Jonathan: Aisling Kenny of SMBC Aviation Capital. You're very welcome, Aisling. How are you?
Aisling: I'm good. Jonathan. Thank you. And thank you for having me.
Jonathan: I'm delighted to have you on because I am a self-confessed aviation nerd. So I will be asking many complicated technical questions about the Airbus A380 later on. But I want to talk about your role, first of all, as CFO. First of all, how did you end up in that position?
Aisling: So thank you for that. And I'm very interested to hear that you're interested in aircraft. Please don't ask me any more technical questions though, because that's not my area of expertise as CFO. And so how I ended up in the role is I joined SMBC Aviation Capital in 2012. At the time, it was RBS Aviation Capital and was soon thereafter sold to a new shareholder, a set of Japanese shareholders, and then became SMBC Aviation Capital. I had the role of manager and head of finance there for about 9 or 10 years, and then became CFO in 2022. Prior to my life in aircraft leasing. I was an auditor with my colleagues here in EY. So that's how I started into the world of of finance.
Jonathan: Home the returning hero.
Aisling: Exactly.
Jonathan: Therefore!
Aisling: The prodigal daughter has returned. Exactly.
Jonathan: I want to talk about the industry, because I find it fascinating that little old Ireland, this tiny rock on the edge of Europe, is now home to the majority of aircraft aviation leasing companies, 60% or so. How has that happened?
Aisling: It is actually so interesting. And when I first became involved in the sector, some of the stats became I suppose they're kind of shocking really, because it's not a sector that gets a lot of publicity within Irish media, for example. It is a huge sector in Ireland. And as you said, essentially 60% of all aircraft are leased and the vast majority are through Ireland. A good start for you is that within our own portfolio in SMBC Aviation Capital, and we have altogether owned, managed and committed just over a thousand aircraft. And when we look at the flight statistics for our aircraft every minute of the day, one aircraft takes off or lands around the world in our portfolio. Just worth thinking about.
Jonathan: That's incredible. I mean, if you think about Ryanair and I can't remember how many aircraft Ryanair have. Biggest airline in Europe, about 380 aircraft. You guys have a thousand. You almost are casual in how you describe that. That's a thousand very expensive pieces of equipment isn't it?
Aisling: Yeah. And we are just one of other very large leasing companies in Ireland. If you look across the entire group, the amount of aircraft that run through Ireland, it's quite significant. And it all harks back to Tony Ryan in the days of GPA. And you know, he as an entrepreneur, saw a gap in the market there and saw that airlines needed this solution. They needed the financing solution, and they needed the flexibility to be able to return aircraft after a period of time and change their fleet and so on.
Jonathan: The meteoric rise of the sector kind of coincided with a little bit with your career after you emerged from the EY and went into aviation leasing full time. At what point did you realize that the Irish had a bit of a knack for this? I mean, you mentioned Tony Ryan, who's the godfather of the industry. It wasn't just him, so you must have spotted it at some point that the Irish have an ability here.
Aisling: Yeah. I mean, I think it's interesting that you mention Ryanair. I mean, if you look at the ability across all of the sector, you see that even in terms of Ryanair and the low cost carrier model. And I would have heard about that in university, you know, thinking about how it all started in the US and then, you know, Tony Ryan and indeed then Michael O'Leary with Ryanair replicated that model. Aircraft leasing is another aspect of that, that kind of entrepreneurial spirit that Irish people certainly have. But you're right. GPA was a fantastic, I suppose, training ground for many now, very senior executives in the sector. And ultimately many people went on to establish their own leasing companies, which have then grown over many years. You know, we have the situation we have today where Ireland is a leader in this sector.
Jonathan: And I want to come back to how sustainable that might be in a little bit. But even in your time, you're at 1000 aircraft now. What was it when you joined?
Aisling: Yeah, so when I joined, you're testing me now on my numbers, but the balance sheet size, let's talk in dollars, because ultimately that's a big part of what we do. So the balance sheet size was just over $7 billion. Our balance sheet now today is 20 billion plus about $22, $23 billion. So when you think about that, that's a significant growth in a business over that time period.
Jonathan: In that time period, we had a lot of challenging things as well. But did you have interest in aviation prior to landing in leasing? Was it ever something that you realized you know what, I'm good with accounts. I'd love to lease a thousand aircraft.
