AerCap up for sale?
11th July 2012
SMBC Aviation Capital has reported a decline in pre-tax profit for the first half (H1 2020) of its financial year ending September 30 2020 reflecting the impact on clients of the falloff in travel demand due to the coronavirus pandemic. The lessor’s profit before tax was $17.3 million compared to $200 million in H1 FY19, as it dealt with the impact of lease restructurings and airline Chapter 11 processes, which contributed to a $68 million increase in provisions for credit losses and a $51 million increase in asset impairment charges.
SMBC Aviation Capital’s total aircraft operating lease assets grew by 9.5% to $11.5bn, which reflect its increased sale and leaseback activity. The lessor completed $1.1bn in sale and leaseback transactions relating to 22 aircraft with eight airline customers since March 31 2020. The company expects this growth to continue, indicating that it has a “strong pipeline of additional opportunities with another 19 aircraft equating to $1 billion under LOI with expectation of further opportunities as leading airlines seek to monetise assets and raise liquidity”.
SMBC Aviation Capital has kept a lid on costs, detailing that it has reduced its original contracted capex in FY2020 and FY2021 to $2.1 billion from $3.9bn mainly realised due to OEM production delays and the restructuring of OEM and sale and leaseback contracts.
The lessor has a strong cash position with $5.2bn in available liquidity from diversified funding sources. The company also continues to benefit from strong support from its shareholders, SMBC and Sumitomo Corporation, which have provided $11.1 billion in support – $2.9 billion of equity and $8.2 billion debt financing of which $3 billion was undrawn as at 30 September.
The average cost of SMBC Aviation Capital debt is 3.23% compared to 3.68% for the six month period ending 30 September 2019 reflecting a combination of a lower interest rate environment and continued access to competitive funding.
“We have continued to see market dislocation due to Covid-19, which is having an adverse effect on the commercial aviation sector and has also impacted our profitability over the first half,” said Peter Barrett, CEO, SMBC Aviation Capital. “SMBC Aviation Capital’s ownership by supportive Japanese Financial Institutions puts us in a position not only to withstand the current operating environment but to take advantage of the attractive opportunities that are being presented. These opportunities include sale and leaseback opportunities with industry leading airlines that will deliver significant benefits to our current and future profitability and portfolio quality.”
He adds: “As we face into the winter season, we expect continued challenges across the sector. However, with the rollout of a vaccine combined with new travel measures, we are optimistic that through 2021, we will begin to see confidence restored in aviation and the fundamentals that have driven growth in previous years will begin to reassert themselves. We believe that such a scenario will result in strong demand for the new technology, fuel efficient, short haul, narrow body aircraft that are a foundation of our business model.”