Avation PLC

AnnuAl

RepoRt

2023

AVATION PLC

DIRECTORS’ REPORT AND

FINANCIAL STATEMENTS

FOR THE YEAR ENDED

30 JUNE 2023

REGISTERED NUMBER: 05872328 (ENGLAND & WALES)

AVATION PLC

CONTENTS

FOR THE YEAR ENDED 30 JUNE 2023

Company Information

.....................................................................................................................

Chairman’s Statement

...............................................................................................................

2 – 4

Strategic Report

......................................................................................................................

5 - 22

Directors’ Report

...................................................................................................................

23 – 28

Directors’ Remuneration Report

..............................................................................................

29 – 38

Directors’ Responsibilities Statement

.......................................................................................

39 - 40

Auditor’s Report

....................................................................................................................

41 - 51

Consolidated Statement of Profit or Loss

.........................................................................................

Consolidated Statement of Comprehensive Income

..........................................................................

Consolidated Statement of Financial Position

...................................................................................

Company Statement of Financial Position

........................................................................................

Consolidated Statements of Changes in Equity

.........................................................................

56 – 57

Company Statements of Changes in Equity

...............................................................................

58 - 59

Consolidated Statement of Cash Flows

............................................................................................

Company Statement of Cash Flows

.................................................................................................

Notes to the Financial Statements

.........................................................................................

62 - 136

AVATION PLC

COMPANY INFORMATION

FOR THE YEAR ENDED 30 JUNE 2023

DIRECTORS:

Robert Jeffries Chatfield

Roderick Douglas Mahoney

Stephen John Fisher

Derek Sharples

Mark Stephen Shelton (appointed on 14 December

2022)

COMPANY SECRETARIES:

Duncan Gerard Stephen Scott

Jasmine Siow Fui San

REGISTERED OFFICE:

Fleet Place

London EC4M 7RD

United Kingdom

PRINCIPAL PLACE OF BUSINESS:

65 Kampong Bahru Road

Singapore 169370

AUDITOR:

Ernst & Young

EY Building

Harcourt Centre

Harcourt Street

2 Dublin

Ireland

SOLICITORS:

Charles Russell Speechlys LLP

Fleet Place

London EC4M 7RD

United Kingdom

REGISTRAR:

Computershare Investor Services PLC

The Pavilions

Bridgewater Road

Bristol BS99 6ZZ

United Kingdom

AVATION PLC

CHAIRMAN’S STATEMENT

FOR THE YEAR ENDED 30 JUNE 2023

Financial Highlights

Revenue and other income for the year was US$99.3 million, fleet assets

were US$898.6

million and total assets were US$1,179.6 million;

Net indebtedness

reduced by 7.8% to US$731.2 million (2022: US$792.9 million);

Total cash and bank balances of US$116.9 million (2022: US$119.2 million);

Operating profit of US$70.6 million (2022: US$90.2 million);

Profit after tax of US$12.2 million (2022: US$17.1 million);

Earnings per share of 17.4 US cents (2022: 24.7 US cents); and

Operational Activity

Two ATR 72-600 turboprop aircraft and a Boeing 737-800 aircraft were sold during the

year;

One ATR 72-600 aircraft was repossessed from an airline in Myanmar and subsequently

commenced a new lease with an airline in Tahiti;

One off-lease ATR 72-500 started a lease with a new airline customer in Nepal;

Avation received a creditors distribution of $3.4 million from Virgin Australia;

Two Airbus A220-300 aircraft were re-financed with fixed rate long-term loans, reducing

Avation’s exposure to interest rate changes;

The Company entered into an agreement to sell an eleven-year-old off-lease ATR 72-600;

and

The Company entered into a lease agreement for a second eleven-year-old off-lease ATR

72-600 which is expected to commence in November 2023.

Business review

During the year ended 30 June 2023 Avation reduced the number of off-lease aircraft in the fleet from

six to two by transitioning or selling off-lease aircraft.

Avation has agreed to sell or lease both remaining

off-lease aircraft and on completion of these transactions will have a fully utilised fleet.

Avation has continued to de-lever its balance sheet, achieving a reduction to 62.0% in the ratio of net

debt to total assets as at 30 June 2023.

A significant portion of the cashflow generated by the fleet is

directed towards repayments of debt.

Scheduled loan repayments for the 2024 financial year, amounting

to around US$62 million, exceeding expected depreciation of the fleet over the same period.

The

Company is hedged against further interest rate changes on 95.8% of its loans and borrowings.

A bond repurchase tender was concluded in February, resulting in the repurchase and retirement of

US$7.1m of Avation Capital S.A. 8.25%/9.0% unsecured notes.

The Company may pursue other liability

management exercises from time to time with the aim of further reducing the cost and/or outstanding

amount of unsecured debt in issue.

Fleet assets is defined as property, plant and equipment plus assets held for sale plus finance lease receivables.

Net indebtedness is defined as loans and borrowings less unrestricted cash and bank balances.

AVATION PLC

CHAIRMAN’S STATEMENT

FOR THE YEAR ENDED 30 JUNE 2023

After the recovery from the COVID-19 pandemic, Avation plans to re-grow its business in a prudent and

sensible manner.

We will target organic growth, which includes leasing the two ATR aircraft we have on

order for delivery in 2024.

We have paid all pre-delivery payments for the two ordered aircraft and

believe that the balance due on delivery can be funded with senior secured debt.

Avation has a significant

purchase rights position on a stream of new ATR 72 aircraft. The manufacturer expects that, with a new

engine variant, these aircraft will be approved for use with sustainable aviation fuel in 2025.

The

Company believes that the ATR 72 aircraft is the most sustainable commercial aircraft type currently

available.

The Company has significantly lowered overheads by reducing headcount and actively managing legal

expenses and other expenditure.

Few aircraft were built during the COVID-19 pandemic so lessors that own them have seen positive

developments in valuations.

As a result, Avation has been able to reverse around US$3.3 million of

previously recognised impairment charges and has seen a positive impact on the valuation of our 28

purchase rights for ATR aircraft.

We are reasonably confident that the Company will be able to arrange leases for the two new aircraft

ordered for delivery in 2024.

Market Positioning

Avation’s long-term strategy is to target growth and diversification by adding new airline customers,

while maintaining a low average aircraft age and long remaining lease term metrics. Avation focuses on

new and relatively new commercial passenger aircraft on long-term leases.

Avation supports the transition of the aircraft industry towards aircraft capable of using sustainable

aviation fuel to produce lower CO2 emissions on a net basis. Reducing CO2 emissions is key to providing

a sustainable future for the global aviation industry and in addressing climate-change risks.

The Company’s business model involves rigorous investment criteria that seeks to mitigate the risks

associated with the aircraft leasing sector. Avation will typically sell mid-life and older aircraft and

redeploy capital to newer assets. This approach is intended to mitigate technology change risk,

operational and financial risk, support sustained growth and deliver long-term shareholder value.

Avation will consider the acquisition or sale of individual or smaller portfolios of aircraft, based on

prevailing market opportunities and consideration of risk and revenue concentrations.

Funding for aircraft acquisitions is traditionally sourced from capital markets, asset-backed lending,

operational cash flows and disposals of aircraft. The ability to access acceptably priced funding is key

profit driver in aircraft leasing.

Principal risks factors facing the aircraft leasing industry include, but are not limited to, exposure to the

airline industry and the risk of deterioration in the financial condition of airline customers, asset value

risk driven by changing patterns of supply and demand and technological change, operational risks

including risks resulting from war, acts of terrorism and natural disasters, regulatory risks from changes

to government regulations and tax laws and climate-change risks.

AVATION PLC

CHAIRMAN’S STATEMENT

FOR THE YEAR ENDED 30 JUNE 2023

Outlook

The global aviation industry has continued to recover strongly from the pandemic in 2023. In its latest

update IATA reported that industry-wide revenue passenger-kilometres (RPKs) increased 26.2% year-

on-year in July, reaching 95.6% of the traffic numbers seen in 2019.

IATA also reports that domestic

air travel, a driving force in the recovery of global passenger demand since the onset of the pandemic,

reached a new all-time RPK high in July 2023 surpassing the previous record set in July 2019.

Avation has primarily focussed on transitioning or disposing of unutilised aircraft, maintaining liquidity,

and reducing leverage in the year ended 30 June 2023. The Company recently agreed to sell one of its

last two remaining unutilised aircraft and to lease the other to a new customer airline.

On completion

of these two transactions the Company’s fleet will be fully utilised for the first time since early in 2020.

The company’s focus will now shift towards leasing two ATR 72-600 aircraft from its orderbook, which

are currently scheduled for delivery in April and May 2024, and identifying opportunities to lease, finance

and deliver additional ATR aircraft by exercising purchase rights.

Avation aims to gradually transition to a more sustainable, lower CO2 emissions aircraft fleet. Aircraft

delivered from Avation’s orderbook and exercised purchase rights will be fitted with the new Pratt &

Whitney PW127XT engine. The PW127XT engine promises 20% lower maintenance costs, extended time

on wing, 3% lower fuel consumption and 5% more power compared with the current engine variant. The

manufacturer expects that the PW127XT engine will be certified to operate with 100% sustainable

aviation fuel from 2025. Net emissions of CO2 will be reduced by 80% when using sustainable aviation

fuel.

We also anticipate gradually trading out of older aircraft types and focussing on aircraft types such as

the Airbus NEO and A220 series in addition to ATR turboprop aircraft. The Company’s portfolio already

includes a significant proportion of Airbus A220 and ATR 72 aircraft.

Robert Jeffries Chatfield

Executive Chairman

Singapore

26 October 2023

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

The Directors present their strategic report for the year ended 30 June 2023.

BUSINESS OVERVIEW

Avation PLC and its subsidiaries (“Avation”, the “Group”) is a commercial passenger aircraft leasing group

managing a fleet of 36 aircraft, as of 30 June 2023. Avation was founded in 2006 and has now been in

operation for 17 years.

Avation leases aircraft to 17 airline customers spread across 14 countries in

Europe and the Asia-Pacific region.

Major customers include Vietjet Air, airBaltic, EVA Air and Philippine

Airlines. The Group’s fleet includes 13 narrow-body jets, two twin-aisle jets and 21 ATR 72 twin-engine

turboprop aircraft. An analysis of the fleet is provided below under “Fleet Overview”.

Avation operates from its headquarters in Singapore where it is tax resident and, since 17 April 2014, a

beneficiary of the Singapore Aircraft Leasing Scheme (“ALS”) tax incentive. On 17 April 2019 Avation

was granted a five-year extension to its ALS tax incentive at a reduced 8% tax rate.

Avation’s management team has extensive experience in the aviation industry and has the expertise to

select, acquire and manage aircraft that have achieved strong operational performance for our customers

and generated stable returns for our shareholders.

The company maintains in-house commercial, legal,

technical and finance teams and operates as a full-service aircraft leasing platform.

Avation aims to grow its fleet and continue to diversify its customer base over the coming years.

The

Group has two ATR 72-600 aircraft on order from the manufacturer, which are currently scheduled to be

delivered in April and May 2024.

The Group also holds purchase rights for a further 28 aircraft. The

Group may also acquire additional new and second-hand jet aircraft on an ad-hoc basis.

Older aircraft

are sold when opportunities arise with the aim of maintaining a low average fleet age.

Avation’s shares are traded on the Standard Segment of the Main Market of the London Stock Exchange

under the ticker symbol LSE: AVAP.

BUSINESS MODEL

Avation aims to grow its fleet and build long-term shareholder value by focussing on a) new turboprop

regional aircraft, principally the popular and fuel-efficient ATR 72-600 model and b) new and second-

hand narrow-body jets, in particular the popular Airbus A320/A321, A220 and Boeing 737 aircraft

families.

The Group will also consider acquiring additional twin-aisle aircraft as part of its strategy to

build a diversified portfolio of aircraft. Owning a diversified portfolio of aircraft types is intended to

mitigate overall market and residual value risk. As the fleet grows, the Group seeks to continually

diversify its customer base as part of its overall credit risk management strategy.

Avation has developed a sustainable, low emissions aircraft growth strategy. This initiative was supported

by the recent release of the new lower emissions PW127XT engine and announcement that future

variants of the ATR 72 aircraft will include hybrid technology and use 100% Sustainable Aviation Fuel.

In addition, an ATR 72 aircraft has also completed the first 100% Sustainable Aviation Fuel commercial

flight.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

The Company’s future business strategy will be to focus on leasing modern, low CO2 emissions, fuel-

efficient aircraft. We anticipate gradually trading out of older aircraft types and focussing on aircraft

types such as the Airbus NEO and A220 series in addition to ATR 72 aircraft with the recently announced

new generation engines. The Company’s portfolio already comprises a significant proportion of Airbus

A220 and ATR 72 aircraft showing our commitment to new technology, fuel-efficient aircraft types.

Future ATR 72 deliveries from Avation’s orderbook will be powered by the new Pratt & Whitney PW127XT

engine which promises 20% lower maintenance costs, extended time on wing, 3% lower fuel

consumption and 5% more power compared with the current engine. The manufacturer expects that the

PW127XT engine will be certified to operate with 100% SAF from 2025. When using SAF net emissions

of CO2 will be reduced by 80%.

Industry data suggests that airlines will require significant numbers of leased aircraft in the future to

replace older aircraft that will be retired and to satisfy projected growth in demand for air travel. Airlines’

balance sheets were negatively impacted during the COVID-19 pandemic, reducing their ability to

purchase aircraft directly. This supports the Company’s strategy of focussing on young and popular

commercial aircraft.

The Group finances the acquisition of new aircraft using internally generated cash flows, senior and junior

secured debt finance, the issuance of unsecured notes under its Global Medium-Term Note programme

and the issuance of new ordinary shares.

The Group manages debt issuance with the overall aim of

achieving the lowest possible overall cost of debt, while maintaining appropriate leverage ratios. Debt

on older aircraft may be re-financed when there is an opportunity to reduce the Group’s overall cost of

debt, and to release equity for investment in new aircraft.

The Board applies prudent financial management principles to manage risk when acquiring aircraft by

seeking to match lease and financing in both term and currency.

Interest rate risk is managed using

mostly fixed or hedged interest rate debt.

Secured loans are amortised to conservative balloon payments

over the terms of the underlying leases.

The Avation fleet of 36 aircraft (as of 30 June 2023) has a weighted average age of 6.4 years and

weighted average remaining lease term of 5.0 years, serving a diversified customer base of airlines in

Europe and the Asia-Pacific region.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

MARKET TRENDS AND FUTURE DEVELOPMENTS

Aircraft leasing is a growth industry which, historically, has taken an increasing share of ownership of

the commercial passenger aircraft fleet.

Avation expects that the percentage of leased aircraft in the

global fleet will remain high in future due to the flexibility that the leasing model provides for airlines

and also due to the ability of leasing companies to access financial capital.

The global aviation industry has continued to recover from the COVID-19 pandemic. Global domestic

travel capacity in May 2023 was estimated to be at 108% of 2019 levels and international travel capacity

at 89% of 2019 levels. International travel will further benefit from the continued reopening of the

Chinese travel market which is expected to fully recover to pre-COVID levels in 2024.

The aircraft leasing industry benefits from good long-term fundamentals including growth in global

demand for air travel, capital constraints amongst airlines and normal cycles of aircraft replacement.

Airbus estimates that the global commercial aircraft fleet will more than double from around 23,000

aircraft to over 46,000 aircraft between 2023 and 2042.

Passenger traffic is expected to increase at a compounded annual growth rate of 3.6% which implies a

doubling of demand over the next 20 years. Airbus forecasts that 40,850 aircraft (replacement and

growth) will be required over the next 20 years, of which 46% are expected to be in Asia-Pacific, 20%

in Europe, 17% in North America, and of the total, 80% are expected to be single aisle.

Around 25% of the current global commercial aircraft fleet are new generation more fuel-efficient types

such as the Airbus A220 and A320/A321 neo types.

Over the next 20-year period 95% of the global

fleet to expected to transition to new generation aircraft types.

Avation expects that this trend will support the company’s future strategy of gradually trading out of

older aircraft types and focussing on aircraft types such as the Airbus NEO and A220 series in addition

to ATR 72 aircraft with the new generation engines.

Airbus Global Market Forecast 2023

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

PRINCIPAL RISKS AND UNCERTAINTIES

The aircraft leasing sector is highly competitive and Avation is exposed to a number of market related,

operational and financial risks. The Group is committed to mitigating business risk through the application

of prudent risk management policies. The risks and uncertainties described below are those that the

Group has identified as most significant to the business. Avation’s Board of Directors is responsible for

managing risk and reviews risk management policies regularly.

Market related risks:

Exposure to the airline industry

The Group’s customers are commercial airlines which are financially exposed to the demand for

passenger air travel.

The financial condition of commercial airlines may weaken due to several factors

including but not limited to local and global economic conditions, increased competition between airlines,

speculative ordering of new aircraft, war, terrorism, pandemics and natural disasters. If the financial

condition of the Group’s airline customers weakens for any reason, the Group may be exposed to

increased risks of lessee default and lower lease rates for its aircraft.

Asset value risk

Fluctuations in the supply and demand for aircraft and aircraft travel may impact values of and lease

rates for the Group’s aircraft. Market forces and prevailing economic conditions may change over the

economic lives of the Group’s aircraft and could have a positive or negative impact on aircraft valuations.

Advances in aircraft technology may create obsolescence in the fleet before the end of aircrafts’ current

estimated useful lives. The Group regularly obtains independent third-party valuations for its fleet and

may dispose of aircraft in order to reduce its exposure to certain aircraft types.

Avation has a policy of

investing in popular aircraft types on the basis that asset values and lease rates will be supported by

continuing high demand for these aircraft. Avation will consider acquiring additional twin-aisle aircraft,

in addition to narrow-body jets and turboprops, as part of its strategy to build a diversified portfolio of

aircraft. Twin-aisle aircraft have a risk profile which may be more exposed to technology change factors

and the introduction of new more fuel-efficient models.

Operational risks:

Economic, legal and political risks

Avation leases aircraft to lessees in many different jurisdictions.

As such the Group is exposed to

economic, legal and political risk in those jurisdictions.

Avation’s aircraft are subject to operational risks

specific to the aviation sector resulting from war, acts of terrorism or the threat of terrorism, and natural

disasters. The Group mitigates these risks by requiring airline lessees to maintain adequate insurance

over the aircraft.

Regulatory risks

Avation’s fleet operates in many jurisdictions and complies with tax and other regulatory requirements

in those jurisdictions.

There is a risk that changing tax and regulatory regimes may have an impact on

the business and the Group’s financial results.

Lessee risks

Avation’s airline lessees are responsible for all maintenance and safety checks.

The requirements for

each airline lessee to service and maintain the aircraft are set out in the lease agreements.

There is a

risk that airlines may not properly maintain aircraft which may lead to an impairment of the aircraft’s

value.

In order to mitigate this risk, the Group closely monitors each airline’s usage of aircraft and their

compliance with agreed maintenance schedules.

Avation requires that some lessees make maintenance

reserve payments to ensure that there is adequate funding at all times for proper maintenance of the

aircraft.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Climate-related risks:

Physical risks

Avation’s fleet may be exposed to the risk of physical damage or loss caused by climate-change related

extreme weather events such as severe storms, flooding or fire.

Demand for and patterns of air travel

may be negatively impacted by long-term impacts of climate change such as rising sea levels.

Transition risks

Regulatory actions to control greenhouse gas emissions are likely to impose additional legal and

compliance costs on aviation business models, including aircraft lessors.

The gradual transition of airline

fleets away from older more polluting aircraft types to latest technology more fuel-efficient types is likely

to have a negative impact on the secondary market and residual values for older aircraft.

This risk is

likely to increase further as new aircraft types featuring low carbon emissions propulsion systems such

as hydrogen or electric power are introduced.

Consumer and market sentiment changes such as an

increasing preference for lower emissions aircraft are likely to make it more difficult for businesses who

continue to own or operate older aircraft types to raise capital or finance aircraft at competitive prices,

or at all.

Owners and/or operators of older aircraft types may also face reputational risk if not deemed

to be transitioning to a low carbon emissions business model quickly enough.

Financial risks:

Avation’s financial risk management objectives and policies are set out in note 7 to the financial

statements and are as follows:

Airline industry risks

Credit risk

Interest rate risk

Foreign currency risk

Liquidity risk

Capital risk

FINANCIAL REVIEW

Revenue

US$ ‘000s

Year ended 30 June,

2023

2022

Lease rental revenue

85,936

93,352

Less: amortisation of lease incentive assets

(1,368)

(1,383)

84,568

91,969

Interest income from finance leases

2,230

2,918

Maintenance reserves revenue

5,063

13,207

End of lease compensation revenue

4,138

91,861

112,232

Lease rental revenue decreased by 7.9% from US$93.4 million in the year ended 30 June 2022 to

US$85.9 million in the year ended 30 June 2023.

The decrease was principally due to the reduction in

the number of aircraft in the fleet from 39 at 30 June 2022 to 36 at 30 June 2023.

Interest income from finance leases decreased by 23.6% from US$2.9 million in the year ended 30 June

2022 to US$2.2 million in the year ended 30 June 2023.

The decrease was principally due to the

reduction in the number of aircraft leased on finance leases from 6 at 30 June 2022 2021 to 5 at 30 June

2023.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Other income

US$ ‘000s

Year ended 30 June,

2023

2022

Foreign currency exchange gain

3,154

1,018

Claim recovery

3,137

Fees for late payment

966

1,940

Aircraft late delivery compensation

540

Deposit released

200

Others

132

454

7,389

4,152

Foreign currency exchange gains in the year ended 30 June 2023 arose principally from the release of

deferred hedged foreign currency exchange gains on two Euro loans that were refinanced during the

period.

The claim recovery recognised in other income is the balance of a distribution paid to creditors of Virgin

Australia in excess of amounts allocated to trade receivables.

Administrative expenses

US$ ‘000s

Year ended 30 June,

2023

2022

Staff costs

5,587

6,771

Other administrative expenses

3,173

2,694

8,760

9,465

Staff costs reduced by 17.5% from US$6.8 million in the year ended 30 June 2022 to US$5.6 million in

the year ended 30 June 2023 principally due to a reduced average headcount, lower bonus payments

and lower charges for employee share warrants.

Other administrative expenses increased by 17.8% from US$2.7 million in the year ended 30 June 2022

to US$3.2 million in the year ended 30 June 2023 principally due to increased marketing related travel

expenses.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Other operating income and expense items

US$ ‘000s

Year ended 30 June,

2023

2022

Depreciation

(38,566)

(39,304)

Gain on derecognition of a finance lease

2,792

Loss on disposal of aircraft and aircraft engine

(1,000)

(2,396)

Unrealised gain on aircraft purchase rights

20,540

38,320

Unrealised gain on equity investment

7,520

Reversal of/impairment (loss) on aircraft

3,287

(6,158)

Aircraft transition expenses

(11,389)

(5,479)

Expected credit losses

(659)

(1,980)

Legal and professional fees

(2,382)

(3,698)

Depreciation reduced by 1.9% from US$39.3 million to US$38.6 million due to a reduction in the fleet.

A gain of US$2.8 million was recognised on derecognition of a finance lease for an aircraft repossessed

from a defaulting airline in Myanmar.

The gain represents the positive difference between the

outstanding value of the finance lease receivable and the broker valuation of the aircraft’s market value

at the date of termination of the lease.

A loss of US$1.0 million was recognised on the sale of two ATR 72-600 aircraft during the year.

A loss

of US$ 2.4 million was recognised in the year ended 30 June 2022 on the sales of an Airbus A220-300,

an Airbus A321-200 and three ATR 72-600 aircraft.

The Company’s 28 aircraft purchase rights were revalued at 30 June 2023 using a Black-Scholes option

pricing model.

The principal factors leading to the recognition of a gain of US$20.5 million (2022: US$

38.2 million) were increases in the appraised value of the ATR 72-600 aircraft and increases in risk-free

interest rates.

The Company recorded an unrealised gain of US$7.5 million on its holding of shares in Philippine Airlines,

Inc.

The Company received these shares as part of the settlement awarded to creditors in the bankruptcy

restructuring of the airline in December 2021.

Aircraft transition expenses of US$11.4 million (2022: US$5.5 million) represent repairs and

maintenance expenditure on aircraft repossessed following airline defaults resulting from the COVID-19

pandemic.

The Company expects transition expenses to be substantially reduced in future periods as

most aircraft which were repossessed as a result of the COVID-19 pandemic have now been transitioned

to new lessees or sold.

Expected credit losses of US$0.7 million primarily relate to rent arrears and a payment plan agreement

loan granted to an airline in South-East Asia.

Legal and professional fees reduced by 35.6% from US$3.7 million in the year ended 30 June 2022 to

US$ 2.4 million in the year ended 30 June 2023 due to a reduction in transaction activity.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Finance income

US$ ‘000s

Year ended 30 June,

2023

2022

Interest income

3,129

281

Fair value gain on financial derivatives

2,492

Finance income from discounting non-current deposits to fair value

611

571

Gain on repurchase of unsecured notes

508

Gain on early full repayment of borrowings

1,657

5,906

3,344

Interest income increased in the year ended 30 June 2023 due to an improved interest rate environment

for depositors.

The group has proactively transferred funds into term deposit accounts to take advantage

of increased deposit interest rates.

Interest income includes US$1.1 million interest on payment plan agreement loans granted to a

customer.

Avation generated a gain of US$0.5 million on the repurchase of US$11.4 million of Avation Capital S.A.

8.25%/9.0% unsecured notes at a discount during the year.

A gain of US$1.7 million on early full repayment of borrowings arose when two loans were refinanced in

November 2022.

Finance expenses

US$ ‘000s

Year ended 30 June,

2023

2022

Interest expense on secured borrowings

21,170

24,062

Interest expense on unsecured notes

30,976

29,913

Interest expense on borrowings from related parties

271

Amortisation of loan transaction costs

1,057

2,226

Amortisation of IFRS 9 gain on debt modification

8,711

8,805

Fair value loss on financial derivatives

577

Amortisation of interest expense on non-current borrowings

571

539

Finance charges on early full repayment of borrowings

731

Others

206

1,205

63,539

67,481

Interest expense on secured borrowings reduced by 12.0% to US$21.2 million in the year ended 30 June

2023 from US$24.1 million in the year ended 30 June 2022 as a result of net repayments of secured

loans.

Secured borrowings have been paid down by US$79.4 million from US$531.9 million at 30 June

2022 to US$452.5 million at 30 June 2023.