Aisling: Well, I don't lease a thousand aircraft, and that's one of the most important things to start with is when you're thinking about the size of our portfolio. There's a huge team there to support it, and I'm just lucky to be one of the executive team to oversee that. But you're right. How did I personally end up in this sector? I think for myself, I was auditing a variety of clients in EY. I was very lucky to join a team that was auditing both banks, but also leasing companies, aircraft leasing companies included, and other, you know, payment processes, merchant processors. So a real variety of financial services businesses. I have to say, what attracted me to, you know, aircraft leasing when I chose to move on from EY was the sense that the decisions are really made here in Ireland. You know, the board is here in Ireland, decisions are made here. And the fact that it's a physical asset really makes a difference as well. And I'm not crazy into the technical side as we've just discovered.
Jonathan: We've established that, yes.
Aisling: However, I do have a keen engineering brain, and I often wonder if that's what I could have done if I didn't go down the financial route. And I definitely think the existence of a physical asset just made it all that more interesting for me personally.
Jonathan: To the person on the outside who's not involved in aviation leasing, it seems like an absolutely risky bet because what do we look at in recent years, we had Covid, an unprecedented situation where aircraft had to be grounded right around the world, and nobody got on a plane for two years. Then you had war in Russia that resulted in many aircraft being trapped on the wrong side of embargo. It seems riddled with volatility. But if you look at the numbers that you've told us about, SMBC Aviation Capital continued to grow during those crises. How do you square that?
Aisling: So I think you have to bring it back to the fundamentals of our strategy and indeed the sector. So we operate in a cyclical, you know, business and a cyclical sector. And setting your business up to be able to respond to those events is key. And that comes back to thinking about the types of aircraft that you're investing in, making sure that they are the most in demand, the most liquid aircraft as we refer to it. So those that airlines want to fly, investors want to buy. So making sure that your portfolio is focused on that is really key. Secondly, diversification within the sector is a core strength of the sector. So if you're investing in an airline, if that airline goes bust, there's a problem.
Jonathan: Which they do!
Aisling: Which they do. However, if you're investing in an aircraft leasing company, you have that diversification of various different airlines based around the world, with assets that can be moved from region to region to respond to particular jurisdictional issues if there are some. So, you know, from a diversification perspective, it's really proven itself, particularly through Covid. And then the final piece of the puzzle, which is very important is your liability strategy. So making sure that your balance sheet is set up to withstand those financial shocks. You know, the aircraft leasing industry has learned a lot, as have many financial businesses since the global financial crisis. And businesses are more robust in terms of their liability strategies. You know, from our own perspective. We have access to significant liquidity, both through our shareholder but also through third party facilities. And we also adopt prudent hedging policies. So making sure that we're match funding both from an interest rate but also from a tenure basis. And both of those things, together with the access to liquidity, means that we have a liability structure that positions us well to face events like that.
Jonathan: So in other words, you're a safer bet than the brand that's on your aircraft. And how have markets responded to that? I mean, did they see the value of the physical asset that keeps you interested? Is it the physical asset that keeps investors interested?
Aisling: That's right. And I think markets have responded very well. Aircraft leasing businesses were able to come back very quickly post-Covid and issue bonds at really tight spreads, proving that the sector and the financial markets understood the benefit of the diversification and the benefit of those aircraft leasing businesses.
Jonathan: I remember a former minister for transport around the time Aer Lingus was being privatised, saying the state has no business in buying aircraft. It kind of was a false economy because actually if the state owned the aircraft, they might make more money out of it than the airline.
Aisling: Well, yeah, that's an interesting one. And, you know, I think one of the things we recognized since Covid and what we're hearing from the airlines, and probably quite a few of those Government owned airlines, is that, you know, what happens when the world fleet is grounded. So, for example, during Covid, you can't ring up the bond markets and say, I need to reprofile my debt repayments, please, but you can ring up your lessor and say, can I arrange a deferral? And airlines are seeing the benefit of that. They're seeing that aircraft leasing companies, you can work with them, you can manage your repayments. And ultimately now when things have changed and things have turned, we're now reaping the benefits of that as leasing businesses.
Jonathan: You have a somewhat unique shareholding and I want to talk more about that in just a minute.
Jonathan: Aisling Kenny is the CFO of SMBC Aviation Capital. Aisling, your shareholders are Japanese. There aren't that many examples of Irish Japanese collaboration and business. Do the cultures work well together?
Aisling: Yeah, that's actually a really interesting question, because what I've discovered is that there's actually huge similarities in culture between our colleagues in Japan and our business here in Ireland. And recently, the Japanese ambassador attended the opening of our new office premises here in Dublin. And he spoke actually quite nicely about it when he talked about the simpatico between the two cultures two outward looking island nations that both respect tradition but also, you know, have a desire for and an ambition for growth and looking to the future. So I thought that was, to be honest, that really resonated with me.
Jonathan: Kind of sums it up well, isn't it?
