Chief Executive’s Review

The past year has been another significant one for SMBC Aviation Capital and, as the industry emerged from the pandemic, our business continued to deliver strong growth driven by its long-term strategy and consistent shareholder support. We built significant momentum, with our high-quality portfolio of assets and healthy order book giving us a real advantage and are well positioned to deliver for our customers, our shareholders and our people going forward. As a result, we are well-placed to create long-term growth and reliable investment returns and also have the resources to fulfil our ESG commitments.

Record-breaking performance

SMBC Aviation Capital posted a positive set of results for the financial year to 31 March 2024, underpinned by our disciplined approach to capital allocation and asset investment. The business generated its highest profit before tax during the year, which is testament to the hard work and dedication of our people. This sets us up very well for the future, and we are well positioned to take advantage of current supply-constrained market conditions, with significant demand from airlines and investors for the modern, fuel-efficient aircraft that our portfolio provides.

Customers

Our customers remain at the heart of our business and we are ideally placed to meet their aircraft needs. Following the challenges of the COVID-19 pandemic, which impacted everyone in the industry, market conditions normalised over the course of 2023 as demand for air travel recovered and the credit standing of our customers improved.

Lease rates for both new and used aircraft are robust due to a combination of rising demand, constrained supply and the effects of the higher interest rate environment. SMBC Aviation Capital has emerged as a key beneficiary of the current supply and demand dynamics, thanks to the scale of the growth achieved in the early part of the current cycle and our access to a direct orderbook for 271 narrow-body aircraft extending out as far as 2031.

Responsibility

In addition to our operational and financial success, SMBC Aviation Capital is committed to operating responsibly, and we are focused on practical solutions that will help the industry meet its long-term sustainability goals. We believe that our performance is a function of our commitment to doing business responsibly and sustainably.

As well as focusing on our operations, we are also helping our customers achieve their own sustainability goals at a time when this matters more than ever. There are many paths to decarbonisation and we have embarked on a multi-stage approach to achieve as much as we can, as effectively as possible.

Deployment of newer, more fuel-efficient aircraft is the first step and is already delivering significant results, with new-generation engine designs reducing fuel consumption by 15%. As at 31 March 2024, 67% of our fleet (by net book value) is new-generation technology. While many airlines see fuel efficiency as a core part of their emissions reduction strategy, it also plays a key role in reducing their fuel costs, making our fleet particularly appealing in periods of elevated fuel prices.

In addition to managing one of the most fuel efficient portfolios of any major leasing company, SMBC Aviation Capital sponsors innovation, accelerating the industry’s decarbonisation journey. We are a proud partner of Trinity College Dublin on their Sustainable Aviation Fuel (“SAF”) Research Facility, which is located in our Dublin headquarters, providing a dedicated facility for the research, development and deployment of sustainable aviation fuels which are set to enable even more efficient flying.

Beyond our commitment to decarbonisation, SMBC Aviation Capital is a global business and a keen advocate for diversity, with a wide-ranging group of stakeholders. We are focused on adopting an empathetic and responsible approach and strive for inclusivity, allowing us to support all of our people to achieve their ambitions and contribute to our future success.

Strategically timed asset acquisition

Tactical management of our portfolio, combined with carefully timed asset acquisitions, is a key part of our strategy and plays an important role in driving our long-term performance. As the aircraft leasing industry has grown and developed in recent years, economies of scale have become increasingly important and our position as one of the world’s largest aircraft lessors has allowed us to grow our customer offering and deliver attractive returns to our shareholders.

Since April 2020, we have executed on over US$18 billion of organic and inorganic acquisition opportunities. We achieved growth and delivered real scale to our business at the low point in the cycle which offered the greatest possible value. Importantly, we achieved this without compromise to the high-quality nature of our portfolio and balance sheet. As of March 31, 2024, SMBC Aviation Capital was the second-largest global aircraft leasing company, and largest Japanese-owned lessor by a considerable distance, with an owned, managed and committed fleet of close to 1,000 aircraft.

Compelling order book

Our potential is underpinned by our strong pipeline of deliveries and, in 2023, we grew our order book by an additional 85 prime, narrow-body aircraft. The move ensured that the Company’s customers have access to a portfolio of the most technologically advanced aircraft, which has become even more important in the post-pandemic market where availability of new aircraft positions has been constrained.

In addition, trading activity plays an important role in our value creation, as cash flows from trading support corporate liquidity across our portfolio. An effective trading strategy allows us to remain nimble and ensure that our fleet composition meets the changing needs of our customers. This enables us to take advantage of new opportunities presented by growing demand and shifts in market preferences. SMBC Aviation Capital is one of the most active traders in the sector and, on average, we trade about 10% of our portfolio every year. This successful programme of disposals also supports our acquisition agenda, since selling well shows that we bought well.

Shareholder support

The strength, depth and breadth of our shareholder support lies at the heart of SMBC Aviation Capital’s success. Having benefitted from the trust of our shareholders over the years, we are able to offer attractive financial returns, rewarding their faith in us and creating value in the business.

Workplace investment

People make our business what it is. We are focused on developing talent, while providing the optimal working environment to enable our colleagues to deliver their best for the business.

The most visible sign of our commitment to the working environment has been the move to our new headquarters, Fitzwilliam 28, located on Dublin’s Georgian Mile in the heart of the city. Housing all of our people in Dublin under one roof has played a key part in furthering our culture, bringing the legacy SMBC Aviation Capital and Goshawk teams together and completing the integration process.

The state-of-the-art workplace environment is increasing efficiency by acting as a hub for collaboration, training and development, while sending clear signals that the Company fosters health and well-being. Moreover, this iconic building with modern facilities and features provides extensive sustainability-driven benefits and has been accredited LEEDv4.1 Gold status indicating excellence in sustainable design and operation.

Our new headquarters

Practicality and partnership

The success of SMBC Aviation Capital over the past 23 years comes from disciplined decision-making, which has allowed us to generate lasting value through economic cycles by adopting a practical, solutions based approach anchored in the long-term partnerships we have established with our shareholder and our customers. Having demonstrated our resilience by navigating the macroeconomic headwinds posed by the COVID-19 pandemic and ongoing geopolitical challenges, we now have real momentum and confidence going forward. This strategic approach coupled with the support of our investors, allowed us to see the bigger picture and take advantage of the cyclical nature of our industry, even in the depths of the pandemic.

Throughout the recent worldwide challenges, it has been our firm view that air travel is an intrinsic part of the global economy and we have been proved right. Air traffic levels exceeded 2019 benchmark rates across key markets globally by the end of 2023, following a sustained recovery cycle. Looking ahead, while dynamics vary from market to market, there is a positive outlook across the board.

The future is bright for our business, with our strong balance sheet, consistent shareholder support, considered long-term strategy, high-quality assets, healthy order book and a world class team. These factors all place us in an excellent position to drive long-term growth and reliable investment returns in the most socially and environmentally responsible manner possible.

In closing, I would like to thank our shareholder for their steadfast support, my colleagues for their hard work and commitment and our customers for their ongoing business – this is what makes us a success.

PETER BARRETT

CHIEF EXECUTIVE OFFICER