Interest expense on unsecured notes includes US$8.6 million (2022: US$4.3 million) of non-cash interest

paid in kind by increasing the face value of Avation Capital S.A. 8.25%/9.0% unsecured notes.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Amortisation of IFRS 9 gain on debt modification of US$8.7 million (2022: US$ 8.8 million) represents

the non-cash accretion in the book value of Avation Capital S.A. 8.25%/9.0% unsecured notes resulting

from the accounting treatment of the extension and changes to the terms of the notes agreed with

noteholders in March 2021. The extension was accounted for as a substantial modification of a debt

instrument in accordance with IFRS 9.

The face value of Avation Capital S.A. 8.25%/9.0% unsecured

notes outstanding as of 30 June 2023 is US$345.2 million.

The Company confirms that there have been no changes to its accounting policies other than the adoption

of new IFRS standards and interpretations as set out in the notes to the financial statements.

FLEET OVERVIEW

Type

1 July 2022

Additions

Disposals

30 June 2023

On order

Purchase

rights

ATR 72-500

ATR 72-600

A220-300

A320-200

A321-200

A330-300

B737-800

B777-300ER

Total

At 30 June 2023, Avation’s fleet comprised 36 aircraft, including five aircraft on finance lease. Avation

serves 17 customers in 14 countries. The weighted average age of the fleet is 6.4 years (30 June 2022:

5.6 years) and the weighted average remaining lease term is 5.0 years (30 June 2022: 5.7 years).

Two ATR 72-600 and one Boeing 737-800 aircraft were sold during the period. Turboprop and

narrowbody aircraft make up 82% of fleet assets as at 30 June 2023. Fleet assets have decreased 9.0%

to US$898.6 million (30 June 2022: US$988.0 million) as a result of aircraft sales and depreciation. As

at the date of this report, Avation has two off-lease aircraft.

One of these aircraft is expected to

commence a new lease in November 2023 and the remaining aircraft is subject to an agreed sale which

is expected to complete shortly.

Avation has orders for two new ATR 72-600 aircraft and purchase rights for a further 28 aircraft as at

30 June 2023. The order-book and purchase rights provide a pathway to organic fleet growth.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

DEBT SUMMARY

2023

2022

US$’000s

Current loans and borrowings

61,401

63,900

Non-current loans and borrowings

694,575

764,230

Total loans and borrowings

755,976

828,130

Unrestricted cash and bank balances

24,816

35,267

Net indebtedness

731,160

792,863

Net debt to total assets

62.0%

65.1%

Weighted average cost of secured debt

4.5%

4.0%

Weighted average cost of total debt

6.1%

5.7%

During the period net indebtedness was reduced by 7.8% to US$731.2 million (30 June 2022: US$792.9

million). Two aircraft previously financed under the Group’s floating rate warehouse loan facility were

re-financed with long-term fixed rate debt, reducing exposure to changes in interest rates.

The weighted average cost of total debt has increased to 6.1% as at 30 June 2023 (30 June 2022: 5.7%)

due to repayments of lower cost secured loans in the period. The weighted average cost of secured debt

also increased to 4.5% at 30 June 2023 (30 June 2022: 4.0%).

At the end of the financial period, Avation’s net debt to total assets ratio improved to 62.0% (30 June

2022: 65.1%).

As at 30 June 2023, 95.8% of total debt was at fixed or hedged interest rates (30 June

2022: 90.0%). The ratio of unsecured debt to total debt was 40.1% (30 June 2022: 35.8%).

In August 2022, S&P Global Ratings revised Avation’s issuer rating to B- (CCC+ for unsecured notes) on

improving capital structure and liquidity.

The Company’s current credit ratings are as follows:

Rating Agency

Corporate Credit Rating

Unsecured Notes Rating

Standard & Poor’s

B- (Stable outlook)

CCC+

Aircraft leasing is a capital-intensive industry. Avation manages interest rate risk as outlined in the risk

management section of the note 7 in the notes to the financial statements. Any potential future increases

in interest rates could impact the level of profitability of any new business the group undertakes although

this could be mitigated by higher lease rates reflecting the current interest rate environment.

Net indebtedness is defined as loans and borrowings less unrestricted cash and bank balances.

Net debt to assets is defined as net indebtedness divided by total assets.

Weighted average cost of secured debt is the weighted average interest rate for secured loans and borrowings at

period end.

Weighted average cost of total debt is the weighted average interest rate for total loans and borrowings at period

end.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Avation is committed to environmental responsibility as part of its business strategy. This is achieved by

investing in technologically advanced designs of commercial aircraft that offer improved fuel efficiency

and lower emissions. A substantial percentage of our fleet are modern regional turboprop aircraft which

provide significant environmental benefits over comparable jet aircraft due to their more economical use

of fuel and consequently lower carbon dioxide emissions.

The most recent additions to the fleet have

included 6 latest technology A220-300 aircraft, which provide significantly reduced fuel consumption and

emissions in comparison to older aircraft.

As of 30 June 2023, 72% of our overall fleet by number are newer technology or lower carbon emission

ATR and Airbus A220 aircraft.

Avation is a member of the Aviation Working Group (AWG) which has developed the aviation industry

Aircraft Carbon Calculator, aimed at monitoring the carbon emissions of aircraft fleets.

The AWG Aircraft

Carbon Calculator provides an industry standard methodology for calculating and comparing aircraft

carbon dioxide emissions. Use of the Aircraft Carbon Calculator will provide meaningful information and

assist in monitoring and reporting of aircraft emissions.

Avation notes the Singapore Government’s commitment to achieve net-zero carbon emissions by 2050.

While Avation supports this initiative it is not currently realistic for Avation to make a matching

commitment given that the technology for achieving commercially viable zero emissions mass air travel

is not yet available.

Avation intends to develop a net-zero strategy when the technological advances

required to make zero emissions commercial air travel viable have been achieved. Additionally, the

Company will comply with all carbon emissions laws and regulations as and when they are enacted in

jurisdictions in which the Company operates.

Avation’s Environmental, Social and Governance report is published on the Company’s website at:

https://www.avation.net/ESG.html.

As of 30 June 2023, Avation PLC has an MSCI ESG rating of BB (2022:BB).

Climate-Related Financial Disclosures

The Risk Committee makes recommendations to the Board on the principal risks of relevance to the

business.

Climate-related risks are considered in terms of potential for contribution to these principal

risks.

The issues considered include both the risk of physical disruption to the business from climate

change, and the risks and opportunities as the global economy transitions to significantly lower carbon

emissions.

In the current period, the Risk Committee concluded that climate related risks did not give

rise to the level of a principal risk, except as part of Legal and Regulatory Compliance.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

The following table is consistent with the Task Force on Climate-Related Financial Disclosures (“TCFD”)

recommended disclosures on climate-change risks:

TCFD Recommended Disclosure

Compliance Status

Governance

Describe the Board’s oversight of climate-related risks

and opportunities.

The Board of Directors has accountability for the

management of climate related risks and opportunities.

The Executive Directors are responsible for the day-to-

day implementation, monitoring and management of

our climate policies. The Group’s Risk Committee

supports the Directors in ensuring material climate-

related narratives are identified and integrated into the

Group’s risk management processes, in addition to

reviewing and recommending policy proposals to the

Board.

Describe management’s role in assessing and

managing climate-related risks and opportunities.

Identified climate-related risks and opportunities are

communicated to the Group’s management team in bi-

weekly meetings attended by the Group’s executive

Directors and senior members of the management

team.

Individuals tasked with particular climate-

related tasks to carry out or reports to prepare provide

regular updates on performance at these meetings.

Strategy

Describe the climate-related risks and opportunities

the organisation has identified over the short, medium,

and long term.

Physical risks

Avation’s fleet may be exposed to the risk of physical

damage or loss caused by climate-change related

extreme weather events such as severe storms, flooding

or fire.

Demand for and patterns of air travel may be

negatively impacted by long-term impacts of climate

change such as rising sea levels, should these occur.

Transition risks

Regulatory actions to impose controls on greenhouse

gas emissions are likely to result in additional legal and

compliance costs for aviation business models, including

aircraft lessors.

The gradual transition of airline fleets

away from older more-polluting aircraft types to latest-

technology more fuel-efficient types is likely to have a

negative impact on the secondary market and residual

values for older aircraft.

This risk is likely to increase

further as new aircraft types featuring low carbon

emissions propulsion systems such as SAF, hydrogen or

electric power are introduced. Regulatory actions,

consumer and market sentiment changes such as an

increasing preference for lower emissions aircraft are

likely to make it more difficult for businesses who

continue to own or operate older aircraft types to raise

capital or finance aircraft at competitive prices, or at all.

Owners and/or operators of older aircraft types may also

face reputational risk if not deemed to be transitioning

to a low carbon emissions business model quickly

enough.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Describe the impact of climate-related risks and

opportunities on the organisation’s businesses,

strategy and financial planning.

The Risk Committee makes recommendations to the

Directors on the principal risks of relevance to the

business.

Climate-related risks are considered in terms

of potential for contribution to these principal risks.

The

issues considered include both the risk of physical

disruption to the business from climate change, and the

risks

and

opportunities

the

global

economy

transitions to significantly lower carbon emissions.

the current period, the Risk Committee concluded that

climate related risks did not give rise to the level of a

principal risk, except as part of Legal and Regulatory

Compliance.

Describe the resilience of the organisation’s strategy,

taking into consideration different climate-related

scenarios, including a 2°C or lower scenario.

Worst Case scenario (>3ºC)

Our Worst-Case Scenario is a theoretical construct and

narrative describing a world where climate action is

delayed by world governments failing to act on climate

change. Such delay may result in a world where physical

climate change risks are the greatest across our three

scenarios.

Under the Worst-Case scenario the Group may face

greater physical risks from climate-change related

weather events and greater transitional risks from

accelerated changing demand patterns.

Paris Alignment Scenario (2-3ºC)

This scenario involves a market-led transition to a lower

carbon future through global government commitments

to the Paris Agreement. This would result in increased

regulation of climate action and a reduction of the

physical impacts of climate change compared with our

Worst-Case

scenario,

where

governments

fail

legislate in accordance with the Paris Agreement.

Under the Paris Alignment scenario the Group

expects that its strategy will mitigate the material

impacts of climate risk.

Transformation Scenario (<2ºC)

This scenario sees a rapid decarbonisation pathway,

where global emissions are close to zero in 2040, driven

by society. The speed of change required to limit global

warming to 1.5 degrees is likely to create instability in

our supply chain as suppliers try to keep pace with

decarbonisation

demands

and

shifting

preferences

towards localisation.

Under the Transformation Scenario the Group may

face reduced physical risks but additional financial

and transitional risks and additional opportunities

from a more rapid switch to lower carbon emission

propulsion

systems

for

aircraft.

Under

this

scenario there is a risk that ordinary aircraft

passengers may be priced out of the air travel

market. Hence, passenger numbers could fall.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Risk Management

Describe the organisation’s processes for identifying

and assessing climate-related risks.

Avation’s Risk Committee is responsible for identifying

and assessing climate change related risks and for

notifying the Board of any identified principal risks which

are deemed to be material to the Company.

Describe the organisation’s processes for managing

climate-related risks.

The Directors are directly able to determine which risks

and opportunities could have a material impact on the

Group, as well as how to prioritise them.

With a flat

management structure and by taking a hands-on

approach, the risks are actively managed within all

aspects of the business.

Describe how processes for identifying, assessing, and

managing climate-related risks are integrated into the

organisation’s overall risk management.

Climate change related matters are monitored by the

Directors and Risk Committee to ensure that they are

embedded in our risk management and planning

process, in addition to our long-term strategic decision-

making.

Metrics and targets

Disclose the metrics used by the organisation to assess

climate-related risks and opportunities in line with its

strategy and risk management process.

Please refer to the table below.

Disclose Scope 1, Scope 2, and, if appropriate, Scope 3

greenhouse gas (GHG) emissions, and the related

risks.

Please refer to the table below.

As the majority of the

Company’s GHG emissions are derived from our

customers’ use of our fleet of aircraft, total emissions

may increase due to factors outside our control.

Describe the targets used by the organisation to

manage climate-related risks and opportunities and

performance against targets.

The company is making available to the market up to

30 low carbon emissions ATR72 aircraft by way of its

purchase rights and order book.

Greenhouse Gas Emissions

Direct emissions

Direct emissions are produced by sources which are owned or controlled by the reporting organisation

and include electricity use, burning oil or gas for heating, and fuel consumption because of business

travel or distribution.

Indirect emissions

Indirect emissions result from a company’s upstream and downstream activities. These are typically from

outsourced activities, and products and the services offered by the organisation.

Scope

Activity

TCO2e

2023

TCO2e

2022

Scope 1

Scope 2

Consumption of

purchased electricity

Scope 3

Customers’ use of our

aircraft

525,100

418,900

Employee business travel

144

Total

525,260

418,941

Usage of the Company’s aircraft is under the control of lessees who are not required to provide emissions

data to the Company. The Company estimates carbon emissions from lessees’ usage of our aircraft using

the “AWG Carbon Calculator” tool provided by the Aircraft Working Group.

The AWG Carbon Calculator

uses OEM source data to provide consistent and reliable estimates of aircraft carbon emissions.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Carbon emissions from consumption of purchased electricity are estimated by converting the Company's

energy usage in kilowatt hours (KWh) into kilograms (Kg) of carbon dioxide emitted using Singapore's

Grid Emission Factor (GEF), a measure of the amount of carbon dioxide emitted per kilowatt hour of

electrical energy generated in Singapore.

Energy usage is based on electricity consumption at the

Company's sole office in Singapore.

Carbon emissions from employee business travel are estimated using UK Government Conversion Factors

for greenhouse gas reporting.

Scope 3 Emissions from Customers’ Use of Our Aircraft

2023

2022

Total emissions (TCO2e)

525,100

418,900

Aircraft flight hours

74,683

61,450

Average seats per aircraft

162

158

Average CO2 emissions per flight hour (TCO2e)

7.0

6.8

Average CO2 emissions per seat per flight hour

(kgCO2e)

43.5

43.0

CORPORATE SOCIAL RESPONSIBILITY

Avation is committed to the principles of being a good corporate citizen. For the 2023 financial year the

group did not have any material matters to report on

social, community and human rights issues.

CORPORATE ETHICS AND BEHAVIOUR

Avation operates the following policies governing corporate ethics and behaviour:

Anti-bribery policy

Gifts and entertaining policy

Modern slavery policy

Whistleblowing policy

Policy for dealing with Company securities

EMPLOYEES

A breakdown by gender of the number of persons who were Directors of the Company, senior managers

and other employees as of 30 June 2023 is set out below:

Male

Female

Directors of the Company

Senior managers

Other employees

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

A breakdown by gender of the number of persons who were Directors of the Company or senior managers

as of 30 June 2023 is set out below:

Number of

board

members

Percentage of

the board

Number of

senior

positions on

the board

(CEO, CFO,

SID and Chair)

Number in

executive

management

Percentage of

executive

management

Men

100%

67%

Women

33%

A breakdown by ethnic identity of the number of persons who were Directors of the Company or senior

managers as of 30 June 2023 is set out below:

Number of

board

members

Percentage of

the board

Number of

senior

positions on

the board

(CEO, CFO,

SID and Chair)

Number in

executive

management

Percentage of

executive

management

White British or

other white

(including minority-

white groups)

100%

50%

Asian/Asian British

50%

The Company collects data on gender and ethnic identity from employees and directors by means of

self-identification.

As at 30 June 2023 the Company does not meet targets for:

at least 40% of the individuals on its board of directors to be women;

at least one of the positions of the chair, the chief executive, the senior independent director or

the chief financial officer on its board of directors to be held by a woman; and

at least one individual on its board of directors to be from a minority ethnic background.

The Company engages directors on the basis of ability without discrimination and has no internal targets

for representation on the board on the basis of gender or ethnic identity.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

SECTION 172(1) STATEMENT

On the following pages we have set out how the Board has acted in a way that promotes the success of

the Company for the benefit of its members as a whole, in accordance with the requirements of the

Companies (Miscellaneous Reporting) Regulations 2018, whilst having regard to the following matters

set out in s.172(1) of the Act.

The likely consequences of any decision in the long term

The board is mindful that it should make decisions which are the best for the Company in the long term.

The nature of the business of aircraft leasing is long-term, with typical aircraft leases being for ten or

twelve years duration for new aircraft. The Company does undertake the trading of aircraft where they

have reached a certain age and when market conditions are favourable. However, the transfer of an

aircraft with a lease attached to it is transaction which would typically take three to five months to

complete and therefore such transactions are undertaken on strategic timeframes.

Equity released from

the sale of aircraft is typically re-invested in financing or re-financing the purchase of aircraft.

The interests of the Group’s employees

The board actively engages with employees to ensure that staff are kept up to date and informed. The

Company has regular management meetings at which typically two of the Company’s directors are

present and which are attended by the majority of the Company’s employees.

Throughout the COVID-19 pandemic, staff have received regular communications and updates from the

Board to ensure that they are kept up to date and informed in respect of action being taken by the

business, and of the impact of the situation on business performance, with management meetings being

held on a daily basis.

The need to foster the Group’s business relationships with suppliers, customers and others

Suppliers

The Company has long-term relationships with its suppliers which are primarily comprised of commercial

lending organisations such banks and other financial institutions, as well as the manufacturers of aircraft

and aircraft engines.

Customers

The Company has seventeen airline customers and maintains close relationships with them, indeed this

is inherent in the nature of aircraft leasing. In particular, the Company needs to ensure that its customers

are looking after and maintaining the aircraft and are otherwise complying with the terms of the

respective aircraft leases.

AVATION PLC

STRATEGIC REPORT

FOR THE YEAR ENDED 30 JUNE 2023

The impact of the Group’s operations on the community and the environment

The board recognises the importance of managing the community impact of the business and minimising

any adverse impact of our operations on the environment. The Company carried out a review of its

environmental, social and governance (ESG) performance and a copy of this report can be found on the

Company’s website at: www.avation.net/ESG.html

The desirability of the Group maintaining a reputation for high standards of business conduct

The board expects the highest standards of conduct throughout the business, both in respect of

employees and in respect of its suppliers, advisers and agents. The board receives regular updates in

respect of matters of regulatory compliance, and the business has policies, procedures and processes in

place in respect of modern slavery, bribery and corruption.

The need to act fairly as between members of the Company

The Company has a single class of ordinary shares, so all shareholders are treated equally. Details of

how we engage with shareholders can be found in our corporate governance statement in the Directors’

Report.

On behalf of the board

Robert Jeffries Chatfield

Executive Chairman

26 October 2023

AVATION PLC

DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2023

The Directors present their report and financial statements for the year ended 30 June 2023.

Principal activities and business review

The principal activity of the Group is aircraft leasing.

Details of activities carried out by subsidiary

companies are set out in Note 22 to these financial statements.

The principal risks and uncertainties affecting the Group’s turnover are described in the Strategic Report.

The full business review including KPI’s can be found in the Strategic Report and in Note 7 to these

financial statements. The Group has reviewed environmental matters in the Strategic Report.

Results and dividends

The consolidated statement of profit or loss and the consolidated statement of other comprehensive

income for the year are set out on in these financial statements. The Company did not declare and pay

any dividend during the year.

Avation’s dividend policy is, subject to having the reserves to do so and within any restrictions imposed

by debt covenants, to declare a dividend if the Board considers that it is in the best long-term interests

of the Company and its shareholders. The dividend policy is progressive, in that if reserves are available

the dividend shall increase.

Directors and their interests

The Directors who served the Company during the year together with their interests and deemed interests

in the shares of the Company at the beginning and end of the year, were as follows:

Direct interest

Deemed interest

30 June

2023

1 July

2022/

Appointment

date

30 June

2023

1 July

2022/

Appointment

date

Ordinary shares of £0.01 each:

Robert Jeffries Chatfield

12,530,000

11,995,000

Roderick Douglas Mahoney

870,000

856,667

Stephen John Fisher

25,000

Derek Sharples

50,000

Mark Stephen Shelton

4,500

AVATION PLC

DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Significant shareholdings

Ordinary

Percentage

Ordinary shares of £0.01 each:

Vidacos Nominees Limited

16,065,318

22.66%

Goldman Sachs Securities (Nominees) Limited

5,456,860

7.70%

HSBC Global Custody Nominee (UK) Limited

5,350,000

7.55%

Luna Nominees Limited

5,030,000

7.10%

HSBC Global Custody Nominee (UK) Limited

5,013,635

7.07%

Vidacos Nominees Limited

3,505,478

4.95%

Pershing Nominees Limited

2,371,725

3.35%

Lynchwood Nominees Limited

2,239,800

3.16%

Equal Opportunities Policy

It is the Group's policy to employ individuals with the necessary qualifications without regard to sex,

marital status, race, creed, colour, nationality or religion. Full and fair consideration is given to

applications for employment made by disabled persons having regard to their particular aptitudes and

abilities.

The Group recognises the great importance of the contribution made by all employees and aims to keep

them informed of matters affecting them as employees and developments within the Group.

Communication and consultation is achieved by a variety of means both within individual companies or

branches and on a group-wide basis.

Future Developments

In accordance with s414C(11) of the Companies Act 2006, the Directors have chosen to include

information about future developments in the Chairman’s Statement and Strategic Report.

Financial Instruments

See Note 7 to these financial statements.

AVATION PLC

DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Going Concern

The Directors’ assessment of the Group’s ability to continue as a going concern is detailed in Note 3(e)

to the financial statements.

The Note in its entirety is deemed to be incorporated into and form part of

the Directors’ Report.

Greenhouse Gas Emissions Statement

Usage of the Company’s aircraft is under the control of lessees who are not required to provide emissions

data to the Company. The Company estimates carbon emissions from lessees’ usage of our aircraft using

the “AWG Carbon Calculator” tool provided by the Aircraft Working Group.

The AWG Carbon Calculator

uses OEM sources data to provide consistent and reliable estimates of aircraft carbon emissions.

Carbon emissions from consumption of purchased electricity are estimated by converting the Company's

energy usage in kilowatt hours (KWh) into kilograms (Kg) of carbon dioxide emitted using Singapore's

Grid Emission Factor (GEF), a measure of the amount of carbon dioxide emitted per kilowatt hour of

electrical energy generated in Singapore.

Energy usage is based on electricity consumption at the

Company's sole office in Singapore.

In the year ended 30 June 2023 the Company used 39,016 KWh of energy (2022: 32,496 KWh) which

was converted to estimated carbon emissions of15,829 Kg (2022: 13,258 Kg) using a GEF of 0.4057

(2022: 0.4080).

Carbon emissions from employee business travel are estimated using UK Government Conversions

Factors for greenhouse gas reporting.

Capital Structure

Details of the Company’s issued share capital, together with details of the movements therein during the

financial year are shown in Note 30.

The Company has one class of ordinary shares which carry no right

to fixed income.

Each share carries the right to one vote at general meetings of the Company.

There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both

governed by the general provisions of the Articles of Association and prevailing legislation.

The Directors

are not aware of any agreements between holders of the Company’s shares that may result in restrictions

on the transfers of securities or on voting rights.

Details of employees share option schemes are set out in Note 37.

No person has any special rights of control over the Company’s share capital and all issued shares are fully

paid.

With regards to the appointment and replacement of Directors, the Company is governed by its Articles of

Association, the Companies Act and related legislation.

The Articles themselves may be amended by special

resolution of the shareholders.

AVATION PLC

DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Corporate Governance Statement

The Board is accountable to the shareholders for the good corporate governance of the Group. The

principles of corporate governance and a code of best practice are set out in the UK Corporate

Governance Code issued in July 2018. The Company is not required to comply with the Code in full nor

state any areas with which it does not comply. The Board has adopted policies that it considers to be

appropriate for the Company’s size and nature.

The Board acts as the administrative, management and supervisory body overseeing the operation of

the Group. The Board consist of two Executive Directors (Robert Jeffries Chatfield and Mark Stephen

Shelton) and three Non-Executive Directors (Roderick Douglas Mahoney, Stephen John Fisher

(independent) and Derek Sharples (independent)). The Board meets at least six times a year; matters

for discussion at formal meetings are clearly laid down and decisions recorded. The Board is responsible

for overall corporate strategy; the reviewing and approval of acquisition and divestment opportunities;

the approval of significant capital expenditures; the review of budgets; trading performance; and all

significant financial and operational issues.

Information on how the Directors have had regard to the need to foster the Company’s business

relationships with suppliers, customers and other, and the effect of that regard, including on the principal

decisions taken by the Company during the financial year, is included in the Section 172(1) Statement

included in the Strategic Report.

The Company operates the following committees whose members are detailed below:

Audit Committee - Stephen John Fisher, Derek Sharples Iain Cawte (non-Board member) and

Mark Stephen Shelton; and

Risk Committee – Derek Sharples, Stephen John Fisher, Iain Cawte (non-Board member) and

Duncan Scott (non-Board member); and

Remuneration Committee - Robert Jeffries Chatfield, Roderick Douglas Mahoney, Stephen John

Fisher and Derek Sharples

The Board is responsible for identifying and evaluating the major business risks faced by the Company

and for determining and monitoring the appropriate course of action to manage these risks.

The key

risks the Company faces are described in the risk assessment section of this annual report and accounts.

The Board conducts a review of the effectiveness of the Company’s systems of internal control and risk

management on an annual basis.

Following this review, it has concluded that the Company’s financial,

operational and compliance controls, and risk management procedures are appropriate and suitable to

enable the Board to safeguard shareholders’ investments and the Company’s assets.

The process and systems of internal control are designed to manage, rather than eliminate, the risk of

failure to achieve the Company’s objectives, and can therefore only provide reasonable and not absolute

assurance against material misstatement or loss.

AVATION PLC

DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Statement as to disclosure of information to auditors

So far as the Directors are aware, there is no relevant audit information of which the Company's

auditors are unaware, and

They have taken all the steps that they ought to have taken as Directors in order to make

themselves aware of any relevant audit information and to establish that the Company's auditors

are aware of that information.

Auditor

Ernst & Young have indicated their willingness to continue in office and in accordance with s489 of the

Companies Act 2006. A resolution proposing that they be reappointed as auditors of the Company will be

put to the Annual General Meeting.

Purchase of own shares

During the year ended 30 June 2023, the Company bought 100,000 treasury shares at a market price of

77.2 pence per share and subsequently cancelled 2,310,000 treasury shares.

During the financial year ended 30 June 2022, the Company did not buy any treasury shares.

By a resolution passed at the Annual General Meeting held on 1 December 2021, the Company’s Directors

are authorised to buy back shares not exceeding 30 per cent of the total number of shares in issue on

that date. Share buy backs may be at market prices but not under £0.75 and not exceeding a price equal

to the higher of (i) 105% of the average of the middle market quotations for the share price for the five

business days preceding the buy-back date and (ii) the higher of the price for the last independent share

trade and the amount stipulated pursuant to Article 5(6) of the Market Abuse Regulation (EU) No.

