlike parent Avation. Being in the scheme impacts the company's tax rate and whether withholding tax is applied. It said it has applied for exemption from withholding tax of USD223,128 on the basis that the parent company is included in the scheme, and expects the exemption to be granted. However, it cautioned that it will need to make a provision for the charge if it is not approved.

Avation currently owns a stake 66.27% in Capital Lease Aviation, according to Hemscott.

Capital Lease Aviation shares were down 9.6% at 16.50 pence Thursday morning, one of the biggest declines on the AIM All-Share Index.

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Source: Alliance News

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