Udvar-Hazy Jolts Jet Leasing Out of Credit-Crunch Coma
Steven Udvar-Hazy is the face of the aviation industry’s rebound.
The 64-year-old chief executive officer of Air Lease Corp. is the biggest buyer at this year’s Farnborough Air Show, ordering 136 planes valued at more than $10 billion. Absent from last year’s Paris show, leasing companies accounted for the bulk of the deals at the event, eclipsing purchases by airlines.
Hazy’s ability to identify demand swings makes him a barometer for the global aviation market. His comeback with a four-month-old company follows the near collapse of Hazy’s former employer, American International Group Inc., and signals the recovery of an industry that lost $19 billion in the last two years as the global financial crisis weighed on air travel.
“His market timing has always been impeccable for ordering, and I sure hope he’s right because we’re ordering some too,” said Norm Liu, president and chief executive of General Electric Co.’s aircraft leasing unit, the world’s largest. “He’s the dean of the industry.”
Aircraft lessors buy planes for airlines so carriers can avoid burdening their balance sheets with the billions of dollars required to fund purchases and have more flexibility with their fleets. In 2000, about 20 percent of the world’s planes flying were leased, and the proportion has doubled since.
Rival to GE
Hazy’s main competitors are GECAS, with a fleet of 1,800 owned and managed planes, and International Lease Finance Corp., the company he founded three decades ago and built into the industry leader. Hazy sold ILFC to insurer AIG in 1990, making him a billionaire and giving ILFC better access to capital.
The relationship unraveled after AIG was forced to seek a government bailout to prevent bankruptcy, depriving Hazy of the means to buy new planes. Hazy went into self-described retirement in February, only to return and start Air Lease Corp. Joining him was John Plueger, ILFC’s former CEO and Hazy’s business partner for more than two decades.
“I put in my years and I felt this was a good time to restart on another company, using all the experience and knowledge that our team has amassed over the years,” Hazy said in an interview at the Farnborough show yesterday.
While Hazy’s comeback with Air Lease Corp. signals a recovery of the airline business, he may find conditions aren’t what they were when he ruled the industry, said Qatar Airways Ltd. Chief Executive Akbar al-Baker.
“He knows this business inside out, no doubt about that, he’s very capable,” al-Baker said. “But he’s re-emerging at a difficult time for the aviation industry.”
The credit crisis curbed banks’ willingness to lend, freezing capital for many airlines and forcing governments in the U.S. and Europe to step in to guarantee 34 percent of aircraft purchases in 2009. That’s more than double the total of about 15 percent in 2008. While lenders have begun returning to the markets, the price of borrowing remains above 2007.
Air Lease Corp. will be up against jet lessors with access to cheaper credit. GECAS benefits from the high credit rating of its parent company, General Electric Co., to raise capital at lower costs than bank-funded firms.
Hazy secured $3.3 billion in financing for Air Lease Corp. this month in equity and debt, including credit lines from nine banks. Air Lease Corp. will have as many as 120 jets by the middle of next year, and up to 350 in three years time, Hazy said in the interview. At its peak, ILFC owned the world’s largest fleet of Airbus SAS and Boeing Co. jets.
‘Bet on Him’
“I’d bet on him,” said Mike Cave, the president of Boeing Capital, the aircraft maker’s finance arm. “He knows good business when he sees it. He acts quickly and decisively. He’ll be successful.”
Hazy, with a net worth estimated at $2.7 billion by Forbes, “signs a deal with a handshake,” said John Leahy, the Airbus head of sales. Hazy often shows up personally at negotiations to help clinch the deal, traveling in his Gulfstream V business jet that he pilots himself, according to Tim Clark, the president of Emirates, the largest Middle Eastern airline.
At Farnborough, Hazy agreed to buy as many as 20 regional jets from Brazil’s Empresa Brasileira de Aeronautica SA and planes from ATR, the venture of European Aeronautic, Defence & Space Co. and Italy’s Finmeccanica. The deals marked a departure from his previous strategy to buy only Airbus or Boeing.
Sporting his signature moustache and a pair of metal-rim sunglasses, Hazy dominated the first days of the air show, with journalists flocking around him after every announcement to hear his market predictions and industry insights.
“He’s a phoenix,” said Emirates President Clark. “He’s an absolute fanatic about airplanes.”
Hazy was born in Budapest, the son of a sports surgeon and a fashion designer. His family moved to the U.S. when he was 13, and Hazy said he had no command of the English language upon arrival. By the time Hazy was an economics undergraduate at the University of California, Los Angeles, he was raising money with two other Hungarians to start leasing aircraft.
Hazy said Air Lease’s capital structure and financial reserves will help the company grow, propelled by rebounding travel. The airline industry will post a $2.5 billion profit in 2010, reversing two years of losses , the International Air Transport Association said last month.
“We feel the industry is recovering, rebounding,” Hazy said in the interview. “There’s significant replacement demand for old aircraft, and we’re seeing growth demand, particularly outside the U.S. We’re optimistic.”