Like every other company in the aviation sector, we had to deal with the extraordinary downturn, but we achieved and learnt a lot from this experience. We are confident that we can turn these challenges to our advantage in the future and that the experience will stand our business in good stead.
A key element of our response to the crisis was a shift in strategy from one based on direct aircraft orders to a focus on sale and leaseback of aircraft already owned by the airlines. That would not have been possible without the support of our shareholders and the strong relationships we had built with airlines over the previous 20 years.
From a financial perspective, shareholder support increased by $1.2bn to $11.8bn during the year comprising $3.1bn equity and $8.7bn debt. That represents a strong commitment which is based on a very close relationship which has been strengthened during the course of the year through mutual trust and respect.
That relationship with our shareholders also allowed us to provide important support to our OEM partners. For example, since year end, we have signed a deal to purchase 14 Boeing 737MAX with delivery scheduled to commence in late 2021. This transaction took place at an attractive price for both parties and at a time when traditional airline customers were conserving cash rather than purchasing new aircraft for their fleets. It would have been difficult to arrive at a deal like that without our exemplary track record in the market and our very long relationship with Boeing.
We stuck to our principles and continued to look for ways to add value for our customers – that’s one of the strengths of SMBC Aviation Capital.
While the market was challenging, it did not disappear. Many opportunities presented themselves and we took a proactive approach to capitalise on them. We were fortunate in being well structured financially to do that and to have a business model based on a deep understanding of our customers and the market.
But the market did change. Prior to the pandemic we saw an intensely competitive market with airlines frequently receiving between 30 and 40 offers to finance an aircraft. At the beginning of the pandemic airlines could struggle to find any offers of finance at all. But we stuck to our principles and continued to look for ways to add value for our customers – that is one of the strengths of SMBC Aviation Capital.
The switch to remote working was another challenge. I have been working remotely since taking over as Chairman in April 2020 and have been highly impressed by the response of our people to the changed arrangements. At SMBC Aviation Capital we have a very good teamworking culture and that came to the fore during the pandemic when everyone cooperated to ensure that business operations continued effectively and efficiently.
The quality of our leadership team was also very important. Everyone had a clear understanding of their role and responsibilities in the new environment and this proved of great assistance in overcoming the challenges we faced.
While everyone in the organisation played their part in our success over the past year, I believe that the people looking after the more challenging customer situations deserve a special mention. Their role is vitally important but necessarily tends to happen in the background. During the past year they have delivered successful outcomes to many difficult situations and that is worthy of note.
We will learn from our experience of dealing with these challenges and use that to take advantage of opportunities in future. However, we operate in a very competitive market and we understand the need to continuously reinvent our business when appropriate in order to respond to changing market circumstances.
Those changing circumstances include the requirement to deal with climate change. SMBC Aviation Capital fully understands that the airline industry does have responsibility to reduce CO₂ emissions and we have a very important role to take a lead in that by purchasing the most fuel-efficient aircraft, purchasing carbon offsets and continuous engagement with our customers on ways to further reduce the industry’s impact on the environment.
As we face these challenges, we are fortunate that we have a singular focus shared by our shareholders, board, and senior leadership team. We believe that this unity will prove valuable as SMBC Aviation Capital looks to take advantage of the opportunities that will present themselves as we emerge from the pandemic.
Tom Tanaka
CHAIRMAN