The Fundamentals of Aircraft Leasing, with Steven Udvar-Hazy and Robert Martin
Two leaders of the aircraft leasing business, Air Lease Corporation’s Executive Chairman of the Board, Steven Udvar-Hazy, and BOC Aviation’s Managing Director and Chief Executive Officer, Robert Martin, joined CAPA’s Low Cost Long Haul Global Summit in Seville earlier this month to give their perspectives on the outlook for the fast growing sector.
In an absorbing session, when asked what they look for in an airline business model, Mr Udvar-Hazy explains, “there are literally dozens of different factors that we consider when making these decisions”, including the credit structure, management talent and capital structure of the business, as well as the competitive landscape, network, long term strategy and break-even point.
How do lessors assess an airline risk?
Mr Martin: “First of all the business model of the airline: do we think it works?
Secondly, and very importantly, do they have a management team that we think can execute the business strategy?
The third thing is cashflow and fourthly the competition - can they whether the competitive response?”
View the highlights of the session below, which also covered ‘What are the key ingredients for a Lessor?’, and, ‘Why do airlines succeed - or fail?’
Messrs Martin and Udvar-Hazy were discussing the issue at CAPA's inaugural Global Long Haul LCC Summmit in Seville, Oct-2018.
Why do airlines fail? - The vital step of achieving critical mass - and the role of credit card companies
Mr Martin's answer: “when you look back at the industry since 2001, some 300 airlines have gone down [failed]. But you can segment those airlines very easily.
"90% of all airlines that did not reach critical mass [with fewer than 20 aircraft]. Airlines have to get to critical mass for people to want to finance them - and for the network to become attractive to other airlines to invest in them if they hit a bump in the road."
Mr Udvar-Hazy added: “one thing for low cost operators to consider is when they sell advance bookings is the credit card companies are now being much more conservative. They hold back those advance sales. So when Ryanair or easyJet sells a ticket, they have immediate access to those funds.
"If it’s a small low cost start up, when the ticket is purchased, say two months before departure, the airline does not have access to that cash. It’s going to be held back until the service is performed - or, in some cases, for a number of days and weeks after the flight was operated. So the airline operator is deprived of the cash liquidity from the ticket sales because if the tickets were purchased through a credit card, those people do not want to have the liability that the airline will not be able to perform that service”.
“That is a huge cash flow challenge for the start-up operators, both short-haul and long-haul”, Mr Udvar-Hazy concluded”.
Other related stories:
(09-October 2018) CAPA - Centre for Aviation (CAPA) and ICF (NASDAQ:ICFI), today announce an exciting new data partnership. The partnership means ICF will become the sole provider of aircraft valuations and lease rate data to complement CAPA’s online Fleet Database.
(11-Apr-2018) CAPA - Centre for Aviation is pleased to present our new MRO contracts and capabilities live online database - the CAPA MRO Matrix. For those familiar with similar systems, it has every functionality for third party MRO market intelligence, but also has numerous positive surprises that are unique to the CAPA Matrix.
The MRO Matrix acts as a repository of well-known and little-known contracts between airlines/lessors and providers as well as subcontracts between MRO companies themselves - making it a very handy business development and competitor analysis tool.
CAPA's next Aviation Summits are in November in Singapore and Berlin respectively:
- Meet Robert Martin, BOC Aviation’s Managing Director and Chief Executive Officer at the CAPA Asia Aviation Summit ; CAPA Asia Pacific Aviation Awards for Excellence and CAPA Asia Corporate Travel Summit in Singapore, 8/9-Nov-2018
- the CAPA World Aviation Outlook Summit and CAPA World Aviation Awards for Excellence in Berlin, 27/28-Nov-2018