Better known than many airline chief executives, ILFC founder Steven Udvar-Hazy has been a fixture of the air transport industry for the past 30 years. But his recent retirement from ILFC is unlikely to mean we have heard the last of the industry's leasing guru
When American International Group announced on 5 February that International Lease Finance Corp's visionary founder, Steven Udvar-Hazy, was retiring from his post with immediate effect, few industry observers were surprised. AIG's and Udvar-Hazy's failure to close an aircraft purchase deal meant the two-year merry-go round of negotiations between the parties had to finally stop.
But this won't be the last the industry sees of Udvar-Hazy. With more than 30 years of aviation experience under his belt, quitting isn't really an option. Aviation, as the old saying goes, is in his blood.
Through his new firm, which is still very much hush hush, Hazy will be entering a different world of aviation leasing than the one he served as a pioneering force for years. The toughest of critics say - without a Gulfstream V business jet to fly around in and cheap debt from a AAA-rated parent - it's a world he simply doesn't know. But many others say he is class-act who got what he deserved over the years as a result of hard work and close business relationships.
When Udvar-Hazy, who will soon celebrate his 64th birthday, came to market in 1973 with ILFC, the operating lease business was unique with few serious competitors. Fast forward 37 years and operating leasing has become a highly-competitive global industry. In that time, the playing field has become more level with the likes of BOC Aviation, China Development Bank's leasing entity and even GECAS, despite its recent hiccups, having access to extremely attractive funding via their parents.
There are also the newcomers, such as Avolon and GreenStone Aviation, which may not have the cheapest capital, but whose owners have close relationships with the banks and are very familiar with the lucrative sale and leaseback market. While Udvar-Hazy's equity and debt sources aren't known, it is highly likely his financing will be more expensive than under the AIG umbrella. While not a deal-killer, it certainly does dictate, and even limit, the kind of investments and profits that can be made.
In the backdrop is yet another development brewing that presents a potential obstacle, not only for Udvar-Hazy's new leasing venture, but the overall market. If re-engining talks from Airbus and Boeing materialise, which would see aircraft with new technology entering the market in 2015, then the lessor market could be in for a rude awakening. Rapid infusion of this new technology could cause the prior "standard" of aircraft, which would still be in production with the existing engine technology, to have shorter productive economic lives and, therefore, produce less profits for lessors.
Clearly, this situation is not an all-or-nothing proposition. This new technology will be introduced over a number of years but, certainly, today there is a considerable value difference between a Boeing 737-300 Classic and a Next Generation 737-700, which were both manufactured in 1998. The same could happen here. So with the threat of new technology integration and possibly lower profits, as well as, increased competition from players with deep pockets, Udvar-Hazy is certainly embarking on a tough road ahead.
That will not daunt a man who relishes deal-making and thrives on the influence he has among financiers, airframers and airlines alike. This is the man who probably has more one-to-one relationships with airline chief executives from every corner of the globe than anyone else in this business. So if anyone in the industry is going to take these challenges and somehow turn them into a profitable leasing company, then it's probably him. Look out for that GV everyone, it won't be in the hangar for long.
Source: Airline Business