596/2014 (as in force in the United Kingdom pursuant to the European Union (Withdrawal) Act 2018),

and in any case, not exceeding £3.00 per share, excluding brokerage, commissions and other related

expenses.

AVATION PLC

DIRECTORS’ REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Subsequent events

See Note 42 to these financial statements.

Information to be included in annual report

In accordance with the UK Financial Conduct Authority’s Listing Rules (LR 9.8.4C), the following table

provides references to where the information to be included in the annual report and accounts, where

applicable, under LR 9.8.4, is set out.

Listing Rule requirement

Reference

Details of any long-term incentive schemes as required

by LR 9.4.3 R.

Directors’ Remuneration report and Notes to the

Financial Statements – Note 37 Share Based Payments

Details of any contract of significance subsisting during the

period under review to which the listed company, or one of

its subsidiary undertakings, is a party and in which

a Director of the listed company is or was materially

interested.

Notes to the Financial Statements – Note 8, Related

Party Transactions

On behalf of the board

Robert Jeffries Chatfield

Executive Chairman

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Introduction

This report has been prepared in accordance with Schedule 8 of the Large and Medium Companies and

Groups (Accounts and Reports) Regulations 2008 as amended in August 2013.

As required a resolution to

approve the Directors’ remuneration will be proposed at the forthcoming Annual General Meeting of the

Company at which the financial statements will be approved.

The vote will have advisory status, will be in

respect of the remuneration policy and overall remuneration packages and will not be specific to the

individual levels of remuneration.

The information in the Directors’ Remuneration Report is not audited, unless specifically stated that the

section is subject to audit.

Statement by the Chair of the Remuneration Committee

The Company’s remuneration policy remains substantially unchanged for the year ended 30 June 2023.

Key aspects of the policy are to attract and retain executives; be consistent with best practices and to

ensure alignment between performance and compensation.

Remuneration (audited)

The components of remuneration are:

basic salary and benefits determined by the Remuneration Committee which are included in

employment agreements and reviewed annually;

bonuses based upon performance of the Company and the individual concerned; and

share warrants.

Component

Purpose

Operation & framework used to assess performance

Salary and

benefits

To provide the core reward for the

role at a sufficient level to recruit

and

retain

individuals

the

necessary competence to execute

the company’s business strategy.

Operation

Salaries are typically set after considering salary levels in

companies of a similar size and complexity, the responsibilities

of each individual role, progression within the role, individual

performance and an individual’s experience. Our overall policy,

having had due regard to the factors noted, is normally to

target salaries at the market median level.

Salaries may be adjusted in line with the market and

adjustments out of line with the market may be awarded in

certain circumstances such as where there is a change in

responsibility, progression in the role, experience or a

significant increase in the scale of the role and/or size, value

and/or complexity of the Group. Salary levels for current

incumbents are set out elsewhere in this report.

Framework used to assess performance:

The remuneration committee considers individual salaries at

the appropriate committee meeting each year after having due

regard to the factors noted in operating the salary policy. No

recovery provisions apply to salary.

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Bonuses

incentivise

and

recognise

execution of the business strategy

on a semi-annual basis.

Operation

Bonuses are paid in cash twice yearly to Directors based on a

target percentage of the employee’s basic salary. All bonus

payments are at the discretion of the Committee, as shown

following this table.

Framework used to assess performance:

The

remuneration committee will

assess company and

individual

performance

compared

prior

year

and

expectations for the current year. Individual performance will

also be assessed against key performance metrics established

for each executive. Metrics considered in awarding bonuses

include share price appreciation; increase in the Company’s

earnings per share; reliable and high quality financial

reporting; growth in asset value and profits; and dividend

growth.

Warrants

incentivise

and

recognise

execution of the business strategy

over the long-term.

Operation

Each year share warrants and/or performance shares awards

may be granted subject to the achievement of performance

targets. Awards normally vest over a three-year period.

Framework used to assess performance:

Same as for bonus.

Individual Director’s remuneration was as follows:

Salaries

and fees

Bonuses

Taxable

benefits

warrants

Total

2023

Total

2022

US$’000s

Executive Director:

Robert Jeffries Chatfield

694

384

1,151

1,224

Mark Stephen Shelton

Non-Executive Directors:

Roderick Douglas Mahoney*

271

169

440

877

Stephen John Fisher

Derek Sharples

1,119

562

1,754

2,191

Roderick Douglas Mahoney retired as an executive of the Company during the year and he will continue

to serve the shareholders as a non-executive director of the Company

Bonuses are subject to the discretion of the Remuneration Committee and are awarded after assessing

company and individual performance compared to prior years and expectations for the current year.

Individual performance is also assessed against key performance metrics established for each executive.

Taxable benefits mainly relate to housing expenses, medical expenses and private car expenses.

The information in this part of the Directors’ Remuneration Report is subject to audit.

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Service contracts

The employment contracts of the Executive Directors with the Company are terminable by either party

with the notice in writing to the other detailed in the table below.

The Directors’ service contracts are as follows:

Date of contract

Unexpired

term

Notice

period

Compensation

payable on

early

termination

Robert Jeffries Chatfield

29 April 2013

Indefinite

4 months

Roderick Douglas Mahoney

21 February 2022

Indefinite

2 months

Stephen John Fisher

29 April 2014

Indefinite

1 month

Derek Sharples

15 November 2016

Indefinite

1 month

Mark Stephen Shelton

15 September 2023

Indefinite

2 weeks

Share warrants (audited)

The Group has an ownership-based compensation scheme for employees of the Group.

Warrants are granted to employees of the Group to promote:

Improvement in the Company’s earnings per share;

Reliable and high quality financial reporting;

Growth in asset value and profits; and

Growth in dividends.

Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are paid

or are payable by the recipient on receipt of the warrant. The warrants carry neither rights to dividends

nor voting rights. There are no performance conditions that need to be met before warrants can be

exercised.

Warrants granted to Directors on 20 September 2019 have a 3-year vesting schedule with details as

follows:

Vesting period

Proportion of total share options that are

exercisable

Before 21 September 2020

0 per cent

On 21 September 2020 and before 21 September 2021

Up to 33 per cent of the grant

On 21 September 2021 and before 21 September 2022

Up to 33 per cent of the grant or up to 66 per cent of

the grant if warrants were not exercised after the first

vesting year

On 21 September 2022 to 21 October 2022

Balance or 100 per cent of the grant if warrants were

not exercised after the first and second vesting years

The exercise price for the warrants granted on 20 September 2019 was re-priced on 14 October 2022

from 296.0 pence to 101.25 pence.

The warrant expiry date extended to 21 January 2023.

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Warrants granted to Directors on 21 November 2019 have a 3-year vesting schedule with details as

follows:

Vesting period

Proportion of total share options that are

exercisable

Before 22 November 2020

0 per cent

On 22 November 2020 and before 22 November 2021

Up to 33 per cent of the grant

On 22 November 2021 and before 22 November 2022

Up to 33 per cent of the grant or up to 66 per cent of

the grant if warrants were not exercised after the first

vesting year

On 22 November 2022 to 22 December 2022

Balance or 100 per cent of the grant if warrants were

not exercised after the first and second vesting years

The exercise price for the warrants granted on 21 November 2019 was re-priced on 14 October 2022

from 274.5 pence to 101.25 pence.

The warrant expiry date extended to 22 March 2023.

Warrants granted to Directors on 23 December 2020 have a 3-year vesting schedule with details as

follows:

Vesting period

Proportion of total share options that are

exercisable

Before 23 December 2021

0 per cent

On 23 December 2021 and before 23 December 2022

Up to 33 per cent of the grant

On 23 December 2022 and before 23 December 2023

Up to 33 per cent of the grant or up to 66 per cent of

the grant if warrants were not exercised after the first

vesting year

On 23 December 2023 to 23 January 2024

Balance or 100 per cent of the grant if warrants were

not exercised after the first and second vesting years

Warrants granted to Directors on 29 September 2022 have a 3-year vesting schedule with details as

follows:

Vesting period

Proportion of total share options that are

exercisable

Before 29 September 2023

0 per cent

On 29 September 2023 and before 29 September 2024

Up to 33 per cent of the grant

On 29 September 2024 and before 29 September 2025

Up to 33 per cent of the grant or up to 66 per cent of

the grant if warrants were not exercised after the first

vesting year

On 29 September 2025 to 29 November 2025

Balance or 100 per cent of the grant if warrants were

not exercised after the first and second vesting years

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Warrants granted to Directors on 2 March 2023 have a 3-year vesting schedule with details as follows:

Vesting period

Proportion of total share options that are

exercisable

Before 2 March 2024

0 per cent

On 2 March 2024 and before 2 March 2025

Up to 33 per cent of the grant

On 2 March 2025 and before 2 March 2026

Up to 33 per cent of the grant or up to 66 per cent of

the grant if warrants were not exercised after the first

vesting year

On 2 March 2026 to 2 May 2026

Balance or 100 per cent of the grant if warrants were

not exercised after the first and second vesting years

The following share warrants issued to Directors were outstanding at the year-end:

Director

Date granted

(re-priced)

Warrant

price

(re-priced)

Balance

beginning

of year

Granted

during the

year

Exercised

during the

year

Expired

during

the year

Balance

end of

year

Robert Jeffries

Chatfield *

20 Sep 2019

(14 Oct 2022)

296.0p

(101.25p)

450,000

(235,000)

(215,000)

Robert Jeffries

Chatfield *

21 Nov 2019

(14 Oct 2022)

274.5p

(101.25p)

300,000

(300,000)

Robert

Jeffries

Chatfield *

23 Dec 2020

130.0p

1,200,000

Robert Jeffries

Chatfield *

29 Sept 2022

102.0p

1,000,000

Robert Jeffries

Chatfield *

2 Mar 2023

126.0p

230,000

Roderick Douglas

Mahoney

20 Sep 2019

(14 Oct 2022)

296.0p

(101.25p)

180,000

(180,000)

Roderick Douglas

Mahoney

21 Nov 2019

(14 Oct 2022)

274.5p

(101.25p)

120,000

(120,000)

Roderick Douglas

Mahoney

23 Dec 2020

130.0p

750,000

Roderick Douglas

Mahoney

29 Sept 2022

102.0p

275,000

Roderick Douglas

Mahoney

2 Mar 2023

126.0p

25,000

Mark Stephen

Shelton

29 Sept 2022

102.0p

50,000

Mark Stephen

Shelton

2 Mar 2023

126.0p

18,000

* Robert Jeffries Chatfield was granted the share warrants and assigned these to Epsom Assets Limited.

The closing market price of the shares subject to warrants at the year-end was 123.0 pence. The highest

and lowest closing market prices during the year were 142.0 pence and 68.0 pence.

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Company’s performance

The graph below shows the total shareholder return on a holding of shares in the Company as against

the average total shareholder return of the companies comprising the FTSE100 index. The FTSE 100

Index was selected because in the opinion of the Board it is the most appropriate for the Company for

the purposes of a benchmark.

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Remuneration of Executive Chairman

2023

2022

2021

2020

2019

Executive Chairman single figure

remuneration (US$’000)

1,151

1,224

1,394

908

803

Annual bonus pay-out (as % of

maximum)

The table above shows the prescribed remuneration data for the Director, Robert Jeffries Chatfield,

Executive Chairman undertaking the role of Group Chief Executive Officer during each of the last five

financial years.

Percentage change in remuneration of Chief Executive Officer and annual percentage

change in remuneration for directors and employees

The table below sets out the percentage change in the remuneration of the Executive Chairman who is

undertaking the role of Group Chief Executive Officer and directors compared to that of all employees of

the Group.

Change in remuneration

from 2022 to 2023

Base salary and

fees

Bonus

Taxable

benefits

Warrants

expense

Executive Chairman:

Robert Jeffries Chatfield

-2%

-13%

Executive Director:

Mark Stephen Shelton

Non-executive Director:

Douglas Roderick Mahoney

-30%

-100%

-37%

Non-executive Director:

Stephen John Fisher

Non-executive Director:

Derek Sharples

All employees

-3%

-96%

-20%

Change in remuneration

from 2021 to 2022

Base salary and

fees

Bonus

Taxable

benefits

Warrants

expense

Executive Chairman:

Robert Jeffries Chatfield

-1%

-18%

-25%

Executive Director:

Douglas Roderick Mahoney

-15%

105%

-22%

Non-executive Director:

Stephen John Fisher

Non-executive Director:

Derek Sharples

All employees

254%

-18%

-17%

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Percentage change in remuneration of Chief Executive Officer and annual

percentage change in remuneration for directors and employees (continued)

Change in remuneration

from 2020 to 2021

Base salary and

fees

Bonus

Taxable

benefits

Warrants

expense

Executive Chairman:

Robert Jeffries Chatfield

10%

69%

192%

Executive Director:

Douglas Roderick Mahoney

12%

-52%

229%

Non-executive Director:

Stephen John Fisher

Non-executive Director:

Derek Sharples

All employees

-2%

-71%

69%

191%

Relative importance of spend on pay

The Chart below displays the relative expenditure of the Company on various matters, as required (in

the case of remuneration for group employees and shareholder distributions) by the relevant

remuneration regulations:

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Directors’ remuneration policy

The Company applies a policy for Directors’ remuneration which is designed to meet the following

objectives:

provide a fair and transparent remuneration policy that is in alignment with shareholders’

interests;

provide both immediate and incentive remuneration that is sufficient to attract and retain

executives;

be consistent with best practice for governance of stock exchange listed companies;

allow claw-back of incentives from executives should previous performance be found to have

led to future adverse circumstances for the Company; and

ensure alignment between performance and compensation.

The Company targets the following outcomes in applying its policy to ensure alignment of Directors’

remuneration and shareholders’ interests:

share price appreciation;

increase in the Company’s earnings per share;

reliable and high quality financial reporting;

growth in asset value and profits; and

dividend growth.

Remuneration of the Company’s Executive Directors is comprised of the following components:

base salary;

short-term incentives in the form of a cash bonus linked to performance against individual key

performance indicators; and

long-term incentives in the form of share warrants and/or performance shares.

Remuneration of the Company’s Non-Executive Directors is comprised of fixed Directors’ Fees.

Payments for loss of office

No provisions are made under the Directors’ service contracts for any payments beyond the applicable

notice period, except that Non-Executive Directors are entitled to receive payment of two years fees on

loss of office pursuant to a change of control.

AVATION PLC

DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 30 JUNE 2023

Statement of consideration of employment conditions elsewhere in the company

Pay and employment conditions of other employees in the company were taken into account when setting

the policy for Directors’ remuneration. Similar remuneration polices are in place for Directors and

employees of an equivalent level.

Shareholders' vote on remuneration

Share Count

% of

vote cast

Votes cast in favour

23,650,489

99.93%

Votes cast against

17,723

0.07%

Total votes cast in favour or against

23,668,212

100.00%

Votes withheld

9,593

Note:

The Board as a whole considers the remuneration of the Directors and has not engaged external advisers.

The remuneration report for the year ended 30 June 2022 was approved at the Annual General Meeting

held on 13 December 2022.

On behalf of the Board

Robert Jeffries Chatfield

Executive Chairman

AVATION PLC

DIRECTORS’ RESPONSIBILITIES STATEMENT

FOR THE YEAR ENDED 30 JUNE 2023

The Directors are responsible for preparing the Annual Report and the financial statements in accordance

with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that

law the Directors are required to prepare the Company and Group financial statements in accordance

with UK-adopted International Accounting Standards (“IFRSs”) in conformity with the requirements of

the Companies Act 2006.

Under company law the Directors must not approve the financial statements unless they are satisfied

that they give a true and fair view of the state of the affairs of the Company and of the Group and the

financial performance and cash flows of the Group for that year.

In preparing these financial statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;

make judgements and accounting estimates that are reasonable and prudent;

prepare the accounts on the going concern basis unless it is inappropriate to presume that the

Company will continue in business.

present information, including accounting policies, in a manner that provides relevant reliable,

comparable and understandable information.

provide additional disclosures when compliance with the specific requirements in IFRSs adopted

are insufficient to enable the users to understand the impact of particular transactions, other

events and conditions on the entity’s financial position and financial performance.

properly select and apply accounting policies.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and

explain the Company’s and the Group’s transactions and disclose with reasonable accuracy at any time

the financial position of the Company and the Group and enable them to ensure that the financial

statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets

of the Company and the Group and hence for taking reasonable steps for the prevention and detection

of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information

included on the Company's website. Legislation in the United Kingdom governing the preparation and

dissemination of the financial statements may differ from legislation in other jurisdictions.

AVATION PLC

DIRECTORS’ RESPONSIBILITIES STATEMENT

FOR THE YEAR ENDED 30 JUNE 2023

We confirm that to the best of our knowledge:

the financial statements, prepared in accordance with IFRSs inconformity with the Companies

Act 2006, give a true and fair view of the assets, liabilities and financial position of the Company

and of the Group and of the Group’s profit for the year;

the strategic report includes a fair review of the development and performance of the business

and the position of the Company and of the Group, together with a description of the principal

risks and uncertainties that they face; and

The annual report and financial statements, taken as a whole, are fair, balanced and

understandable and provide the information necessary for the shareholders to assess the Group’s

position, performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 26 October 2023 and is signed

on its behalf by Robert Jeffries Chatfield.

Robert Jeffries Chatfield

Executive Chairman

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION

PLC

Opinion

In our opinion:

•

Avation plc’s group financial statements and parent company financial statements (the “financial

statements”) give a true and fair view of the state of the group’s and of the parent company’s affairs

as at 30 June 2023 and of the group’s profit for the year then ended;

•

the group financial statements have been properly prepared in accordance with UK adopted

international accounting standards;

•

the parent company financial statements been properly prepared in accordance with UK adopted

international accounting standards as applied in accordance with section 408 of the Companies Act

2006; and

•

the financial statements have been prepared in accordance with the requirements of the

Companies Act 2006.

We have audited the financial statements of Avation plc which comprise:

Group

Parent company

Consolidated statement of profit and loss for the

year then ended

Consolidated statement of comprehensive income

for the year then ended

Consolidated statement of financial position as at 30

June 2023

Company statement of financial position as at 30

June 2023

Consolidated statement of changes in equity for the

year then ended

Company statement of changes in equity for the

year then ended

Consolidated statement of cash flows for the year

then ended

Company statement of cash flows for the year

then ended

Related notes 1 to 43 to the financial statements,

including a summary of significant accounting

policies

Related notes 1 to 43 to the financial statements,

including a summary of significant accounting

policies

The financial reporting framework that has been applied in their preparation is applicable law and UK

adopted international accounting standards and as regards to the parent company financial statements,

as applied in accordance with section 408 of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and

applicable law. Our responsibilities under those standards are further described in the Auditor’s

responsibilities for the audit of the financial statements section of our report below. We are independent

of the group and parent company in accordance with the ethical requirements that are

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as

applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in

accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern

basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the

directors’ assessment of the group and parent company’s ability to continue to adopt the going concern

basis of accounting included:

•

conjunction with our walkthrough of the Group’s financial statements close process, we

confirmed our understanding of the going concern assessment process and engaged with

management to ensure all key factors were considered in their assessment.

•

We obtained management’s going concern assessment, including their covenant assessment and

cashflow analysis and forecast for a period of 13 months from the expected date of signing of the

financial statements.

•

We reviewed the sources of cash inflows available to the Group and the various scenario

analyses performed by management. We noted that in management’s most stressed scenario,

management’s forecasted minimum cash requirement would still be generated by the Group.

•

We have considered the assumptions included in the cashflow analysis prepared and

considered the appropriateness of the methods used within the cashflow analysis and

determined through inspection and testing of the methodology and calculations that the methods

utilised were appropriate.

•

have further stressed managements’ sensitivities to test the resilience of the Group’s

business under more pessimistic scenarios.

•

We have reviewed the appropriateness of the disclosures made by management as detailed

under Note 3 (e) of the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to

events or conditions that, individually or collectively, may cast significant doubt on the group and

parent company’s ability to continue as a going concern for a period of 12 months from when the

financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are

described in the relevant sections of this report. However, because not all future events or conditions

can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going

concern.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

Overview of our audit approach

Audit scope

•

We performed an audit of the complete financial information of Avation plc

in accordance with the materiality thresholds as set out below.

Key

audit

matters

•

Valuation of aircraft

•

Valuation of aircraft purchase rights

•

Expected credit loss (ECL) on trade and other receivables

Materiality

•

Overall group materiality of US$2.4m which represents 1% of total equity as

of 30 June 2023.

An overview of the scope of our audit

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality

determine our audit scope for each entity within the Group. Taken together, this enables us to form an

opinion on the consolidated financial statements. We take into account size, risk profile, the organisation

of the group and effectiveness of group wide controls, changes in the business environment, the

potential impact of climate change and other factors such as recent Internal audit results when assessing

the level of work to be performed at each entity.

All audit work performed for the purposes of the audit was undertaken by the Group audit team.

Climate change

Stakeholders are increasingly interested in how climate change will impact Avation plc. The Group has

determined that the most significant future impacts from climate change on its operations will be the

physical risks and the transition risks as the global economy transitions to lower carbon emissions.

These are explained on page 9 in the principal risks and uncertainties and pages 15-17 for climate

related financial disclosures in the strategic report. All of these disclosures form part of the “Other

information,” rather than the audited financial statements. Our procedures on these unaudited

disclosures therefore consisted solely of considering whether they are materially inconsistent with the

financial statements or our knowledge obtained in the course of the audit or otherwise appear to be

materially misstated, in line with our responsibilities on “Other information”.

As explained in the Note 3 (a) Basis of preparation and Note 4 Critical accounting estimates and

judgements, the governmental and societal responses to climate change risks are still developing and

are interdependent upon each other. Consequently, financial statements cannot capture all possible

future outcomes as these are not yet known. The degree of certainty of these changes may also mean

that they cannot be fully taken into account when determining asset and liability valuations and timing

of future cash flows under the requirements of UK adopted international accounting standards. As

explained in Note 3 (a), management believe that reasonably possible changes arising from climate risk

would not have a material impact on the financial statements.

INDEPENDENT

AUDITOR’S

REPORT

THE

MEMBERS

AVATION

PLC

(CONTINUED)

As part of our audit, we have made enquiries of management to understand the extent of the potential

impact of climate change risk on the Group’s financial statements, including how climate is considered

as part of the investment making and monitoring processes. We have performed a risk assessment \as

to how the impact of climate change may affect the financial statements, including reading board minutes

and applying our knowledge of the Group and sector in which it operates to understand the extent of the

potential impact of climate change risk on the Group’s financial statement. Based on our work we have

not identified the impact of climate change on the financial statements to be a key audit matter or to

impact a key audit matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our

audit of the financial statements of the current period and include the most significant assessed risks of

material misstatement (whether or not due to fraud) that we identified. These matters included those

which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and

directing the efforts of the engagement team. These matters were addressed in the context of our audit

of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate

opinion on these matters.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

Risk

Our response to the risk

Key

observations

communicated

the

Audit

Committee

Valuation of Aircraft (2023: US$845.5

million,2022:US$813.9 million)

Refer to Note 3 (g) of the Accounting

policies (page 66); Note 6 (page 87) and

Note 18 of the Consolidated Financial

Statements (page 104).

The carrying value of jet and turboprop

aircraft represent the most significant

asset in the financial statements of

Avation plc. As at 30 June 2023, the

carrying value of aircraft reported is

US$845.5

million

(2022:

US$813.9

million) as detailed in Note 18 of the

financial statements.

As set out within on pages 64-66 Notes

3 (f) and 3 (g) ‘Summary of Significant

Accounting

Policies’,

aircraft

are

measured at fair value on a Lease

Encumbered Value basis (“LEV”). As

detailed in Note 4 (b) ‘Critical Accounting

Estimates

and

Judgments’,

management applies estimation and

judgment as part of their fair value

assessment of aircraft.

For the purposes of determining the

valuation, the carrying value of each jet

and turboprop is compared to the

computed LEV. LEV is determined by

discounting the lease income streams

associated with the lease and the

expected future residual value of the

aircraft at the end of the lease adjusted

for return conditions at lease termination

using an appropriate discount rate.

The nature and size of these balances

and their importance to the Group are

such that we have identified this as a key

audit matter.

We have assessed each aircraft as they are

deemed to be individually material to the

financial statements. In obtaining sufficient

audit evidence we:

•

Obtained

understanding

the

process for the valuation of aircraft on an

LEV basis and performed a walkthrough

of the process, including controls over

the

inputs

and

assumptions

calculation, and evaluated the design of

controls in relation to the identified risk.

•

Assessed

and

evaluated

the

appropriateness and accuracy of the key

assumptions

used

the

LEV

calculation, through recalculation and

scenario analysis.

•

Involved specialists from our valuations

and business modelling team to assess

the reasonableness of the discount rates

used in discounting the future cash flows

of aircraft in the model. As part of our

audit procedures, we also evaluated the

appropriateness of credit premia and

discounts applied by management for

each

lessee

analysing

their

respective credit risks.

•

Evaluated

the

independence

and

competence of experts engaged by

management in valuing the LEV in

accordance with the requirements of

auditing standards.

•

Assessed the accuracy of factual inputs,

such as lease income streams, by

reviewing

lease

agreements

and

amendments, as necessary.

•

Assessed the calculations underpinning

the LEV model by checking that the data,

the assumptions and inputs into the

model were in agreement with those that

we had evaluated in other areas of the

audit.

•

Assessed

the

appropriateness

and

presentation

disclosures

the

financial statements for compliance with

the relevant accounting standards.

Our

planned

audit

procedures

were

completed

without

material exception.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

Risk

Our response to the risk

Key

observations

communicated

the

Audit

Committee

Valuation of Aircraft Purchase

Rights (2023: US$85.82 million,

2022: US$65.28 million)

Refer to the Note 3(h) Accounting

policies (page 67); Note 6 (page 87)

and Note 24 of the Consolidated

Financial Statements (page 118).

have

determined

that

the

valuation of aircraft purchase rights

represent a significant risk. The fair

value of aircraft purchase rights may

not be correctly valued and recorded

in accordance with IFRS 13, Fair

Value Measurement.

As set out on page 82 within Note 4

(d) ‘Critical accounting estimates

and judgements’, aircraft purchase

rights are measured at fair value

through profit or loss. The Group

values aircraft purchase rights using

the Black Scholes price model.

Critical

assumptions

made

determining the fair value of the

aircraft purchase rights include the

market value volatility rates used.

