Financial Review

In the past year, we have seen an exceptionally strong rebound in the demand for aircraft thanks to the acceleration of the recovery across all key markets globally. Indeed, the current market has surpassed pre-pandemic levels, translating into improved financial performance for SMBC Aviation Capital.

Financial performance

Profits before tax increased to $341 million for the financial year ended March 31, 2023. That figure includes $27 million in upfront transaction costs associated with the acquisition of Goshawk, which was completed in December 2022. The full benefit of the Goshawk acquisition will be seen in future financial periods.

This very strong performance was supported by a combination of our high-quality balance sheet and positive market dynamics. The accelerating recovery in air travel is driving demand for both new and used aircraft, the positive result of which is reflected in our financial results. Demand for aircraft now exceeds 2019 levels.

From a fleet perspective, we signed agreements for the placement of 32 aircraft during the year and all of our aircraft are now fully placed until 2025. We also have a solid pipeline of new technology narrowbody aircraft scheduled for delivery over the coming years, 32 of which are due in 2023.

SMBC Aviation Capital also benefitted from changing dynamics in the supply of and demand for aircraft. The combination of high demand for aircraft by airlines together with OEM production delays led to a favourable operating environment for SMBC Aviation Capital as we have the assets airlines need. This, in turn, also enabled us to place both new and used aircraft at favourable economics.

Aircraft trading is a core element of our operating strategy. We are one of the most active traders of aircraft in the market, trading around 10% of our fleet every year. The widening supply / demand imbalance is contributing to the increased investor appetite for aircraft in the secondary trading market. Consequently, we increased our sales target for the year and sold 36 aircraft to 14 investors globally for proceeds, totalling in excess of $1.2 billion.

We trade aircraft not only for profit, but for portfolio management purposes also. Our trading activities enable us to manage concentrations, minimise re-leasing risk and enable us to keep our fleet young and in-demand with both airlines and investors alike. The average age of the aircraft sold was eight years, well above the average for our portfolio, and the majority were existing technology aircraft.

SMBC Aviation Capital is in a strong financial position and our performance throughout the year is a result of our financial discipline and agility in response to changing market conditions.

Goshawk

Without doubt, the highlight of the year for SMBC Aviation Capital was the completion of our acquisition of Goshawk for $6.7 billion. The integration of the two businesses is now effectively complete and we expect to see the full accretion of the transaction reflected in our performance for the year ending 31 March 2024 and beyond.

The Goshawk acquisition, combined with our aircraft purchasing and trading activity, has resulted in the business building a portfolio of scale valued at $21.5 billion. We have achieved this without compromising our disciplined approach to portfolio management. The average age of aircraft in our fleet is now 5.1 years – comprised of 83% narrowbody aircraft and 63% new technology models, as at 31 March 2023.

Financing

Diversification has been a core tenet of our approach to funding management for many years. Access to multiple funding avenues is essential. The strength of that approach was proven during the past year when capital markets became less attractive for our sector. As a result, we were able to pivot to the third-party bank market and access shareholder funding to finance both the Goshawk acquisition and continued organic growth of our portfolio. That activity saw us raise $7.9 billion in new debt and equity over the period.

 

Notable transactions during the year included:

  • $1.36 billion in fresh equity from our shareholders,
  • $2.5 billion in a syndicated facility with 32 global banks, and a
  • $2.1 billion facility with the Japan Bank for International Co-operation (“JBIC”)

These were among the most significant funding transactions across the entire aviation leasing sector during the year and demonstrates our ability to secure large scale funding in all market conditions.

We also had to contend with an increasingly volatile interest rate environment during the year but we were able to benefit from having one of the most prudent hedging policies in the industry. The maturity gap between the weighted average debt maturity and weighted average remaining lease term continues to be industry leading at under one year. This will protect our profitability in the coming years.

Liquidity

At year-end, SMBC Aviation Capital had $9 billion of available liquidity while 100 per cent of our debt is unsecured. Our third-party debt maturity run is very manageable and averages out at $1.2 billion per annum over the next five years.

Our total net leverage was 3.77x as at 31 March 2023, down from 4.35x the previous year. This improvement in leverage was facilitated by an equity injection from our shareholders, along with the sustained robust performance of the business.

Balance Sheet

We finished the year with a very strong balance sheet which saw asset growth of $8 billion, made up of both Goshawk assets and the continuing organic growth of our portfolio. SMBC Aviation Capital is in a strong financial position and our performance throughout the year is a result of our financial discipline and agility in response to changing market conditions. With the continued support of our shareholders, the thoughtful execution of our growth strategy and the successful integration of Goshawk, I am confident we will complete the coming year in an even stronger financial position.

Aisling Kenny

Chief Financial Officer