Profits at SMBC Aviation Capital hit a record last year

AIRCRAFT lessor SMBC Aviation Capital is hoping to shrug off the effects of rising fuel prices by shifting to newer, more fuel-efficient aircraft.

The company had a record year of profitability last year, but profit growth slowed significantly, according to results released yesterday. Pre-tax profits grew 2.2pc to $319.4m (€270m), the company said.

Chief executive Peter Barrett said he was “not a big believer that everything has to go in a straight line”.

“The key story around this year is that we’re using a pretty good general market environment to really strengthen the business. While the balance sheet hasn’t really grown, our profitability has so we’re working our assets harder.”

The company had the second-highest year of aeroplane sales in its 17-year history, as it seeks to acquire a younger, more fuel-efficient fleet.

That will be a key selling point for aircraft lessors going forward with rising oil prices set to lift airlines’ fuel bills.

Dublin-based SMBC is owned by a consortium of Japanese businesses and received an equity injection of $1bn (€850m) from shareholders during the year to buy more aircraft.

The company was also active on the debt markets and said it had diversified its funding base.

Asked about the effect of rising interest rates on the company’s borrowing, Mr Barrett said SMBC had hedging arrangements in place to protect its margins and it expected to be able to continue these arrangements.

“I think as interest rates rise probably various borrowers around the world will not have that hedging... and that potentially will put people under pressure,” he said.

The turbulent geopolitical environment, from fears of a trade war to Italy’s new populist government, have sparked fears of a negative impact for companies like SMBC that do a lot of cross-border business.

“We keep a close eye on all those things... the trade war thing is something that we’re focused on, but I think the challenge is nobody really knows what form or what consequence a trade war might have,” Mr Barrett said.

He said that the company would evaluate any large M&A opportunities that came on the market. Market speculation has focused on the future of two of the world’s largest aircraft lessors, GECAS and Avolon, amid turbulence at each of those companies’ parents.

“We’ll always look at the opportunities that come our way. Ultimately we will do the deals that make sense for us and our strategy... we’re not going to do deals for deals’ sake or pursue scale for scale’s sake.

“It depends on how we see the fit and that will continue to be our approach.”