Avia Solutions Group:
ACMI Visionary Nov/Dec 2024

ASG dates back to the former Lithuanian flag-carrier FlyLAL, which was privatised in 2005, then merged into a management-owned group including Baltic Ground Services (ground handling) and FL Technics (aviation maintenance, repair, and operations). It has grown through adding new charter airlines in Europe and elsewhere and taking over various maintenance and support facilities. By the end of 2024 it held 11 AOCs and over 500 maintenance and repair licences.

Its client base is over 2,000, none of which accounts for more than 6% of total revenue. Among its ACMI clients are easyJet, IndiGo, THY, TUI and Vueling; for maintenance services, Lufthansa, SAS, TAP and Wizz; for ground handling, Lufthansa, Norwegian and Ryanair; and for cargo chartering, Amazon, DHL and Tesla. Europe accounts for 55% of its revenue base and Asia for 28%, but only 11% for the Americas.

Structure and ownership

ASG has two main business units:

Logistics and Distribution Services — a range of passenger and cargo ACMI and other charters, plus private jet operations and specialist air delivery cargo services, including On Board Courier (OBC). Operating airlines, owned or partly owned by ASG, include: SmartLynx, Avion Express, AirExplore, KlasJet, Magma Aviation, Ascend Airways and SkyTrans. In the first nine months of 2025 Logistics accounted for $1.5bn or 71% of revenues and $96m or 62% of operating profits.

Support Services — concentrates on aircraft maintenance, mainly through FL Technics, including repair, overhaul and spare parts management. It also provides aircraft handling and passenger handling and into-plane fuelling, with 100 line maintenance stations plus heavy maintenance centres in Lithuania, the UK and Indonesia. Support Services operates the largest independent pilot training organisation, BAA Training, with schools in Spain, France, Lithuania, and Vietnam. Support Services accounted for $593m or 29% of revenues and $59m or 38% of operating profits in the first nine months of 2024.

Many of ASG’s top managers have been with the group in its various incarnations since the beginning. Chairman Gediminas Žiemelis (more below) owns 55% of the business while other top managers led by CEO Janukenas have a further 4%. Having converted bonds into $300m of equity in 2021, Centares/Knighthead control 20% of ASG.

Certares is a New York- based private investment company with about $9.9bn of assets under management. Its investments in the aviation industry include LATAM and Azul. Following the equity injection, Certares appointed Tom Kein, a former CEO of Sabre, to ASG’s board. Certares has an alliance with Knighthead Capital Management LLC, a US private equity and debt provider, with $13.4bn in assets under management. It is a major investor in Wheels Up, the private jet charter operator.

Certares’ strategic role is to help ASG develop in the North American market, especially in the US where it currently has a limited presence, though this may bring intensified competition from Atlas and Air Transport Service, the two big US wet-lessors. In another move ASG has entered into a partnership with Impact Investments, a New York strategic and financial advisory firm, chaired by former Secretary of State Mike Pompeo.

Finances

ASG’s financial’ expansion has been impressive. Revenues have been grown at a remarkable compound rate of 30% pa between 2019 and 2023, the result of takeovers and organic growth.

It has reported positive operating and net results (albeit with lowish average margins of 6.0% and 1.2%) throughout this period with the exception of the first pandemic year, 2020, when it reported a net loss of €18m. The next two years saw a rapid return to strong operating cash generation and profitability, which ASG attributed to its flexible operating model. It was able to offload 20% of its passenger aircraft during the pandemic and replace them with freighters, as well as renegotiating about 70% of its operating leases from fixed monthly to Power by the Hour (PBT) payments. In 2021 Certares injected $300m in equity.

2023 saw revenues increased to €2.3bn, as the company added another 27 aircraft to its fleet and established new bases in Asia, while net profit totalled €68m, a margin of 3.0%. A €26m dividend was paid, similar to the previous year.

In the first nine months the group’s revenue grew by 25%, to €2.1bn, and is officially expected to top $3bn for the whole year. ASG added another eight aircraft during the nine months but reported some setbacks with the performance of narrowbody cargo sub-segment and the and a failure by a major external MRO provider, but was still able to report a net profit of €83m, a net margin of 4.0%.

In May 2024 ASG completed a $300m bond issue, $180m of which replaced expiring debt. These were five-year senior unsecured bonds bearing a quite expensive interest rate of 9.75%, rated by Fitch as BB, below investment grade but towards the top of the speculative range (interestingly, Fitch highlighted key person risk relating to Žiemelis’ majority control of the company).

ASG’s balance sheet as at the end of September 2024 showed €1.3bn of long-term debt and lease liabilities against €724m of shareholders’ equity, a ratio of 1.9:1. Cash and equivalents stood at a reasonable €300m.

The Žiemelis effect

The chairman and majority shareholder of ASG, 47-year-old Gediminas Žiemelis, is reputed to be Lithuania’s richest person, with assets estimated at €2.5bn. A high-profile serial entrepreneur, he has been involved in over 100 start-ups and four IPOs. He also owns the Vilnius Wolves, Lithuania’s top basketball team (basketball is very big in the Baltics).

