Published on July 10th, 2022 | by Mark Dwyer0
SMBC Aviation Capital Takes $1.6bn Impairment Following Termination of Russian Leases
SMBC Aviation Capital, one of the world’s leading aircraft leasing companies based in Dublin, has announced its results for the full year ending 31st March 2022. The company reported a net loss of $1.1bn due to an aggregate one-off $1.6bn impairment following the termination of leasing of aircraft to Russian airlines. The aircraft are no longer under SMBC Aviation Capital’s control, resulting in the write-off of the full carrying value of the 34 owned aircraft remaining in Russia
Despite this, there was strong underlying performance driving profit before tax and exceptional items of $336m, compared to $15.2m in FY20 and $364.5m in FY19, with continued momentum expected through the coming financial year. $1.5bn lease revenue and other operating income, compared to $1.2bn in FY20
SMBC also reached an agreement in May to acquire Goshawk for $6.5bn enterprise value, with recapitalisation by shareholders to provide equity and debt capital up to the full acquisition price. The transaction is expected to close in Q4, with additional diversified third-party funding sources to be used to fund acquisition as required
The company saw increased A320neo and B737 MAX demand during the year with 41 aircraft placed from the order book. They also signed LOIs / contracts for the sale of 25 aircraft (23 sold in FY21 for $68.3m profit)
Commenting on the company’s performance, Peter Barrett, CEO of SMBC Aviation Capital said: “These results demonstrate the strong upward trajectory of our business despite the considerable impact of the Russia-Ukraine war and Covid-19. While we are seeing ongoing challenges, the business is benefiting from a market recovery that continues to gather pace and a positive rebound in airline and investor demand for our portfolio of high-quality assets.
We are on track to close the Goshawk acquisition in Q4, which will reinforce our leading market position and give us further momentum and competitive advantage. Our shareholders are providing considerable support and the recapitalisation they are undertaking ensures we maintain our A- ratings with both S&P and Fitch. The expanded SMBC Aviation Capital will be very well suited to the shape of the recovery that is taking place. Our continued balance sheet strength, combined with our ability to access diversified funding sources, enables us to continue developing our business in line with our disciplined strategy.
Following the Russian invasion of Ukraine earlier this year our thoughts and concerns are first and foremost with those in Ukraine and beyond who are impacted by this terrible conflict. 34 owned aircraft remain in Russia despite SMBC Aviation Capital terminating the leasing of these aircraft in line with international sanctions, which Russian airlines continue to fly within Russia and to countries from which repossession has not been possible.
It is unlikely that SMBC Aviation Capital will be able to recover the 34 owned aircraft within a reasonable timeframe, or at all. As a result, we have recognised a $1.6bn write-off in respect of the aircraft, representing a full impairment of the carrying value. We have the benefit of significant insurance coverage and have every expectation that substantial recoveries will be secured.”