OREANDA-NEWS. Fitch Ratings has affirmed Avation PLC's (Avation) long-term Issuer Default Rating (IDR) at 'B+' and its senior unsecured debt rating at 'B+/RR4'. The Rating Outlook is Stable.

These actions are being taken in conjunction with a broader industry review conducted today by Fitch, which includes five aircraft leasing companies. For more commentary on the broader sector review, please see 'Fitch Completes Aircraft Lessor Peer Review,' available at 'www.fitchratings.com'.

KEY RATING DRIVERS

IDRS AND SENIOR DEBT
The affirmation of Avation's IDR reflects its market position leasing turboprop aircraft in Asia, an aircraft which currently benefits from favorable supply/demand dynamics, consistent operating performance, strong credit metrics and residual realization over time, appropriate liquidity and experienced management team. Ratings also reflect strong underlying secular trends within the aviation industry, including growth in passenger traffic and a continued shift by airlines toward utilizing operating leases to meet their aircraft needs.

These strengths are counterbalanced by Avation's monoline business model with a primary focus on niche aircraft, outsized portfolio concentrations, elevated exposure to lower credit quality lessees within a cyclical industry, limited scale, potential limitations with respect to governance and management depth, reliance on wholesale funding sources and elevated balance sheet leverage, as measured by total gross debt to total tangible common equity.

The company's high proportion of secured funding is also viewed as a rating constraint as it reduces financial flexibility particularly in the event of an economic downturn or other unexpected event. Furthermore, Fitch views execution risk as elevated given the company's planned rapid expansion over the near to intermediate term.

The Stable Outlook reflects Fitch's expectation for limited upward rating momentum over the outlook horizon, particularly given the aforementioned execution risk associated with the company's growth aspirations.

The affirmation of the unsecured debt ratings at 'B+/RR4' maintains the equalization with the company's IDR, reflecting Fitch's continued expectation for average recoveries (i.e. 31 - 50%) for the senior unsecured debtholders.

Avation's current fleet is primarily composed of ATR aircraft, which is viewed by Fitch as a niche aircraft, albeit one with favorable characteristics which have supported demand and residual values to date. Specifically, the ATR is more fuel efficient than a regional jet, has a broad operator base and is less exposed to technological change relative to jets. Avation also benefits from favorable order book positions with respect to future ATR deliveries, which may support performance in the near to medium term. Longer-term, however, Fitch expects Avation's portfolio mix to evolve as existing orders are delivered and the company expands further into jet aircraft.

From an earnings perspective, Avation has been profitable since going public in 2006, with strong lease yields outpacing elevated funding costs. For 2014, Avation reported a return on assets and a return on equity of 2.7% and 11.6%, respectively, supported by an average lease yield of 14.4%.

Avation's leverage and funding profile are viewed as rating constraints given the company's reliance on wholesale funding sources and limited unsecured debt. Pro forma for the company's $100 million unsecured debt issuance in May 2015, Fitch calculates Avation's debt to tangible equity to be 3.9x and its secured debt as a percent of total debt to be 76.6%.

RATING SENSITIVITIES

IDRS AND SENIOR DEBT
Avation's IDR and senior unsecured debt ratings could be positively influenced by improved fleet, geographic and/or lessee diversification provided such actions are undertaken at a moderate pace and do not adversely affect underwriting or pricing terms. Reduced leverage, increased utilization of unsecured funding sources, improved scale efficiencies and continued demonstration of residual value risk management would also be viewed positively.

The ratings could be adversely affected by the credit deterioration of underlying lessees, particularly those which represent a meaningful portion of Avation's portfolio, a significant increase in leverage levels, rapid expansion that is not accompanied by consistent underwriting standards and commensurate growth in capital levels and staffing, deterioration in residual value realizations or an inability to successfully navigate market downturns.

The ratings assigned to the senior unsecured debt could also be notched below Avation's IDR should secured debt increase to such an extent that expected recoveries to the senior unsecured debt were adversely affected.

Avation is a Singapore-headquartered commercial passenger aircraft leasing company focused primarily on turbo prop aircraft in the Asia-Pacific region. As of March 31, 2015, its fleet was comprised of 19 ATR72 500-600s and 10 narrowbody regional jets (A320-321s and F100s). The company was incorporated in England and Wales in 2006 and is listed on the London Stock Exchange under the ticker AVAP.

Fitch has affirmed the following ratings:

Avation PLC
--Long-term IDR at 'B+';
--Senior unsecured debt at 'B+/RR4'.

The Rating Outlook is Stable.