Company of the month November 2018: SMBC receives top rankings in the aviation industry

A $1bn (€884 million) funding boost from its Japanese parent company saw the Dublin-based aircraft lessor SMBC hit the top ranking in the aviation industry. As airlines look to upgrade their fleets, SMBC is well-poised to cater to their requirements.

We thought it was timely to strengthen the balance sheet and position ourselves for opportunities that might come along,” said chief executive Peter Barrett. 

Ratings agency S&P upgraded SMBC on the back of the cash injection, re-rating it to A- from BBB+, ranking it as a particularly secure bet for lenders. Peter Barrett welcomed S&P’s re-rating, announcing, “It will give us some competitive edge as the market changes and develops.”

A competitive industry

The aircraft lessor’s business model works on buying aircraft from the manufacturers and leasing them on to airlines, purchasing aircraft with a mix of its own cash and borrowings. This latest boost from shareholders will fund the business over the next few years, according to Mr Barrett. 

SMBC raised $500m via a bond issue in July and now has three tranches of outstanding bonds, each of $500m, issued in 2016, 2017 and 2018. “We’ll continue to tap into the bond market as appropriate,” said Mr Barrett.

Peter Barrett, Chief Executive, SMBC Aviation Leasing.

“We are looking at campaigns beyond the summer of 2020 and into 2021 and 2022,” he said. Growth in the industry is currently focused around Asia as demand increases there in line with growing populations and increasing wealth. He noted that even in established markets such as Europe, airlines are looking to upgrade to more fuel efficient aircraft. 

“We’re very focused on executing on the plan we have in front of us, but if opportunities come along we will certainly look at them,” said Mr Barrett.

There have been a lot of new entrants, not just in China, but generally around the market in our space. That’s a good thing. It provides liquidity. It clearly increases competition, but generally it’s a bigger market.”

“But they’re not all going to stay. I think that’s inevitable. There will be opportunities as the cycle progresses and some of these players decide that this sector is not for them.

“It will open opportunities for well-capitalised, long-term players like ourselves,” he added.

All about SMBC

Ireland has established itself as a major operational base for aircraft lessors with many of the world’s top companies headquartered here. SMBC Aviation Capital is the world’s fourth-biggest aircraft lessor, with an owned, managed, and on-order fleet of 663 jets.

SMBC is owned and supported by a consortium of leading Japanese institutions (SMBC), Sumitomo Mitsui Finance and Leasing Company Limited (SMFL), Sumitomo Mitsui Financial Group and Sumitomo Corporation. Over 160 professionals work at its headquarters in Dublin, Ireland, and at locations in China, France, Hong Kong, Japan, the Netherlands, Singapore and the United States.

Reporting its first-half results in November, SMBC announced pre-tax profit for the period rising 7.5pc to $168m (€147.3m). Core lease revenue was 3.5pc higher at $490m (€429.6m).

Mr Barrett said the environment for airlines is challenging, with significant financial headwinds. “Fuel costs are higher, interest rates are higher and labour costs are going up,” he said. However, he noted that growth was continuing in many markets and that aircraft demand remains resilient.