The

nature

and

size

these

balances and their importance to the

Group

are

such

that

have

identified this as a key audit matter.

In obtaining sufficient audit evidence we:

•

Obtained an understanding of the

aircraft

purchase

rights

valuation

process, performed a walkthrough of

the process and evaluated the design

effectiveness of controls related to

the risk identified.

•

Assessed the assumptions used by

management

and

evaluated

the

appropriateness and accuracy of

inputs such as assumed delivery

dates, purchase right exercise dates,

the asset price and risk-free, volatility

and inflation rates.

•

Involved

specialists

from

our

valuation

team

assess

the

reasonableness

the

valuation

model.

•

Evaluated

the

competence

and

independence

the

external

appraisers as management experts

for the external market appraisals

provided. We obtained these external

valuation reports to validate the

market

inputs

the

valuation

calculation.

•

Assessed the appropriateness and

presentation of disclosures in the

financial statements for compliance

with

the

relevant

accounting

standards.

Our procedures were

completed

without

material exception.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

Risk

Our response to the risk

Key

observations

communicated

the

Audit

Committee

Expected credit loss (ECL) on

Trade

and

Other

Receivables

(2023: US$11.95 million, 2022:

US$11.34 million)

Refer to the Note 3 (u) Accounting

policies (page 77); and Note 19 of

the

Consolidated

Financial

Statements (page 109)

We have determined that expected

credit loss on trade and other

receivables represents a significant

risk because there is high level of

receivables

and

historical

lease

restructurings. The allowance for

expected credit losses may not be

adequately recognised during the

financial year.

As set out on page 90 within Note 7

(b) Credit risk, the Group applies the

simplified approach to provide for

ECLs for all trade receivables. The

simplified approach requires the loss

allowance to be measured at an

amount equal to lifetime ECL.

The

nature

and

size

these

balances and their importance to the

Group

are

such

that

have

identified this as a key audit matter.

In obtaining sufficient audit evidence we:

•

Obtained an understanding of the

process for assessing the credit

profile of airlines and the expected

credit loss model.

•

Performed a walkthrough of the

process and evaluated the design

effectiveness of controls identified.

•

Obtained management’s assessment

of the ECL and their evaluation of the

risks associated with each airline

customer

and

recalculated

the

exposure at default and loss given

default.

•

Evaluated the appropriateness and

accuracy of key assumptions, such

as probability of default and loss

given default

•

Evaluated the accuracy of factual

inputs, such as security deposits and

letters of credit held for each lessee,

which

were

treated

credit

enhancements in determining the net

exposure

•

Independently checked the credit

rating of similar airlines in the same

region and of a similar size and

validated management’s inputs.

•

Evaluated

management’s

overall

approach in conjunction with the

guidance

IFRS

for

reasonableness.

•

Assessed the appropriateness and

presentation of disclosure in the

financial statements for compliance

with

the

relevant

accounting

standards.

Our procedures were

completed

without

material exception.

In the prior year our auditor’s report included a key audit matter in relation to going concern.

In the

current year we did not identify going concern as a key audit matter due to the recovery of the aviation

sector post-Covid.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of

identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably

be expected to influence the economic decisions of the users of the financial statements. Materiality

provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be US$2.4 million (2022: US$2.3million), which is 1% (2022:

1%) of total equity.

We believe that total equity provides us with the most relevant measure used by

investors and other stakeholders when assessing the performance of the Group.

We determined materiality for the Parent Company to be US$1.5 million (2022: US$1.7 million), which

is 0.5% (2022: 0.5%) of total assets.

During the course of our audit, we reassessed initial materiality and no change in final materiality from

original assessment at planning.

Performance materiality

The application of materiality at the individual account or balance level.

It is set at an amount to reduce

to an appropriately low level the probability that the aggregate of uncorrected and undetected

misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control

environment, our judgement was that performance materiality was 50% (2022: 50%) of our planning

materiality, namely US$1.2m (2022: US$1.1m).

We have set performance materiality at this percentage

due to

a higher likelihood of misstatements in the current year.

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in

excess of US$121,000 (2022: US$113,000), which is set at 5% of planning materiality, as well as

differences below that threshold that, in our view, warranted reporting on qualitative grounds

We evaluate any uncorrected misstatements against both the quantitative measures of materiality

discussed above and in light of other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report, including the Chairman’s

Statement (set out on page 2-4), Strategic Report (set out on pages 5-21), Directors’ Report (set out on

pages 22-26), Directors’ Remuneration Report (set out on pages 27–36) and Directors’ Responsibilities

Statement (set out on page 37-38) other than the financial statements and our auditor’s report thereon.

The directors are responsible for the other information.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

Our opinion on the financial statements does not cover the other information and, except to the extent

otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information

and, in doing so, consider whether the other information is materially inconsistent with the financial

statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If

we identify such material inconsistencies or apparent material misstatements, we are required to

determine whether this gives rise to a material misstatement in the financial statements or a material

misstatement of the other information. If, based on the work we have performed, we conclude that there

is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared

in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•

the information given in the strategic report and the directors’ report for the financial year for which

the financial statements are prepared is consistent with the financial statements; and

•

the strategic report and directors’ report have been prepared in accordance with applicable legal

requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its

environment obtained in the course of the audit, we have not identified material misstatements in the

strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act

2006 requires us to report to you if, in our opinion:

•

adequate accounting records have not been kept by the parent company,; or

•

the parent company financial statements and the part of the Directors’ Remuneration Report to be

audited are not in agreement with the accounting records and returns; or

•

certain disclosures of directors’ remuneration specified by law are not made; or

•

we have not received all the information and explanations we require for our audit

Responsibilities of directors

As explained more fully in the Directors’ Responsibilities Statement (set out on page 37-38), the directors

are responsible for the preparation of the financial statements and for being satisfied that they give a

true and fair view, and for such internal control as the directors determine is necessary to

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

enable the preparation of financial statements that are free from material misstatement, whether due to

fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group and parent

ompany’s

ability to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless the directors either intend to liquidate

the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an

audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on

the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting irregularities,

including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design

procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The

risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one

resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional

misrepresentations, or through collusion. The extent to which our procedures are capable of detecting

irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those

charged with governance of the company and management.

Our approach was as follows:

•

We obtained an understanding of the legal and regulatory frameworks that are applicable to the

group and determined that the most significant are:

Companies Act 2006

Tax Legislation (governed by HM Revenue and Customs and Inland Revenue Authority

of Singapore)

Financial Conduct Authority (FCA) Listing Rules

Disclosure Guidance and Transparency Rules (DTR) of the FCA

•

We understood how Avation plc is complying with those frameworks holding discussions with

general counsel, external counsel and service providers. We inquired as to any known instances

of non-compliance or suspected non-compliance with laws and regulations.

•

We assessed the susceptibility of the group’s financial statements to material misstatement,

including how fraud might occur by holding discussions with senior management, including the

Chief Executive Officer, Chief Financial Officer, Audit Committee members and General

Counsel.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF AVATION PLC (CONTINUED)

•

Based on this understanding we designed our audit procedures to identify non-compliance with

such laws and regulations. Our procedures involved inquiring of key management and reviewing

key policies.

A further description of our responsibilities for the audit of the financial statements is located on the

Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities.

This description

forms part of our auditor’s report.

Other matters we are required to address

•

We were appointed by the company on 20 December 2017 to audit the financial statements for the

year ending 30 June 2018 and subsequent financial periods.

The period of total uninterrupted engagement including previous renewals and reappointments is

6 years, covering the years ending 30 June 2018 to 30 June 2023.

•

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or

the parent company and we remain independent of the group and the parent company in

conducting the audit.

•

The audit opinion is consistent with the additional report to the audit committee.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part

16 of the Companies Act 2006.

Our audit work has been undertaken so that we might state to the

company’s members those matters we are required to state to them in an auditor’s report and for no

other purpose.

To the fullest extent permitted by law, we do not accept or assume responsibility to

anyone other than the company and the company’s members as a body, for our audit work, for this

report, or for the opinions we have formed.

Vincent Bergin (Senior statutory auditor)

for and on behalf of Ernst & Young, Chartered Accountants and Statutory Auditor

Dublin

26 October 2023

Notes:

The maintenance and integrity of the Avation plc web site is the responsibility of the directors;

the work carried out by the auditors does not involve consideration of these matters and, accordingly,

the auditors accept no responsibility for any changes that may have occurred to the financial statements

since they were initially presented on the web site.

Legislation in the United Kingdom governing the preparation and dissemination of financial

statements may differ from legislation in other jurisdictions.

AVATION PLC

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED 30 JUNE 2023

Note

2023

2022

US$’000s

Continuing operations

Revenue

91,861

112,232

Other income

7,389

4,152

99,250

116,384

Depreciation

(38,566)

(39,304)

Gain on derecognition of finance lease

2,792

Loss on disposal of aircraft and aircraft engine

(1,000)

(2,396)

Unrealised gain on aircraft purchase rights

20,540

38,320

Unrealised gain on equity investments

7,520

Reversal of/impairment (loss) on aircraft

18,29

3,287

(6,158)

Aircraft transition expenses

(11,389)

(5,479)

(Provision for)/reversal of expected credit losses

19,20

(659)

1,980

Administrative expenses

(8,760)

(9,465)

Legal and professional fees

(2,382)

(3,698)

Operating profit

70,633

90,184

Loss on debt modification

(3,545)

Finance income

5,906

3,344

Finance expenses

(63,539)

(67,481)

Profit before taxation

13,000

22,502

Taxation

(808)

(5,375)

Profit from continuing operations

12,192

17,127

Profit attributable to:

Shareholders of Avation PLC

12,191

17,126

Non-controlling interests

12,192

17,127

Earnings per share for profit

attributable to shareholders of Avation PLC

Basic earnings per share (US cents)

17.43

24.65

Diluted earnings per share (US cents)

17.38

24.65

AVATION PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2023

Note

2023

2022

US$’000s

Profit from continuing operations

12,192

17,127

Other comprehensive income:

Items that may be reclassified subsequently to profit or loss:

Net gain on cash flow hedge, net of tax

410

35,387

410

35,387

Items that may not be reclassified subsequently to profit or loss:

Revaluation (loss)/gain on property, plant and equipment, net of tax

(966)

16,209

Other comprehensive income, net of tax

(556)

51,596

Total comprehensive income for the year

11,636

68,723

Total comprehensive income attributable to:

Shareholders of Avation PLC

11,635

68,722

Non-controlling interests

11,636

68,723

AVATION PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF 30 JUNE 2023

Note

2023

2022

US$’000s

ASSETS

Non-current assets

Property, plant and equipment

845,471

813,908

Finance lease receivables

41,213

55,208

Trade and other receivables

14,258

19,388

Derivative financial assets

13,442

5,920

Aircraft purchase rights

85,820

65,280

Lease incentive assets

4,686

310

Goodwill

1,902

1,006,792

961,916

Current assets

Finance lease receivables

3,932

5,624

Trade and other receivables

31,035

13,202

Derivative financial assets

Investment in equity, fair value through profit or loss

11,235

3,715

Lease incentive assets

1,643

137

Cash and bank balances

116,905

119,171

164,804

141,849

Assets held for sale

8,000

113,255

172,804

255,104

Total assets

1,179,596

1,217,020

EQUITY AND LIABILITIES

Equity

Share capital

1,182

1,203

Share premium

70,024

67,681

Treasury shares

(7,811)

Merger reserve

6,715

Asset revaluation reserve

50,764

51,730

Capital reserve

8,876

Other reserves

15,069

14,174

Retained earnings

88,995

84,519

Equity attributable to shareholders of Avation PLC

241,625

227,087

Non-controlling interests

Total equity

241,632

227,093

Non-current liabilities

Loans and borrowings

694,575

764,230

Trade and other payables

20,185

18,274

Derivative

financial liabilities

1,632

1,055

Maintenance reserves

54,587

75,131

Deferred tax liabilities

26,440

25,437

797,419

884,127

Current liabilities

Loans and borrowings

61,401

63,900

Trade and other payables

17,167

15,940

Maintenance reserves

61,456

10,156

Income tax payable

521

658

140,545

90,654

Liabilities directly associated with assets held for sale

15,146

140,545

105,800

Total equity and liabilities

1,179,596

1,217,020

Approved by the board and authorised for issue on 26 October 2023

Robert Jeffries Chatfield - Executive Chairman

AVATION PLC

COMPANY STATEMENT OF FINANCIAL POSITION

AS OF 30 JUNE 2023

Note

2023

2022

US$’000s

ASSETS

Non-current assets

Trade and other receivables

54,879

100,238

Derivative financial assets

3,399

1,281

Investment in debt instrument, fair value through profit or loss

5,925

Investment in subsidiaries

3,328

Aircraft purchase rights

85,820

65,280

147,426

176,052

Current assets

Trade and other receivables

161,463

145,491

Cash and bank balances

671

9,709

162,134

155,200

Total assets

309,560

331,252

EQUITY AND LIABILITIES

Equity

Share capital

1,182

1,203

Share premium

70,024

67,681

Treasury shares

(7,811)

Merger reserve

6,715

Other reserves

3,333

1,089

Retained earnings

74,678

70,849

Total equity

155,932

139,726

Non-current liabilities

Loans and borrowings

59,535

113,086

Trade and other payables

55,749

33,061

Derivative financial liabilities

1,632

1,055

Deferred tax liabilities

13,102

9,680

130,018

156,882

Current liabilities

Loans and borrowings

13,207

16,353

Trade and other payables

10,403

18,291

23,610

34,644

Total equity and liabilities

309,560

331,252

The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 not to present the

Company statement of profit or loss and other comprehensive income.

The Company’s profit for the year was US$11.5

million (2022: US$36.5 million).

Approved by the board and authorised for issue on 26 October 2023

Robert Jeffries Chatfield

Executive Chairman

AVATION PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

Capital reserve comprises acquisitions with non-controlling interests that do not result in a change of control.

Other reserves consists of capital redemption reserve, share warrant reserve, fair value reserve and foreign currency hedge reserve. See Note 32.

The merger reserve arose on acquisition of additional shares of the Company’s subsidiary Capital Lease Aviation Limited through the allotment of ordinary shares in the year ended

30 June 2015.

The merger reserve represents the difference between the fair value and the nominal value of the shares issued by the Company.

Attributable to shareholders of Avation PLC

Note

capital

premium

Treasury

Merger

reserve

Asset

revaluation

reserve

Capital

reserve

Other

reserves

Retained

earnings

Total

Non-

controlling

interest

Total

equity

US$’000s

Balance at 1 July 2022

1,203

67,681

(7,811)

6,715

51,730

8,876

14,174

84,519

227,087

227,093

Profit for the year

12,191

12,192

Other comprehensive income

(966)

410

(556)

Total comprehensive income

(966)

410

12,191

11,635

11,636

Issue of shares

2,343

(506)

1,855

Purchase of treasury shares

(94)

Cancellation of treasury shares

(39)

7,905

(7,905)

Share warrant expense

1,142

Total transactions with owners

recognised directly in equity

(21)

2,343

7,811

675

(7,905)

2,903

Expiry of share warrants

(190)

190

Total others

(190)

190

Balance at 30 June 2023

1,182

70,024

6,715

50,764

8,876

15,069

88,995

241,625

241,632

AVATION PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2022

Attributable to shareholders of Avation PLC

Note

capital

premium

Treasury

Merger

reserve

Asset

revaluation

reserve

Capital

reserve

Other

reserves

Retained

earnings

Total

Non-

controlling

interest

Total

equity

US$’000s

Balance at 1 July 2021

1,203

67,681

(7,811)

6,715

37,602

8,876

(21,382)

64,058

156,942

157,010

Profit for the year

17,126

17,127

Other comprehensive income

16,209

35,387

51,596

Total comprehensive income

16,209

35,387

17,126

68,722

68,723

Dividends paid to non-

controlling interest

(63)

Share warrant expense

1,423

Total transactions with owners

recognised directly in equity

1,423

(63)

1,360

Release of revaluation reserve

upon sale of aircraft

(2,081)

2,081

Expiry of share warrants

(1,254)

1,254

Total others

(2,081)

(1,254)

3,335

Balance at 30 June 2022

1,203

67,681

(7,811)

6,715

51,730

8,876

14,174

84,519

227,087

227,093

AVATION PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

Note

capital

Premium

Treasury

Merger

reserve

Other

reserves

Retained

earnings

Total

US$’000s

Balance at 1 July 2022

1,203

67,681

(7,811)

6,715

1,089

70,849

139,726

Profit for the year

11,544

Other comprehensive income

1,759

Total comprehensive income

1,759

11,544

13,303

Issue of shares

2,343

(506)

1,855

Purchase of treasury shares

(94)

Cancellation of treasury shares

(39)

7,905

(7,905)

Share warrants expense

1,142

Total transactions with owners, recognised

directly in equity

(21)

2,343

7,811

675

(5,722)

2,903

Expiry of share warrants

(190)

190

Total others

(190)

190

Balance at 30 June 2023

1,182

67,841

6,715

3,333

76,861

155,932

Other reserves consists of capital redemption reserve, share warrant reserve and fair value reserve. See note 32.

AVATION PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2022

Note

capital

Premium

Treasury

Merger

reserve

Other

reserves

Retained

earnings

Total

US$’000s

Balance at 1 July 2021

1,203

67,681

(7,811)

6,715

(4,050)

33,061

96,799

Profit for the year

36,534

Other comprehensive income

4,970

Total comprehensive income

4,970

36,534

41,504

Share warrants expense

1,423

Total transactions with owners, recognised

directly in equity

1,423

Expiry of share warrants

(1,254)

1,254

Total others

(1,254)

1,254

Balance at 30 June 2022

1,203

67,681

(7,811)

6,715

1,089

70,849

139,726

AVATION PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2023

Note

2023

2022

US$’000s

Cash flows from operating activities:

Profit before income tax

13,000

22,502

Adjustments for:

Amortisation of lease incentive asset

1,368

1,383

Depreciation expense

38,566

39,304

Depreciation of right-of-use assets

233

218

Provision for/(reversal of) expected credit losses

19,20

659

(1,980)

Finance income

(5,906)

(3,344)

Finance expense

63,539

67,481

Gain on derecognition of finance lease

(2,792)

Loss on debt modification

3,545

Loss on disposal of aircraft and aircraft engine

1,000

2,396

Interest income from finance leases

(2,230)

(2,918)

(Reversal of)/impairment loss on aircraft

18,29

(3,287)

6,158

Share warrants expense

1,142

1,423

Foreign currency exchange gain

(3,107)

Unrealised gain on aircraft purchase rights

(20,540)

(38,320)

Unrealised gain on equity investments

(7,520)

Operating cash flows before working capital changes

74,125

97,848

Movement in working capital:

Trade and other receivables and finance lease receivables

(3,296)

12,923

Trade and other payables

2,042

1,562

Maintenance reserves

15,503

(7,124)

Cash from operations

88,374

105,209

Finance income received

4,713

1,581

Finance expense paid

(44,091)

(51,700)

Income tax paid

(610)

Net cash from operating activities

48,386

54,480

Cash flows from investing activities:

Investment in fixed term deposits

(1,225)

Purchase of property, plant and equipment

(6)

(17)

Proceeds from disposal of aircraft and aircraft engine

39,750

65,636

Net cash from investing activities

38,519

65,619

Cash flows from financing activities:

Net proceeds from issuance of ordinary shares

1,855

Purchase of treasury shares

(94)

Dividend paid to non-controlling interest of a subsidiary

(63)

(Increase)/decrease of restricted cash balances

(6,960)

13,500

Proceeds from loans and borrowings, net of transactions costs

42,958

17,060

Repayment of loans and borrowings

(135,115)

(140,396)

Net cash used in financing activities

(97,356)

(109,899)

Net (decrease)/increase in cash and cash equivalents

(10,451)

10,200

Cash and cash equivalents at beginning of year

35,267

25,067

Cash and cash equivalents at end of year

24,816

35,267

AVATION PLC

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2023

Note

2023

2022

US$’000s

Cash flows from operating activities:

Profit before taxation

14,691

42,476

Adjustments for:

Dividend income

(8,941)

Depreciation expense

Depreciation of right-of-use assets

Expected credit losses

354

Fair value (gain)/loss on investment in debt instrument

(858)

164

Finance income

(2,868)

(10,719)

Finance expense

7,150

11,224

Gain on receivables modification

(3,517)

Loss on debt modification

3,545

Loss on disposal of aircraft and aircraft engine

452

Share warrant expense

1,142

1,423

Unrealised gain on aircraft purchase rights

(20,540)

(38,320)

Operating cash flows before working capital changes

(1,204)

(1,698)

Movement in working capital:

Trade and other receivables

33,199

(8,429)

Trade and other payables

(6,906)

2,420

Cash generated from/(used in) operations

25,089

(7,707)

Finance income received

6,920

7,644

Finance expense paid

(9,147)

(10,961)

Income tax paid

(84)

Net cash generated from/(used in) operating activities

22,778

(11,024)

Cash flows from investing activities:

Dividends received

8,941

Return of capital from a subsidiary

10,819

Investment in debt instrument, fair value through profit or loss

(3,305)

Proceeds from disposal of aircraft and aircraft engine

1,275

Net cash (used in)/generated from investing activities

(3,305)

21,035

Cash flows from financing activities:

Net proceeds from issuance of ordinary shares

1,855

Purchase of treasury shares

(94)

Proceeds from loans and borrowings

22,590

41,268

Repayment of loans and borrowings

(52,862)

(47,083)

Net cash used in financing activities

(28,511)

(5,815)

Net (decrease)/increase in cash and cash equivalents

(9,038)

4,196

Cash and cash equivalents at beginning of year

9,709

5,513

Cash and cash equivalents at end of year

671

9,709

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

GENERAL

Avation PLC is a public limited company incorporated in England and Wales under the Companies

Act 2006 (Registration Number 05872328) and its shares are traded on the Standard Segment of

the Main Market of the London Stock Exchange. The address of the registered office is given on

page 1.

As disclosed in the Directors’ Report, the Group’s principal activity is aircraft leasing.

Details of

the activities of subsidiary companies are set out in Note 22 to these financial statements.

STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with UK-adopted International

Accounting Standards (“IFRSs”) in conformity with the requirements of the Companies Act 2006.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PREPARATION

– The financial statements have been prepared in accordance with

UK-adopted International Accounting Standards (“IFRSs”) in conformity with the requirements of

the Companies Act 2006.

(a)

The financial statements have been prepared on a going concern basis and have been

prepared in accordance with the historical cost convention, as modified by the revaluation

of certain assets and liabilities.

The financial statements are presented in United States Dollars and all values are rounded

to the nearest thousand (US$’000s) unless otherwise indicated. The year-end exchange rate

for Pounds Sterling to United States Dollars is 1.27 (2022: 1.22).

The preparation of financial statements in conformity with UK-adopted International

Accounting Standards (“IFRSs”) requires the use of significant accounting judgements,

estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the

reported amounts of revenues and expenses during the financial period. Although these

estimates are based on management’s best knowledge of current events and actions, actual

results may ultimately differ from those estimates.

The accounting policies set out below have been applied consistently throughout the

financial period presented in these financial statements by the Company and its subsidiaries,

unless otherwise disclosed.

As the governmental and societal responses to climate change are still developing, it is not

possible to consider all future outcomes when determining the carrying amount of assets

and liabilities in the preparation of the financial statements.

The Group’s view is that the

possible changes arising from climate related risks would not have a material impact on the

financial statements.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(b)

BASIS OF CONSOLIDATION

- The consolidated financial statements comprise the financial

statements of the Company and its subsidiaries, together the Group as at 30 June 2023.

Subsidiaries are all entities over which the Group has control. Control is achieved when the

Group is exposed, or has rights, to variable returns from its involvement with the investee

and has the ability to affect those returns through its power over the investee.

Specifically, the Group controls an investee if and only if the Group has:

Power over the investee (i.e. existing rights that give it the current ability to direct the

relevant activities of the investee)

Exposure, or rights, to variable returns from its involvement with the investee, and

The ability to use its power over the investee to affect its returns

When the Group has less than a majority of the voting or similar rights of an investee, the

Group considers all

relevant facts and circumstances in assessing whether it has control over

an investee, including:

The contractual arrangement with the other vote holders of the investee

Rights arising from other contractual arrangements

The Group’s voting rights and potential voting rights

Whether or not the Group controls an investee is re-assessed if facts and circumstances

indicate that there are

changes to one or more of the three elements of control. Consolidation

of a subsidiary begins when the Group

obtains control over the subsidiary and ceases when

the Group loses control of the subsidiary. Assets, liabilities,

income and expenses of a

subsidiary acquired or disposed of during the year are included in the statement of

comprehensive income from the date the Group gains control until the date the Group ceases

to control the

subsidiary.

Profit or loss and each component of other comprehensive income (“OCI”) are attributed to

the shareholders of

Avation PLC and to the non-controlling interests, even if this results in

the non-controlling interests

having a deficit balance. When necessary, adjustments are

made to the financial statements of subsidiaries to bring their accounting policies into line

with the Group’s accounting policies. All intra-group assets and

liabilities, equity, income,

expenses and cash flows relating to transactions between members of the Group are

eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for

as an

equity transaction. If the Group loses control over a subsidiary, it:

Derecognises the assets (including goodwill) and liabilities of the subsidiary

Derecognises the carrying amount of any non-controlling interests

Derecognises the cumulative translation differences recorded in equity

Recognises the fair value of the consideration received

Recognises the fair value of any investment retained

Recognises any surplus or deficit in profit or loss

Reclassifies the parent’s share of components previously recognised in OCI to profit or

loss or retained earnings, as appropriate, as would be required if the Group had directly

disposed of the related assets or liabilities.

Investments in subsidiaries are stated at cost less impairment in the Company’s separate

financial statements.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(c)

BUSINESS COMBINATIONS

- Business combinations are accounted for using the

acquisition method. The cost of an acquisition is measured as

the aggregate of the

consideration transferred, which is measured at acquisition date fair value and the amount

of any

non-controlling interests in the acquiree. For each business combination, the Group

elects whether to measure

the non-controlling interests in the acquiree at fair value or at the

proportionate share of the acquiree’s

identifiable net assets. Acquisition-related costs are

expensed as incurred and included in administrative

expenses.

When the Group acquires a business, it assesses the identifiable assets and liabilities

assumed for appropriate

classification and designation in accordance with the contractual

terms, economic circumstances and pertinent

conditions as at the acquisition date. This

includes the separation of embedded derivatives in host contracts held by

the acquiree.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value

at the acquisition

date. Contingent consideration classified as equity is not remeasured and its

subsequent settlement is accounted for within equity.

