Independent company Avia Solutions Group (ASG) believes its Boeing Max 8 order will reduce its dependence on the operating leasing market.

The independent, Dublin-headquartered aircraft leasing entity placed an order for 40 Max 8s along with 40 options on 12 November, becoming the first ACMI provider to place a new passenger aircraft order.

In an exclusive interview with Airfinance Global, chairman Gediminas Ziemelis says the ACMI company will start taking deliver of its Max 8 aircraft in late 2030.

He reveals that the orderbook stretches over a three-year period.

The independent organisation has worked on capacity projections as it intends to grow the business again from 2027 onwards.

Avia's aircraft wetleasing (ACMI) business, which was the most affected business in 2020, has rebounded strongly and grown close to four times from its pre-pandemic levels. This has been driven by a change in major airlines' strategies to increase their operational flexibility through a larger share of their fleet being leased, amid an ongoing shortage in aircraft availability on the back of OEM delays.

“We have brought the ACMI market to a new level,” says Ziemelis.

“The ACMI industry has worked historically as a cyclical business to move capacity between their countercyclical continents, and this will continue.”

He says Europe accounted for 1.2 billion passengers pre-Covid and “this year we might be close to that level out of 4.5 billion passengers”. 

“There is no bigger market in the world than Europe so for us to have the same size of the market in winter, we need to be at least in 10 countries,” he comments.

“Our equity story dates back from 2018 and we decided to creating our own AOCs across the counter-cyclical countries to Europe to have our foodprint with local business, local management to operate the aircraft in those markets. This makes our product different from others.”

Avia Solutions Group has now 14 AOCs and expects by the end of next year to own around 20-21 AOCs.
ASG owns a maintenance operation to switch interiors according to brand. “We can switch full economy to economy-business within two days to serve LCC and legacy carriers.

“We have built up an infrastructure and currently we have a 220-aircraft fleet and we could represent approximately 50% of the ACMI addressable market by 2030.”

A Mackenzie research shows that the addressable market on the ACMI market globally provides 1,500 aircraft or 6% of the global fleet.

“This pushed us to think about new technology aircraft as customers are willing to operate them. In the meantime we are aiming to provide more than 4,000 block hours per year under our development plan.”

But Ziemelis also observes that after 2029, about 90% of OEM orders are placed with airlines. 

“This means that for us it might be challenging to get new technology aircraft in the open market unless somebody will go under. Airbus told us they have no slots available until 2032.”

Ziemelis says the economics were also part of the Boeing order but he recalls that two AOCs, Smartlynx and Ascend, operate 14 Max 8 aircraft.

“We know this aircraft but we don’t know the A320neo model as we operate A320ceo family within ASG.”

Ziemelis estimates that A320ceo will be available in the market by 2026-27.

His vision is not to rely on the leasing market for new aircraft, “in the sense that if you need to source capacity in 2030, you want to be in control of your own destiny in having new aircraft into the system”. 

“It is so much unpredictable now and we don’t know what the situation will be by 2030. So for us it makes sense to have aircraft on order. It is a logical and strategic decision.”

Growth 2027 onwards
Since 2019 Avia Solutions Group has grown four times in size. 

“Next year our growth will be slower. We plan to operate a fleet of 2035 aircraft by the end of 2025,” he says.

Ziemelis says the group plans to acquire aircraft and use green time on some assets and then transfer some for maintenance or sell for part-out.

“We are not constrained to buy aircraft and it's a leverage versus high lease rentals. We plan to operate some aircraft and sell for part-out.” 

Ziemelis believes Avia Solutions will be in a better position to grow the business in 2027 and 2028 and acquire assets. “We could add 100 aircraft by finalising several acquisitions through AOCs, and therefore we are not actively seeking aircraft under operational leases over the next three years.”

The company has also been aggressive in its strategy by acquiring AOCs to accelerate its footprint.

Earlier this year Avia acquired Australian airline Skytrans, which operates 11 turboprops on regular public transport routes, as well as providing charter services. That acquisition gives Avia an Australian air operator’s certificate, allowing it to operate both passenger and cargo services in the country.

“We decided to not start from zero but with a small carrier to save time.”

He says Avia Solutions plans to submit A320 family types for next year.

“We start to operate three Airbus A319s from the first quarter of 2025 there.”

Avia Solutions also bought a small UK operation last year and performed its first summer with Boeing 737-800/Max 8s.

“We plan a six-aircraft operation for the 2025 summer season at Ascend.”

Ziemelis says the UK operation could absorb up to 10 aircraft but the seasonality constraints along with current high lease rates will prevent committing more capacity.

Credit story
Ziemelis says the business can fund itself and pre-delivery payments could also be sourced using internal cash.

“Then financing the orderbook will probably involve sale and leaseback transactions,” he says, adding that ASG is in no rush to look at financing the order.

Avia Solutions issued a $300 million unsecured bond this year, at a 9.75% coupon under Rule 144A/Regulation S. The transaction was a refinancing of the company’s inaugural bond issuance. 

The company debuted in the high-yield bond market in the final quarter of 2020 with a four-year term 7.875% bond.

“We think it is expensive, but our group of banks have recommended us to stay in this market. Under our bond issuance, we have an option to refinance again over the next five years.”

The next several years will provide an opportunity to continue improving the company’s credit profile.
Avia Solutions closed the first half of this year with a 34% EBITDAR of €179 million ($190 million) on €1.2 billion revenues.

Its operations span most of the business-to-business segments in the commercial aviation sector, ranging from aircraft maintenance, passenger and cargo charter, leasing, training to aircraft trading.

Avia Solutions continues to generate the majority of its revenues from the developed markets of Germany, UK, Ireland and the USA, and has also expanded into markets in Southeast Asia (Indonesia and Philippines) as well as into Turkey.

European customers accounted for 55% of total revenues, followed by Asia (28%), the Americas (12%) and Africa, Australia and the Pacific region.

“We have our financial projections. Even during Covid, we were profitable at EBITDAR levels,” Ziemelis concludes.