与 Jeremy Raper 复盘 Avation $AVAP

All right. Hello and welcome to a special episode of the Yet Another Value Podcast. I'm your host, Andrew Walker, here again with the man, the myth, the legend, my friend Jeremy Raper. Jeremy, how's it going?

Hey, Andrew. How are you? Thanks for having me again. Good to see you.

We just recorded one episode, but I wanted to do this special episode because, first, a quick disclaimer: nothing on this podcast is investment advice. See the full disclaimer at the end of the podcast. We're going across the pond again for this postmortem, so there's extra risk and all that sort of stuff. Consult a financial adviser.

I wanted to have you on the podcast because there are a lot of public filings. We were involved in aviation. The ticker there is AVAP. It trades in London. Our trades are publicly available because of the way the London Stock Exchange works.

As I've told other people, I thought it was the single, if not the singular—I don't want to be hyperbolic—one of the best. I get pitched all the time on, "Hey, I'm raising a vehicle, a fund of one." I thought this was one of the best activism ideas I've ever seen, and I loved it. I'm glad it worked out.

With the vehicle wrapping up, I wanted to do a postmortem on it. So I'll pause there and turn it over to you. Why don't we rewind the clock back to the summer of 2023, and you can lay out the aviation story? I just want a postmortem, and I'll pop in with some questions as it goes.

Sure. Okay. So, firstly, if I could convince my wife to use such glowing terms that you just used about my SPV, I would be a happy man. Thank you very much. I'm not sure all that praise was entirely deserved.

People will see that I get pitched SPVs all the time. It's always, "Hey, this company trades for 10 times price-to-earnings, and all the peers trade for 12. I want to buy this company." I'm like, "Hey, man, that's not a fund of one. That's not an SPV. That belongs in a diversified portfolio. You need something unique, and this just had such a unique structure to it." So that's why I praise you so much on it.

Thanks, man. Well, yeah, high level, going back to the summer of 2023, I guess a little bit more context is needed than that. For much of my, let's call it, 2-decade investing career, I have been quite focused and interested in aircraft leasing.

Aircraft leasing is a very interesting subsegment of the financial-services portion of the stock market. It's quite a large asset pool, but as far as publicly investable companies go, for much of the last 20 years, there have really only been 6 or 7 companies that you could invest in, at least within developed markets. Right now, there are even fewer than that. There might only be 3 or 4.

Even going back 10 or 15 years ago, you had Air Lease, you had AerCap, obviously. ILFC was a predecessor that then delisted and became just a debt issuer. You had a couple of companies in Asia, and essentially that was about it. The investable subset for most investors in Western developed markets was maybe only a couple of companies.

You had this weird oddity where, even though some of these companies were relatively large—and by large, I mean not $100 billion or $50 billion, but multibillion-dollar market caps with $30 billion or $35 billion debt stacks outstanding and 10 or 15 analysts covering the stock—so by no means undercovered or underfollowed, you had stocks that, for whatever reason, would trade at what I thought were crazy discounts to intrinsic value despite superior long-term track records of value creation.

For really interested, deep, deep fans of Andrew or perhaps myself, there is a post I made on VIC maybe 4 or 5 years ago, when AerCap had printed another stunning quarter. I was a big shareholder of AerCap at the time, and AerCap had beaten the number. It was trading at 0.6 times book value and generating a tangible return on tangible assets of 15%, while all these other bank stocks were trading at 3 times book value and generating a 20% return on tangible assets.

I said, "I don't understand. This is a set of financial assets with a sustainable balance sheet and a sustainable model. Finance theory says you should not trade at a discount to book value if your long-term returns on that book value are wildly above your cost of equity capital." That's just finance theory 101.

For the longest time, I was ranting and raving about how this was covered by 20 different analysts, and everyone said, "Oh, it's trading at 0.6 times book. It's worth 0.7 times book." Meanwhile, half these analysts also covered banks, and they were all trading at 2 times book and generating 10% ROEs or whatever in the US, at least—not in Europe. But this was, again, an NYSE-listed stock.

