Yomiuri Shimbun Correspondent
DUBLIN -- Peter Barrett, CEO of Ireland-based SMBC Aviation Capital Ltd. -- part of the world's second-largest aircraft leasing consortium -- emphasized the aircraft leasing industry's growth potential during a recent interview with The Yomiuri Shimbun. "Most aircraft in the world will be owned by aircraft leasing companies" in the future, he said.
The company operates under the umbrella of major Japanese trading house Sumitomo Corp. and Sumitomo Mitsui Financial Group Inc. $(SMFG)$.
The following is excerpted from the interview.
The Yomiuri Shimbun: SMBC Aviation Capital has been operating in Dublin for 25 years. How have the needs of the aircraft leasing industry and airlines changed during this time?
Peter Barrett: When we started this business 25 years ago, I would say probably 20% of the world fleet, maybe 25% was leased. But as the airline industry has grown, (including the) growth of low-cost airlines (and) long haul flying, the need from airlines for efficient capital has grown significantly, and I think leasing has really filled that need. So today, over half of the aircraft in the world are leased, and over half of those aircraft are actually leased from Ireland.
The industry has recognized that we're really good at owning assets. We're really good at funding them (airlines). We've got a very strong credit rating. Airlines are good at operating aircraft. I think it's a great combination and I think that's going to continue into the future, where most aircraft in the world will be owned by aircraft leasing companies.
Yomiuri: Is this also related to the evolution of financial and balance sheet thinking?
Barrett: What's really changed in the last 25 years is this (aircraft) has become a recognized asset class (by) many different types of investors -- pension funds, family offices, insurance companies (and) banks. It's going to be cyclical. There'll be geopolitical events. There'll be pandemics. There'll be lots of things, but aircraft are real assets. They have a real economic value in terms of operations. I'm saying it's very interesting in a world today where they have a lot of virtual assets.
Yomiuri: What are the strengths of partnering with Sumitomo Corp. and SMFG?
Barrett: I think what the key thing I would say is the long-term perspective. We are making decisions about investing in aircraft that'll be flying for (an average service life of) 25 years. We're writing leases with airlines that will be for 7 to 10-12 years, and I think (the) long-term financial strength that SMFG and Sumitomo Corp. bring to us is a really great partnership.
A great example of that is during COVID, when it was a very challenging market. We did a lot of transactions with our customers at a difficult time and that's paid significant returns and dividends to us in the last couple of years as the market has recovered.
Also, the financial strength of Sumitomo Corp. (and) SMFG, these are some of the biggest institutions in the world and in Japan. When you say "we're backed by some of the strongest corporations in Japan," that's a very strong calling card.
Yomiuri: Do you aim to be number one in the industry in terms of the number of aircraft in your fleet?
Barrett: We want to be the leading provider of aviation capital and aviation financing to our customers. We want the benefits of scale. I'm focused on delivering value for our customers, great returns for our shareholders (and) great job opportunities for our people. If we do all those things well, I believe one of the outputs will be that we are the leading player and we can be number one.
Yomiuri: How do you expect global air travel demand and the aircraft leasing market to change in the future?
Barrett: I think air travel is going to continue to be a very important global economic driver. What I thought I really took from the last five years is the human need for air travel. Once people could travel post COVID, they traveled with a vengeance. They traveled in scale.
Air travel drives so much around tourism and business growth, and so it's a real force for good in the world. If you're in India, (and) you want to travel from Kolkata to Mumbai, you can do it by train. It'll take you a day or a day and a half, or you can do it by plane, which will take you a few hours. As those countries get wealthier, people are going to fly more.
Yomiuri: Will the proportion of leased aircraft continue to increase?
Barrett: I think it will. I think that airlines recognize the benefits of leasing -- not just financial, but fleet planning and strategic planning. I think that the financial cost in terms of capital and cash needed is lower upfront, and it puts less strain on their balance sheet, and it gives them strategic flexibility around their fleet. If one airline has a difficult time, they perhaps manage their fleet to be smaller. If airlines see short-term opportunities, they can go to a leasing company and get an aeroplane next year or the year after.
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This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.
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