Aisling: Kind of sums it up well. So I'll just steal his words and just say that again. But, you know, I think I've actually witnessed that as a person working in the business, working very closely with the shareholders over many years, and what we've really seen as a business is that, you know, they were really eager at the start of the ownership to get to know our business. But over, you know, many years, they've learned to trust our management team to let us run the business, but also stay involved, stay interested and support us when it matters.
Jonathan: Trust is a very important word. Trust comes from honesty. So I'm presuming there's a very honest, open approach to these things. So challenging conversations are had, but nobody leaves those conversations without knowing what's going on. So is there a cultural similarity there, do you think?
Aisling: There is. And I would say that, you know, we as a senior management team spend time in Japan and that's really important. You know, we visit the shareholder representatives on a regular basis and they come to Dublin and spending time together. And as you say, having the open, difficult conversations is what has made the relationship work. And we've seen that over the last number of years. We talked earlier about, you know, how our business has grown through many difficulties. And I think, you know, the shareholders support through that period has really demonstrated that trust and indeed demonstrated the faith that they have in our business and our ability to return that faith.
Jonathan: The industry is changing, though ESG. Those three little letters have a very important significance to the conversation. I was looking at your portfolio of planes and without going technical, you know this one, it's all Neo's, new engine options that you have in the fleet. Your your fleet is young. You want to make sure that you're doing the right thing. It is a dirty business. So how much has ESG crept into the conversation?
Aisling: You're right. ESG is a really important part of what we discuss as a management team in our business and it's really important for our strategy and to make sure that we adjust our strategy appropriately, which we have done over the last number of years in the face of the ESG challenges that we face, and I'm referring most specifically to the climate challenges. One of the key things we want to achieve, and we are focused on, is taking practical steps that will make a difference, because there are many long term things that have to happen, but not all of those are within our control. So we need to focus on what practical steps we can take. A big part of that is transitioning to the new technology.
Jonathan: I was just going to say, what steps can you take because it guzzles fuel aviation. And while we are moving towards sustainable fuel, whatever that might be, we're not there now. So what can we do in this particular junction that future generations won't curse us for?
Aisling: Yeah, and I think one of the things we can do and have been doing is moving our fleet to the newer technology aircraft, which are the lower emitting aircraft. So the new engine types consume between 15 and 20% less fuel. So they're more fuel efficient. And the airlines that we work with that have started to deliver the new aircraft into their fleets are seeing those benefits come through from a fuel efficiency perspective.
Jonathan: And what else can you do, though? Because ultimately this is going to have to change. We'd love if planes flew on water. They don't and they never will. So what do you see happening next that could be of benefit to you and indeed the planet?
Aisling: I think the next realistic step, and it's something that we are working with and working internally on and working with Aircraft Leasing Ireland on, is a focus on SAF and SAF as an alternative.
Jonathan: You might explain SAF now to those who don't put it into their cars.
Aisling: Sure, it's sustainable aviation fuel and the current engines can run on sustainable aviation fuel and as a result it is a next practical step. However, feedstocks of this sustainable aviation fuel are low and there is a significant capital investment required to generate the levels of SAF that we believe the industry will need to help us get closer to those 2050 goals. That capital investment is a really difficult mountain to climb. So I think, you know, as a sector, we all need to focus on that. That goes right across the board, whether it's Governments, financiers, but also the lessors have a very important role to play in that.
Jonathan: That's a significant point, isn't it, because we all want to do the right thing by the environment, but most people still want to go on their holidays at the same time. So we are looking for leadership from the sector. Is that going to come from the leasing side more so than the actual airlines themselves?
Aisling: The reality is the regulators will play a very important role here. And we're seeing that already, particularly in Europe. I do believe, though, that people want to fly. We see that post-Covid, people recognise the social benefits of flying. They recognise that, you know, people want to visit family, go on their holidays, so finding appropriate solutions needs to be a focus. I do believe that the lessors have a very important role to play in that.
Jonathan: I want to talk about what happens next. So we're at 60% right now. Aviation leasing was built around the big names. You mentioned the late Tony Ryan. Where does it go from here and can we sustain what we have?
Aisling: Good question. So what we have seen is an increase in that proportion post 2020, we have seen that the traditional split between airlines taking delivery of new aircraft versus lessors, being the owners of the new aircraft that are delivering has shifted towards lessors. So traditionally it was more around 40 or 50%. However, since 2020, for new deliveries, that's up at 60%. I don't see that rising significantly more. But what I do see happening is that the manufacturers look to, I suppose, the larger, stronger lessors to take the majority of the leased proportion of their deliveries. And I think scale really matters as a result of that. We're in a consolidating industry as most new industries in inverted commas. New industries are. And as a result, I see that scale will matter and the larger lessors will be able to do deals of scale with the OEMs. And that's the original equipment manufacturers.
