Partner Newsletter
Shaping the Future Together
  • Partner Update
9 December 2020

SMBC Aviation Capital: This Pandemic Will Change the Way We Do Business

When news of COVID first broke earlier this year, few of us predicted the extent of this crisis or its adverse impact across the aviation industry. The near collapse of international travel has been hugely challenging for airlines and their suppliers. While the effects have been far reaching and felt across every facet of aerospace, there are signs of some positivity emerging and it is clear from many larger domestic markets that the desire and need to travel is still strong. 

Every aviation crisis, and I have worked through many, resulted in a re-shaped aviation market.  9-11, SARS, the Global Financial Crisis all brought about change that resulted in a more dynamic, innovative aviation landscape with airlines adapting, becoming more competitive and emerging stronger. The impact of this crisis will be no different.  In the leasing industry, we are examining how we can work with our customers over the short and longer term to create a better business landscape.  A recovery is not in question, it will happen and leasing companies, working closely with airlines and OEMs will be key players in the upturn. 

We have been very active in supporting our airline customers since the onset of the pandemic.  Some airlines who traditionally focused on debt and capital markets to fund their aircraft, have made the decision to re-enter the sale and leaseback (SLB) space as a means to boost their liquidity.  Leasing companies that have the support of financial institutions have become the main providers of this type of capital to support industry leading airlines.  We estimate that there has been up to $10 billion alone of such transactions completed over the past eight months. 

And this trend will continue.  The shape and size of fleets will look very different into the future.  As a recovery starts to take hold, mid-tier airlines will also look to refinancing opportunities.  We will see continued retirals of older aircraft and airlines will move to realign the scale of their fleets and the fleet mix to match post-pandemic travel demand and patterns.  Leasing companies stand ready to play a key role in helping airlines transition to the fleets of the future. 

There is also the opportunity now to really make substantial progress on the green agenda.   We will see greener skies over the coming years as the MAX returns to service and joins the neo in replacing older aircraft.  This however is not enough.  The airline industry in its entirety needs to drive change. Our business model is built around the most fuel-efficient aircraft in the industry but as facilitators of air travel, we need to do more. We have spent time over the past number of months working with OEMs and our customers to assess how we can achieve greater collaboration to be part of the green solution. Arguably this will be a longer challenge than we have just faced over the past eight months – but with greater cooperation, we are confident that the crisis will result in new innovations in this area also.

 

Brian Harvey

Chief Marketing Officer

SMBC Aviation Capital

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