Contingent consideration classified as an

asset or liability that is a financial instrument and within the

scope of IFRS 9

Financial

Instruments

is measured at fair value with the changes in

fair value recognised in profit or

loss. Other contingent consideration that is not within the scope of IFRS 9 is measured at fair

value at each reporting date with changes in fair value recognised in profit or loss.

(d)

GOODWILL

- Goodwill is initially measured at cost, being the excess of the aggregate of the

consideration transferred and the

amount recognised for non-controlling interests, and any

previous interest held, over the net identifiable assets

acquired and liabilities assumed. If

the fair value of the net assets acquired is in excess of the aggregate

consideration

transferred, the Group re-assesses whether it has correctly identified all of the assets

acquired a n d all of the liabilities assumed and reviews the procedures used to measure the

amounts to be recognised at

the acquisition date. If the re-assessment still results in an

excess of the fair value of net assets acquired over

the aggregate consideration transferred,

then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment

losses. For the purpose of impairment testing, goodwill acquired in a business combination

is, from the acquisition date, allocated to each of the Group’s cash-generating units that are

expected to benefit from the combination, irrespective of whether other assets or

liabilities

of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit and part of the operation within

that unit is disposed of, the goodwill associated with the disposed operation is included in

the carrying amount of the operation when determining the gain or loss on disposal. Goodwill

disposed in these circumstances is measured based on the relative values of the disposed

operation and the portion of the cash-generating unit retained.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(e)

GOING CONCERN

These consolidated financial statements have been prepared on a going concern basis. As part

of the going concern assessment, management has considered all projected cash inflows and

outflows of the Company and its subsidiaries, over the coming year including:

Current unrestricted cash on hand balance available,

Projected collections of receivable balances and contracted assets sales,

Forecasted cash outflows for all contractual debt and lease obligations and selling,

general and administrative expenses for the next 12 months,

Forecasted cash outflows for capital expenditure for the next 12 months

Management has also conducted sensitivity analysis on projected cash flows for changes in

base assumptions around rent collection rates and other significant factors.

In addition, the Directors have considered the maturity profiles of all loans and borrowings

and have evaluated the Group’s compliance with financial and non-financial covenants.

Based

on this analysis and all information available at present, the Directors believe that the actions

that they have taken and intend to take will ensure that the Group has sufficient liquidity to

meet its obligations as they fall due and that it continues to be appropriate to prepare the

financial statements on a going concern basis of preparation.

(f)

FAIR VALUE MEASUREMENT

– The Group measures financial instruments, such as

derivatives, investment in equity and non-financial assets, such as aircraft and aircraft

purchase rights in excess of the Group’s usage requirements at fair values at each reporting

date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in

an orderly transaction between market participants at the measurement date.

Fair value

measurement is based on the presumption that the transaction to sell the asset or transfer

the liability takes place either:

In the principal market for the asset or liability, or

In the absence of a principal market, in the most advantageous market for the asset

or liability

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market

participants would use when pricing the asset or liability, assuming that market participants

act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's

ability to generate economic benefits by using the asset in its highest and best use or by

selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which

sufficient data are available to measure fair value, maximising the use of relevant observable

inputs and minimising the use of unobservable inputs.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(f)

FAIR VALUE MEASUREMENT (continued)

In the case of aircraft, unless otherwise disclosed, the assets are valued using lease

encumbered value (“LEV”).

Under such a valuation, which reflects highest and best use given

the fact that the aircraft are held for use in a leasing business, the income streams associated

with the lease and the expected future market value of the aircraft at the end of the lease are

discounted to current values. The valuers prepare their valuation report based on the market

for second hand aircraft, which is active, known and measurable.

All assets and liabilities for which fair value is measured or disclosed in the financial statements

are categorised within the fair value hierarchy, described as follows, based on the lowest level

input that is significant to the fair value measurement as a whole:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or

liabilities

Level 2 – Valuation techniques for which the lowest level input that is significant to the

fair value measurement is directly or indirectly observable

Level 3 – Valuation techniques for which the lowest level input that is significant to the

fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis,

the Group determines whether transfers have occurred between Levels in the hierarchy by

re-assessing categorisation (based on the lowest level input that is significant to the fair value

measurement as a whole) at the end of each reporting period.

The Group’s management determines the policies and procedures for both recurring fair value

measurement, such as aircraft, aircraft purchase rights and for non-recurring measurement,

such as assets held for sale in discontinued operations.

External valuers are involved for valuation of significant assets, such as aircraft, aircraft

purchase rights and significant liabilities, such as contingent consideration.

At each reporting date, management analyses the movements in the values of assets and

liabilities which are required to be re-measured or re-assessed as per the Group’s

accounting policies. For this analysis, management verifies the major inputs applied in the

latest valuation by agreeing the information in the valuation computation to contracts and

other relevant documents so far as possible.

Management, in conjunction with the Group’s external valuers, also compares the changes

in the fair value of each asset and liability with relevant external sources to determine

whether the change is reasonable.

For the purpose of fair value disclosures, the Group has determined classes of assets and

liabilities on the basis of the nature, characteristics and risks of the asset or liability and the

level of the fair value hierarchy as explained above.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(g)

PROPERTY, PLANT AND EQUIPMENT

– All items of property, plant and equipment are

initially recorded at cost.

The cost of an item of property, plant and equipment is recognised

as an asset if, it is probable that future economic benefits associated with the item will flow

to the Group and the cost of the item can be measured reliably.

Subsequent to recognition, aircraft are stated in the statement of financial position at their

revalued amount.

All items of property plant and equipment other than aircraft are

measured at cost less any accumulated depreciation and accumulated impairment losses.

Revaluations are performed with sufficient regularity such that the carrying amount does

not differ materially from that which would be determined using fair values at the reporting

date. These aircraft have been reviewed for impairment.

Any revaluation increase arising on the revaluation of such aircraft is credited to the asset

revaluation reserve, except to the extent that it reverses a revaluation decrease for the

same asset previously recognised in profit or loss, in which case the increase is credited to

profit or loss to the extent of the decrease previously charged. A decrease in carrying

amount arising on the revaluation of such aircraft is charged to profit or loss to the extent

that it exceeds the balance, if any, held in the assets revaluation reserve relating to a

previous revaluation of that asset.

Depreciation on revalued aircraft is charged to profit or loss. On the subsequent sale or

retirement of a revalued aircraft, the attributable revaluation surplus remaining in the asset

revaluation reserve is transferred directly to retained earnings.

Depreciation is charged so as to write off the cost or valuation of assets less residual values,

over their estimated useful lives, using the straight-line method, on the following bases:

Narrow-body jets and turboprops

25 years from date of manufacture

Twin-aisle jets

23 years from date of manufacture

Aircraft engines

15 years from date of acquisition

Furniture and equipment

3 years

Residual values, useful lives and depreciation methods are revised and adjusted if

appropriate, at each reporting date. Residual values are based on 15% of cost for new

aircraft, estimated scrap values for second hand aircraft and 33% of cost for new aircraft

engines.

Fully depreciated assets still in use are retained in the financial statements until they are

disposed of or retired.

The gain or loss arising on the disposal or retirement of an item of property, plant and

equipment is determined as the difference between the sales proceeds and the carrying

amount of the asset and is recognised in profit or loss.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(h)

AIRCRAFT PURCHASE RIGHTS –

Purchase rights to acquire aircraft which are over and

above the Group’s requirement for use in the leasing business will be disposed of. The Group

values these excess aircraft purchase rights using the Black Scholes model.

Aircraft purchase

rights are measured at fair value through profit or loss.

(i)

NON-CURRENT ASSETS HELD FOR SALE

– Non-current assets (and disposal groups)

classified as held for sale are measured at the lower of carrying amount and fair value less

costs to sell.

Non-current assets and disposal groups are classified as held for sale if their carrying amount

will be recovered through a sale transaction rather than through continuing use.

This

condition is regarded as met only when the sale is highly probable and the asset (or disposal)

group is available for immediate sale in its present condition.

Management must be

committed to the sale which should be expected to qualify for recognition as a completed sale

within one year from the date of classification.

Property, plant and equipment are not depreciated or amortised once classified as held for

sale.

Assets and liabilities classified as held for sale are presented separately as current items in

the statement of financial position.

(j)

IMPAIRMENT OF NON-FINANCIAL ASSETS

- At each reporting date the Group assesses

whether there is an indication that an asset may be impaired.

If any indication exists, or

when an annual impairment testing for an asset is required, the Group makes an estimate

of the asset's recoverable amount.

An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value

less costs of disposal and its value-in-use and is determined for an individual asset, unless

the asset does not generate cash inflows that are largely independent of those from other

assets or group of assets. Where the carrying amount of an asset or cash-generating unit

exceeds its recoverable amount, the asset is considered impaired and is written down to its

recoverable amount. In assessing value-in-use, the estimated future cash flows expected

to be generated by the asset are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value of money and the risks

specific to the asset. In determining fair value less costs of disposal, recent market

transactions are taken into account, if available. If no such costs can be identified, an

appropriate valuation model is used.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(j)

IMPAIRMENT OF NON-FINANCIAL ASSETS

(continued)

Impairment losses are recognised in profit or loss to the extent that they do not reverse a

previous upwards revaluation.

An assessment is made at each reporting date as to whether

there is any indication that previously recognised impairment losses may no longer exist or

may have decreased. If such indication exists, the Group estimates the asset's or cash-

generating unit's recoverable amount. Any reversal of an impairment loss of a revalued

asset is treated as a revaluation increase. A reversal of an impairment loss on a revalued

asset is recognised in other comprehensive income and increases the revaluation surplus

for that asset. However, to the extent that an impairment loss on the same revalued asset

was previously recognised in profit or loss, a reversal of that impairment is also recognised

in profit or loss.

Impairment losses are recognised as an immediate expense. However, the impairment loss

shall be recognised in other comprehensive income to the extent of any credit balance

existing in the revaluation surplus in respect of that asset. The decrease recognised in other

comprehensive income reduces the amount accumulated in equity under the heading of

revaluation surplus.

(k)

PROVISIONS

- Provisions are recognised when the Group has a present obligation as a

result of a past event, and it is probable that the Group will be required to settle that

obligation. Provisions are measured at the Directors’ best estimate of the expenditure

required to settle the obligation at the reporting date, and are discounted to present value

where the effect is material.

(l)

MAINTENANCE RESERVES

- Normal maintenance and repairs, airframe and engine

overhauls, and compliance with return conditions of the aircraft placed on operating leases

are provided by and paid for by the lessees. Certain lease agreements require the lessees

to make maintenance reserve contributions to the Group which subsequently can be drawn

on to pay for certain maintenance events carried out.

These maintenance reserve balances

are accounted for as liabilities.

Upon expiry of a lease, any shortfall that is identified in the

maintenance reserve liabilities for an aircraft as compared to the expected future

reimbursement obligations to a lessee, or any surplus, will be charged or released to profit

or loss. Upon sale of an aircraft, the maintenance reserve liability for that aircraft which is

not transferred to the buyer will be released to profit or loss.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(m)

SHARE-BASED PAYMENTS

– The Group operates an equity-settled share-based

compensation plan. The value of the employee services received in exchange for the grant of

warrants is recognised as an expense in profit or loss with a corresponding increase in the

warrant reserve over the vesting period. The total amount to be recognised over the vesting

period is determined by reference to the fair value of the warrants granted on the date of the

grant using the binomial option pricing model method.

Non-market vesting conditions are

included in the estimation of the number of shares under warrants that are expected to

become exercisable on the vesting date.

At the end of each reporting period, the Group

revises its estimates of the number of shares under warrants that are expected to become

exercisable on the vesting date and recognises the impact of the revision of the estimates in

profit or loss, with a corresponding adjustment to the warrant reserve over the remaining

vesting period.

When the warrants are exercised, the proceeds received and the related balance previously

recognised in the warrant reserve are credited to share capital and share premium accounts

when new shares are issued to the employees.

(n)

LEASES

Group as a lessor

The Group leases aircraft to airlines under operating leases. At lease inception or

modification date, the Group reviews all necessary criteria to determine proper lease

classification.

Leases of aircraft where the Group retains substantially all risks and rewards

incidental to ownership are classified as operating leases. Rental income from operating

leases (net of any incentives given to the lessees) is recognised in profit or loss on a straight-

line basis over the lease term.

The Group recognises contingent rents when they can be

reliably measured.

Where the Group transfers substantially all the risks and rewards of ownership of an asset,

the lease is classified as a finance lease. Lease receipts are apportioned between finance

income and reduction of the finance lease receivable so as to achieve a constant rate of

interest on the remaining balance of the asset. Finance income is credited to revenue.

For sales–type leases, the Group recognise the difference between the net book value of

the aircraft and the net finance lease receivables as a gain or loss on sale of aircraft, less

any initial direct costs.

The unearned income is recognised as finance lease interest income

within revenue over the lease term in a manner that produces a constant rate of return on

the finance lease receivables.

Under the terms of certain lease agreements, lessees are required to make maintenance

contributions to the Group. At the end of a lease, when we are able to determine the

amount, if any, by which maintenance contributions received exceed the amount we are

required under the lease to reimburse to the lessee for heavy maintenance, overhaul or

parts replacement, the excess is recognised as maintenance revenue. End of lease

compensation payments made to the Group are recognised as revenue when a reliable

estimate of the expected compensation amount can be determined. The Group does not

recognise end of lease compensation as revenue if there is a reasonable expectation that

the lessee will extend the existing lease agreement rather than returning the aircraft at the

end of the current lease period.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(n)

LEASES

(continued)

Lease maintenance contribution

Some of the Group’s leases contain provisions which may require the Company to pay a

portion of the lessee’s costs for heavy maintenance, overhaul, or replacement of certain

high-value components.

The Group records liabilities for contractual obligations to

contribute to the lessee’s cost of major maintenance events expected to occur during the

lease. The Group regularly reviews the level of these contractual obligations under current

lease contracts and makes adjustments as necessary.

Lessor maintenance contributions

represents a lease incentive and are recorded as a charge against lease rental income over

the life of the associated lease on a straight-line basis. When aircraft are sold the portion of

the accrued liability not specifically assigned to the buyer is derecognised from the

Consolidated Statement of Financial Position as part of the gain or loss on disposal of the

aircraft.

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.

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.

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.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(n)

LEASES

(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 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.

(o)

BORROWING COSTS

- Borrowing costs are capitalised as part of the cost of a qualifying

asset if they are directly attributable to the acquisition, construction or production of that

asset. Capitalisation of borrowing costs commences when the activities to prepare the asset

for its intended use

are in progress and the expenditures and borrowing costs are incurred.

Borrowing costs are capitalised until the assets are substantially completed for their

intended use. All other borrowing costs are expensed in the period they occur. Borrowing

costs consist of interest and other costs that an entity incurs in connection with the

borrowing of funds.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(p)

REVENUE RECOGNITION

– The Group as lessor, leases aircraft principally under both

operating leases and finance leases. Revenue which is not derived from leases is measured

as follows:

(i)

Interest income is accrued on a time basis, by reference to the principal outstanding

and at the effective interest rate applicable, which is the rate that exactly discounts

estimated future cash receipts through the expected life of the financial asset to that

asset’s net carrying amount.

(ii)

Dividend income from investments is recognised when the company’s right to receive

payment has been established.

(q)

CONTINGENCIES

– A contingent liability is:

(i)

a possible obligation that arises from past events and whose existence will be

confirmed only by the occurrence or non-occurrence of one or more uncertain future

events not wholly within the control of the Group; or

(ii)

a present obligation that arises from past events but is not recognised because:

It is not probable that an outflow of resources embodying economic benefits

will be required to settle the obligation; or

ii.

The amount of the obligation cannot be measured with sufficient reliability.

A contingent asset is a possible asset that arises from past events and whose existence will

be confirmed only by the occurrence or non-occurrence of one or more uncertain future

events not wholly within the control of the Group.

(r)

TAXATION

- Taxation expense represents the sum of current tax and deferred tax.

Current tax is based on taxable profit for the financial period. Taxable profit differs from

profit as reported in profit or loss because it excludes items of income or expense that are

taxable or deductible in other years and it further excludes items that are never taxable or

deductible. The Group’s liability for current tax is calculated using tax rates that have been

enacted or substantively enacted by the reporting date.

Deferred tax is recognised on differences between the carrying amounts of assets and

liabilities in the financial statements and the corresponding tax bases used in the

computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable

temporary differences and deferred tax assets are recognised to the extent that it is

probable that taxable profits will be available against which deductible temporary

differences can be utilised. Such assets and liabilities are not recognised if the temporary

difference arises from goodwill or from the initial recognition (other than in a business

combination) of other assets and liabilities in a transaction that affects neither the taxable

profit nor the accounting profit.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(r)

TAXATION (continued)

Deferred tax liabilities are recognised for taxable temporary differences arising on

investments in subsidiaries, except where the Group is able to control the reversal of the

temporary difference and it is probable that the temporary difference will not reverse in the

foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced

to the extent that it is no longer probable that sufficient taxable profits will be available to

allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the

liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss,

except when it relates to items charged or credited directly to equity, in which case the

deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set

off current tax assets against current tax liabilities and when they relate to income taxes

levied by the same taxation authority and the Group intends to settle its current tax assets

and liabilities on a net basis.

The Company is tax resident in Singapore.

(s)

FOREIGN CURRENCIES

- The Group’s consolidated financial statements and Company

financial statements are presented in United States Dollars. The individual financial

statements of each Group entity are presented in the currency of the primary economic

environment in which the entity operates (its functional currency) and United States Dollars

is the functional currency of most Group entities, including Avation PLC.

In preparing the financial statements of the individual entities, transactions in currencies

other than the entity’s functional currency (foreign currencies) are recorded at rates of

exchange prevailing on the dates of the transactions. At each reporting date, monetary

items denominated in foreign currencies are retranslated at rates prevailing on the reporting

date. Non-monetary items carried at fair value that are denominated in foreign currencies

are retranslated at rates prevailing on the date when the fair value was determined. Non-

monetary items that are measured in terms of historical cost in a foreign currency are not

retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation

of monetary items, are included in profit or loss for the period. Exchange differences arising

on the retranslation of non-monetary items carried at fair value are included in profit or loss

for the period except for differences arising on the retranslation of non-monetary items in

respect of which gains and losses are recognised directly in equity. For such non-monetary

items, any exchange component of that gain or loss is also recognised directly in equity.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(t)

FINANCIAL INSTRUMENTS

Financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised

cost, fair value through other comprehensive income (OCI), and fair value through profit or

loss.

The classification of financial assets at initial recognition depends on the financial asset’s

contractual cash flow characteristics and the Group’s business model for managing them.

With the exception of trade receivables that do not contain a significant financing component

or for which the Group has applied the practical expedient, the Group initially measures a

financial asset at its fair value plus, in the case of a financial asset not at fair value thought

profit or loss, transaction costs.

In order for a financial asset to be classified and measured at amortised cost or fair value

thought OCI, it needs to give rise to cash flows that are solely payments of principal and

interest (‘SPPI’) on the principal amount outstanding. This assessment is referred to as the

SPPI test and is performed at an instrument level.

The Group’s business model for managing financial assets refers to how it manages its

financial assets in order to generate cash flows.

The business model determines whether

cash flows will result from collecting contractual cash flow, selling the financial assets or

both.

All purchases and sales of financial assets are recognised or derecognised on the trade date

which is the date that the Group commits to purchase or sell the asset.

Subsequent measurement

For the purposes of subsequent measurement, financial assets are classified in four

categories:

Financial assets at amortised cost (debt instruments)

Financial assets at fair value through OCI with recycling of cumulative gains and

losses (debt instruments)

Financial assets designated at fair value through OCI with recycling of cumulative

gains and losses upon derecognition (equity instruments)

Financial assets at fair value through profit or loss

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(t)

FINANCIAL INSTRUMENTS (continued)

(i)

Financial assets at amortised cost (debt instruments)

This category is the most relevant to the Group.

The Group measures financial

assets at amortised cost if both of the conditions are met:

The financial asset is held within a business model with the objective to hold

financial assets in order to collect contractual cash flows; and

The contractual terms of the financial asset give rise on specific dates to cash

flows that are solely payments of principal and interest on the principal amount

outstanding

Financial assets at amortised cost are subsequently measured using the effective

interest (EIR) method and are subject to impairment.

Gains and losses are

recognised in profit or loss when the asset is derecognised, modified or impaired.

The Group and Company’s financial assets at amortised cost are cash and bank

balances, trade and other receivables and finance lease receivables.

(ii)

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for

trading, financial assets designated upon initial recognition at fair value through

profit or loss, or financial assets mandatorily required to be measured at fair value.

Financial assets are classified as held for trading if they are acquired for the purpose

of selling or repurchasing in the near term.

Derivatives, including separated

embedded derivatives, are also classified as held for trading unless they are

designated as effective hedging instruments. Financial assets with cash flows that

are not solely payments of principal and interest are classified and measured at fair

value through profit or loss, irrespective of the business model.

Notwithstanding

the criteria for debt instruments to be classified at amortised cost or at fair value

through OCI, debt instruments may be designated at fair value though profit or loss

on initial recognition if doing so eliminates, or significantly reduces, an accounting

mismatch.

Financial assets at fair value through profit or loss are carried in the statement of

financial position at fair value with net changes in fair value recognised in the

statement of profit or loss.

The Group and Company’s financial assets at fair value through profit or loss are

options held for trading, investment in equity, investment in debt instrument and

derivative financial assets.

Derecognition

A financial asset is derecognised where the contractual right to receive cash flows from

the asset has expired. On derecognition of a financial asset in its entirety, the difference

between the carrying amount and the sum of the consideration received and any

cumulative gain or loss that had been recognised in other comprehensive income for

financial assets is recognised in profit or loss.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(t)

FINANCIAL INSTRUMENTS (continued)

Financial liabilities

Initial recognition and measurement

Financial liabilities are recognised when, and only when, the Group becomes a party to the

contractual provisions of the financial instrument. The Group determines the classification

of its financial liabilities at initial recognition. Financial liabilities are recognised initially at

fair value, minus in the case of financial liabilities not at fair value through profit or loss,

directly attributable transaction costs.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

(i)

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities

held for trading and financial liabilities designated upon initial recognition at fair

value. Financial liabilities are classified as held for trading if they are acquired for

the purpose of selling in the near term. Subsequent to initial recognition, financial

liabilities at fair value through profit or loss are measured at fair value. Any gains

or losses arising from changes in fair value of the financial liabilities are recognised

in profit or loss.

The Group and Company’s financial liabilities at fair value through profit or loss

are derivative financial liabilities, including share warrants.

(ii)

Financial liabilities at amortised cost

After initial recognition, financial liabilities that are not carried at fair value through

profit or loss are subsequently measured at amortised cost using the effective

interest method. Gains and losses are recognised in profit or loss when the

liabilities are derecognised, and through the amortisation process.

The Group and Company’s financial liabilities at amortised cost are trade and other

payables, loans and borrowings and maintenance reserves.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or

cancelled or expires. When an existing financial liability is replaced by another from the

same lender on substantially different terms, or the terms of an existing liability are

substantially modified, such an exchange or modification is treated as a de-recognition of

the original liability and the recognition of a new liability, and the difference in the

respective carrying amounts is recognised in profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is presented in the

statement of financial position, when and only when, there is a currently enforceable legal

right to set off the recognised amounts and there is an intention to settle on a net basis,

or to realise the assets and settle the liabilities simultaneously.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(u)

IMPAIRMENT OF FINANCIAL ASSETS

- The Group recognises an allowance for expected

credit losses (“ECLs”) for all financial assets not held at fair value through profit or loss.

ECLs are based on the difference between the contractual cash flows due in accordance with

the contract and all the cash flows that the Group expects to receive, discounted at an

approximation of the original effective interest rate. The expected cash flows will include

cash flows from the sale of collateral held or other credit enhancements that are integral to

the contractual terms.

Loss allowances of the Group are measured on either of the following bases:

12-month ECLs: these are ECLs that result from default events that are possible within

the 12 months after the reporting date (or for a shorter period if the expected life of

the instrument is less than 12 months); or

Lifetime ECLs: these are ECLs that result from all possible default events over the

expected life of a financial instrument.

(i)

Simplified approach

The Group applies the simplified approach to provide for ECLs for all trade receivables.

The simplified approach requires the loss allowance to be measured at an amount equal

to lifetime ECLs.

The Group established a credit risk matrix based on the Group’s historical credit loss

experience, adjusted for forward-looking factors specific to the debtors and the

economic environment.

(ii)

General approach

The Group applies the general approach to provide for ECLs on finance lease receivables

and all other financial assets not held at fair value through profit or loss. Under the

general approach, the loss allowance is measured at an amount equal to 12-month

ECLs at initial recognition.

At each reporting date, the Group assesses whether the credit risk of a financial

instrument has increased significantly since initial recognition. When credit risk has

increased significantly since initial recognition, loss allowance is measured at an

amount equal to lifetime ECLs.

When determining whether the credit risk of a financial asset has increased significantly

since initial recognition and when estimating ECLs, the Group considers reasonable and

supportable information that is relevant and available without undue cost or effort. This

includes both quantitative and qualitative information and analysis, based on the

Group’s historical experience and informed credit assessment and includes forward-

looking information.

If credit risk has not increased significantly since initial recognition or if the credit

quality of the financial instruments improves such that there is no longer a significant

increase in credit risk since initial recognition, loss allowance is measured at an amount

equal to 12-month ECLs.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

For the purpose of recognition of an allowance for ECL, the Group considers a financial asset

to be in default:

When the lessee does not pay the amounts due under its lease agreements to the Group

in excess of the security deposit or the value of the collateral. The Group will recognise

an allowance for ECL based on the historical observed default rates, current credit rating

of the customers, forecasted economic conditions to assess the amount of ECL

allowance required

Financial assets are written off when there is no reasonable expectation of recovery.

Indicators that there is no reasonable expectation of recovery include, amongst others,

the failure of a debtor to engage in a repayment plan with the Group, and a failure to

make contractual payments for a period of greater than 90 days past due or where the

trade receivables were in excess of the security packages held by the Group.

in the case where the financial asset is not secured, when the financial asset is more

than 90 days past due.

(v)

CASH AND BANK BALANCES

- Cash and bank balances comprise cash and cash

equivalents and restricted cash.

Cash and cash equivalents comprise cash at bank and on hand, demand deposits, and

short-term, highly liquid investments that are readily convertible to known amount of

cash and which are subject to insignificant risk of changes in value.

Restricted cash balances comprise bank balances which are pledged as security for

certain loan obligations.

