Chief Executive’s Review
SMBC Aviation Capital is now a substantially larger and stronger business than it was prior to the Covid-19 pandemic at the beginning of 2020. That exceptional performance in the face of numerous challenges – including the impact of the Russian invasion of Ukraine, continuing capital market volatility and sharply rising energy costs – has been achieved largely as a result of the excellence of our people, the unwavering support of our shareholders and our long-term strategy which facilitated the transformational acquisition of Goshawk.
Resilience
The recovery of air travel has played a key role in the Company’s performance over the past year. Our financial year ended 31 March 2023 has clearly marked the inflection point in the recovery, with air travel levels in several jurisdictions across the Americas and Europe not just rebounding, but now surpassing pre-pandemic levels. This has increased demand from our airline customers, which we are well placed to meet through our strategic focus on the new technology narrowbody aircraft that are highly sought after in this competitive environment. While lockdowns in Asia lasted comparatively longer than in other markets, recovery in the region is resilient and, with robust demographic and economic fundamentals, we expect this trend to accelerate.
The aviation market has proven its resilience globally, with its fundamental drivers being affirmed in the last two years. People’s desire to see new places, travel to meet family, experience different cultures, and do business face-to-face, remains strong. We’ve seen that when people can travel, they do travel. Travel is important to people, and they tend to prioritise it over other areas of discretionary expenditure.
Goshawk acquisition
The milestone acquisition of Goshawk in December 2022 saw SMBC Aviation Capital become the second largest global lessor by number of aircraft. The acquisition has helped us grow our best-in-class portfolio while maintaining our focus on new technology narrowbody aircraft. The combined business has a portfolio of over 700 owned and managed aircraft and additional orders from Boeing and Airbus, comprised exclusively of over 189 new technology narrowbody aircraft.
The two businesses were an excellent fit for each other, not least due to their complementary aircraft portfolios. I am pleased to say that the integration of the two organisations is essentially complete. Indeed, as of July 2023, all financial reporting was run on one system. That is an outstanding achievement in a very short space of time, and it was great to see that the time and effort put into planning and preparing for the acquisition paid off.
Other aspects of the integration, including those involving people and culture, are still ongoing and I would like to take the opportunity to thank all of those involved who continue to work hard to make the integration run so smoothly. Our people have been excellent in how they have embraced this new chapter for our organisation. We now have our new organisational structure in place, and it is clear to see that this acquisition has been good for the business.
Shareholder support
The other key factor in the long-term growth of our business and the success of the Goshawk acquisition has been the support of our shareholders. We often acknowledge that support but over the past three years we have seen how important it is to the business. That support has been unwavering during recent global challenges resulting from the invasion of Ukraine by Russia in February 2022.
SMBC Aviation Capital is now a stronger and more competitive business than it was three years ago. The business is substantially bigger, while the average age of our fleet has fallen and its diversity has increased. We have been able to build the scale and quality of our portfolio and invest in the latest technology aircraft. Furthermore, we have been able to support our customers around the world during the pandemic, as well as working with them through sale and leaseback agreements which has allowed them to grow and develop their business and facilitate growth in what has been a challenging period for aviation.
Building on success
We are generating significant profits, and our key priority now is to build on that profitability and the recovery which underpins it. Doing so will see us continue our strong focus on risk management. We will apply the lessons learned over the last three years in terms of how to manage risk for what is now a much bigger business.
We have seen interest rates rise rapidly over the past 12 months and our interest rate management strategy has proven to be correct. We have hedged very prudently and that will continue to be the case as we look ahead to a period of continued uncertainty in the capital markets.
SMBC Aviation Capital is now a stronger and more competitive business than it was three years ago. The business is substantially bigger, while the average age of our fleet has fallen and its diversity has increased. We have been able to build the scale and quality of our portfolio and invest in the latest technology aircraft.
ESG
Our ESG journey continues to be a key focus for us. We launched our carbon credit programme in 2022 and we are determined to play a significant role in the research and development of Sustainable Aviation Fuel (“SAF”).
We acknowledge that our journey to net zero will be a long one. Aviation is a difficult to decarbonise industry and a concerted effort from the entire industry will be needed to develop and transition to sustainable new technologies.
Our commitment to reducing our own carbon footprint is exemplified by our new headquarters in Dublin. The building is being finished to the exacting LEED Gold standard, providing world leading energy performance. In addition, we are committed to making voluntary disclosures in line with best practice.
We continue to focus on the social aspects of ESG, including equality, diversity and inclusion (“EDI”) in our own business. There are still challenges to achieve gender balance in what has traditionally been a very male dominated industry, but we are making real progress and we see this particularly on our graduate recruitment programme where we are now attracting a more diverse talent pool. We also recognise that EDI is not just about gender and we are determined to make further progress on all aspects of diversity in our workplace over the coming years.
We believe that doing is better than talking and our Corporate Social Responsibility programmes have been very successful over the last decade. This year marked the completion of our investment in Belvedere Youth Club in Dublin’s North East Inner City and we are expanding our long-standing partnership with the National Gallery of Ireland. We continue to work with Difference Days for our annual offsite where over 260 of our people refurbished the playground and outdoor areas at an underprivileged school in Ballymun, Dublin. The response from both our people and pupils to these projects has been a highlight of the year.
Outlook
Looking ahead, we intend to consolidate our position as a leader in the aircraft leasing industry. SMBC Aviation Capital has evolved rapidly in recent years and we want to ensure we capitalise on our position in terms of how we work with our customers and suppliers.
We have a strong order book and, as the industry continues to recover and grow, we will continue to provide our customers with a best-in-class service that meets their demands for sustainable growth. We are well positioned as we have the narrowbody, new technology aircraft that airlines want, and we will work to ensure that we can continue help our customers navigate and overcome the headwinds stemming from manufacturing challenges.
In short, our business is in a very strong position. The foundation of this is our strong relationship with our customers, our world class team and our partnership with our shareholders. Their long-term view of the business means we can play a long game where others perhaps can’t. This places SMBC Aviation Capital in an excellent position to maintain its solid growth trajectory in the years ahead. Fundamentally, it is our people who will deliver this growth and I am confident that we have the right team in place to achieve this. I would like to finish by thanking all of my colleagues for their contribution and hard work during the course of this year.
PETER BARRETT
CHIEF EXECUTIVE OFFICER
PICTURED: Members of the SMBC Aviation Capital team with The Lord Mayor of Dublin - Caroline Conroy, School Principal - Jennie McGee & Denis O’Reilly at our 2023 Difference Day Activity at St Joseph’s School, Ballymun