Financial Review

The global operating environment in which we participate is highly dynamic. No year is the same as the previous one or the next. While change is inevitable, our performance is strong, our balance sheet is robust, and the underlying fundamentals supporting the long-term profitable growth of our business are sound.

Financial Performance

Underlying profit before tax, before exceptional items, increased to US$460 million for the financial year ended 31 March 2024. This represented a record year of profit for our business and equated a 35% year-on-year increase.

Overall profit before tax was US$1.2 billion when including Russian insurance proceeds of US$756 million. Accretive to this performance was a US$43 million decrease in credit impairment charges as the global bounce-back from COVID-19 bolstered the financial strength of airline customers.

This was reflected in operating cash flow, before Russian insurance proceeds net of related charges, of US$2 billion, up 33% year-on-year, with lease revenues of US$1.9 billion, up 41% year-on-year.

This performance was achieved through a disciplined approach to capital allocation and asset acquisition, allowing us to take advantage of opportunities presented by the strong demand for our assets.

We agreed US$5 billion of long-term leases in the period, including US$3.5 billion of aircraft bought directly from manufacturers and US$1.5 billion of sale-and-leaseback transactions. The Company delivered US$2.1 billion of aircraft to 18 different customers. In total, the Company now has 271 narrow-body aircraft on order, which are almost all from the Airbus A320NEO and Boeing 737 MAX families. It was also a record year for SMBC Aviation Capital in terms of trading aircraft, with 42 sale completions representing US$1.6 billion of assets, while the average age of the assets sold was 7.5 years.

The Company completed the Goshawk acquisition in December 2022 and therefore had a contribution of approximately three months from Goshawk within the profit and loss account and the balance sheet in the prior year. There is, of course, a full-year contribution in the current period. The combined business performance is surpassing our expectations at the time of the acquisition.

Balance sheet highlights

This strong financial and operational performance was supported by our robust balance sheet and A- and BBB+ investment grade ratings from S&P and Fitch respectively. Evidence of this strength is illustrated by our first 10-year bond issuance in July 2023. The demand for longer-tenor debt reflects investor appetitive for our name and their long-term confidence in our business.

Our balance sheet remains 100% unsecured, a unique feature in the sector. As a result of our focus on deleveraging, our net debt-to-equity fell from 3.8x to 2.8x during the course of 2023. We operate one of the most prudent interest rate hedging policies in the sector and have a maturity gap, the difference between the weighted average maturity of our leases and weighted average tenor of our debt, of less than one year, which is industry leading.

Reflecting the company-wide commitment to ESG policies, we executed our first sustainability linked loan (“SLL”) agreement, whereby the associated margin will adjust subject to our satisfactory delivery on carbon intensity and workforce diversity targets.

Funding strategy

We operate in a cyclical industry and we closely monitor financial, geopolitical and macroeconomic developments. While many parts of our industry will see more limited short-term changes, we know from our extensive experience that if, and indeed when, they do change, they can change dramatically.

We put ourselves in a strong position to respond to those changes through our focus on the diversification of our funding sources. Since FY 2022, we have raised over US$7 billion in the third-party funding markets. This includes a mix of capital sourced from the bank and bond markets, as well as financing provided by the Japan Bank for International Cooperation (“JBIC”).

Together with our third party funding strategy, the long-term backing we receive from our shareholders sets us apart. This support comes through equity and debt financing that is flexible enough to reduce risks and sustain a healthy balance sheet in all market conditions.

This funding advantage has given us the flexibility to capitalise on attractive acquisition opportunities at times when access to capital was restricted or prohibitively expensive for others. This has enabled us to deliver the strategically timed asset growth that has provided real scale and momentum to our business going into the current cycle.

The nature of our financial relationships means we enjoy efficient access to large-scale and competitively priced capital in all market conditions. We can deploy this capital both quickly and in-scale to capitalise on market opportunities.

Looking forward, we are well positioned to continue to deliver long-term profitable growth to our shareholders.

Aisling Kenny

Chief Financial Officer