SMBC gets $1bn funding boost as airlines look to update fleets
Capital injection gives Irish lessor highest rating in aviation industry
Peter Barrett, chief executive of SMBC Aviation Capital at their office in IFSC House Dublin.Photograph: Brenda Fitzsimons
A $1 billion (€884 million) boost from its parent has left aircraft lessor SMBC Aviation poised to cash in on demand from airlines to replace their fleets.
Ratings agency S&P, which assesses companies’ abilities to pay their debts, upgraded SMBC yesterday after the Irish firm’s owners, Sumitomo Mitsui Financial Group and Sumitomo Corporation, gave it $700 million in equity and a $300 million loan.
S&P re-rated SMBC to A- from BBB+, ranking it as a particularly secure bet for lenders.
A similar rating from another agency, Fitch, gives SMBC the joint highest rating in its sector, implying that it can borrow money at a lower cost than many rivals.
SMBC buys aircraft from manufacturers such as Airbus and Boeing which it then leases to airlines. The company purchases the craft with a combination of its own cash and borrowings. Speaking yesterday, SMBC chief executive, Peter Barrett, said that the company was likely to use the cash from its shareholders to fund activities into the early years of the next decade.
“We are looking at campaigns beyond the summer of 2020 and into 2021 and 2022,” he said.
Mr Barrett said SMBC would continue to focus on markets such as Asia, where demand for air travel and air craft are growing on the back of expanding populations and increased wealth.
Nevertheless he noted that many airlines in established markets such as Europe are planning to replace craft with new models that burn less fuel and can fly over greater distances. At least one customer with which SMBC is in talks plans to renew its entire fleet over the next five years.
He welcomed S&P’s rerating. “It will give us some competitive edge as the market changes and develops,” he said.
Mr Barrett acknowledged that a number of factors had left airlines facing financial headwinds.
“Fuel costs are higher, interest rates are higher and labour costs are going up,” he said. However, he pointed out that growth was continuing in many markets.