The final presentation at ISTAT was the popular lessors’ panel, a free-wheeling discussion of commercial aviation issues. The reporting summarizes and paraphrases the comments.
The moderator is Jeff Knittel, president of CIT Aerospace.
The lessors are:
Angus Kelly, CEO of AerCap
Mark Lapidus, CEO of Amedeo
Norman Liu, CEO of GECAS
Raymond Sisson, CEO of AWAS
Steven Udvar-Hazy, CEO of Air Lease Corp
Knittle: when we were sitting here 10-15 years ago, the six lessors sitting here would largely represent the leasing industry. Now there are 20 or so in China, more elsewhere. The market is fragmentized.
Hazy: The newcomers don’t have the relationships or experience in buying in bulk even though they are capitalized but they have a long way to go.
Lapidus (a new lessor) says people are learning pretty quickly how to do business. (Amedeo is the former Doric Leasing, which finances Airbus A380s.)
Kelly: Although the names on the door have changed, the people running them really haven’t changed. New capital is coming in because there is greater return on capital than in other areas. They want to come in because they see this attraction but they want to do so on a smaller basis. The number of true global lessors hasn’t changed all that much.
Liu: We (the industry) just sort of plod around, we sort of buy these new fangled things, money comes and goes and we buy and sell things; it’s pretty simple. One or two of the Chinese lessors will break out in a matter of time, maybe sooner than you think.
Sisson: I’m a fan of the new lessors coming in. The new aircraft coming in are excellent products (naming 777X, A321neo, Embraer E-Jet E2 and Mitsubishi MRJ). We may see lessors evolve into layering on top of each other, specializing in different aircraft, market segments or regions.
Lapidus says the market underrated the A380 capabilities, with load factors of 90% or more on many routes and airlines spilling traffic. The A380 can serve “really thick” routes. The A380 fits perfectly in these markets. We saw an opportunity where people were slow to adopt to this after the Great Recession.
The cost of reconfiguring the A380 from one aircraft to another is a consideration, but if you keep the main deck in one configuration and use the upper deck “to play with,” this mitigates costs.
Kelly said that in the US “things have changed dramatically.” Ten years ago if you leased an airplane to the US, you figured you would take a trip to the bankruptcy court. The 2008 financial crisis was a near-death experience. Since then you have seen discipline among US airlines for growth and sticking with fare increases. This makes it easier for us.
Europe is a little bit behind in consolidation; flag carriers are still very important there.
Liu: we’ve probably been through more bankruptcies in the US than anyone else. It’s happened in Latin American and Europe.
Knittel: Asia seems one of the higher risk markets today.
Sisson says AWAS always has a Plan B. I have real questions about the real numbers of orders in Asia, including the ability of the infrastructure to support it.
Hazy notes that Asia has a “huge” growing middle class. Asia has more geographic barriers than any of the other continents (Editor: this is a point made by AirAsia Group CEO Tony Fernandes many times in supporting his large orders). We have to make sure as lessors we have the most desirable aircraft so that if airlines consolidate and downsize, it’s not our aircraft that are at risk.
Lapidus agrees that there will be bumps in the road in Asia.
Sisson says the lease rates of the A319 and 737-700 are improving, with airlines now seeking leases. The used aircraft market has strengthened considerably. I can take a six to 12 month good with the market on used aircraft vs a 12 year view on new aircraft. We have major carriers coming to us saying we can’t find aircraft, will you help us find aircraft?
Hazy notes that there are more aircraft flying today that are 20 years old than ever before. You can say that certain customers ordered more aircraft than they should but others who didn’t or under-ordered. Some of those over-orders may be canceled and taken by others. I don’t want to generalize and say we’re in a bubble. If the market declines, Airbus and Boeing will cut production–they have to.
Hazy says it is not rational for Airbus to build the A330neo and the A350-800. The focus will be on the A350-900 and enhancements to the A350-1000 if they go with the A330neo.
Kelly: the 777X is a long, long way out there, the best part of a decade before we see any meaningful numbers. I think we will take our time and study it a lot more before pulling the trigger (ordering) it.
Liu says the potential market for the A330neo could be in the hundreds.
Sisson says Boeing should restart the 757 line and improve the airplane. Hazy sees a new small twin-aisle, 200-250 seats as the next airplane to serve the 757 market-trans-Atlantic and US domestic capability.
Lapidus: The A380 currently has the lowest unit cost of any aircraft, and going to 11 abreast in coach will add 35-40 seats and improve this. An 11-abreast A380 will have better unit costs than 777X and A350-1000.
Hazy: There will be an issue getting interiors and Airbus and Boeing are imposing longer and longer lead times to airlines to select interiors.