Here we are, finally, 4 or 5 years later, and AerCap has rerated to something like 1.3 times book. We've been vindicated over the long run.

Essentially, by way of background, I'd covered leasing for a long time. I felt like I had a lot of specific industry knowledge, or investor-specific knowledge, with regard to that sector. There was a company that had always been on my radar because, even within the subset of undercovered companies, it was an oddball.

It's called Avation, AVAP, as you mentioned. It was a much smaller company. They really only had 30 or 33 planes. A lot of those planes were regional jets, which are a different aircraft type and much less liked and less covered. Let's be honest, they were a bit more junky than your typical narrow-bodies or wide-bodies that are in use by mainline fleets the world over.

They were also subject to different supply-and-demand dynamics. Perhaps there are a few more OEMs that make those planes. Certainly, usage rates are a bit more volatile and less predictable than the long-term jet passenger-usage rates. Basically, the demand picture that you see over the long term from mainline wide-bodies and narrow-bodies has been very, very steady and very predictable. Regional jets were not that.

Because of these factors, and because it was a smaller company, it was a bit of an oddball, based in Singapore and listed in London, with only a $100 million market cap. Obviously, it traded at a massive discount.

Not only that, you then looked at the register and saw that it had a massive shareholder who, it became apparent to me that summer, wanted to sell their close to 20% stake in the company. You had a combination of a deeply discounted security, a space I knew quite well, and tangible assets backing that equity. You weren't bidding on some software code, intangible licenses, or biotech, where it was something I had no experience with and was also intangible.

No, no—literally aircraft valuations, which, even in the regional space, are pretty observable and somewhat liquid. I wouldn't say superliquid, but somewhat liquid. You had a very clear thesis emerging that the assets were obviously undervalued. The equity, however, was completely unloved and unknown, or not followed. They were hard assets that, over a period of time, could, in my view, be monetized or turned into cash to close the discount.

So, key to getting this strategy off the ground, obviously, would be to acquire that 20% stake from the larger shareholder because it had become clear through some rudimentary research that they were no longer enamored with the CEO of the company. There had been some breakdown in communication.

I think it's very simple, right? You had a 20% owner, and you interpreted and saw, “Hey, these guys know we own 20% of an illiquid stock. It's not going to be easy to get out of it. They know if somebody comes with an offer and they want out, they have to consider selling it.” Even if the last trade was 100, even if the offer isn't 100, they're going to have to consider it if they want out. So, tell me if I'm wrong or if that's too simple.

No, no, that's right. Also, I forgot to mention that the chairman and founder of the company still owned a substantial stake in the company. This hedge fund was at 20%, but the founder—and I should say chairman, executive chairman, essentially the top guy at the company—owned 15%, 14%. He owned some number that was less than 20%, but nevertheless, it was still a substantial position and was essentially most of his net worth.

So, you had this natural conflict between a hedge fund that wanted to maximize value, I'm speculating, but within some shorter time frame, and the founder of the company, who had built this company up over 20 years, wanted to do things his way, and was also a substantial investor in the company.

It became known to me that this hedge fund was actually in the process of winding down. Some of their other assets were put up for sale. It was a relatively small fund, and once it became known that they had four or five positions and were selling two or three of them, it made sense that they would want to sell the most illiquid and, at that stage, one of the largest remaining assets on the book.

So, I literally—and this is a win for technology, this is a win for Twitter—put out on Twitter, “Does anyone know this hedge fund?” I literally said, “Does anyone know anyone at this hedge fund? If so, I'd love to chat.” That's all.

Next thing you know, I think about 24 hours later, I get a call. I'm not sure how I got a call. I got a call, and it was like, “Hi, I'm the manager of this fund.” They just called me up directly, and I thought, “Oh, wow. That was quick. That worked.” It was kind of amazing. It was like sending out a bat signal, and the hedge fund just came right back to me.

I was fortunate to have built up a network to the point where just a random tweet into the ether could generate that kind of an outcome. I was always quite transparent in what I was trying to do. They're a seller, I'm a buyer. There's a commercial negotiation. I mentioned that I would have to raise the money to buy that vehicle.

