In the post-war era, integrated trading companies led Japan's economic growth and played an important role as a bridge between Japan and the rest of the world. Today, people, goods, and money move freely across national borders as economies and societies undergo dramatic change. What roles are required of integrated trading companies? This content, in an eight-installment series, attempts to redefine the roles of present and future integrated trading companies, while showcasing the wide range of business activities of Sumitomo Corporation.
In this age of globalization, people, goods and funds travel across national boundaries rapidly and incessantly. One of the key infrastructures that make such movement possible is aircraft. Year by year, the number of airline passengers is increasing and the competition among airline carriers is intensifying. In this ever-growing and changing aircraft market, the aircraft leasing service plays an important role. Sumitomo Corporation started this business in the middle of the 1990s. What is the meaning and significance of aircraft leasing business for Sumitomo Corporation as an integrated trading company?
Eiji Ishida has spent his entire career in aerospace-related business since joining Sumitomo Corporation in 1986. After engaging in aircraft business for the Ministry of Defense, he was assigned to a unit in charge of civil aircraft. "Sensitivity is required to do business," says Ishida, "Inspiration helps you make important decisions. To develop your inspirational skills, you need to be sensitive to, and reflect upon, your feelings and findings in your everyday life."
Sumitomo Corporation started its aircraft leasing business in 1996, when it purchased a Boeing 767 aircraft from the manufacturer and leased it to UK-based Britannia Airways on an operating lease basis. In 2001, the company established Sumisho Aircraft Asset Management B.V. ("SAAM"), a Netherlands-based group company specialized in aircraft leasing, which owned and managed 90 aircraft during the peak period.
Now, SAAM has been integrated into SMBC Aviation Capital, which owns and manages 400 aircraft, the world's third largest aircraft leasing company. As its name indicates, the company is a joint venture between Sumitomo Mitsui Financial Group and Sumitomo Corporation. The partnership between a financial service group and an integrated trading company is fundamental to the business model of the aircraft leasing business, says Eiji Ishida, General Manager of Aerospace Dept. "In the aircraft leasing business, we, a trading company, purchase aircraft and earn profits by leasing the aircraft to airline carriers worldwide. As aircraft are very expensive, the expansion of this business requires a strong financial background. This is why the collaboration with a financial service group is important. Of course, given the fact that aircraft carry many passengers on board, our capabilities to maintain and manage aircraft in a safe and appropriate manner are a prerequisite for this business."
In other words, aircraft leasing business requires a dynamic combination of product (i.e., aircraft) handling capabilities and financial capabilities.
Shogo Ishimaru has also been in aerospace-related business throughout his entire career since 1988. After engaging in sales of civil aircraft, he was appointed CEO of Sumisho Aircraft Asset Management B.V. in 2009. He returned to Japan in 2012 with one of the company's signboards, which was no longer needed to be put as a result of a business integration. "That signboard on which many staff members wrote messages for me is my greatest treasure," he says with a grin.
Today, the aircraft leasing service is used by many airline carriers worldwide. Leased aircraft accounts for around 40 percent of the global airline fleets. The percentage is steadily growing year after year and is expected to reach 50 percent in the near future.
This growing popularity reflects continuous changes in the airline service market since the 1990s. While the number of passengers has been increasing steadily, particularly in emerging countries, the market has diversified with the emergence of low-cost carriers and other non-conventional airlines. At the same time, passengers' preference for aircraft types is changing at a rapid pace.
"As the market environment is changing dramatically, owning aircraft is becoming an increasingly risky option for airline companies. Such an expensive aircraft may not be useful for many years. Even if aircraft of the right size are allocated for the right routes, they may become obsolete sooner or later because number of passengers on each route and passengers' needs change constantly. This is the reality of today's aircraft market," says Ishida.
This is where aircraft leasing comes in. Using this service will substantially reduce the initial cost of introducing new aircraft. In addition, it will allow airline companies to replace aircraft at a regular pace, say, every three to five years, which means higher responsiveness to market changes. Compared to a business model with owned aircraft, this option will enable airline carriers to operate much more agile and lower-risk businesses.
In the age of globalization, companies in every sector are required to have sufficient flexibility to respond to rapid, drastic market changes. This is made possible by the so-called "lean operation" approach. The underlying concept of this approach is to use externally available goods and services such as outsourcing as much as possible so as to respond to social and market changes rapidly, rather than possessing all the physical, human and other business resources in-house. Aircraft leasing provides aircraft externally and supports airline carriers' "lean operation" without owning aircraft, one of the most important business assets for the airline carriers.
"By utilizing aircraft leasing services, airline carriers can allocate a greater number of aircraft to their operating routes. Then, people will travel more, making the world smaller. So, I should say that aircraft leasing is a business that supports the transport infrastructure in the age of globalization," says Shogo Ishimaru, Deputy General Manager of Aerospace Dept., adding that the underlying scheme of this business, i.e., the combination of handling goods and financing, can be used in various ways in the future. "Many business units in Sumitomo Corporation are engaged in product-related businesses and have abundant expertise relating to product management and operations. We combine such products and finance together and offer the combination as a leasing service. I am proud to say that our aircraft leasing business serves as a good example of this business model."
While the horizontal expansion into other business areas as mentioned above is a possible development of this business model, another possibility is to offer a comprehensive package by expanding the scope of aircraft leasing. General Manager Ishida shares his vision of the future of this business, "If our offerings cover not only aircraft but airline personnel, such as pilots and flight attendants, aircraft maintenance and other services, airline carriers will be able to focus their resources on flight operations and customer service. Then, their service quality will be improved further and more people will use airlines."
Shigeru Komori joined Sumitomo Corporation in 2003 from another trading company. He was in the aircraft business at the previous employer and spent a total of seven years in overseas countries during his career with the two companies. "I feel it is Sumitomo Corporation's ingrained culture to do a thorough research before making a decision on whether or not a project is implemented and to do a thorough execution of a project once the decision is made to implement it."
"I consider the role of trading companies is to always assume a hands-on business approach," says Shigeru Komori, who has been engaged in the aircraft leasing business of Sumitomo Corporation since 2003 and is currently the leader of the company's aircraft leasing team. What he means by 'hands-on' is to directly involve themselves in goods and service transactions and deliver them to customers by themselves. For Komori and his team, "goods" of course mean aircraft. Unlike a manufacturer or airline carrier, a trading company does not produce or operate aircraft. Still, Komori says that a deep affection will be attached naturally to aircraft that they manage and that the team's deep understanding of, and affection for, aircraft is what makes the aircraft leasing business tick.
Ishida, General Manager of Aerospace Dept.; Ishimaru, Deputy General Manager of the department; and Komori, Team Leader on the ground; have all been engaged in the aircraft business throughout their entire careers to date. What they have in common is strong affection for aircraft, which is expressed in different ways:
"Aircraft are really sexy and good-looking," says Ishida;
"I will never get bored with aircraft even after looking at them for hours," says Ishimaru; and
"Seeing our aircraft flying in the sky gives me a great pleasure," says Komori.
Integrated trading companies used to be called intermediaries. Along with changes in society over time, however, their roles have changed in various forms and expanded. The relatively new business model of aircraft leasing, where a company owns aircraft for a long term by leveraging their strong financial muscle and leases them to earn profits, is also likely to change over time. Ishida says, "We are always eager to take on a new challenge. Something new does not mean something bizarre or outrageous. By combining multiple existing things or adding a small twist to existing things, we can create something that has never existed. By doing so, we should continually create new businesses, new business models, and new services. I believe this is exactly what will be expected from integrated trading companies in the future."
(Honorific titles are omitted)