2020
Chief Executiveʼs Review
SMBC Aviation Capital delivered a strong performance in the year to 31 March 2020 with pre-tax profits increasing by 5.8% to $364.5m.
We laid the foundations for this record profitability over many years, during which we focused on strengthening our balance sheet and on building a portfolio of young, new technology, and fuel-efficient aircraft.
A solid strategic approach
These foundations position the business well going into the current financial year, with an industry leading credit rating, robust operating margins and a strong customer base. The ongoing support from and strategic alignment with our shareholders continues to set us apart from peers. We operate in a cyclical industry and have built a business model that performs throughout these cycles. Our underlying business strengths are critical as we navigate a time of considerable uncertainty that will have significant consequences for our sector in the years to come.
Impact of Covid-19
The global pandemic has created an economic dislocation unprecedented in its speed and severity. It is sadly unparalleled in all my years working in this industry – with an impact on modern society and global economics that is proving profound. Every element of our industry - airlines, lessors, airports, manufacturers, tourism and financial institutions have been affected.
However, despite this sobering outlook, I am very confident in a number of key differentiators which will see us emerge from this crisis, a stronger and more competitive global business.
During the period since year end, we have benefitted from the support of our shareholder and our financial flexibility has enabled us to be nimble and opportunistic.
Our people
Investment in our people is more crucial than ever. They are a fundamental element of our success. In recent months, technology has enabled us to maintain productivity and to enhance communications across our global offices, while providing advice on health and wellbeing. In our People section, we expand on the importance and value we place on each employee in this business.
I also value the support and expertise of our management team. The experience of working together over many years and through many of the challenging global events over the last three decades have been invaluable in responding to the current challenges. These experiences are embedded in our DNA, strongly influencing our approach to managing and navigating the market today.
Working with Our Customers and Suppliers
We continue to work in close collaboration with our customers and suppliers in facing these challenges together. Many of our customers have asked for some form of rental deferral and we assess each of these requests on a case by case basis. Our customers are long-term partners and we will continue to work closely with them as we endeavour to support them through this situation.
During the period since year end, we have benefitted from the support of our shareholder and our financial flexibility has enabled us to be nimble and opportunistic. We have concluded several Sale and Leaseback transactions with a number of our long-term partners, demonstrating the strength of our relationships.
We are also engaging with manufacturers on how we see the demand for new aircraft evolving in this environment, and recently agreed commercial terms with Boeing to defer 68 of our 116 Boeing MAX commitments. These aircraft were scheduled to deliver prior to December 2022 and have now been deferred to 2025-2027.
Trading is a core element of our strategy and we have taken advantage of market conditions over recent years to proactively manage our portfolio. Our trading team will use the current market to find opportunities to acquire aircraft that fit with our portfolio strategy.
The team has been very active in working with customers to support them in dealing with the crisis.
POSITIVE IMPACT
The theme of this year’s Annual Report is the importance of making a positive impact as a business. This is no longer an option for large companies – it is an imperative. I am therefore pleased to report that we have made significant strides across a number of areas this year.
Improving equality, diversity and inclusion (EDI) remains a priority, both within SMBC Aviation Capital and the wider aircraft leasing industry. As part of this, we have established a dedicated EDI team called Mosaic. Its long term goal is to provide a more equitable playing field for anyone wishing to seek a career in this sector, and ensuring equality of opportunity. While this initiative is employee led, Barry Flannery, our CFO will lead as its sponsor, demonstrating the firmest commitment at the top of the organisation.
Since 2014, we have committed over €1.5m in funding to our charity partners and recognise that we must build further on this. This year we selected a legacy project, Belvedere Youth Club (BYC), which will have a lasting impact in the local community where our headquarters is based through the creation of a Restorative Practice hub. Our CSR section details our strategy including our commitments during the Covid-19 crisis.
Finally, we are keenly aware of the fact that our activity has a carbon footprint and an environmental impact. We mitigate this by investing in the most environmentally friendly and fuel-efficient aircraft on the market, however we must continue to do more. As a result, we have carried out an in-depth carbon audit and are in the process of offsetting the carbon impact of our own business operations.
Outlook
Our differentiated business model, diversified sources of funding, experienced management team and supportive ownership structure will enable us to emerge from this crisis as one of the strongest companies in the global aircraft leasing sector.
I would like to take this opportunity to pay tribute to all of our colleagues in Ireland and around the world who have contributed to building the strong and resilient business we have today. Each employee has responded admirably to the Covid-19 crisis and I very sincerely and wholeheartedly acknowledge their efforts.
We have a great team of people, as well as supportive shareholders. This combination augurs well for the coming years. Despite continuing uncertainty, we look forward to a bright future together.
Peter Barrett
Chief Executive Officer