Žiemelis has a bold vision for ACMI, supported by a report produced by McKinsey (which may or may not be regarded as a good thing). McKinsey drew up the charts showing the variation in seasonality in air passenger traffic among the main regions of the world and indicating that over the long-term seasonality effects have increased.

The implication, according to McKinsey: “In a world with increased seasonality — and sharper focus on maximizing aircraft utilisation — considering a longer-term partnership in which outsourced capacity providers help deal with peaks could be an attractive move. If the ACMI market grows as a result, it could in turn become a more frictionless capacity management solution for airlines.

“Wet leasing might look expensive at first glance, but in weighing this option airlines should consider the value loss that would be incurred if excess owned aircraft are kept idle all winter. To be worthwhile, any outsourcing option would of course need to offer a suitable combination of cost, service reliability, and passenger experience.”

The suggestion is that about 10% of global airline capacity could be cross-utilised to equalise peaks in regional demand and maximise efficiency. Žiemelis, at a conference for ASG leaders in December, made an interesting analogy with the avian world; “There are 50 billion birds in the world, and 10% of them migrate,” he noted.

Žiemelis has commented regularly and evangelically about the merits of ACMI in recent times. Some of his key points:

• “ACMI leasing is emerging as a key strategy, energising airlines to harness the air travel demand rebound. It infuses the post-pandemic aviation sphere with financial and operational agility, acting as a safeguard amidst market volatility, empowering airlines to navigate the unpredictable currents with adaptable fleet management and staffing solutions”.

• In airline fleet planning, ideally a modest proportion — somewhere between 6% to 15% — of aircraft should be under ACMI leases.

• A successful ACMI provider needs to operate across six continents to leverage counter-seasonal demand.

• Because of the regulatory environment, this means building up multiple AOCs, each operating at least 10 aircraft in its respective country or region.

• Seasonal ACMI capacity, added during peak periods, is effective for airlines only if it is equivalent to at least 10% of the airline’s total fleet capacity.

• ACMI creates financial value for scheduled carriers when used for a maximum of six months per financial year, aligning with peak demand seasons.

• No single market can match Europe’s scale, but ASG aims to match the European total in all its other operating regions by 2026.

• ACMI leasing addresses the labour shortages facing the industry, allowing airlines to tap into a broader pool of aviation talent, mitigating staffing challenges.

• The ACMI market is projected to be approximately $25bn by 2030 and ASG aims to capture a 50% share.

This last point needs a reality check, not least because it implies a future ASG fleet of about 700 aircraft. It is not clear where the $25bn figure comes from; a forecast by Business Research Insights last year indicated that the global ACMI market, valued at $5.46bn in 2023 based on an analysis of the leading players, would grow at a CAGR of 6.9% to $10bn in 2032. In terms of aircraft, ASG currently accounts for about a third of the global fleet of ACMI operators (see chart) and in terms of revenue might account for about 40% of the total (which does not include wet leasing between scheduled airlines). On the other hand, a McKinsey-type observation would be that $25bn is only equivalent to 2.5% of 2024 global airline revenues, as against the theoretical 10% potential.

It is also worth remembering that traditional airline management does not particularly like ACMI. ACMI tends to be needed when the planning process has failed to anticipate a higher level of demand or when something technical has gone wrong. Lufthansa has become a significant user of A220 ACMI charters from airBaltic (see Aviation Strategy, Sep/Oct 2024) but this was largely because it lost capacity as its P&W GTF-powered Airbuses had to be grounded.

From an airline perspective, the ACMI rate it pays to the lessor is almost always above the sum of its own internal A, C, M and I costs because the lease rate includes an element for overhead and profit. ASG would counter that the decision to wet lease should be based on a risk-adjusted assessment of marginal unit costs and revenues at peak times.

There may also be concerns about brand damage. With an ACMI lease, flying crew come into direct contact with passengers, and the airline would have a problem if the service provided is seen as inferior to the normal service level. The airline would have a bigger problem if the ACMI service level is perceived as superior.

ASG’s jet fleet is overwhelmingly older-technology A320 CEOs and 737-800s, with a solitary MAX 8 being operated by UK-based Ascend Airways (with a further two units due to be leased in in the first half of 2025). As an example of the complications of ACMI marketing: the MAX is being offered either with 189 all-economy seats or in a two-class cabin layout, with 12 business class and 150 economy seats.

In November 2024 ASG placed a firm order for 40 737 MAX8s, with options for a further 40 units which the lessor is confident will be taken up. The order was the first one placed after the eight-week industrial action at Boeing, so ASG should have achieved a good price; we would estimate the price for the firm orders to be around $2bn. However, the MAXes are not scheduled for delivery until 2030, at which time ASG expects a rather modest 20% of its fleet to be new-technology aircraft. The plan is to fund the order by pre-delivery payment (PDP) financing starting in 2028, then sell and lease back the MAXes.

ASG is supremely ambitious, not only in the overall rate of growth but also in its geographical spread and business complexity. In 2024, ASG set up new airlines in Australia, Turkey, the UK, and Indonesia. In the first half of 2025 new airline ventures are scheduled for completion in Brazil, Thailand, the Philippines, and Malaysia. Managing this growth will be difficult, but ASG’s clear aim is to dominate the global ACMI business.