Peter Barrett interview: SMBC five years on

Peter Barrett interview: SMBC five years on

SMBC Aviation Capital has gone from strength to strength since its acquisition five years ago. Its most recent annual report showed that last year was a great year for the lessor: profit before EBITDA jumped 48%, it completed 111 aircraft transactions and sold 24 aircraft, and issued its first bond.

The company has kept up the momentum it achieved last year. It closed its inaugural bond worth $500 million in July, and improved its credit rating from BBB+ to A-.

Peter Barrett (pictured), SMBC’s CEO, is keen to drive on. Aircraft Investor sat down with him to talk about the last five years and the company’s plans for the future.

How has everything changed since the acquisition?

Peter Barrett: Sumitomo Mitsui Financial Group (SMFG) wanted to be a significant player in aircraft leasing and they wanted an experienced team so they went with us. We were RBS Leasing at the time. Our day-to-day operations have developed but the company has not really changed from what it was.

We have got better at some things. We have strengthened our financing, sourcing third party debt facilities, including $1 billion in unsecured notes since 2016.

We have moved some of our key operations in-house. At RBS we outsourced a lot of parts of the business, including IT and accounting functions, but now we have bought these in-house and invested more in the platforms. Because of this, productivity and speed of decision making for our customers has improved drastically.

Overall, the business has gone from strength to strength since the acquisition. It uses the strength and skills of both our business and shareholders to make SMBC what it is today.

What is the relationship like with SMFG?

Peter Barrett: It is a positive and engaged relationship. They recognise our skills and experience. They are very involved in the strategy and development of the business but they let us get on with the day-to-day of managing and trading assets without being too involved.

Has the acquisition spurred on the momentum? How will you keep it up?

Peter Barrett: It was a very significant investment from the shareholders and they were keen for us to grow our business. The acquisition has been instrumental in our growth.

We are a significant and growing player in the market. We have more than 200 aircraft on order, made up of Airbus NEOs and Boeing MAXs, making our order book one of the most technologically advanced in the industry.

We continue to invest in modern, fuel efficient aircraft that our customers want. We are very focused on trading: we continue to trade assets and manage our portfolio proactively. Aircraft leasing isn’t just about buying airplanes, it is about managing the portfolio and we have done that well over the last few years.

Having a shareholder that we are committed to and that provides us with strong backing is incredibly important for us.

You have achieved an A- bond rating by Fitch. Is this something you were seeking?

Peter Barrett: I think we worked hard to achieve it. Growing our business, strengthening our portfolio and investment from our shareholders have helped us achieve this rating.

We wanted our liability management to be strong, stable and sustainable. We take a conservative approach to interest rate and liquidity risk, and the strength of our shareholders gives us greater capability to manage these.

We considered this a critical part of our strategy. This has paid off over the past few years and the Fitch credit rating reflects this.

What are your future plans for financing?

Peter Barrett: We continue to look at new sources of financing. We are fortunate in that we have a very strong access to financing from our shareholders but we look for other alternatives such as bank financing, RCF and our bond programme. We continue to look at all other alternatives to diversify to maintain stability and sustainability.

We will do what is right for the business and ensure that we can continue to grow, sustain and manage the business effectively.

Diversification is a critical part of it. We do want a diversified funding base and we have been working hard and successfully at achieving that.

Where will SMBC be in five years?

Peter Barrett: That’s a very hard question. Things change quickly and it is very hard to predict. I suspect SMBC Aviation Capital will continue to be one of the leading lessors, and will maintain a young, up-to-date fleet and return strong and stable returns for our shareholders.

However, the world changes so quickly and in unpredictable ways. But I am sure we will continue to be a very significant player in the aircraft leasing market.

How competitive is the market?

Peter Barrett: It is competitive. Aircraft leasing has gone from a pretty niche investment category to something more mainstream, and more money has come into the market as a result. This can be a challenge and an opportunity. As one of the strongest players in the industry, we are well positioned to manage competition.

It’s a competitive market but we think we are a competitive offering. There will always be a level of cyclicality and, right now, I think we are in a pretty strong market.

I think we do well because we offer high quality assets and good service, we are stable and dependable, and we have an experienced team. We have been in business for 17 years and we deliver for our customers and shareholders. Our customer service is consistent as well.

Are there any particular markets or regions you are looking at?

Peter Barrett: We are a global business so we are present in most markets. New markets develop over time and, when we see them develop, we take opportunities. We have done business in most countries around the world and we will continue doing this.

We are seeing a large growth in Asia. That’s where there is a lot of population growth and it does not look to be slowing down. We see opportunities in Latin America as the economy grows, and, if you look at markets like Europe and North America, we see a lot of opportunities for fleet replacement. We are seeing significant opportunities there as people look to upgrade their fleet to the MAX and the NEO.

Alex Baldwin
By Alex Baldwin August 31, 2017 13:01