Okay, okay. So, you're a seller, they're a seller, and you're a buyer. Why don't we talk about that? I believe this is publicly filed. It's late September, early October 2023, and we reach an agreement, right? The transaction is publicly disclosed, but why don't you do the last trade and what the block goes for?

Sure. The stock at the time was trading around 100, maybe 105 pence per share. We bought the block at—I want to say—79 pence per share. I think it was about a 25% discount to the last trade.

Keep in mind, tangible book value at the time was 140, 145. So, the stock itself was already trading at a big discount to tangible book. There were also some intangibles that maybe we'll touch on later, but nevertheless, tangible book was 140-ish, the stock was at 100, and we bought it at 79.

Obviously, it was a price for liquidity, right? Once you buy it, that's a Hotel California situation. You have to have a plan to extract the value that goes beyond just sitting in the stock for another 10 years, which is what, unfortunately, that fund had gone through.

This is why I thought it was such a unique idea, right? The only way that you can capture this discount is by going out, sourcing it with the fund, and negotiating the block. Without that, you're just buying shares on the open market, and you'll never buy this much.

The other way I thought it was great—I mean, obviously, you mentioned the sector expertise and the valuation—you get the discount on the way in, and then, because you now own 20%, yes, as everyone knows, until you control 50.1% of the company, you can't make them do it. Even there, there are legal restrictions. But now that you're in 20%, you do have a voice in the room, and you can steer, you can talk, and you can try to negotiate.

That's why you get the compounding of the discount by buying the block in size. You get it at the right valuation with or without the discount, and then you can try to make your own destiny. That's why I thought it was such a good idea.

So, I'll pause there. I want to talk about what you learned in the roughly 2 years that you were behind the scenes, but did I miss anything? Anything that kind of leads you into talking about that?

The only other things I would mention are, one, it was important to become the larger shareholder, both from a gravitas perspective and, obviously, a potential contested perspective, right? If you actually had to go down the more hostile route—which thankfully you didn't, but if you did—then you obviously would need that position.

The second thing that was important is that I actually did know the chairman socially—not well, but we did have somewhat of a relationship, just because I used to live in Singapore. I had coincidentally met him at an industry event, and we'd kind of swapped investment ideas, for want of a better word, over the years.

He wasn't anything more than a casual acquaintance, but we did have a little bit of rapport, such that when I acceded to the 20% ownership position via this transaction, it wasn't a cold call into the executive chairman. We already had a relationship from which to go, and frankly, he already knew what my priorities were and what I was trying to do with the company.

It seemed to him a welcome development, right? He maybe wasn't, per se, 100% aligned with me on every decision the company would therefore make, but he knew what he was dealing with: straightforward, and I wasn't an unknown quantity.

So, this block trade's late September, early October 2023. I believe from the public filings that in mid- to late 2025, the shares are exited. But I know that for the next 18 months, you were on and off, restricted, behind the scenes, all this sort of stuff with the company.

I'd love to talk about the 18 months of this trade, of this investment, when you were behind the scenes. What did you learn? What's going on behind the scenes? I want to ask this on both a company-specific level and just in general. This is a unique situation, and I'd love to hear, just in general, your takeaways.

Look, there are a huge number of learnings on both. The first is a general one, and that is: no matter what it says on the balance sheet or the Excel spreadsheet, when you actually get behind the curtain, it's so much more difficult than people imagine, right?

I was also somewhat naïve, not having done one of these so actively before. When you write a letter or when you just examine the balance sheet, do the analysis, and say, “Yeah, it's trading at 40. Why don't you sell everything? It's worth 80?” Then you actually get into the blocking and tackling of, “Okay, how do we actually sell that asset? Is it encumbered? What's the encumbrance?”

You literally go line by line through the asset pool. You deal with people whose—oftentimes, yes, you're selling assets, but jobs are attached to those, and there are consequences to that. I'm not speaking about blowback costs that were not in the numbers, although there is always some of that. I'm speaking to the pain of blocking and tackling your way through an operating business versus simply doing the spreadsheet math and working out that if we sell all the planes, or if we divest this business, or we bring in a buyer, then we'll double our money.

