September 20, 2008
Steven Udvar-Hazy, the unofficial godfather of the civil aviation market, started his plane leasing business in 1973 with his college room mate and only USD$500,000 in the bank.
Thirty-five years later, the Hungarian emigre is celebrating his company’s anniversary at a museum named after him, and his International Lease Finance Corporation (ILFC) owns USD$55 billion worth of planes.
The event, at the Steven F Udvar-Hazy Center at the National Air and Space Museum in Washington, DC, should have been his crowning moment. But the future is clouded by the uncertainty surrounding parent American International Group.
Now Udvar-Hazy has to pull off the deal of his life to ensure a future for the world’s largest plane lessor.
“He is very knowledgeable, he really invented the leasing model,” said Airbus sales chief John Leahy, who has dealt with Udvar-Hazy since the 1980s. “If you had to pick one guy who is the best negotiator in the business, I would say Steve.”
AIG, which lost heavily on mortgage derivative bets, is scrambling to sell assets to repay an USD$85 billion loan from the US Federal Reserve, which saved it from bankruptcy this week.
Healthy ILFC, which made a USD$604 million profit last year, looks to be near the top of the sale list.
The lessor relied on AIG’s blue-chip credit rating for access to cheap capital to buy planes with, but when AIG’s rating went up in smoke earlier this week, ILFC was locked out of the debt market. This week it took up its USD$6.5 billion bank lending facilities to make sure it can pay off its bond obligations for the next eight months.
It’s a testing time for Udvar-Hazy, but not the first crisis he has faced.
On September 10, 2001, ILFC signed a binding contract to buy 111 aircraft from Airbus, worth almost USD$9 billion. The day after, the attack on the World Trade Center plunged airlines into chaos and kicked off five years of pain for the industry.
“On September 11, Steve called me and said ‘John, is that contract solid?’,” recalls Leahy. “I said ‘Steve, you know the answer to that, it’s a solid contract that holds us together.”
“I was afraid you were going to say that,” Udvar-Hazy replied, according to Leahy. “But he never came back and said ‘I have to get out of this contract’. He honored the commitment.”
Udvar-Hazy, born in 1946 and whose family fled the Soviet occupation of Hungary in 1958, burst into the business in 1972 when he solved a problem for Alaska Air by arranging to lease a Boeing 727 it couldn’t make payments on to another airline.
The young UCLA graduate, still only in his 20s, set up ILFC in Los Angeles a year later with Louis Gonda, whom he met at college, and Louis’ father Leslie. Their plane leasing model was popular with start-up and cash-strapped airlines, which were having trouble borrowing money to buy planes.
Soon, other companies were emulating his success. In 1990, he sold the firm to AIG for USD$1.3 billion to get access to the giant insurer’s balance sheet and impeccable credit ratings. ILFC is now worth as much as USD$8 billion, analysts say.
With AIG behind him, Udvar-Hazy developed ILFC into a giant of the aviation world, with hundreds of airlines across the world relying on his expertise.
ILFC is now the biggest customer of both Boeing and Airbus, and Udvar-Hazy effectively instructs them on which planes to build.
Early this decade, Udvar-Hazy was a key champion of the design which became Boeing’s 787 Dreamliner, long before the path of fuel-efficiency rather than speed became the obvious way forward for the new generation of jets.
A few years later, he told an aircraft trade conference that Airbus had to completely redesign its answer to the 787 or else it would be trounced in the marketplace. After some dithering, Airbus complied, launching plans for its new A350 XWB (extra wide body), at great expense.
Overall, ILFC has orders for 155 planes from Boeing and Airbus, worth almost USD$25 billion at list prices, making it the industry’s most important customer.
Udvar-Hazy, who flies himself around the world in a Gulfstream jet, is not likely to vacate that position soon.
“The aircraft financing business is capital intensive and also requires excellent management,” said Marshall Sonenshine, chairman of New York-based investment bank Sonenshine Partners, who advised ILFC in the sale to AIG in 1990. “Steve Hazy is probably the most capable and experienced CEO in the sector.”
The plane obsessive, who once took his wife on a date at the airport, will remain a force in the business, said Leahy: “He is a guy who knows and loves the industry, and that is a very powerful combination.”
(Reuters)
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