Chief
Executive’s
Review
This was another year of record profits for SMBC Aviation Capital, continuing a trend which we have maintained over the past 18 years.
Peter Barrett
Chief Executive Officer
This record performance has been achieved thanks to a number of factors including the strength we gain from the support of our shareholders, our highly experienced and dedicated team as well as a combination of a broad spread of customers across the globe and an actively managed and balanced aircraft portfolio.
Of fundamental importance is our financial strength and longevity in the aircraft leasing sector. The airline operating environment and wider financial markets have been positive for the past number of years, but it is likely that this will change in the future. For this reason, we have adopted a strategy of strengthening our capital and asset base to ensure we will continue to thrive in all market conditions.
We have created strong bonds with our global network of customers, built on the premise that the customer always comes first.
Our diverse customer portfolio is a source of strength. Customers are spread across Asia, The Americas and Europe with very low levels of concentration among individual lessees. New customers and deals of note during the year included Icelandair, Viva Aerobus, Southwest Airlines and Thai Airways.
The depth of the relationships we have developed with our customers is key to our business. We pride ourselves on understanding their business and their particular needs. Those needs vary depending on geographic region and market served and we endeavour to offer the solutions required.
We have created strong bonds with our global network of customers, built on the premise that the customer always comes first. Critically important in building those relations has been the quality and integrity of our team, many of whom have been with the company since we started out 18 years ago. We have been through good times and challenging times together and have grown stronger as a result. The pool of knowledge and expertise in aviation finance accumulated over the years is of incalculable value.
This year, our shareholders invested $1 billion in new capital into the business. We also continued to diversify our funding base by raising a further $500m on the bond markets on very attractive terms. The issuance was 4.7x over subscribed, demonstrating the market’s confidence in our strategy.
This high level of confidence in our business by investors and lenders was further reflected in the upgrading of our credit rating to A- by S&P. This alongside our rating of A- from Fitch means that we have the strongest credit rating of any dedicated aircraft leasing company.
This financial strength will be a key differentiator for our business as will the quality of our portfolio of aircraft. Our portfolio now comprises 236 owned aircraft with a further 179 managed for investor customers. Our policy of combining proactive aircraft trading with the purchase of the latest technology, most fuel-efficient aircraft has resulted in our fleet being one of the youngest in the world with a weighted average age of 4.2 years, down from 4.5 years at the end of March 2018. Our strategy has resulted in increasing the proportion of new technology aircraft in the portfolio to 37%, a trend which will continue in the coming period.
Aircraft trading is a critical element of our strategy and ensures our continued success. SMBC Aviation Capital, has been and continues to be, one of the most active and successful traders in the market today and, working with our partners around the world, we sold 60 owned and managed aircraft during the year. We also signed letters of intent for the sale of a further 14 aircraft.
In terms of aircraft acquisition, we extended our existing order with Airbus for A320neo family aircraft with 65 new aircraft being delivered between 2023 and 2025.
We placed 47 aircraft from our order book during the year and we signed sale and leaseback contracts for a further 40 aircraft.
The industry does face challenges, however. Of critical importance over the next number of months is to ensure that the Boeing 737 MAX aircraft safely re-enters into service. This has been a challenging period for both Boeing and our customers and we are now focused on ensuring that we effectively manage the backlog of delays once the MAX is certified to fly by the regulatory authorities.
In addition, there is also the pressure to become ever more efficient as a result of cost and environmental factors. While there remains no viable alternative to the continued use of fossil fuels in aviation, the requirement for the industry to reduce its environmental impact in terms of emissions per passenger mile travelled will only intensify.
The best hedge against fuel price volatility and environmental impact is to have the most fuel-efficient aircraft possible. Our latest technology aircraft, which have an average age of just 1.3 years, are up to 15% more fuel efficient than their forerunners.
In terms of our people, we work hard to ensure that our team blends youth with experience in order to ensure we are continually exposed to new ideas and fresh thinking. Indeed, a source of considerable pride is the fact that we operate the largest and most successful graduate recruitment programme in the industry. We also support third level education in Ireland through our sponsorship of the MSc in Aviation Finance in University College Dublin, the Student Managed Fund (SMF) in Trinity College Dublin and the Irish Aviation Students Association (IASA).
We also believe that we have an important responsibility to make a positive contribution to the communities in which we operate. We continue to support The National Gallery of Ireland as the first corporate partner since the Gallery reopened its doors following a six year refurbishment project. As well as a financial contribution, employee volunteering is an important element of our corporate social responsibility. We actively work with a number of charity partners both in Ireland and overseas including Open Arms Malawi, which has involved 40 of our employees travelling to Malawi over the past four years. In addition, 95 staff have participated in our Suas assisted reading programme and every year we work closely with the LauraLynn Children’s Hospice and The Trinity Centre for People with Intellectual Disabilities (TCPID).
I am confident that the inherent strengths in our balance sheet, the strength of our shareholders, our people, our portfolio and our long-standing customer relationships will enable us to maintain our track record of success in the coming years. We will continue to invest in people, systems and technology to actively develop our customer relationships, manage our fleet and to grow our asset base.
We will not allow ourselves to become complacent. Hubris is something we are keenly aware of. We understand that we need to continually build the strength of our team, to constantly change, adapt and innovate. Our future success depends on it.