Sumitomo Mitsui Financial Group Inc. (8316) aims to expand Asia’s largest aircraft-leasing fleet by about 20 percent, targeting regional growth by building on a $7.3 billion purchase of Royal Bank of Scotland Group Plc (RBS)’s aviation unit.
Japan’s second-biggest lender by market value, in combination with trading company Sumitomo Corp. (8053), will boost the fleet to 400 planes in three years, from about 335, Hiroshi Minoura, deputy president of Sumitomo Mitsui Banking Corp., the lead arranger of the RBS deal, said in an interview on July 2.
Revenue from aviation leasing may rise to $800 million in three years, and $1 billion two years later, from $700 million, he said. Sumitomo Mitsui is targeting the Asia-Pacific region for growth, which is set to buy the most airplanes of any region over the next two decades.
“Asian aviation demand is expanding at an amazing pace and low-cost carriers are increasing dramatically,” he said. “We want to take a chunk of that growing market. The combined fleet will give us great economies of scale.”
The financial group, which renamed RBS’s aviation unit SMBC Aviation Capital, will merge it with SMFL Aircraft Capital Corp. within a year and tie up with Sumitomo’s aviation unit Sumisho Aircraft Asset Management BV, which owns and manages about 90 planes. Sumitomo Mitsui Finance & Leasing Co. owns a 60 percent stake in SMBC Aviation, Sumitomo Mitsui Banking holds 30 percent, and the remainder is held by Sumitomo.
Sumitomo Mitsui is aiming to boost the Asia share of its joint sales to about 50 percent, from 30 percent, as regional demand increases, Minoura said. Asia-Pacific airlines may receive 12,030 new planes through 2031, the largest tally for any region, Boeing Co. forecast this week.
A global slowdown in economic growth may help leasing companies win business, said Paul Sheridan of Ascend Worldwide Ltd. China, the world’s second-largest aviation market, may have grown at the lowest pace in more than three years last quarter, according to estimates from UBS AG.
“It’s a good time to be in airplane leasing,” said Sheridan, the Hong Kong-based head of consultancy. “Demand increases as the economy weakens as airlines tend to lease planes rather than buy them.”
Sumitomo Mitsui Financial rose 0.3 percent to 2,660 yen as of 10:06 a.m. in Tokyo. The stock has gained 24 percent this year.
Sumitomo Mitsui may also look to buy and then lease back 787 aircraft ordered by All Nippon Airways Co. (9202) and Japan Airlines Co., the nation’s two biggest carriers, Minoura said. The fuel-efficient planes are appealing as they will probably be easy to sell in the second-hand market at the end of leasing contracts, he said.
Boeing 787-8s cost $193.5 million each, according to list prices on the aircraft maker’s website.
ANA is the world’s first and largest operator of Boeing 787, and plans to add flights to Seattle and San Jose after starting service with the aircraft to Frankfurt last year. The carrier, which has ordered 55 of the planes, said it had received seven of them by the end of May.
The Tokyo-based carrier earlier this week announced a plan to raise as much as 211 billion yen ($2.6 billion) to help it pay for 787s and raise money for possible investments in other Asian carriers. JAL, which has ordered 45 of the planes, started flights to Boston with its first deliveries in April.
“We’ll ask them if they’d like any help in buying the planes,” Minoura said. “To buy 10 or 20 of the 787s is a huge investment. We think there’s a chance they could change their business model from one where they buy all the planes to leasing to reduce initial costs.”