Sumitomo Mitsui Backs Aviation Leasing Arm to Repel China Threat

(Bloomberg) -- Sumitomo Mitsui Financial Group Inc. is confident it can remain a global force in the aviation leasing industry by fending off intensifying competition from Chinese firms.

The Japanese bank, which made a push into the business when it bought Royal Bank of Scotland Group Plc assets six years ago, expects to boost profit in line with industry growth, said Kenji Irie, joint general manager of its aviation and maritime strategy department.

“We’re planning to grow at about the same pace as the market, so over a five-year span that would result in being about 30 to 40 percent bigger” in both profit and business scale, Irie said in an interview in Tokyo. The banking group is able to arrange and sell financial products from its leasing operation, helping it gain an edge over competitors, he said.

That approach contrasts with a wave of takeovers by Chinese rivals that mean nine of the top 50 lessors are now based in Asia’s largest economy, according to FlightGlobal. Sumitomo Mitsui’s Dublin-based SMBC Aviation Capital Ltd. slipped one spot to fourth in the global rankings last year after China-controlled Avolon Aerospace Leasing made an acquisition.

“The aviation industry continues to watch the rise of China-based lessors and the capital they deploy with interest, as they potentially change the competitive dynamics,” Rob Morris, head consultant at FlightGlobal’s consulting arm, said by phone. “We see this trend set to continue in the coming years.”

Sumitomo Mitsui plans to add to its fleet by buying directly from manufacturers as well as through purchase-and-leaseback arrangements with carriers, although acquiring a competitor or portfolio of aircraft could also be options, Irie said. The firm trades planes to balance the size and age of its portfolio, and also sells loans and securities to investors.

“In general our approach is based on an organic strategy and what we know we can achieve,” he said. “But of course we’d buy a bulk portfolio if the pricing in the market was right, just like we wouldn’t rule out something like an acquisition if it were available.”

Aircraft leasing has become an increasingly important part of Sumitomo Mitsui’s global business as it seeks to counter low interest rates and a sluggish economy at home. About 20 percent of the bank’s overseas portfolio is in “high-profit” assets, which includes plane leasing. A further 20 percent is in project and trade finance, with the rest in corporate loans.

Irie said he’s confident that the infrastructure the group has built since acquiring the business from RBS will enable it to maintain its top-five ranking. It will also help the company withstand profit fluctuations stemming from the industry’s cyclical nature, he added.

“If you look at the medium to long-term growth of the market and the platform we’ve created to harness that growth, we’re not excessively concerned,” he said.

©2018 Bloomberg L.P.

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