Jonathan: The Boeings and the Airbuses?
Aisling: The Boeings and the Airbuses. Exactly. And the smaller lessors, the newer lessors, the more midsized lessors may struggle on that front.
Jonathan: In that context, do we have enough people in the industry now who aren't close to retirement, are looking to maybe cash in? Who'll keep it going? I mean, I'm looking at and I hope you take the compliment in the way it's intended, a young CFO. So, you know, is there another generation coming behind?
Aisling: There certainly is. And it's great to see in our business, we have a great team of people coming through, but it needs constant gardening. As you've pointed out, we're in a sector where there's significant experience within a group of people who've been in the sector for many years and making sure that the group that are coming through have access to the breadth of experience you need to reach the C-suite or the executive level of a business needs constant gardening. So giving people that breadth of experience is a focus. You know, for me personally, for the people in my group, but also for our entire business, we're quite focused on giving that breadth of experience so that ultimately, you know, if roles come up for people, they have that breadth of experience to be able to step in.
Jonathan: You had a wonderful starting point in EY, which we will point out again before you moved into the world of aviation leasing full time. Very hard to say there's going to be a college course built around one specific sector like that, but if you had an input, what would you do?
Aisling: There is actually a college course!
Jonathan: Is there?
Aisling: Yes. So there's there's a couple of different courses. So there's more aeronautical engineering obviously in terms of aircraft leasing there's a new masters. It's actually not that new. It's a couple of years a master's in Smurfit. So there is a college course that has come up.
Jonathan: Okay so we're already preparing the next generation.
Aisling: We are even beyond that. I know some of the bigger lessors have, including ourselves, have graduate programs. We're very focused on that. Our graduate program, we're actually quite focused on making sure that we reach beyond even that course, because within that course, you'll get people who are so interested in it that they put themselves forward. We're looking to make sure we have a diversity of talent coming through our graduate program, and that includes people that come from completely different, whether it be socioeconomic backgrounds, cultural backgrounds, or indeed whether they might be finance graduates, they might be legal graduates, things like that. So we're looking for a variety of talent. So our graduate program reaches out to colleges right around the country. We go to their grad fairs. So we make sure that we're looking to hire both from those colleges. We're also starting to run apprenticeship programs for people coming straight from their Leaving Cert to try and get that breadth of talent coming in.
Jonathan: You have all in place, by the sound of it. We finish up with our rapid fire round, so hold tough for this straightforward Apple or Android?
Aisling: Android.
Jonathan: Controversial! Books or e-reader?
Aisling: There's a place for both.
Jonathan: Okay. Cash or contactless?
Aisling: Contactless.
Jonathan: GAA, soccer or rugby?
Aisling: Soccer.
Jonathan: Airbus A320 or Boeing 737 800.
Aisling: You can't ask me that question.
Jonathan: It's a very straightforward question.
Aisling: Both excellent airplanes.
Jonathan: So the best advice you give your 18 year old self, what would it be Aisling?
Aisling: My God, 18 is young, I think find something that you really enjoy because you're going to be working in it for a long time. And when you're at interviews and looking to work with a business, make sure you get on really well with people interviewing you. I know it's hard, but usually you'll have a couple of rounds of interview. Make sure that you actually get on with these people because you're going to be spending a lot of time with them.
Jonathan: Yeah, absolutely. And if they show a hand, don't ignore it. If you were not a CFO or working in finance or accounting or whatever, what do you think you'd be doing?
Aisling: I do love working with people. It's absolutely my favorite thing, but specifically working with people, you know, as a team to find kind of creative solutions around things is absolutely what I love doing. So something like that. I often wonder maybe something in the engineering world, but I don't know. I do love numbers, so I probably come back to the numbers.
Jonathan: Well, you don't know the fiddly bits about airplanes that you're willing to admit!
Aisling: No, but maybe. Maybe someday, maybe someday!
Jonathan: You could have learned. Finally. You're a good bit away from it. But when you do reach the point of retiring, what legacy do you want to have left behind you?
Aisling: That is a little while away, thankfully. I don't think a lot about legacy. I do just think about the people that I work with and, you know, the business that I ultimately will be leaving when I retire. You know, one thing that's really important for me is harnessing the team and the ability for a team that works collaboratively together, is much greater than the individual. And you know, what I would like to think is that having created and worked with a team in that way, that people realize the benefit of that and, you know, I suppose appreciate the benefit of that.
Jonathan: Aisling Kenny, CFO of SMBC Aviation Capital lots of planes have taken off in the course of this conversation right around the world. Thank you for joining us on the EY CFO outlook series.
Aisling: Thank you Jonathan.
