Russian losses cost SMBC almost €1.6bn

The loss of 34 planes to Russian customers cost aircraft lessor SMBC Aviation Capital almost €1.6 billion, the Irish company confirmed on Friday. Dublin-based SMBC is among a group of Irish aircraft lessors that terminated agreements with Russian airlines to comply with sanctions imposed following the country’s February invasion of Ukraine.

SMBC said it had written off the full $1.6 billion (€1.58bn) value of 34 planes based in Russia whose leases it terminated after the invasion sparked a war that still continues.

“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,” the company confirmed. “We have the benefit of significant insurance coverage and have every expectation that substantial recoveries will be secured,” added Peter Barrett, the lessor’s chief executive.

SMBC lost $1.1 billion in the 12 months to March 31st – the company’s financial year – as a consequence of the write-off, results published on Friday show.

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Other Irish lessors including Aercap and Avolon also lost aircraft after complying with sanctions against Russia. Both have filed insurance claims.

Excluding the Russian write-off, SMBC reported an underlying profit of $336 million for its 2021 financial year, against $15.2 million in 2020, when Covid-19 grounded air travel for a long period. The company noted that it earned $364.5 million in its 2019 financial year, the year before the pandemic struck.

Mr Barrett also confirmed that SMBC is on track to complete its takeover of Goshawk in the final three months of this year after agreeing to buy that rival for €1.5 billion. Announcing the deal in May, SMBC said that it would rank as the world’s second biggest aircraft lessor once it was completed.

SMBC will take over Goshawk’s business, assets and liabilities under the agreement’s terms, valuing the deal at $6.5 billion.

In more routine business activity, SMBC placed 41 Airbus A320neos and Boeing 737 Max aircraft with airline customers as demand for these planes increased last year. It also agreed the sale of 25 aircraft during its last financial year as this market also recovered.

The company has $12.3 billion in funds available from its shareholders – Japan’s SMFG and Sumitomo Corporation – along with $1.47 billion in third-party debt and $1 billion in bonds. Both Fitch and S&P confirmed SMBC’s A- credit rating during the year.

The Irish company has a fleet of 730 owned, managed or committed aircraft, most of them modern fuel-efficient models.

Mr Barrett said the results showed SMBC’s continued “upward trajectory” despite Covid-19 and the Russia-Ukraine war. “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.”