Leasing ‘Godfather’ Hazy Clashes With Airbus on A320

Air Lease Corp. CEO Steven Udvar-Hazy
Steven Udvar-Hazy, chief executive officer and founder of Air Lease Corp. Photographer: Simon Dawson/Bloomberg

Steven Udvar-Hazy, the self-described “Godfather” of the aircraft leasing industry, said upgraded versions of Airbus SAS and Boeing Co. jets would offer only limited benefits and create higher costs for airlines.

The switch, referred to as re-engineing in the aviation industry, would potentially drive up costs for airlines because of a lack of commonality with their existing single-aisle fleets, Udvar-Hazy said at the ISTAT European conference in Munich. The new planes would also be heavier and more expensive.

“When I look at all issues and all complexities, it’s hard to see a meaningful benefit to the industry other than in terms of the environment and noise emissions,” Udvar-Hazy said today. “There I see some PR benefit to the outside world, but in terms of bottom-line benefit to owners of the aircraft, to operators of aircraft, it’s a very slim margin.”

Airbus wants to decide by the end of the year if it should proceed with a revamp of the single-aisle fleet, as Sales Chief John Leahy tries to extend the lifespan of his bestselling model before the company embarks on the development of an all-new jet. New engines would cost no more than 1.5 billion euros ($2.07 billion), a fraction of the $10 billion to create a new model.

Responding to Udvar-Hazy’s comments, Leahy said that “almost all airlines are requesting” the new engine option.

‘No Change’

“If we followed the advice of some leasing companies, i.e. ‘No Change’, we would still be flying 727s and consuming twice as much fuel,” Leahy said in an e-mailed statement. “We, as an industry, have an obligation to be as fuel efficient and environmentally friendly as possible.”

Airbus, based in Toulouse, southern France, says the new engines offer 15 percent in fuel efficiency, translating into added value per plane of $7 million to $9 million. Udvar-Hazy said the actual benefit to carriers is much lower, partly because Airbus and engine-makers will seek to recoup some of their investments,.

Leahy has said the company is unlikely to bring out an all-new plane before the middle of the next decade in order to reap the benefits of advanced materials and engines. Boeing Co. Chief Financial Officer James Bell told investors at a conference in August that customers “haven’t shown a real interest” in a re-engined aircraft.

‘Mixed Result’

“We’ve gotten a mixed result,” Randy Tinseth, marketing chief for Boeing’s commercial plane business, said at the Munich conference. “Some say, ‘do whatever you can today to improve performance of the plane.’ Others have said the business case just doesn’t close. Now we’re taking our time to be sure we do the right thing.”

The A320 family of aircraft offers the choice of two engines. One, the CFM56, is built by CFM International, a joint venture between General Electric Co. and Safran SA of France, and is also the only model available on the Boeing 737. The other, the V2500, is manufactured by International Aero Engines, a group that includes Pratt & Whitney and Rolls-Royce Group Plc.

New engines would involve a more fuel-efficient version of the CFM56 model with a new hot section, or core, and a new model from Pratt & Whitney, whose geared turbofan allows the outer fan to turn at different speeds, using less fuel.

No Replacements

Air France KLM Group Chief Executive Officer Pierre Henri Gourgeon said in an interview last week that benefits from a re-engined A320 wouldn’t suffice for the airline to order new planes to replace most of its existing A320 series planes. Nico Buchholz, the fleet manager of Deutsche Lufthansa AG, said the German carrier’s preference is for a new program.

“But if I can’t get that, I’ll take the second best option,” Buchholz said at the aviation conference.

Udvar-Hazy returned to the aircraft leasing industry this year with a new company, called Air Lease Corp., and he was the biggest buyer at this year’s Farnborough Air Show, ordering 136 planes valued at more than $10 billion. Udvar-Hazy founded International Lease Finance Corp. three decades ago and built it into the industry leader before leaving earlier this year.

The executive, who personally flew his Gulfstream V jet to the Munich conference, predicted that by 2020, almost 45 percent of all planes will be on operating leases, up from 34 percent this year, increasing the weight of the jet-leasing industry and Udvar-Hazy’s opinions alike.

“My main job is to assure manufactures don’t become like carmakers where they come out with a new product every three to four years,” Hazy said. “It’s important to assure a great sense of stability, since we serve an unstable set of clients, the airlines.”

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