Our performance maintains our 20-year record of continuous operating profitability and reflected the exceptional efforts of all of our people, as well as the support of our shareholders.
I am pleased to report that SMBC Aviation Capital is working through the crisis with remarkable resilience.
Not only have we developed a business model which is capable of performing well through industry cycles, we have also nurtured a strong culture and put in place robust systems which have enabled us to continue operating efficiently in the most challenging of circumstances. These are things that can often be taken for granted. We know they matter but we don’t appreciate just how important they are until something like COVID-19 comes along. What we saw during the year was many years of hard work bearing fruit.
While the pandemic has hit the entire aviation industry, the impact has been most significant on our airline customers. Different segments of the industry operate to different temporal horizons. Manufacturers build aircraft that last for decades. For leasing companies, the horizon might be five to 10 years. For airlines, the impact of any event is much more immediate - an airline seat is a perishable product.
Most airlines went into survival mode and retrenched in response to the pandemic. They went from seeking ways of growing their business to looking at how to get cash in to survive. Cash generation and preservation became the order of the day.
We worked with our customers to help them achieve those objectives. We have been as supportive as possible and have had very constructive engagement with them. While challenging at times, we have always worked towards a shared objective to achieve a positive outcome.
Our approach differed depending on the circumstances and strategy adopted by each airline. In some cases, the airlines were in a restructuring process; in others they were seeking delivery deferrals; some also looked for ways to keep aircraft beyond the lease expiry; and in a significant number seeking to raise funding for their business.
SMBC Aviation Capital worked with airlines in all of these situations. In particular, we assisted airlines in generating cash by stepping in to buy aircraft and leasing them back to our customers. These sale and leaseback and other arrangements saw us invest $3 billion with our customers during the year.
This activity represented a win-win for SMBC Aviation Capital and our airline customers. We acquired some very attractive assets at competitive prices while the airlines generated much needed cash.
That positive engagement with airlines was built on a solid foundation of strong relationships built up over a period of 20 years.
That positive engagement with airlines was built on a solid foundation of strong relationships built up over a period of 20 years. Our world changed completely following the imposition of the public health restrictions in March 2020. Before that, we travelled around the world to meet our customers and suppliers and all that activity has ground to a halt and has yet to fully restart.
We have learnt to work with our customers and suppliers remotely and virtually. It is clear to me that the time invested in building relationships over the past 20 years was very well spent.
I know that my colleagues and I are keen to get back on the road: we are a people business in the airline industry and travelling to meet our customers and clients is important, but we have learnt how to do things more efficiently and that will benefit the business in the future.
The speed at which COVID-19 impacted our operations was one of the most challenging aspects of the pandemic. We went from a position where most of us were in the office on 11 March 2020 to all of us working remotely the next day. All of my colleagues have shown themselves to be enormously resilient as they adapted, stepped up and rose to the challenge.
That is a tribute to the character and quality of our people as well as the exceptionally strong culture we have built at SMBC Aviation Capital. We are all excited to get back into the office and see familiar faces again – sustaining that culture and renewing our bonds is among the many reasons we need to get back together.
From an operational point of view, we move billions of dollars a year between bank accounts and buy, sell and lease hundreds of airplanes. Despite this complexity, we haven’t missed a beat during the entire pandemic.
Our shareholders have been exceptionally supportive and our relationship with them has withstood the severe stresses and strains experienced since the onset of the pandemic. This is in part due to the way our shareholders see the world. They take a long-term view and remain calm in the face of a crisis.
It is also due to the work we put in together on building a relationship based on trust over the past eight years. It is my firm belief that our business has done well in relative terms during the pandemic because of all the work we did beforehand to ensure our people, processes, systems and customer and shareholder relationships were resilient.
We have always been very prudent in ensuring the financial strength of our business. In addition, we have been disciplined on the aircraft we have invested in, focusing on new technology, narrowbody assets that are the aircraft our airline customers want to fly and our investor customers want to own. We have a conservative financial profile and this is reflected in our strong investment rating which we have maintained throughout the crisis.
We are very conscious that the crisis has impacted all of society and therefore we have maintained our commitment to corporate social responsibility (CSR) during the pandemic. Some of the highlights include a virtual global event to raise funds for mental health charities, donating to Women’s Aid assisting domestic abuse victims, donations of food and PPE to homeless charities in Dublin and our involvement in the COVAX initiative - an aviation coalition which has jointly donated $400,000 to support COVID-19 vaccine donations in 92 countries.
Environmental concerns have risen to the top of the corporate agenda in recent years, and the fallout from the pandemic has accentuated the emphasis on climate action. Decarbonisation remains a pressing issue for the entire aviation industry.
The industry is continuing to improve on reducing its carbon footprint. SMBC Aviation Capital has always invested in the newest, most fuel efficient, lowest polluting technology on the market and we will see continual improvement in the carbon footprint of our fleet over the coming years. We are also looking at other innovative solutions to reduce our climate emissions and help our customers meet their emission reduction goals.
Looking ahead, the enormous scientific and human achievement represented by the rapid development of COVID-19 vaccines gives us hope of a continuing recovery in the course of the coming year, but the economic and social fallout of the pandemic remains unclear and there will be challenges ahead.
I am confident that our tested business model combined with our strong financial position and supportive shareholders and our great team of people positions us to prosper and thrive in the new environment, whatever form it takes.
I would like to conclude by expressing my personal gratitude to all of my colleagues for the exceptional way they responded and rose to the challenges presented by COVID-19. I could not have asked for more.
Peter Barrett
Chief Executive