It's easy, you know. And dealing with all these competing personalities, even within a small organization that was highly motivated to generate the best outcome for shareholders, given the chairman's large position in the company and other insiders having large positions, is really hard.

It's really hard to communicate how much more difficult it is, because I'm not saying I went into this thinking it would be easy. I went into this thinking very confidently that we had a huge margin of safety.

You mentioned about 150 in book value, and you're getting it for about half—less than half that, right, or around half that. So, you do also have to balance that: that's a huge margin of safety if you can just get them not to do really silly stuff with it.

For sure. I felt quite confident we would not take a loss, or that we would make a decent investment return on the investment. Having said that, I was not at all prepared for the amount of interpersonal wrangling and corralling and back-and-forth, and stuff that came out of the woodwork, which I think is not a unique comment by any stretch.

I talked to other small-cap activists or people who do activism, and even before you get inside the room, before you get behind the curtain, I don't think there's enough appreciation for the amount of time, effort, and cost involved in bringing some of these activist campaigns, right? Just before you even get on the board, and once you're on the board, it kicks up to 2 or 3 levels. To be clear, I was never on the board, but I was restricted. I was essentially an adviser to the company, let's say.

I was privy to all the things they were trying to do, the refinancings, and advising them on asset sales, this, that, and the other. Even just before you get to that stage with a lot of these campaigns, I would love for people to hopefully understand that there's a huge amount of behind-the-scenes work involved, with multiple constituents and a huge amount of service providers.

I mean, you look at some of these activist campaigns that don't even get to the boardroom. We just did a podcast on H[?]. I don't want to go back to it too much, but I have 10 different people on my commercial team for this, and I haven't got on the board yet. Ten people, right? So, there's a huge amount of work. Getting behind the curtain and trying to help the company restructure and maximize the value of its assets—the actual doing of that—was an order of magnitude more involved than I had anticipated. That was the main learning. Yeah, go ahead.

I was just going to say, specifically, in terms of the actual blocking and tackling of, say, quote-unquote, extracting the value, I think we did that reasonably well, notwithstanding the fact that the overall goal at the outset of the venture was probably to shepherd a more holistic transaction.

Okay. So, my vision at the start—my thesis—was this entity is too small to be a public-market security, right? It shouldn't really be a Singaporean company with a $100 million market cap that's listed in London and 30 planes, with a bit of customer-concentration risk. You have most of the planes out to 2 or 3 airlines. This really dinged them during COVID.

One of the reasons why the stock was trading so cheaply is because they had a massive concentration in Virgin Australia. Over 20% of their assets were out with Virgin Australia. Virgin Australia goes under—not necessarily their fault, right? It was pretty capricious in COVID which airlines survived and which didn't. So, I'm not saying it was their fault. They negotiated through it very well.

But look, it is what it is. When you're a small company, and when you're overly concentrated, you get buffeted by the vicissitudes of chance more than a large company, right? So, it made a lot of industrial logic to merge this with a larger company and a bigger and better-funded balance sheet that had a lower cost of capital. Aircraft leasing is a cost-of-capital game, right? That's always been that way. It always will be. My overarching goal was to shepherd this suite of assets into a structurally lower-cost-of-capital, larger balance sheet.

You can say you wanted to sell it to a Japanese bank or Japanese finance company. You can say a Korean insurance company or a Chinese insurer that loves aviation. I mean, look, there are 20 different companies who theoretically would be interested in that.

But going back to my previous point, once you actually get behind the curtain and understand some of the intricacies, something that's not really apparent on the balance sheet is that the tax treatment of individual asset sales as a listed plc versus a holistic transaction, where the parent company—or I guess the whole company—is absorbed by another listed company, can be quite different.

So, we see this suite of assets. It's a Singapore-based company, but it's actually a UK plc, right? There are all these intricate rules around how you'd even approach a UK company in order to buy it out versus, say, doing piecemeal transactions. It's quite complicated, and there are lots of different nuances that I did not understand or appreciate fully that I then began to understand.