(w)

TRADE AND OTHER PAYABLES

– Liabilities for trade and other payables which are

normally settled within 30 to 60 days credit terms, are initially carried at cost which is the

fair value of the consideration to be paid in the future for goods and services received,

whether or not billed to the Group and subsequently measured at amortised cost using the

effective interest method.

Gains and losses are recognised in profit or loss when the liabilities are derecognised as well

as through the amortisation process.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(x)

LOANS AND BORROWINGS

- Interest-bearing loans from banks and financial institutions

are initially measured at fair value, and are subsequently measured at amortised cost, using

the effective interest rate method. Any difference between the proceeds (net of transaction

costs) and the settlement or redemption of borrowings is recognised over the term of the

borrowings in accordance with the Group’s accounting policy for borrowing costs (see

above).

Modification of loans – The Group assesses whether the new terms of modified third

party loans results in a modification of contractual cash flows substantially different to

the original terms. In making this assessment, the Group considers, among others,

significant changes in the interest rate.

If the terms are substantially different, the

Group derecognises the original financial liability and recognises a new financial liability

at fair value and recalculates a new effective interest rate for the liability. If the terms

are not substantially different, the modification does not result in derecognition, and

the Group recalculates the gross carrying amount based on the revised cash flows of

the liability recalculated by discounting the modified cash flows at the original effective

interest rate and recognises a modification gain or loss in profit or loss. The present

value of the modified cash flow of the ﬁnancial liability is subsequently measured at and

amortised using the effective interest rate method over the remaining life of the loan

and recorded as part of finance expense in the consolidated statement of profit or loss.

(y)

SHARE CAPITAL, SHARE ISSUANCE EXPENSES AND TREASURY SHARES

- Proceeds

from issuance of ordinary shares in excess of the par value are recognised in share premium

in equity. Incremental costs directly attributable to the issuance of ordinary shares are

deducted from share premium.

Own equity instruments that are reacquired (treasury shares) are recognised at cost and

deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale,

issue or cancellation of the Group’s own equity instruments. Any difference between the

carrying amount and the consideration, if reissued, is recognised in share premium.

(z)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

– The Group uses derivative

financial instruments such as interest rate swap contracts and cross currency swap contracts

to hedge its risks associated with interest rate fluctuations. Such derivative financial

instruments are initially recognised at fair value on the date on which a derivative contract

is entered into, and are subsequently re-measured at fair value.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for

hedge accounting are taken directly into profit or loss.

At the inception of a hedge

relationship, the Group formally designates and documents the hedge relationship to which

the Group wishes to apply hedge accounting and the risk management objective and

strategy for undertaking the hedge.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(z)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING (continued)

The documentation includes identification of the hedged item or transaction, the hedging

instrument, the nature of the risk being hedged and how the Group will assess the hedging

instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s (or

transaction’s) cash flows attributable to the hedged risk. Such hedges are expected to be

highly effective in achieving offsetting changes in cash flows, and are assessed on an

ongoing basis to determine that they have been highly effective throughout the financial

reporting periods for which they are designated.

Cash flow hedges

Hedges are classified as cash flow hedges when hedging the exposure to variability in cash

flows that is either attributable to a particular risk associated with a recognised asset or

liability or a highly probable forecast transaction and could affect profit or loss. The effective

portion of the gain or loss on the hedging instrument is recognised directly in the fair value

reserve, while the ineffective portion is recognised in profit or loss.

Amounts taken to the fair value reserve are transferred to profit or loss when the hedged

transaction affects profit or loss, such as when a forecast sale or purchase occurs. If the

hedged item is a non-financial asset or liability, the amounts taken to the fair value reserve

are transferred to the initial carrying amount of the non-financial asset or liability.

If the hedged future cashflows are no longer expected to occur, amounts previously

recognised in hedging reserve are transferred to profit or loss. If the hedging instrument

expires or is sold, terminated or exercised without replacement or rollover, or if its

designation as a hedge is revoked, amounts previously recognised in hedging reserve

remain in other comprehensive income until the future cash flows occur, if the hedged future

cash flows are still expected to occur.

(aa)

SEGMENTAL REPORTING

- Operating segments are reported in a manner consistent with

the internal reporting provided to the Board of Directors who are responsible for allocating

resources and assessing performance of the operating segment. The Group’s principal

activity is aircraft leasing and therefore there is only one reportable segment.

The financial

results from this segment are equivalent to the financial statements of the Group as a whole.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and assumptions concerning the future are made in the preparation of financial

statements.

They affect the application of the Group’s accounting policies, reported amounts of

assets, liabilities, income and expenses and disclosures made.

They are assessed on an ongoing

basis and are based on experience and relevant factors, including expectations of future events

that are believed to be reasonable under the circumstances.

The Group has considered the impact of climate change on the accounting estimates and

judgements.

Many effects arising from climate change will be longer term in nature, with an

inherent level of uncertainty, and have been assessed as having limited effect on accounting

judgements and estimates for the current period.

Refer to page 15 on the climate related financial

disclosures in the strategic report.

The key assumptions concerning the future at the reporting date, that have a significant risk of

causing a material adjustment to the carrying amounts of assets and liabilities within the next

financial year are discussed below.

(a)

Impairment and review of residual value of property, plant and equipment –

aircraft

The Group periodically evaluates its aircraft for impairment and also reviews the residual

value of the aircraft.

Management exercises significant judgement in determining whether

there is any indication that any aircraft may have been impaired or if there are any

indications of changes in residual value. This exercise involves management considering

both internal and external sources of information which include but are not limited to:

observable indications that the value of the aircraft has declined during the period

significantly more than would be expected as a result of the passage of time or normal use;

significant adverse changes in the expected usage of the aircraft, technological or aviation

environment that have taken place or will take place in the near future; significant increase

in market interest rates; evidence of obsolescence or physical damage of the aircraft and

worse than expected economic performance of the aircraft.

The carrying amount of property, plant and equipment at the end of the reporting period is

disclosed in Note 18.

(b)

Revaluation of property, plant and equipment – aircraft

The Group periodically revalues its aircraft using lease encumbered value (“LEV”).

Under

such a valuation, which reflects the highest and best use given the fact that the aircraft are

held for use in a leasing business, the income streams associated with the lease and the

expected future market value of the aircraft at the end of the lease are discounted to current

values.

Critical assumptions made in determining LEV are the discount rate applied to

cashflows associated with the lease and the expected future value of aircraft at the end of

the lease. The factors considered in estimating the undiscounted cash flows are impacted

by changes in future periods due to changes in projected lease rental and maintenance

payments, residual values, economic conditions, technology, airline demand for a particular

aircraft type and other factors.

The carrying amount of property, plant and equipment - aircraft at the end of the reporting

period is disclosed in Note 18.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(c)

Impairment of financial assets

The Group follows the guidance of IFRS 9 Financial Instruments in determining when a

financial asset is impaired, and this requires judgement on the correlation between historical

observed default rates and ECLs. The Group’s methodology for calculating ECLs is set out

in Note 7.

The carrying amount of financial assets at the end of the reporting period is disclosed in

Note 6.

(d)

Fair value estimation for aircraft purchase rights

The Group values aircraft purchase rights using the Black Scholes pricing model.

Critical

assumptions made in determining the fair value of the aircraft purchase rights include the

assumed volatility of market prices.

The carrying amount of aircraft purchase rights at the end of the reporting period is

disclosed in Note 24.

(e)

Income taxes and deferred income taxes

Commencing 17 April 2014, Avation Group (S) Pte. Ltd. (“AGS”) and its subsidiaries

were awarded a 5-year Aircraft Leasing Scheme incentive (“ALS”) by the Singapore

Economic Development Board, whereby income from the leasing of aircraft and

aircraft engines and qualifying activities was taxed at a concessionary rate of 10%.

Qualifying income during the period 17 April 2014 to 16 April 2019 was taxed at the

concessionary rate subject to meeting the terms and conditions of the incentive.

On 26 April 2019, Avation Group (S) Pte. Ltd. and its subsidiaries were awarded

another 5-year Aircraft Leasing Scheme incentive, where income from the leasing of

aircraft and aircraft engines and qualifying activities will be taxed at a concessionary

rate of 8%. The effective date is 17 April 2019. Accordingly, qualifying income derived

from the period 17 April 2019 to 16 April 2024 will be taxed at the 8% concessionary

rate subject to meeting the terms and conditions of the incentive. Management’s

judgement is required in the application of the concessionary tax rate of 8% in

determining the carrying amount of deferred tax assets and liabilities for temporary

differences that are expected to be realised or settled beyond 16 April 2024.

Deferred tax assets are recognised for all unabsorbed capital allowances and

unutilised tax losses to the extent that it is probable that taxable profit will be

available against which the losses can be utilised.

Management judgement is required

to determine the amount of deferred tax assets that can be recognised, based upon

the likely timing and level of future taxable profits.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(f)

Consolidation of special purpose entity (“SPE”) –

Avation Airframe Holding Pte. Ltd.

Although the ultimate shareholder of the SPE is a trust, the Directors of Avation PLC consider

that they have the power to, and in practice, control the day to day activities of the SPE.

Furthermore, Avation PLC is entitled to the benefits and is exposed to the risks of the

activities of the SPE, which are consistent with the operations of the Group, and are

conducted on behalf of the Group according to the Group’s specific business needs.

Accordingly the SPE is consolidated as a subsidiary in these financial statements.

The Group would cease to control the SPE in the event of a “Relevant Event” as defined in

the financing agreement, for example, a delay in payment of interest. Were this to occur

consolidation would cease at that point although the Group has no intention, or anticipation,

that any such event will occur.

NEW ACCOUNTING STANDARDS AND INTERPRETATIONS

(a)

Standards and interpretations adopted during the year

The Group has adopted all new standards that have come into effect during the year ended 30 June

2023. The adoption of these standards did not have any material effect on the financial performance

or position of the Group and the Company.

(b)

New standards and interpretations not yet adopted

The Group has not adopted the following new or amended standards and interpretations which

are relevant to the Group that have been issued but are not yet effective:

Description

Effective date

(period beginning)

Amendment to IAS 8 – Definition of Accounting Estimates

1 January 2023

Amendment to IAS 1 and IFRS Practise statement 2 - Disclosure

of accounting policies

1 January 2023

Amendment to IAS 12

Deferred tax related to assets and

liabilities arising from single transaction

1 January 2023

Amendments to IFRS 16

Lease liability in a Sale and Leaseback

January 2024

Amendments to IAS 7 and IFRS 7

–

Disclosures : Supplier

Finance Arrangements

1 January

2024

Amendments to IAS 1: Classification of Liabilities as Current or

Non-current

Non-current liabilities with Covenants

1 January 2024

Amendments to IFRS 10 and IAS 28: Sale or Contribution of

Assets between an Investor and its Associate or joint venture

Postponed indefinitely

Based on a preliminary assessment using currently available information, the Group does not

expect the adoption of the above standards to have a material impact on the financial statements

in the period of initial application. These preliminary assessments may be subject to changes

arising from ongoing analyses when the Group adopts the standards. The Group plans to adopt

the above standards on the effective date.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market participants at the measurement date.

The carrying amounts of cash and bank balances, trade and other receivables, finance lease

receivables – current, trade and other payables and loans and borrowings – 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.

The fair value of maintenance reserves is not disclosed in the table below as the timing and cost of

the settlement of maintenance reserves cannot be determined with certainty in advance and hence

the fair value of maintenance reserves cannot be accurately measured.

Group

2023

2022

Carrying

amount

Fair value

Carrying

amount

Fair value

US$’000s

Financial assets:

Finance lease receivables – non-current

41,213

38,555

55,208

53,979

Derivative financial assets

13,496

5,920

Investment in equity, fair value

through profit or loss

11,235

3,715

Financial liabilities:

Deposits collected – non-current

15,907

13,502

13,692

12,893

Loans and borrowings other than

unsecured notes – non-current

391,110

360,055

468,030

436,864

Unsecured notes

303,465

300,539

296,200

275,893

Share warrants

1,632

1,055

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FAIR VALUE MEASUREMENT (continued)

Company

2023

2022

Carrying

amount

Fair value

Carrying

amount

Fair value

US$’000s

Financial assets:

Derivative financial assets

3,399

1,281

Investment in debt instrument

5,925

Financial liabilities:

Loans and borrowings - non-current

59,535

56,738

113,086

105,161

Share warrants

1,632

1,055

The fair values (other than for unsecured notes, investment in debt instrument, fair value through

profit and loss) above are estimated by discounting expected future cash flows at market

incremental lending rate for similar types of lending, borrowing or leasing arrangements at the end

of the reporting period, which is classified under level 2 of the fair value hierarchy.

The fair value of the unsecured notes and share warrants are based on level 1 quoted prices

(unadjusted) in an active market that the Group can access at the measurement date.

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 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 (that is, as prices) or indirectly

(that is, derived from prices) are included as inputs for the determination of fair value.

Assets measured at fair value classified under level 3:

Group

Company

2023

2022

2023

2022

US$’000s

Fair value measurement using

significant unobservable inputs:

Aircraft

845,455

813,885

Aircraft purchase rights

85,820

65,280

85,820

65,280

Investment in equity, fair value through

profit or loss

11,235

3,715

Aircraft were revalued at 30 June 2023 and 30 June 2022.

Refer to Note 18 for the details on the

valuation technique and significant inputs used in the valuation.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FAIR VALUE MEASUREMENT (continued)

Information

about

significant

unobservable

inputs

used

level

fair

value

measurements.

The following table provides the information about the fair value measurements using unobservable

inputs (level 3):

Description

Valuation

techniques

Unobservable

inputs

Range

(weighted

average)

2023

Range

(weighted

average)

2022

Sensitivity of the

input to fair value

Aircraft

Lease-

encumbered

basis

Discount rates

5.50% to

7.00% for

Jets (6.08%)

5.50% to

9.00% for

Turboprops

(6.32%)

5.50% to

7.00% for

Jets (6.04%)

5.50% to

8.00% for

Turboprops

(6.31%)

Jet

5% (2022 : 5%)

increase in the

discount rates will

results in a decrease in

fair value by US$7.4

million (2022 :

decrease of US$8.6

million)

5% (2022 : 5%)

increase in the inflation

rate will result in an

increase in fair value

by US$2.0 million

(2022 : increase of

US$2.7 million)

Turboprops

5% (2022 : 5%)

increase in the

discount rates will

result in a decrease in

fair value by US$2.5

million (2022 :

decrease of US$2.8

million)

5% (2022 : 5%)

increase in the inflation

rate will result in an

increase in fair value

by US$0.7 million

(2022 : increase of

US$0.8 million)

Aircraft

purchase

rights

Black

Scholes

model

Volatility rates

2.72%

2.91%

5% (2022 : 5%)

increase in the

volatility rates will

result in no change to

the fair value (2022:

increase of US$0.1

million)

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FAIR VALUE MEASUREMENT (continued)

Information

about

significant

unobservable

inputs

used

level

fair

value

measurements. (continued)

Description

Valuation

techniques

Unobservable

inputs

Range

(weighted

average)

2023

Range

(weighted

average)

2022

Sensitivity of the

input to fair value

Investment

in equity,

fair value

through

profit or loss

Market

approach

Discount for

lack of

marketability

6.00%

25.00%

5% (2022 : 5%)

increase in the

discount for lack of

marketability will result

in a decrease in fair

value by US$0.04

million (2022:US$0.06

million)

A reconciliation of liabilities arising from financing activities is as follows:

Group

1 July

2022

Cash flows

Non-cash/

other

30 June

2023

US$’000s

Loans and borrowings:

Current

63,900

(64,863)

62,364

61,401

Non-current

468,030

(17,863)

(59,057)

391,110

Unsecured notes:

Non-current

296,200

(9,431)

16,696

303,465

828,130

(92,157)

20,003

755,976

Group

1 July

2021

Cash flows

Non-cash/

other

30 June

2022

US$’000s

Loans and borrowings:

Current

442,622

(97,292)

(281,430)

63,900

Non-current

221,765

(26,044)

272,309

468,030

Unsecured notes:

Non-current

283,253

12,947

296,200

947,640

(123,336)

3,826

828,130

* includes the transaction costs for modification of unsecured notes

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FAIR VALUE MEASUREMENT (continued)

Company

1 July

2022

Cash flows

Non-cash/

other

30 June

2023

US$’000s

Loans and borrowings (Note 33):

Current

16,353

(16,287)

13,141

13,207

Non-current

113,086

(36,404)

(17,147)

59,535

Trade and other payables (Note 34):

Interest bearing payable due to subsidiaries

34,250

22,419

56,669

163,689

(30,272)

(4,006)

129,411

Company

1 July

2021

Cash flows

Non-cash/

other

30 June

2022

US$’000s

Loans and borrowings (Note 33):

Current

143,600

(11,918)

(115,329)

16,353

Non-current

113,086

Trade and other payables (Note 34):

Interest bearing payable due to

subsidiaries

28,147

6,103

34,250

171,747

(5,815)

(2,243)

163,689

The ‘other’ column includes the amortisation of transaction costs and reclassification of non-current

portion of loans and borrowings due to passage of time.

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s activities expose it to a number of market related, operational and financial risks.

Risk is mitigated through the application of prudent risk management policies. The risks described

below are those that the Group has identified as the most significant risks to the business. The

Directors are responsible for managing risk and review risk management policies regularly.

The Group utilises derivative financial instruments as part of its overall risk management strategy.

(a)

Airline Industry Risks

The Group faces risks specific to the aviation sector including war, terrorism, equipment failure

and the Covid-19 pandemic. These exposures are managed through the requirement for the

airlines that lease the Group’s assets to maintain insurance, adequate maintenance policies

and/or contribute to a maintenance reserve for the major maintenance events for each

aircraft.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

(continued)

(b)

Credit risk

Credit risk refers to the risk that debtors will default on their obligations to repay amounts

owing to the Group.

The Group has adopted a prudent credit policy towards extending credit terms to customers

and in monitoring those credit terms.

This includes assessing customers’ credit standing and

periodic reviews of their financial status to determine appropriate credit limits. The Group

generally requires its customers to pay rentals in advance and provide collateral in the form

of cash or letters of credit as security deposits for leases.

See Note 34.

The maximum exposure to credit risk in the event that counterparties fail to perform their

obligations in relation to each class of financial assets is the carrying amount of those assets

as stated in the statement of financial position.

The maximum exposure to credit risk for trade receivables at the reporting date by

geographical area is:

Group

Company

2023

2022

2023

2022

US$’000s

Asia-Pacific

15,977

3,663

151

Europe

16,003

3,676

169

For trade receivables, the Group has applied the simplified approach and has calculated

ECLs based on lifetime expected losses.

The Group has established a credit risk matrix

based on the Group’s historical credit loss experience, adjusted for forward-looking factors

specific to the debtors and the economic environment. The ECL calculations are based on

probability of defaults and loss given default rates of each customer. The Group uses

judgements in making these assumptions based on past events, current conditions and

forecasts of economic conditions.

There are no trade receivables that are neither past due nor impaired (2022: US$0.2

million).

Financial assets that are past due and/or impaired

There is no class of financial assets that are past due and/or impaired except for trade

receivables and interest bearing receivables. An allowance for expected credit losses of

US$10.5 million (2022: US$8.7 million) has been provided in relation to trade receivables

past due and impaired of US$24.7 million (2022: US$9.9 million). An allowance for expected

credit losses of US$1.4 million (2022: US$2.8 million) has been provided in relation to

interest bearing receivables.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

(continued)

(b)

Credit risk (continued)

The age analysis of trade receivables past due but not impaired is as follows:

Group

2023

2022

US$’000s

Past due less than 3 months

1,163

1,503

Past due 3 to 6 months

594

Past due over 6 months

670

237

1,862

2,334

Bank deposits that are neither past due or impaired are mainly deposits with banks with

strong credit–ratings from international credit-rating agencies.

While cash and bank

balances are also subject to the impairment requirements of IFRS 9, the identified

impairment loss was immaterial.

Other receivables from third parties which comprise interest bearing customer loans are

subject to credit risks similar to trade receivables.

Expected credit losses on other

receivables are calculated using the same methodology as for trade receivables.

Other receivables from subsidiaries are low in default credit risk as these subsidiaries are

financially sound and with good payment track records.

For finance lease receivables, the Group applied the general approach under the standard.

The Group’s finance lease receivables are considered to have low credit risk and the loss

allowance recognised during the period was therefore limited to 12 months expected credit

losses on non-secured amounts. The loss allowance for finance lease receivables are

recognised in profit or loss and reduce carrying amounts of the finance lease receivables.

As the value of aircraft that secures the Group’s finance lease receivables exceeds the value

of the finance lease receivables, the Group has reversed a loss allowance of US$0.1 million

in respect of its finance lease receivables during the year ended 30 June 2023 (2022:

recognised a loss allowance of US$1.9 million).

(c)

Interest rate risk

The Group is exposed to interest rate risk through the impact of interest rate changes on

floating rate interest bearing liabilities and assets.

The Group seeks to reduce its exposure to interest rate risk by fixing interest rates on the

majority of its loans and borrowings.

As at 30 June 2023, 95.8% (2022: 90.0%) of the

Group’s loans and borrowings are at fixed or hedged interest rates. Interest rate risk is not

material and therefore no sensitivity analysis presented.

Interest rates and repayment terms for financial assets and financial liabilities are disclosed

in the respective notes to the financial statements as of 30 June 2023.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

(continued)

(d)

Foreign currency risk

Foreign currency risk arises from transactions and cash balances that are not denominated in

the Group’s functional currency. The Group’s foreign currency exposures arose mainly from

movements in the exchange rate for Singapore Dollars and Euros against the United States

Dollar.

The Group aims to mitigate foreign currency risk by holding the majority of its cash balances

in United States Dollars.

From time to time the Group utilises forward foreign currency

contracts to hedge its exposure to specific currency risks.

The Group’s foreign currency exposure is as follows:

Group

Cash and

bank

balances

Other

financial

assets

Other

financial

liabilities

Net

currency

exposure

US$’000s

2023:

Pound sterling

141

(66)

Australian dollar

102

(1,194)

(1,081)

Euro

7,446

19,699

(62,138)

(34,993)

Singapore dollar

364

(604)

(161)

8,053

19,809

(64,002)

(36,140)

2022:

Pound sterling

150

(208)

(38)

Australian dollar

132

(1,059)

(915)

Euro

6,298

21,657

(37,581)

(9,626)

Singapore dollar

278

126

(570)

(166)

6,738

21,935

(39,418)

(10,745)

Company

Cash and

bank

balances

Other

financial

assets

Other

financial

liabilities

Net

currency

exposure

US$’000s

2023:

Pound sterling

(48)

Australian dollar

(16)

(14)

Euro

(288)

Singapore dollar

171

(24)

186

252

(376)

(63)

2022:

Pound sterling

(159)

(42)

Australian dollar

(7)

(5)

Euro

43,210

(43,124)

Singapore dollar

(20)

144

43,285

(43,310)

119

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

(continued)

(d)

Foreign currency risk (continued)

The table below illustrates the effect on total profit and total equity that would result from a

strengthening of foreign currencies against the United States Dollar by 10% (2022: 10%)

with all other variables including tax rate being held constant:

Group

Company

2023

2022

2023

2022

US$’000s

Foreign currency:

Pound sterling

(4)

Australian dollar

(108)

(92)

(1)

Euro

(3,499)

(963)

(29)

Singapore dollar

(16)

(17)

A weakening of the respective currencies by 10% against the United States Dollar would have

an equal and opposite effect.

The Group entered into Euro denominated lease agreements for aircraft and subsequently

arranged Euro denominated financing and cross-currency swap contracts in order to hedge

exposure to foreign exchange risk associated with Euro denominated lease revenue by

offsetting Euro cash inflows and outflows over the lease term. See note 23.

(e)

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations

due to shortage of funds. The Group’s exposure to liquidity risk arises primarily from

mismatches of the maturities of financial assets and liabilities. The Group monitors and

maintains a level of cash and cash equivalents that management deems adequate to finance

the Group’s operations and mitigate the effects of fluctuations in cash flows. Short-term

funding is obtained from loan facilities.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

(continued)

(e)

Liquidity risk (continued)

Analysis of financial liabilities by remaining contractual maturities

The table below summarises the maturity profile of the Group’s financial liabilities at the

end of the reporting period based on contractual undiscounted repayment obligations:

Group

One year or

less

One to five

years

Over five years

Total

US$’000s

2023:

Financial liabilities:

Trade and other payables

4,115

6,639

13,555

24,309

Loans and borrowings*

104,338

787,791

92,216

984,345

Maintenance reserves

61,456

54,587

116,043

169,909

849,017

105,771

1,124,697

2022:

Financial liabilities:

Trade and other payables

3,814

3,163

14,752

21,729

Loans and borrowings*

107,263

862,571

136,867

1,106,701

Maintenance reserves

10,156

75,131

85,287

121,233

940,865

151,619

1,213,717

* The maturity profile on loans and borrowings include maturity analysis of derivative

financial liabilities.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

(continued)

(e)

Liquidity risk (continued)

Analysis of financial liabilities by remaining contractual maturities

The table below summarises the maturity profile of the Company’s financial liabilities at the

end of the reporting period based on contractual undiscounted repayment obligations:

Company

One year or

less

One to five

years

Over five

years

Total

US$’000s

2023:

Financial liabilities:

Trade and other payables

14,804

65,887

80,691

Loans and borrowings*

17,168

65,592

82,760

31,972

131,479

163,451

2022:

Financial liabilities:

Trade and other payables

20,786

41,677

62,463

Loans and borrowings*

21,340

124,472

145,812

42,126

166,149

208,275

* The maturity profile on loans and borrowings include maturity analysis of derivative

financial liabilities.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES

(continued)

(f)

Capital risk

For the purpose of the Group’s capital management, capital includes debt and equity items

such as issued capital, share premium and all other equity reserves attributable to the equity

holders of the parent.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue

as a going concern and to maintain a suitable capital structure so as to fund growth and

maximise shareholder value.

In order to maintain or achieve an optimal capital structure, the

Group may adjust the amount of dividend payments, return capital to shareholders, issue new

shares, buy back issued shares, incur new borrowings or sell assets to reduce borrowings.

Management monitors capital based on a gearing ratio.

The gearing ratio is calculated as net

indebtedness divided by total assets.

Net indebtedness is calculated as loans and borrowings

less unrestricted cash and bank balances.

The Group calculates its gearing ratio on the basis of net indebtedness divided by total assets.

Group

Company

2023

2022

2023

2022

US$’000s

Net indebtedness

731,160

792,863

72,071

119,730

Total assets

1,179,596

1,217,020

309,560

331,252

Gearing ratio:

61.2%

65.1%

23.3%

36.1%

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

RELATED PARTY TRANSACTIONS

In addition to related party information disclosed elsewhere in these financial statements, the

following transactions took place between the Group and related parties at terms agreed between

the parties.

