November 2016: Peter Barrett, CEO, SMBC Aviation Capital

The CEO of aircraft lessor SMBC Aviation Capital is celebrating strong results and profitable growth.

Profits at Irish aircraft lessor SMBC Aviation Capital grew almost 30% to $142.9m in the six months ended September 30th.

SMBC announced that revenues rose 19.2% to $502.8m in the first half of its financial year from $421.8m during the same period in 2015.

In July, SMBC borrowed $500m using senior unsecured notes. CEO Peter Barrett said at the time that this was an important step forward as the company continued to diversify its sources of funding.

“Another highlight of the period has been the number of aircraft coming off lease, which we were able to transition efficiently to new customers,” he said. “This is further proof of our ability both to secure new commercial relationships and to manage significant aircraft modification programmes.”

SMBC closed 48 deals during the six-month period and it extended 10 leases, while it also moved 13 craft to new lessees. It sold 11 craft, with an average age of 8.3 years, and agreed to sell a further 16 that were more than 10 years old.

IFSC-based SMBC Aviation Capital – formerly RBS Aerospace – was purchased in 2014 by Japan’s second largest bank, Sumitomo Mitsui, for over  $8.5bn from RBS, one of the biggest deals in Irish corporate history.

RBS Aviation Capital was spawned from International Aviation Management, a company established by Domhnal Slattery. He sold International Aviation Management to RBS in 2001 for an estimated £30m, before going on to establish Avolon.

TRAUMATIC TIME

At the time RBS sold the company, they were unwilling to allocate the resources to funding the capital-intensive aviation leasing business. Barrett told The Irish Times, “It’s a pretty traumatic time when your shareholder tells you ‘much and all as we like you, good and all as you are, we can’t own you any more’.” He continues, “A lot of your customers are wondering, a lot of your suppliers are wondering, ‘are you going to be able to deliver on your commitments, are you going to be there?’ Your staff are wondering, ‘what’s going to happen to the business, are we going to be sold, not going to be sold, are we going to be wound down’?”

We would have set ourselves a very clear benchmark in order to make the deal viable for us. Obviously, if we had not hit that benchmark, then we wouldn’t have done the trade

The firm is today led by a predominantly Irish executive team and is one of the top commercial lessors worldwide; the firm’s top executive directors are all Irish and residents in Dublin.

Since the sale, business has been good with SMBC remaining in the top four aircraft lessors in the world and growing the team from 75 people to over 120 in the Dublin office.

MAJOR DEALS

In 2015 SMBC agreed to buy 80 of Boeing’s 737 Max in €7bn deal; it was the largest single order for the aircraft from a lessor anywhere in the world.

“These negotiations take time,” Barrett emphasised. “It’s like any sales process, there’s different positions that you want to take and that the supplier wants to take and we keep our shareholder informed.

“We would have set ourselves a very clear benchmark in order to make the deal viable for us. Obviously, if we had not hit that benchmark, then we wouldn’t have done the trade. We got to that point and we told our shareholder that we thought we were in a position to bring a deal to fruition. It’s very much a partnership. We didn’t just turn up in Tokyo one day and say ‘good news, lads, we’ve just bought 100 airplanes’.”