Now, I'm not saying that's the reason why we ultimately didn't sell the whole business, but that was certainly a contributing factor. That was definitely a big part of the learning, which is why you need the discount on the way in when some of these things happen.

Yeah. So, I guess, to continue the story: we make the investment, then build up our stake to 25%. We make some of the operational changes that add value to the equity.

For example, we start to monetize some of the intangible assets. This particular company had a bunch of purchase rights, which are essentially rights to buy aircraft in the future that have to be partially funded today. Oftentimes, you have to fully fund them 12 months before delivery, but even earlier than that, you might have to put down 10% of the purchase price, right?

So, if you have 20 purchase rights, and each plane costs $20 million, you have to put up $2 million today. That's $40 million. Well, look, your market cap is $100 million, but you have $200 million in tangible assets, right? Just throwing numbers out there. So, why would you put $40 million into purchase rights when your own equity is trading at 50 cents on the dollar?

You'd be better off putting—my point is, you'd be better off putting either some of that purchase-rights money back into the equity, either via direct distributions or buying shares, buybacks, whatever it is, because the market's giving you no credit for those intangibles. Zero credit, right?

A similar argument I made to a lot of Japanese companies: the minute the market is giving you credit for making new investments and for growth, sure, throw 100% of your excess capital into growth. But I talk to these busted net-cash biotechs all the time, and I'm like, “Look, I know you guys think the science is great. I'm not a scientist. I can't tell you otherwise, but your stock's at $5 and you have $10 per share of cash. You have to solve that problem before you can put another dollar into R&D.”

And they'll be like, “Oh, well, don't you trust science?” Like, no. You guys give yourselves stock options at $5 per share with cash at $10. It's creating insanely perverse incentives.

Absolutely. Absolutely. I mean, that's the first and only thing you need to solve, and once you solve that, everything else becomes possible, because that's the nature of capital markets, right? If the market is not rewarding you for making investments—actually, the market is directly punishing you for making a new investment, because it's treating every new dollar of equity capital as immediately discounted by 50%.

There is literally zero reason to make new investments. You should be reducing your capital. That's the market telling you what to do. Getting that message across took a certain amount of time, but we did make some progress.

We monetized some portion of the purchase rights to demonstrate value. We did sell a few assets. We articulated a plan to transition into more eco-friendly, next-generation regional assets. During that period, while we were fully restricted, there were some approaches to buy the whole company, which, as you can imagine, I was fully in favor of.

Unfortunately, they couldn't get to the finish line. One particular approach couldn't get to the finish line. So, it's always a bit tricky, right? Because—

When the flip happens and you take over 20%, I'm sure interested strategics—it's not a big world, right? They see, “Hey, there's a new major shareholder.” Does that spur a little bit of inbound from people?

I'm sure it didn't hurt. I mean, look, I didn't speak publicly. I guess I made some limited public comments about my strategy at the company during the life of the vehicle, but it was pretty limited. But look, anyone who Googles me or Rangeley and myself would quickly figure out what I'm attempting to accomplish. It's not rocket science, right? There are smart, sophisticated people out there, so I'm sure it didn't hurt.

But to be fair, I think there was always that kind of noise swirling around the company. And I think it will end in that direction simply because the logic is largely irrefutable. I mean, yes, it might not have happened yet. But again, right, there's a reason there are only 2 or 3 listed lessors in the market, right? The market simply has no time for smaller, perceived-junkier, oddball listed lessors, let alone ones at a $100 million or $150 million market cap in the UK. We all know the structural problems the UK is going through.

So, we made a few operational changes. We made some significant financing changes. That was probably the key early change we enacted: to lower the cost of financing by refinancing a bunch of the debt. We started doing creative things with the balance sheet and with the excess cash. We started buying back bonds in increasing size below par. We started buying back shares. I encouraged them to continue to buy back shares.

Ultimately, our exit was, I'll say, suboptimal. I would say it's not as good as it could have been by the very fact that we were unable to proceed toward a whole-company transaction within the timeframe I had envisioned.