(a)

Remuneration of key management personnel

The remuneration of Directors and key management includes fees, salary, bonus, commission

and other emoluments (including benefits-in-kind) based on the cost incurred by the Company

and the Group, and where the Company or Group did not incur any costs, the value of the

benefits.

Group and Company key management personnel short-term employee benefits

includes $0.9 million (2022: $1.2 million) and $0.9 million (2022: $0.4 million) respectively

for share warrants expense. Key management remuneration is as follows:

Group

Company

2023

2022

2023

2022

US$’000s

Key management:

Short-term employee benefits

3,494

4,172

1,735

1,074

The amount above includes remuneration in respect of the highest paid Director as follows:

Group

2023

2022

US$’000s

Aggregate emoluments

1,151

1,224

The Directors do not receive any pension contribution from the Company.

Refer to Directors’ remuneration report for details.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

RELATED PARTY TRANSACTIONS (continued)

(b)

Significant related party transactions:

Group

Company

2023

2022

2023

2022

US$’000s

Entities controlled by key

management personnel

(including Directors):

Lease liability paid

(335)

(290)

(99)

(97)

Consulting fee expense

(362)

(223)

(361)

(223)

Maintenance services

(7)

(376)

Interest expense

(374)

Service fee income

106

During the year, a director of the company sold his US$0.2 million in aggregate nominal value

of Avation Capital S.A. 8.25% senior notes due 2026 issued under the global medium term

note programme.

(c)

Significant transactions between the Company and its subsidiaries:

Company

2023

2022

US$’000s

Dividend income

8,941

Interest income

2,832

8,210

Gain on receivables modification

3,517

Management fee income

1,789

1,457

Sale of notes

10,088

Return of capital

10,819

Interest expense

(3,193)

(3,060)

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

REVENUE

Group

2023

2022

US$’000s

Lease rental revenue

85,936

93,352

Less: amortisation of lease incentive asset

(1,368)

(1,383)

84,568

91,969

Interest income on finance leases

2,230

2,918

Maintenance reserves revenue

5,063

13,207

End of lease return compensation revenue

4,138

91,861

112,232

Maintenance reserves revenue relates to the recovery of maintenance reserve from airline customers

and upon sale of aircraft. See Notes 29 and 35.

End of lease return compensation was recognised as set out in the Leases- Group as a lessor

accounting policy.

Geographical analysis

Group

2023

2022

US$’000s

Europe

23,941

35,341

Asia Pacific

67,920

76,891

91,861

112,232

During the year ended 30 June 2023, five customers individually represented more than 5% of

the Group’s total revenue (2022: five) of which four are based in Asia-Pacific (2022: four) and

one is based in Europe (2022: one).

The largest customer, who is based in Asia-Pacific, accounts

for US$25.5 million or 27.7% of the Group’s total revenue (2022: US$25.4 million or 22.6%).

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

100

OTHER INCOME

Group

2023

2022

US$’000s

Aircraft late delivery compensation

540

Deposit released

200

Fees for late payment

966

1,940

Foreign currency exchange gain

3,154

1,018

Recovery of claims from customer

3,137

Others

132

454

7,389

4,152

During the year, the claims recovery recognised in other income is the balance of a distribution paid

to creditors of Virgin Australia in excess of amounts allocated to trade receivables.

During the previous year, the Group recognised US$0.2 million of deposit released due to forfeiture

of reservation deposits for aircraft lease as other income.

ADMINISTRATIVE EXPENSES

Group

2023

2022

US$’000s

Staff costs (note 14)

5,587

6,771

Other administrative expenses

3,173

2,694

8,760

9,465

FINANCE INCOME

Group

2023

2022

US$’000s

Interest income from financial institutions

1,951

Interest income from non-financial institutions

1,178

281

Fair value gain on financial derivatives

2,492

Finance income from discounting non-current deposits to fair value

611

571

Gain on repurchases of unsecured note

508

Gain on early full repayment of borrowings

1,657

5,906

3,344

A gain on early full repayment of borrowings arose when two loans were refinanced during the year.

During the year, the gain on repurchases of unsecured note arose when the Group repurchased its

unsecured notes through the market at 75.25 cents and through tender offer at 86.0 cents

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

101

FINANCE EXPENSES

Group

2023

2022

US$’000s

Interest expense on borrowings

21,170

24,062

Interest expense on borrowings from related parties

271

Interest expense on unsecured notes

30,976

29,913

Amortisation of loan transaction cost

1,057

2,226

Amortisation of IFRS 9 gain on debt modification of the unsecured notes

8,711

8,805

Amortisation of interest expense on non-current deposits

571

539

Fair value loss on financial derivatives

577

Finance charges on early full repayment of borrowings

731

Others

206

1,205

63,539

67,481

Amortisation of IFRS 9 gain on debt modification of unsecured notes of US$8.7 million (2022:

US$8.8 million) relates to the gain on debt modification of the unsecured notes in 2022 which was

amortised as part of the effective interest rate method.

STAFF COSTS

Group

2023

2022

US$’000s

Salaries and fees

4,220

4,320

Bonuses

814

Defined contribution plans

117

144

Benefits

Warrants expense

1,142

1,423

5,587

6,771

The average number of Directors of the Company for the year is 5 (2022: 4). The average number

of other employees for the year is 18 (2022: 19) and in the following departments:

Group

2023

2022

Administrative

Commercial

Finance

Legal

Technical

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

102

PROFIT BEFORE TAXATION

Profit before taxation for the year is stated after charging/(crediting) the following:

Group

2023

2022

US$’000s

Depreciation of property, plant and equipment

38,566

39,304

Foreign currency exchange (gain)

(3,154)

(1,018)

Audit fees:

Fees payable to the Company’s auditor and their associates

for the audit of the Company’s annual accounts

303

281

Fees payable to the Company’s auditor and their associates

for audits of the Company’s subsidiaries’ annual accounts

312

285

Total audit fees

615

566

Auditors’ remuneration for non-audit services:

- Tax compliance services

- All other assurance services

Total fees for non-audit services

TAXATION

Group

2023

2022

US$’000s

From continuing operations

Current tax expense:

- Singapore

158

- Overseas

243

892

Under/(over) provision in prior years current tax expense:

- Singapore

(3)

- Overseas

(7)

(287)

Deferred tax expense/(benefit):

- Singapore

2,912

7,985

- Overseas

(2,655)

(2,805)

(Over)/under provision in prior years deferred tax expense:

- Singapore

(19)

(435)

- Overseas

Income tax expense

808

5,375

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

103

TAXATION (Continued)

Income tax differs from the amount of income tax expense determined by applying the Singapore

tax rate of 17% to profit before income tax as a result of the following differences:

Group

2023

2022

US$’000s

Profit before income tax

13,000

22,502

Tax calculated at 17% (2022: 17%)

2,210

3,825

Effects of:

Under/(over) provision in prior years current tax expense

- Singapore

(3)

- Overseas

(7)

(287)

Under/(over) provision in prior years deferred tax expense:

- Singapore

(19)

(435)

- Overseas

Non-deductible items

2,137

3,818

Income not subject to tax

(2,400)

(2,214)

Different tax rates of other countries

586

1,603

Deferred tax asset not recognised

1,433

1,081

Utilisation of deferred tax asset not recognised

(2,714)

(1,033)

Effect of concessionary tax rate at 8%

(115)

(968)

Others

(479)

(40)

Income tax expense

808

5,375

The Group has unutilised tax losses of approximately US$43.9 million (2022: US$15.6 million) and

unabsorbed capital allowances of approximately US$89.3 million (2022: US$114.6 million) that are

available for offset against future taxable profits, for which no deferred tax asset is recognised due

to uncertainty of its recoverability.

The use of these unutilised losses and capital allowances is

subject to the agreement of tax authorities and compliance with certain provisions of tax legislation

of the countries in which the Group operates.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

104

EARNINGS PER SHARE

(a)

Basic earnings per share (“EPS”)

EPS is calculated by dividing total profit attributable to shareholders of Avation PLC by the

weighted average number of ordinary shares in issue during the year.

Company

2023

2022

US$’000s

Net profit attributable to shareholders of Avation PLC

12,191

17,126

Weighted average number of ordinary shares (‘000s)

69,952

69,488

Basic earnings per share (US cents)

17.43

24.65

(b)

Diluted earnings per share

For the purpose of calculating diluted earnings per share, total profit attributable to

shareholders of Avation PLC and the weighted average number of ordinary shares outstanding

are adjusted for the effects of all dilutive potential ordinary shares.

The Company has one

category of dilutive potential ordinary shares, being warrants.

For warrants, the weighted average number of shares on issue has been adjusted as if all

dilutive share options were exercised.

The number of shares that could have been issued

upon the exercise of all dilutive share option less the number of shares that could have been

issued at fair value (determined as the Company’s average share price for the year) for the

same total proceeds is added to the denominator as the number of shares issued for no

consideration.

Diluted earnings per share attributable to shareholders of Avation PLC is calculated as follows:

Company

2023

2022

US$’000s

Net profit attributable to shareholders of Avation PLC

12,191

17,126

Weighted average number of ordinary shares (‘000s)

69,952

69,488

Adjustment for warrants (‘000s)

178

Weighted average number of ordinary shares (‘000s)

70,130

69,488

Diluted earnings per share (US cents)

17.38

24.65

The warrants were anti-dilutive for the year ended 30 June 2022.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

105

PROPERTY, PLANT AND EQUIPMENT

Group

Furniture and

equipment

Aircraft

engine

Jet

aircraft

Turboprop

aircraft

Total

US$’000s

US$’000

US$’000s

2023:

Cost or valuation:

At beginning of year

771,859

305,923

1,077,873

Additions

Reclassified from held under

finance lease

16,166

Reclassified from asset held for

sale

106,124

Reclassified as asset held for

sale

(28,034)

(9,354)

(37,388)

Revaluation recognised in equity

1,486

(2,566)

(1,080)

At end of year

851,435

310,169

1,161,701

Representing:

At cost

At valuation

851,435

310,169

1,161,604

851,435

310,169

1,161,701

Accumulated depreciation and

impairment:

At beginning of year

182,815

81,082

263,965

Depreciation expense

28,615

9,938

38,566

Reclassified from asset held

for sale

28,124

Reclassified as asset held for

sale

(9,784)

(1,354)

(11,138)

(Reversal of)/impairment loss

1,013

(4,300)

(3,287)

At end of year

230,783

85,366

316,230

Net book value:

At beginning of year

589,044

224,841

813,908

At end of year

620,652

224,803

845,471

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

106

PROPERTY, PLANT AND EQUIPMENT (continued)

Group

Furniture

and

equipment

Aircraft

engine

Jet

aircraft

Turboprop

aircraft

Total

US$’000s

US$’000

US$’000s

2022:

Cost or valuation:

At beginning of year

1,940

868,253

390,322

1,260,589

Additions

Disposal

(1,940)

Reclassified as held under finance

lease

(53,344)

Reclassified as asset held for sale

(106,124)

(38,874)

(144,998)

Revaluation recognised in equity

9,730

7,819

17,549

At end of year

771,859

305,923

1,077,873

Representing:

At cost

At valuation

771,859

305,923

1,077,782

771,859

305,923

1,077,873

Accumulated depreciation and

impairment:

At beginning of year

128

179,219

117,882

297,285

Depreciation expense

28,956

10,251

39,304

Disposal

(213)

Reclassified as held under finance

lease

(33,071)

Reclassified as asset held for

sale

(28,124)

(16,374)

(44,498)

Impairment loss

2,764

2,394

5,158

At end of year

182,815

81,082

263,965

Net book value:

At beginning of year

1,812

689,034

272,440

963,304

At end of year

589,044

224,841

813,908

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

107

PROPERTY, PLANT AND EQUIPMENT (continued)

Assets pledged as security

The Group’s aircraft and aircraft held under asset for sale with carrying values of US$838.5 million

(2022: US$879.5 million) are mortgaged to secure the Group’s borrowings (Note 33).

Additions and Disposals

During the year, the Group sold two turboprop aircraft and one jet aircraft. Two turboprop aircraft

sold were classified as held for sale as of 30 June 2022.

During the previous year, the Group sold one aircraft engine, three turboprop aircraft and two jet

aircraft.

A loss of US$1.0 million (2022: US$1.4 million) on the sale of aircraft was recorded included within

the loss on disposal of aircraft of aircraft and aircraft engine for the year ended 30 June 2023.

During the previous year, three turboprop aircraft were reclassified to assets held under finance

leases. A loss on transfer of the aircraft to finance leases of US$1.0 million was recorded and included

within the loss on disposal of aircraft and aircraft engine.

During the year,

the Group transferred in two jet aircraft from assets held for sale and one turboprop

aircraft from finance leases to property, plant and equipment. A gain on derecognition of finance

lease of US$2.8 million was recorded and included within the gain on derecognition of finance lease.

During the year, one turboprop aircraft and 1 jet aircraft were reclassified as held for sale.

During the previous year, two turboprop aircraft and two jet aircraft were reclassified as held for

sale.

Valuation

The Group’s aircraft were valued in June 2023 by independent valuers on a lease-encumbered value

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 5.50% to 7.00% (2022: 5.5% to 7.0%) per annum for jet aircraft and

5.50% to 9.00% (2022: 5.5% to 8.0%) per annum for turboprop aircraft.

Different discount rates

are considered appropriate for different aircraft based on their respective risk profiles. Significant

airline customer failures and uncertainty created by the pandemic followed by rapid recovery in

global air travel and improvements in airline credit worthiness have led to impairment losses and its

reversals during the years ended 30 June 2022 and 30 June 2023 respectively.

During the year, a reversal of impairment losses of US$0.8 million was recognised to adjust the

book values of one turboprop aircraft and one jet aircraft to their fair value prior to reclassification

as held for sale.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

108

PROPERTY, PLANT AND EQUIPMENT (continued)

During the previous year, a reversal of impairment losses of US$2.0 million was recognised to adjust

the book values of two turboprop aircraft and two jet aircraft to their fair value prior to reclassification

as held for sale.

During the year, a downward revaluation of US$1.1 million to equity and a reversal of impairment

loss of US$2.0 million were recognised in the statement of profit or loss in relation to aircraft which

remain part of the fleet.

During the previous year, an upward revaluation of US$17.5 million was recorded in equity and

impairment losses of US$7.2 million were recognised in the statement of profit or loss in relation to

aircraft which remain part of the fleet.

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

2023

2022

Group

Jets

Turbo

props

Jets

Turbo

props

US$’000s

Cost

801,559

293,795

723,469

286,983

Accumulated depreciation and impairment

(216,316)

(83,657)

(170,115)

(78,974)

Net book value

585,243

210,138

553,354

208,009

Geographical analysis

2023

Europe

Asia

Pacific

Total

US$’000s

Capital expenditure

Net book value – aircraft

241,508

603,947

845,455

2022

Europe

Asia

Pacific

Total

US$’000s

Capital expenditure

Net book value – aircraft and aircraft engines

250,659

563,226

813,885

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

109

TRADE AND OTHER RECEIVABLES

Group

Company

2023

2022

2023

2022

US$’000s

Current:

Trade receivables

26,545

12,354

829

628

Less:

Allowance for expected credit losses

(10,542)

(8,678)

(660)

(606)

16,003

3,676

169

Accrued revenue

3,375

3,491

Less:

Allowance for expected credit losses

(8)

(374)

3,367

3,117

Other receivables:

– subsidiaries

160,749

142,453

– third parties

12,012

6,335

1,009

1,440

Less:

Allowance for expected credit losses

(1,358)

(910)

(758)

(815)

10,654

5,425

161,000

143,078

Interest receivables:

– subsidiaries

118

2,228

– third parties

752

1,759

Less:

Allowance for expected credit losses

(44)

(1,373)

(28)

(25)

708

386

118

2,232

Deposits

Prepaid expenses

255

550

151

134

31,035

13,202

161,463

145,491

Non-current:

Other receivables:

– subsidiaries

46,530

92,389

- third parties

5,487

11,343

5,487

11,343

46,530

92,389

Deposits for aircraft

8,139

7,749

8,139

7,749

Right of use assets

632

296

210

100

14,258

19,388

54,879

100,238

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

110

TRADE AND OTHER RECEIVABLES (continued)

Accrued revenue represents deferred lease receivables from customers with whom the Group has

agreed to defer lease payments for a short term period in view of Covid-19 pandemic.

Other receivables from subsidiaries includes interest bearing receivables of US$71.3 million (2022:

US$127.5 million). Current receivables from subsidiaries are unsecured and repayable upon

demand.

Interest is charged at 4.0% to 6.0% (2022: 4.0% to 6.0%) per annum.

Other receivables from third parties include interest bearing receivables of US$16.3 million (2022:

US$16.3 million).

Interest is charged at 5.0% to 6.0% (2022: 5.0% to 6.0%) per annum.

The average credit period generally granted to customers is 30 to 60 days.

Rent for leased aircraft

is due in advance in accordance with the leases.

The movement in allowance for expected losses are set out below:

Group

Company

2023

2022

2023

2022

US$’000s

At beginning of year

11,335

25,911

1,446

1,092

Provision for/(reversal of) expected

credit losses

672

(3,742)

354

Written off

(1,920)

(10,788)

Reclassified from financial lease

receivables

1,819

Reclassified from/(to) assets held for

sale

(46)

At end of year

11,952

11,335

1,446

During the year, the Group has written off US$1.9 million of receivables mainly due to the finalisation

of the liquidation process of an insolvent customer.

During the previous year, the Group has written off US$10.8 million of receivables mainly due to

reaching agreements with customers on debt restructuring plans.

Trade and other receivables denominated in foreign currencies are as follows:

Group

Company

2023

2022

2023

2022

US$’000s

Pound sterling

Australian dollar

132

Euro

356

43,210

Singapore dollar

126

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

111

FINANCE LEASE RECEIVABLES

Finance lease receivables do not include any contingent rents or residual value guarantees.

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

2023

2022

Group

Minimum

lease

payments

Present

value of

payments

Minimum

lease

payments

Present

value of

payments

US$’000s

Within one year

5,675

3,952

11,729

7,476

Less:

Allowance for expected credit losses

(20)

(1,852)

5,655

3,932

9,877

5,624

One to two years

30,041

28,491

7,695

5,306

Two to three years

2,430

1,627

31,565

29,044

Three to four years

11,358

11,095

10,615

9,763

Four to five years

11,357

11,095

Later than five years

Total minimum lease payments

49,484

45,145

71,109

60,832

Less: amounts representing interest

income

(4,339)

(10,277)

Present value of minimum lease

payments

45,145

60,832

The movement in finance lease receivables are set out below:

Group

2023

2022

US$’000s

At beginning of year

60,832

49,990

Additions

19,267

Principal receipts

(4,310)

(3,960)

Reclassified to property, plant and equipment

(12,522)

Reclassified to trade receivables

(1,819)

Interest receivable

339

327

Foreign currency translation

793

(3,030)

Reversal of/(provision for) expected credit losses

(1,762)

Reclassified provision to trade and other receivables

1,819

At end of year

45,145

60,832

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

112

FINANCE LEASE RECEIVABLES (continued)

The movement in allowance for expected losses are set out below:

Group

2023

2022

US$’000s

At beginning of year

1,852

(Reversal of)/provision for expected credit losses

(13)

1,762

Reclassified to trade and other receivables

(1,819)

1,852

Finance lease receivables denominated in foreign currencies are as follows:

Group

2023

2022

US$’000s

Euro

19,656

21,301

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

113

GOODWILL

Group

2023

2022

US$’000s

Cost:

At beginning and end of year

2,384

Allowance for impairment:

At beginning and end of year

482

Net carrying amount:

At beginning and end of year

1,902

Impairment test of goodwill

Goodwill is allocated to the cash generating unit ("CGU") of the Group which is the aircraft leasing

business.

The recoverable amount of the CGU has been determined based on value-in-use calculations. Cash

flow projections used in the value-in-use calculations were based on financial budgets approved

by management covering a five-year period.

Key assumptions used for value-in-use calculations:

2023

2022

Average cash flow growth rate

2.0

Terminal growth rate

2.0

Discount rate

6.0

Management determined cash flow growth based on past performance and its expectations of

market development. The terminal growth rate of 2% that was used to extrapolate cash flows

beyond the budget period did not exceed the long term average growth rate for the business in

which the CGU operates. Management has estimated that the recoverable amount of the CGU is

US$211.4 million (2022: US$207.2 million).

Management believes that no reasonably possible change in any of the above key assumptions

would cause the carrying value of the CGU to materially exceed its recoverable amount.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

114

INVESTMENT IN SUBSIDIARIES

Company

2023

2022

US$’000s

Unquoted equity shares, at cost

At beginning of year

3,328

14,147

Return of capital

(10,819)

At end of year

3,328

During the previous year, the Company’s subsidiary, Capital Lease Aviation Limited, distributed a

dividend and returned US$10.8 million to the Company.

Details of subsidiaries are as follows:

Name of entity

Country of

incorporation

Principal

activities

Ownership interest

2023

2022

Held directly by the Company:

Avation Capital S.A.

Luxembourg

Financing

100.00

Capital Lease Aviation Limited

United Kingdom

Aircraft leasing

99.68

Avation Group (S) Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Leasing (Asia) Limited

Ireland

Aircraft leasing

100.00

AVAP Leasing (Asia) II Limited

Ireland

Aircraft leasing

100.00

AVAP Leasing (Asia) III Limited

Ireland

Aircraft leasing

100.00

AVAP Leasing (Asia) IV Limited

Ireland

Aircraft leasing

100.00

Capital MSN 4033 II Limited

Ireland

Aircraft leasing

100.00

Held by Capital Lease Aviation Limited:

Capital Lease Malta Ltd.

(a)

Malta

Aircraft leasing

99.68

Capital MSN 4033 Limited

Ireland

Aircraft leasing

99.68

Held by Avation Eastern Fleet Pte. Ltd.:

Airframe Leasing (S) Pte. Ltd.

Singapore

Aircraft leasing

100.00

Airframe Leasing (S) II Pte. Ltd.

(b)

Singapore

Aircraft leasing

100.00

Held by Avation Eastern Fleet II Pte. Ltd.:

Airframe Leasing (S) II Pte. Ltd.

Singapore

Aircraft leasing

100.00

Held by Avation Eastern Fleet III Pte. Ltd.:

Airframe Leasing (S) III Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

115

INVESTMENT IN SUBSIDIARIES (continued)

Name of entity

Country of

incorporation

Principal

activities

Ownership

interest

2023

2022

Held by Avation Group (S) Pte. Ltd.:

Avation Eastern Fleet Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Eastern Fleet II Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Eastern Fleet III Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Pacific Leasing Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Pacific Leasing II Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Taiwan Leasing II Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Taiwan Leasing III Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Leasing (Europe) II Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Leasing (Europe) III Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Leasing (Europe) VI Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Leasing (Europe) VII Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Leasing (Europe) VIII Pte. Ltd

Singapore

Aircraft leasing

100.00

AVAP Leasing (Europe) IX Pte. Ltd.

Singapore

Aircraft leasing

100.00

F100 Fleet Pte. Ltd.

Singapore

Aircraft leasing

100.00

MSN 1607 Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Aircraft Trading Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Aircraft Trading II Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Aircraft Trading III Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Asia Fleet Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Asia Fleet II Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Asia Fleet III Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Denmark Leasing Pte. Ltd.

Singapore

Aircraft leasing

100.00

Avation Capital II Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Leasing (Asia) VI Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Aircraft Leasing Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Aircraft Leasing II Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Aircraft Leasing III Pte. Ltd.

Singapore

Aircraft leasing

100.00

AVAP Aircraft Leasing IV Pte. Ltd.

Singapore

Aircraft leasing

100.00

(a)

In the process of being struck off

(b)

During the previous year, Airframe Leasing (S) II Pte. Ltd. issued shares to Avation Eastern

Fleet Pte. Ltd. The share issuance resulted in Avation Eastern Fleet Pte. Ltd. becoming the

immediate holding company.

All companies as at 30 June 2023 are audited by member firms of Ernst & Young except for the

following:

(a) Audited by Moore, Malta

The registered office address of the companies incorporated in the following countries are as follows:

Ireland - 32 Molesworth Street, Dublin 2 D02 Y512, Ireland.

Luxembourg - 46A, Avenue J. F. Kennedy, L-1855 Luxembourg.

Malta – 15, Level 2 Corporate Suites, Naxxar, Birkirkara, BKR 9048, Malta.

Singapore - 65 Kampong Bahru Road, Singapore 169370.

United Kingdom - 5 Fleet Place, London EC4M 7RD, United Kingdom.

For all non-controlling interests, voting rights not controlled by the group are equivalent to

ownership interests.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

116

DERIVATIVE FINANCIAL ASSETS/LIABILITIES AND HEDGING

Contract/

notional amount

Fair value

Group

2023

2022

2023

2022

US$’000s

Derivative financial assets -current

Interest rate swap – current

3,531

Derivative financial assets -non-

current

Interest rate swap

220,110

248,384

12,847

5,470

Cross-currency interest rate swap

4,000

595

450

224,110

252,384

13,442

5,920

Derivative financial liabilities

Warrants

1,632

1,055

Contract/

notional amount

Fair value

Company

2023

2022

2023

2022

US$’000s

Derivative financial assets – non-

current

Interest rate swap

64,250

70,750

3,399

1,281

Derivative financial liabilities

Share warrants

1,632

1,055

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 determines the economic relationship between the finance lease income, loans and

borrowings and the derivative by matching the critical terms of the hedging instrument with the

terms of the hedged item. The hedge ratio (the ratio between notional amount of the derivative

financial instrument to the amount of the finance lease income and loans and borrowings being

hedged) is determined to be 1:1. There were no expected sources of ineffectiveness on the Group’s

hedges as the critical terms of the derivative match exactly with the terms of the hedged item.

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 or 1-month SOFR or 3-month EURIBOR 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.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

117

DERIVATIVE FINANCIAL ASSETS/LIABILITIES AND HEDGING (continued)

The swap contracts mature between 27 December 2023 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 gain net of tax of US$6.8 million (2022:

gain of US$20.5 million) on these derivative financial instruments was recognised in the fair value

reserve for the year.

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 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 (that is, as prices) or indirectly

(that is, derived from prices) are included as inputs for the determination of fair value.

The Group entered into Euro denominated lease agreements which create exposure to variability in

cash flows due movements in the EUR:USD exchange rate.

