Singapore-headquartered lessor Avation has taken an impairment charge against a Boeing 777-300ER aircraft placed with Philippines Airlines (PAL).
However the lessor said it is confident the Filipino flag carrier will remain a long-term customer once it emerges from rehabilitation.
Avation expects PAL to implement a restructuring process that will result in a downward adjustment to the lease rate of the Boeing 777-300ER aircraft on lease, said lessor chief executive Jeff Chatfield, adding that Avation had already recorded an impairment to the value of the PAL widebody and recognised a provision for expected credit losses on revenue for the period ended 31 December 2020 in line with the expected adjusted terms of the lease agreement.
London-listed Avation suffered a loss in the last six months of 2020 as it booked impairments of $46.7 million on its fleet, although at the operational level the lessor remained profitable.
“At this time, Avation believes that a restructure of PAL provides the optimal chance for this airline to survive and maximise the Company’s return on this aircraft asset. Should PAL successfully complete the restructure and meet its commitments in a post COVID-19 environment the Company does not expect to record significant future impairment in respect of this asset,” said Chatfield.
Manila-based PAL is in the process of letting go approximately a third of its total workforce, amid mounting Covid-19 losses.
It was previously reported that PAL was planning approximately 20 aircraft returns to reduce its leasing costs by at least $1 billion, as well as a debt restructuring with court protection from creditors.
As for Avation, the lessor’s fleet totals 46 aircraft. Customers include 19 commercial airlines in 15 countries.
The lessor has disclosed that aircraft leased to three airlines (together representing approximately 10% of monthly run-rate lease revenue) were extended between March and September 2020.
The average lease term extension was 3.6 years and the revised lease rates are approximately 5-19% lower than the prior contracts.
Chatfield said that as of 11 March, Avation was owed approximately $34 million by certain airlines.
On 31 December 2020, the lessor had $118 million of cash, of which $25 million was unrestricted cash and bank balances.