I took the view that we'd been in this investment for nigh on 2 years. We'd done most of the active-engagement operational stuff that we could do—not all of it, but most of it. We'd experienced some success, albeit not full success. Crucially, in that 2-year period, aircraft values had gone up a lot. The gross value of the aircraft they operated probably went up 25% in those 2 years. That's a big move.

They'd then monetized a decent amount of that increase through discrete asset sales. So they'd done, I want to say, 6 or 7 out of 10 in terms of active operational hit rate—that's the score I would give them. Obviously, they hadn't yet decided to sell the company, and at that point I thought, look, this was a very different investment from buying at 80p, you know, in the 140s and 150s.

It wasn't all in one tranche. The last tranche, we sold the shares at 138 back to the company. The average exit price was probably about 150, from memory. I think it was about 150. We sold some shares at 160, one at 140, and one at 145, but essentially we brokered a solution whereby the biggest winner was probably the company.

We ended up selling our shares back to the company. It's still at a discount to tangible book, and nothing really has changed with regard to my view of the underlying assets or the future of the company. It's still a very good company, and it's doing a lot better now than it was a couple of years ago. Hopefully, we were a small part of that.

From an investment-horizon perspective, and from a return-on-risk perspective, the risk-reward in the 140s and 150s is quite different after a big rally in aircraft prices than it was at 80. I'm just going to remind everyone that this is a UK-listed company. There were filings, right? Jeremy mentioned all this—you can track where the sales happened and everything. We're not breaking new ground. You can see that the last sale happened on November 5, 2025. That's where it's disclosed.

No, I'm with you. Bill Ackman once said something—and love him or hate him, he said something like, “Look, if you look at our historical returns, they’re the classic private equity-in-the-public-markets thing, right?” And he said, “Look, if you look at our public returns, when we sell a stock, over the next 3 years the stock actually outperforms the S&P 500.”

Does it suck to sell a stock that outperforms? Absolutely. But when you're doing these big investments—not buying a little bit of a company and day trading, but doing these big investments—if you get a reputation for selling at the absolute top, when everything's been juiced and there's nothing left, it's going to get harder and harder to exit.

It's not like we've got that reputation or anything, but I do think there's something to, hey, you had a thesis. We bought at a huge discount—a huge discount—to tangible assets, helped the company, and then, yeah, there’s a little bit left for the next guy or something. But it's kind of someone else's bet now, though.

Anyway, look, we don't have to make this long. This has run about 20 minutes. I have to go pick Sil up in a little bit, but I really did want to do something because I just thought it was so great, and I'm glad we could get a little bit of the learnings out there, a little bit of the learnings out of the public market. Is there anything we didn't mention that you learned, or anything we didn't hit in the aviation thing that we should have talked about?

I think we covered most of the key points. I think we gave a good account of how it went, and hopefully there'll be more in the future. We can do breakdowns of those in the coming years and have some new learnings and more P&L

Postmortems. More learnings. You know, I just keep—I've said this a few times on the blog—but when I look at the investor I was 10 years ago, I'm like, “God, that man was stupid.” And when you and I have a few more gray hairs on our heads and we—

I'm just kidding.

Say again?

I said it still is.

Well, yeah, maybe I was. I was going to say, when we've got a few more gray hairs on our heads and we do the next postmortem 3 or 5 years from now, whatever it is, on whatever it's on, hopefully we say, “Man, Jeremy and Andrew, they were celebrating Jeremy's success and they just had no clue how to invest, how to think about anything,” because we're so much smarter now. That always continues.

Highly possible, if not likely. Lifelong learning is really important. So, yeah, that's all we can really hope to accomplish: continue to learn every day.

Fingers crossed, man. Fingers crossed. Well, Jeremy, I'm really happy for the success here. Thank you for coming on. I'm going to wrap it up here. We're going to shoot this over to compliance, and we're going to try and get a not-too-heavily-edited podcast out, because I'm just so glad to get these learnings on the podcast. We'll talk to you, buddy.

Thanks for having me, bud. Speak soon, mate.

A quick disclaimer: Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.