To hedge its exposure to variable cash

flows resulting from changes in EUR:USD spot rates, the Group has arranged Euro denominated

financing which reduces overall exposure to variable cash flows to the extent that lease receipts and

debt service cashflows are matched. The Group is making use of a non-derivative hedging

instrument and has designated the cash flows with respect to the loan interest and principal

repayment (hedging instrument) against a specific portion of the lease receivable (hedged item).

Unrealised foreign exchange gains and losses arising on Euro denominated loans designated as

cash flow hedges are recognised in the foreign currency hedge reserve.

Unrealised foreign

exchange gains and losses recorded in the foreign currency hedging reserve are systematically

re-cycled through profit or loss over the remaining term of the related loan on a straight-line basis.

The Group determine the hedging relationship between the hedging instruments and the hedged

item on a number of criteria including the reference interest rates, tenors, repricing dates and

maturities and to notional or par amounts.

The Group assesses whether the derivative designated

in each hedging relationship is expected to be effective in offsetting changes in cash flows of the

hedged item using the hypothetical derivative method.

In these hedge relationships, the main

sources of ineffectiveness are:

Differences in the pricing dates between the swaps and the borrowings

Differences in the timing of the cash flows of the hedged items and the hedging requirements

The counterparties’ credit risk differently impacting the fair value movements of the hedging

instruments and the hedged items

Changes to the forecasted amount of cash flows of hedged items and hedging instruments

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

118

DERIVATIVE FINANCIAL ASSETS/LIABILITIES AND HEDGING (continued)

During the year 30 June 2023, the effect of the cash flow hedge in the consolidated statement of

profit or loss and consolidated statement of other comprehensive income was as follows:

Total hedging

gain/(loss)

recognised in

OCI, net of

tax

Amount

reclassified

from

OCI to profit

or (loss)

Line item

in the

statement of

profit or loss

Group

US$’000s

Interest rate swap

6,649

2,995

Finance expense

Cross currency swap

144

(147)

Finance expense

Foreign currency hedge

(6,383)

6,281

Other income

410

9,129

During the year 30 June 2022, the effect of the cash flow hedge in the consolidated statement of

profit or loss and consolidated statement of other comprehensive income was as follows:

Total hedging

gain/(loss)

recognised in

OCI, net of

tax

Amount

reclassified

from

OCI to profit

or (loss)

Line item

in the

statement of

profit or loss

Group

US$’000s

Interest rate swap

19,804

(5,371)

Finance expense

Cross currency swap

691

(159)

Finance expense

Foreign currency hedge

14,892

140

Other income

35,387

(5,390)

The share warrants consist of 5,857,408 (2022: 5,857,408) share warrants granted to the holder

of the unsecured notes to subscribe for ordinary shares of the Company exercisable to 31 October

2026 at a price of 114.5 pence per share (including cashless exercise option).

The share warrants were valued based on level 1 quoted prices (unadjusted) in an active market

for the year ended 30 June 2023.

The share warrants were valued using a binomial option pricing model for the year ended 30 June

2022.

Expected volatility is based on the historical share price volatility over the previous twelve

months.

The share warrants were listed on the London Stock Exchange on 24 June 2022 and are valued

based on the quoted prices as of 30 June 2023.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

119

AIRCRAFT PURCHASE RIGHTS

Group and Company

2023

2022

US$’000s

Aircraft purchase rights, at fair value:

At beginning of year

65,280

26,960

Unrealised gain

20,540

38,320

At end of year

85,820

65,280

The Group holds 28 purchase rights to acquire additional ATR 72-600 aircraft from the manufacturer.

The purchase rights are available for aircraft to be delivered on or before the end of June 2027.

The Group has determined that it would seek to dispose of excess aircraft purchase rights over and

above its requirement to acquire additional aircraft for its fleet.

The Group accounts for aircraft

purchase rights at fair value through profit or loss. Disclosures about the fair value measurement of

aircraft purchase rights at fair value are included in Note 6.

INVESTMENT IN EQUITY, FAIR VALUE THROUGH PROFIT OR LOSS

Group

2023

2022

US$’000s

Non-listed equity, at fair value

At beginning of year

3,715

Additions

3,715

Unrealised gain

7,520

At end of year

11,235

3,715

During the previous year, the Group received 8,014,602 ordinary shares from an airline customer

as part of the airline’s restructuring plan.

The Group entered into an agreement to exchange 8,014,602 ordinary shares in Philippine

Airlines, Inc. with 124,787,353 ordinary shares in PAL Holdings, Inc. during the year. The

exchange of shares is expected to be completed in the first quarter of 2024.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

120

INVESTMENT IN DEBT INSTRUMENT, FAIR VALUE THROUGH PROFIT OR LOSS

Company

2023

2022

US$’000s

Listed debt instrument, at fair value

At beginning of year

5,925

6,089

Additions

3,305

Disposal

(10,088)

Fair value gain/(loss)

858

(164)

At end of year

5,925

As of 30 June 2023, the Company did not hold any unit of its subsidiary, Avation Capital SA’s

8.25% unsecured notes (2022: 7,475,842 units).

LEASE INCENTIVE ASSETS

Group

2023

2022

US$’000s

Current

1,643

137

Non-current

4,686

310

6,329

447

At beginning of year

447

8,038

Additions

1,042

Transfer from/(to)asset held for sale

6,208

(6,208)

Amortisation to profit or loss

(1,368)

(1,383)

At end of year

6,329

447

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

121

CASH AND BANK BALANCES

Group

Company

2023

2022

2023

2022

US$’000s

Fixed term deposits

62,306

Other cash and bank balances

54,599

119,171

671

9,709

Total cash bank balances

116,905

119,171

671

9,709

Less : restricted

(90,864)

(83,904)

Less : investment in fixed term deposits

(1,225)

Cash and cash equivalents

24,816

35,267

671

9,709

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

obligations.

The rate of interest for cash on interest earning accounts is approximately 0.20% to 5.46% (2022:

0.01% to 0.25%) per annum.

Cash and bank balances denominated in foreign currencies are as follows:

Group

Company

2023

2022

2023

2022

US$’000s

Pound sterling

141

150

Australian dollar

102

Euro

7,446

6,298

Singapore dollar

364

278

171

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

122

ASSETS HELD FOR SALE AND LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS

HELD FOR SALE

The Group’s aircraft which met the criteria to be classified as assets held for sale and the

associated liabilities were as follows:

Group

2023

2022

US$’000

US$’000s

Assets held for sale:

Property, plant and equipment - aircraft

At beginning of year

100,500

66,300

Additions

26,250

100,500

Impairment loss

(1,000)

Disposal

(40,750)

(65,300)

Transfer to property, plant and equipment

(78,000)

At end of year

8,000

100,500

Other receivables

6,547

Lease incentive asset

6,208

113,255

Liabilities directly associated with assets

held for sale:

Deposit collected

935

Lessor maintenance contribution

8,769

Maintenance reserves

5,442

15,146

During the year, two jet aircraft were transferred to property plant and equipment when the

proposed sale of the aircraft was cancelled.

During the year, the board of directors decided to sell one turboprop aircraft. The sale of aircraft

is expected to be completed within a year from reporting date. The aircraft was measured at fair

value less cost to sell at the date of transfer to assets held for sale.

During the year, the Group sold two turboprop aircraft and one jet aircraft.

During the previous year, an impairment loss of US$1.0 million was recognised to write down the

book value of 3 turboprop aircraft classified as held for sale in year ended 30 June 2021 to current

market value prior to the sale.

During the year, maintenance reserves of US$3.1 million (2022: US$1.8 million) were released to

profit or loss as revenue following the sale of the aircraft.

Other receivables of US$6.5 million was interest bearing as of 30 June 2022.

Interest was charged

at 5.5% per annum.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

123

SHARE CAPITAL AND TREASURY SHARES

(a)

Share capital

2023

2022

No of shares

US$’000s

No of shares

US$’000s

Allotted, called up and fully paid

Ordinary shares of 1 penny each:

At beginning of the year

71,698,124

1,203

71,698,124

1,203

Issue of shares

1,495,000

Cancellation

(2,310,000)

(39)

At end of the year

70,883,124

1,182

71,698,124

1,203

During the year, the Company issued 1,495,000 ordinary shares of 1 penny each at 101.25

pence following the exercise of warrants by warrant holders raising total gross proceeds of

US$1.9 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

2023

2022

No of shares

US$’000s

No of shares

US$’000s

At beginning of the year

2,210,000

7,811

2,210,000

7,811

Acquired during the year

100,000

Cancellation

(2,310,000)

(7,905)

At end of the year

2,210,000

7,811

During the year, the Company bought 100,000 treasury shares at a market price of 77.2

pence per share and subsequently cancelled 2,310,000 treasury shares.

(c)

Net asset value per share

2023

2022

Net asset value per share (US$)

(1)

$3.41

$3.27

Net asset value per share (GBP)

(2)

£2.69

£2.68

(1)

Net asset value per share is total equity divided by the total number of shares in issue excluding

treasury shares at period end.

(2)

Based on GBP:US$ exchange rate as at 30 June 2023 of 1.27 (30 June 2022 : 1.22)

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

124

ASSET REVALUATION RESERVE

Group

2023

2022

US$’000s

At beginning of year

51,730

37,602

Revaluation (loss)/gain

(1,080)

17,549

Deferred tax credit/(charge)

114

(1,340)

Release of revaluation reserve upon sale of aircraft

(2,081)

At end of year

50,764

51,730

OTHER RESERVES

Group

Company

2023

2022

2023

2022

US$’000s

Capital redemption reserve

Warrant reserve

2,835

2,389

2,835

2,389

Fair value reserve

9,734

2,941

447

(1,312)

Foreign currency hedge reserve

2,449

8,832

15,069

14,174

3,333

1,089

Capital redemption reserve comprises of the par value of the cancelled treasury shares.

Warrant reserve comprises the cumulative value of services received from employees recorded

on grant of equity-settled share warrants.

The expense for service received is recognised over

the vesting period.

Fair value reserve represents the portion of the fair value changes (net of tax) on derivative

financial instruments designated as hedging instruments in cash flow hedges that is determined

to be an effective hedge.

Foreign currency hedge reserve represents the unrealised foreign exchange gains and losses

arising on Euro denominated loans designated as cash flow hedges. Unrealised foreign exchange

gains and losses recorded in the foreign currency hedging reserve are systematically re-cycled

through profit or loss over the remaining term of the related loan on a straight-line basis.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

125

OTHER RESERVES (continued)

Movements in other reserves are as follows:

Group

Company

2023

2022

2023

2022

US$’000s

Capital redemption reserve:

At beginning the year

Cancellation of treasury shares

At end of the year

Warrant reserve:

At beginning the year

2,389

2,220

2,389

2,220

Employee share warrant scheme:

Value of employee services

1,142

1,423

1,142

1,423

Issue of shares

(506)

Expired

(190)

(1,254)

(190)

(1,254)

At end of the year

2,835

2,389

2,835

2,389

Fair value reserve:

At beginning the year

2,941

(17,554)

(1,312)

(6,282)

Effective portion of changes in fair value

9,641

14,965

2,634

3,380

Net change in fair value reclassified to

profit or loss

(2,848)

5,530

(875)

1,590

At end of the year

9,734

2,941

447

(1,312)

Foreign currency hedge reserve:

At beginning the year

8,832

(6,060)

Effective portion of changes in fair value

(102)

15,032

Net change in fair value reclassified to

profit or loss

(6,281)

(140)

At end of the year

2,449

8,832

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

126

LOANS AND BORROWINGS

Group

Company

2023

2022

2023

2022

US$’000s

Secured borrowings

452,511

531,930

72,742

129,439

Unsecured notes (a)

303,465

296,200

755,976

828,130

72,742

129,439

Less: current portion of borrowings

(61,401)

(63,900)

(13,207)

(16,353)

694,575

764,230

59,535

113,086

Maturity

Weighted average

interest rate per annum

2023

2022

2023

2022

Secured borrowings

2024-2031

2023-2031

4.52%

4.0%

Unsecured notes (a)

2026

8.25%

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.

The Group incurred transaction costs and upfront fees of US$0.7 million during the year (2022:

US$0.4 million) that are capitalised into loans and borrowings.

During the year, the Group increased its secured borrowings by US$43.0 million (2022: US$17.1

million) to fund its business operations.

During the year, the Group repaid its secured borrowings and repurchased its unsecured notes

amounting to US$135.1 million (2022: US$140.4 million).

During the previous year, the Group extended the maturity date of the loans due on August 2022

to September 2026. A loss on debt modification of US$3.5 million was recognised in the statement

of profit or loss during the previous year.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

127

LOANS AND BORROWINGS (continued)

Secured loans and borrowings denominated in foreign currencies are as follows:

Group

Company

2023

2022

2023

2022

US$’000s

Euro

113,961

136,469

42,854

(a)

In May 2015, the Company through its wholly-owned subsidiaries, Avation Capital S.A. and

Avation Group (S) Pte. Ltd. (together, "the Issuers") established a US$500 million global

medium term note programme (the "Programme") guaranteed by the Company.

Under the Programme, the Issuers may from time to time issue Notes (the “Notes")

denominated in any currency as agreed.

All Notes issued under the Programme are listed on

the Singapore Stock Exchange (“SGX”).

During the year, the Company repurchased US$4.4 million unsecured notes through the

market at a price of 75.25 US cents and US$7.1 million through a tender offer at a price of

86.0 US cents.

During the year ended 30 June 2021, the Company reached agreement with the holders of

its unsecured notes for a maturity extension and the following are the key terms of the

extension:

Maturity extension of the notes from 15 May 2021 to 31 October 2026;

Cash coupon of 6.5% with, at the Company’s option, an additional 2.5% payment in kind

coupon or an additional 1.75% cash coupon;

Early bird consent fee of up to 75bps; late consent fee of 25bps

Bondholders receive 6,000,000 warrants to subscribe for ordinary shares exercisable to

31 October 2026 at a price of 114.5 pence per share (including cashless exercise option);

The notes are callable at any time during their 5.5 year remaining duration, with the call

premium decreasing to par during year 5; and

A general strengthening of the Notes’ covenants and the granting of additional guarantees

and security.

The maturity extension of the unsecured note resulted in a gain on debt modification of US$50.3

million during the year ended 30 June 2021.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

128

TRADE AND OTHER PAYABLES

Group

Company

2023

2022

2023

2022

US$’000s

Current:

Trade payables

734

2,218

444

191

Other payables:

- subsidiaries

9,054

17,354

- third parties

137

276

251

Deposits collected

864

1,120

316

120

Deferred lease income

621

607

Lease liability

280

284

Revenue received in advance

6,310

4,584

Accrued expenses

8,221

6,851

405

281

17,167

15,940

10,403

18,291

Non-current:

Other payables:

- subsidiaries

54,919

32,329

Deposits collected

15,907

13,692

Deferred lease income

3,179

3,776

Lease liability

399

106

130

Accrued expenses

700

20,185

18,274

55,749

33,061

Other payables due to subsidiaries includes interest bearing payables of US$56.7 million (2022:

US$34.3 million) which are unsecured, with fixed repayment terms, and bear interest at 5.8% to

8.2% (2022: 5.8% to 8.2%) per annum. Amounts due to subsidiaries without fixed repayment

terms are payable on demand.

The average credit period taken to settle non-related party trade payables is approximately 30 to

60 days.

Deposits collected are security deposits collected from customers in respect of aircraft lease

commitments, and have been discounted to present value at a current pre-tax rate that reflect the

risks specific to these deposits.

Deposits will be refunded at the end of the respective lease term.

Trade and other payables denominated in foreign currencies are as follows:

Group

Company

2023

2022

2023

2022

US$’000s

Pound sterling

208

159

Australian dollar

1,194

1,059

Euro

3,725

3,621

288

270

Singapore dollar

604

570

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

129

MAINTENANCE RESERVES

Group

2023

2022

US$’000s

Current:

Maintenance reserves

61,456

10,156

Non-current:

Maintenance reserves

44,193

72,607

Maintenance lease contribution

10,394

2,524

54,587

75,131

Total maintenance reserves

116,043

85,287

Group

2023

2022

US$’000s

At beginning of year

85,287

101,481

Contributions

29,152

13,109

Utilisations

(7,544)

(3,730)

Released to profit or loss

(1,943)

(11,362)

Transfer from liabilities directly associated with assets held for sale

11,091

Transfer to liabilities directly associated with assets held for sale

(14,211)

At end of the year

116,043

85,287

During the year, maintenance reserves of US$1.9 million (2022: US$11.4 million) were released to

profit or loss as revenue following recovery from airline customers.

Maintenance lease contribution represents the contractual obligations of the Group to contribute to

the lessee’s costs for aircraft maintenance.

The Group also holds letters of credit for US$12.0 million (2022: US$13.7 million) as security for

lessees’ obligations under operating leases for the maintenance of aircraft.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

130

DEFERRED TAX LIABILITIES

Recognised deferred tax liabilities are attributable to the following:

Group

Company

2023

2022

2023

2022

US$’000s

Property, plant and equipment

5,986

5,926

Aircraft purchase rights

13,010

9,948

13,010

9,948

Gain on debt modification

6,597

9,498

Cash flow hedge

847

(268)

26,440

25,437

13,102

9,680

Movements in temporary differences are as follows:

Group

Property,

plant and

equipment

Aircraft

purchase

rights

Gain on debt

modification

Cash flow

hedge

Total

US$’000s

2023

At beginning of the year

5,926

9,948

9,498

25,437

Recognised in profit or loss

174

3,062

(2,901)

335

Recognised in equity

(114)

782

668

At end of the year

5,986

13,010

6,597

847

26,440

2022

At beginning of the year

2,750

4,006

12,503

(2,121)

17,138

Recognised in profit or loss

1,836

5,942

(3,005)

4,773

Recognised in equity

1,340

2,186

3,526

At end of the year

5,926

9,948

9,498

25,437

Company

Aircraft

purchase

rights

Cash flow

hedge

Total

US$’000s

2023

At beginning of the year

9,948

(268)

9,680

- Recognised in profit or loss

3,062

- Recognised in equity

360

At end of the year

13,010

13,102

2022

At beginning of the year

4,006

(1,286)

2,720

- Recognised in profit or loss

5,942

- Recognised in equity

1,018

At end of the year

9,948

(268)

9,680

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

131

SHARE BASED PAYMENTS

The Group has an ownership-based compensation scheme for all employees of the Group.

Each share warrant converts into one ordinary share of Avation PLC on exercise. No amounts are

paid or are payable by the recipient on receipt of the warrant. The warrants carry neither rights

to dividends nor voting rights.

Warrants are granted to employees of the Group to promote:

Improvement in share price;

Improvement in the Company’s earnings per share;

Reliable and high quality financial reporting;

Growth in asset value and profits; and

Growth in dividends.

Movement in warrants during the year

The following table illustrates the number (No.) and weighted average exercise prices in GBP

pence (WAEP) of, and movements in, warrants during the year:

2023

2022

No.

WAEP

No.

WAEP

Outstanding at beginning of the year

5,480,000

120.8p*

8,086,665

179.4p

- Granted

3,450,000

107.0p

- Exercised

(1,495,000)

101.3p

- Expired

(385,000)

110.6p

(2,606,665)

177.3p

Outstanding at end of the year

7,050,000

118.7p

5,480,000

180.4p

Exercisable at end of the year

2,400,003

130.0p

2,411,677

206.4p

*The beginning WAEP for the outstanding warrants is re-adjusted due to re-pricing of warrants on

14 October 2022 for warrants granted on 21 September 2019 and 21 November 2019 from

exercise price of 296 pence and 274.5 pence respectively to 101.25 pence.

The weighted average fair value of warrants granted during the year was 33.5 pence (2022: Nil

pence). The charge recognised in profit or loss in respect of share based payments is US$1.1

million (2022: US$1.4 million).

During the year, 1,495,000 warrants were exercised (2022: Nil).

Warrants outstanding at the end of the year have the following expiry date and exercise price:

Warrant series granted on

Expiry date

Exercise

price

Number of warrants

(extended

expiry date)

(re-priced)

2023

2022

20 September 2019

21 Oct 2022

296.0p

1,053,000

(21 Jan 2023)

(101.25p)

21 November 2019

22 Dec 2022

274.5p

702,000

(22 Mar 2023)

(101.25)

23 December 2020

23 Jan 2024

130.0p

3,600,000

3,725,000

29 September 2022

29 Nov 2025

102.0p

2,735,000

2 March 2023

2 May 2026

126.0p

715,000

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

132

SHARE BASED PAYMENTS (continued)

Warrants granted on 20 September 2019 have a 3-year vesting schedule with details as follows:

Vesting period

Proportion of total share options that are

exercisable

Before 21 September 2020

0 per cent

On 21 September 2020 and before 21 September 2021

Up to 33 per cent of the grant

On 21 September 2021 and before 21 September 2022

Up to 33 per cent of the grant

up to 66 per

cent of the grant if warrants were not exercised

after the first vesting year

On 21 September 2022 to 21 October 2022

Balance

100 per cent of the grant if warrants

were not exercised after the first and second

vesting years

The exercise price for the warrants granted on 20 September 2019 was re-priced on 14 October

2022 from 296.0 pence to 101.25 pence.

The warrant expiry date extended to 21 January 2023.

Warrants granted on 21 November 2019 have a 3-year vesting schedule with details as follows:

Vesting period

Proportion of total share options that are

exercisable

Before 22 November 2020

0 per cent

On 22 November 2020 and before 22 November 2021

Up to 33 per cent of the grant

On 22 November 2021 and before 22 November 2022

Up to 33 per cent of the grant

up to 66 per

cent of the grant if warrants were not exercised

after the first vesting year

On 22 November 2022 to 22 December 2022

Balance

100 per cent of the grant if warrants

were not exercised after the first and second

vesting years

The exercise price for the warrants granted on 21 November 2019 was re-priced on 14 October

2022 from 274.5 pence to 101.25 pence.

The warrant expiry date extended to 22 March 2023.

Warrants granted on 23 December 2020 have a 3-year vesting schedule with details as follows:

Vesting period

Proportion of total share options that are

exercisable

Before 23 December 2021

0 per cent

On 23 December 2021 and before 23 December 2022

Up to 33 per cent of the grant

On 23 December 2022 and before 23 December 2023

Up to 33 per cent of the grant or up to 66 per

cent of the grant if warrants were not exercised

after the first vesting year

On 23 December 2023 to 23 January 2024

Balance or 100 per cent of the grant if warrants

were not exercised after the first and second

vesting years

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

133

SHARE-BASED PAYMENTS (continued)

Warrants granted on 29 September 2022 have a 3-year vesting schedule with details as follows:

Vesting period

Proportion of total share options that are

exercisable

Before 29 September 2023

0 per cent

On 29 September 2023 and before 29 September 2024

Up to 33 per cent of the grant

On 29 September 2024 and before 29 September 2025

Up to 33 per cent of the grant or up to 66 per

cent of the grant if warrants were not exercised

after the first vesting year

On 29 September 2025 to 29 November 2025

Balance or 100 per cent of the grant if warrants

were not exercised after the first and second

vesting years

Warrants granted on 2 March 2023 have a 3-year vesting schedule with details as follows:

Vesting period

Proportion of total share options that are

exercisable

Before 2 March 2024

0 per cent

On 2 March 2024 and before 2 March 2025

Up to 33 per cent of the grant

On 2 March 2025 and before 2 March 2026

Up to 33 per cent of the grant or up to 66 per

cent of the grant if warrants were not exercised

after the first vesting year

On 2 March 2026 to 2 May 2026

Balance or 100 per cent of the grant if warrants

were not exercised after the first and second

vesting years

The warrants were valued using a binomial option pricing model. Where relevant, the expected

life used in the model has been adjusted based on management’s best estimate for the effects of

non-transferability, exercise restrictions (including the probability of meeting market conditions

attached to the option), and behavioural considerations. Expected volatility is based on the

historical share price volatility over the previous twelve months.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

134

SHARE-BASED PAYMENTS (continued)

Warrant series

granted on

2 March 2023

Warrant series

granted on

29 September 2022

Warrant series

granted on

23 December 2020

Inputs into the model:

Grant date share price

126.0 pence

102.0 pence

132.5 pence

Exercise price

126.0 pence

102.0 pence

130.0 pence

Expected volatility

45.11%

42.96%

77%

Warrant life

3 years

Dividend yield

0.00%

0.90%

Risk free interest rate

3.70% to 3.73%

4.36% to 4.44%

-0.08% to -0.06%

Warrant series

granted on

21 November 2019

(Repriced on 14

October 2022)

Warrant series

granted on

20 September 2019

(Repriced on 14

October 2022)

Inputs into the model:

Grant date share price

274.5 pence

296.0 pence

Re-priced date share price

97.5 pence

Exercise price

101.25 pence

Expected volatility

44.27%

Warrant life

0.43 years

0.26 years

Dividend yield

0.00%

Risk free interest rate

2.83% to 3.02%

2.48%

CAPITAL COMMITMENTS

Capital expenditure contracted for at the reporting date but not recognised in the financial

statements is as follows:

Group and Company

2023

2022

US$’000s

Property, plant and equipment

32,761

31,230

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 the year end, the Group has commitments to purchase two ATR 72-600 aircraft from the

manufacturer with expected delivery dates in 2024.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

135

OPERATING LEASE COMMITMENTS

The Group leases out aircraft under operating leases. The future minimum undiscounted lease

payments under non-cancellable leases are as follows:

Group

2023

2022

US$’000s

Within one year

92,461

86,929

One to two years

88,630

88,669

Two to three years

79,315

86,070

Three to four years

65,948

77,313

Four to five years

52,466

64,371

Later than five years

63,977

112,713

442,797

516,065

The Group holds cash deposits of US$20.1 million (2022: US$19.9 million) and letters of credit for

US$3.5 million (2022: US$3.0 million) as security for lessees’ obligations under operating leases.

CONTINGENT LIABILITIES

Company

2023

2022

US$’000s

Guarantees

800,448

881,256

The maximum estimated amount that the Company could become liable for under guarantees for

loans and borrowings is as shown above.

AVATION PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

136

ULTIMATE HOLDING COMPANY

No party controls the Company.

SUBSEQUENT EVENTS

On 5 October 2023 the Company terminated a lease agreement for a 12-year old ATR 72-500

aircraft by agreement with the lessee.

On 9 October 2023 the Company entered into an agreement to sell the aircraft referred to above.

APPROVAL OF FINANCIAL STATEMENTS

The financial statements of the Company and the consolidated financial statements of the Group for

the year ended 30 June 2023 were authorised for issue by the Board of Directors on 26 October

2023.

AnnuAl RepoRt

2023

65 Kampong Bahru Road

Singapore 169370

www.avation.net

Reuters/BBG

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