Lessor SMBC Hit For $1.6 Billion on Jets In Russia

The fallout from Russia’s invasion of Ukraine continues, with aircraft lessor SMBC Aviation Capital writing off $1.6 billion in its accounts. The lessor has decided to write off the value of 34 owned aircraft in Russia, part of the more than 400 leased airplanes left stranded after Russia invaded Ukraine in February.

SMBC Aviation Capital (SMBC) is owned by a consortium comprising two of Japan’s largest companies, Sumitomo Corporation and Sumitomo Mitsui Financial Group. It has an owned, managed and committed fleet of more than 730 aircraft, dominated by narrowbody aircraft. Its operating fleet of 525 includes 133 Boeing B737-800s, 45 B737 MAX, 107 Airbus A320neos, 47 A321neos, and 133 A320ceo family aircraft. There are also 30 Boeing B787s and 14 Airbus A350s, plus 16 unidentified aircraft in the fleet. During the financial year, SMBC sold 23 aircraft, making a tidy profit of $68.3 million in the process.


Demand for new-generation aircraft is growing

Lessor SMBC is seeing increasing demand for new generation Boeing B737 Max aircraft. Photo: Boeing

The lessor has orders with OEMs for 210 narrowbody aircraft, 107 Airbus A320neo and 35 A321neo, plus 67 Boeing B737 MAX and one B737-800 on order. SMBC said it had already placed 41 of the ordered aircraft. SMBC customers include some of the world’s most recognizable airlines, including Delta Air Lines, British Airways, Air New Zealand, Malaysia Airlines, Etihad Airways, Qantas and Air France.

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In its full financial year, April 2021 – March 2022 (FY21), SMBC reported an underlying profit of $336 million (€335 million). This easily eclipsed last year’s profit of $15 million and was close to the pre-pandemic $365 million it made in 2019. Lease revenue and other operating income in FY21 was $1.5 billion, up from $1.2 billion last year. The $336 million profit quickly turned into a net loss of $1.1 billion when SMBC wrote off the full carrying value of its 34 owned aircraft stuck in Russia. The lessor said it decided to write off the $1.6 billion because the aircraft “were no longer under the control of SMBC Aviation Capital.”

CEO Peter Barrett said that it’s unlikely SMBC will be able to recover the aircraft within a reasonable timeframe, if at all. He added:

“Thirty-four 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. We have the benefit of significant insurance coverage and have every expectation that substantial recoveries will be secured.”

SMBC is adding another 176 aircraft to its fleet

SMBC has more than 100 Airbus A320neos in its portfolio with another 107 on order. Photo: Airbus

In May, SMBC announced it was acquiring its Dublin neighbor, Goshawk Aviation, for $6.7 billion. Goshawk has an owned and managed fleet of 176 aircraft, excluding six located in Russia and unable to be repatriated. The deal is expected to close in the fourth quarter of this year and is being funded by a shareholder recapitalization, which will maintain SMBC’s prized A- financial rating. Barrett said: “Our continued balance sheet strength, combined with our ability to access diversified funding sources, enable us to continue developing our business in line with our disciplined strategy.”

Now that SMBC has written the 34 aircraft in Russia off its books, the insurance battle will soon begin with the industry looking at $10 billion in overall losses. Do you think any of these aircraft will ever leave Russia under their own power?

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