Amedeo CEO Update: Adapting To Market Conditions With Lower Rentals And Selling A New Life For The A380

Transcript

Mark LapidusI think, right now, it's fascinating time, and challenging for the leasing business, because the industry has done a lot to lower the costs for airlines, presently.

And, if you think about where the lease rates have moved across all aircraft, not just difficult ones, but all aircraft are trading at levels which are significantly lower, creating, in a sense, of rents the airlines are paying, perhaps by 30%.

So, the lease rates, when everybody's are in a 60 basis point range or lower, it used to be in 80. And for wide bodies, they moved from closer to being to 1% to also into 70's, if not lower sometimes.

So, there has been a big contribution leasing companies have achieved by bring new capital by advocating that the leasing business are safe, cash flowing business. And as a result of that, everybody in industry currently is making a lot less.

Now, it's viewed by some as a cycle that will end, but I would argue that it may alter itself. And there will be some cyclical effects, and some people will drop out, and there will be more consolidation, perhaps.

But at the same time, I think the effect is semi-permanent to significant proportion of the returns that you can generate by leasing aircraft. And so, in a sense that's a big plus from three, four years ago.

Well, we niche player with wide body focus, in particular of course A380, so our efforts will be different from everybody else's.

I think it all depends on the circumstances. And, it's quite specifically driven. So, if you have customers who are relying on 787s with Rolls engines, they are now parked or going through very low cycles before they have to be parked and inspected and borescoped and engines changed. You have opportunity to give those customers different equipment. So, all of a sudden there is a resurgence of stuff that was probably going into the desert. It's coming back.

And, it's not an uncommon event. Over the last 30 years, I've been watching this, participating in this business. You've seen these things come and go. The same thing happened with 767-300s after 2001 crisis, and 9/11, and that combobble. They were deemed to be useless, and all of a sudden everybody wanted them six months later.

So, you have the specific business. So, the particular aircraft may have some legs, but at the same time all of them are earning less rent than they used to. So, despite demand and need, the rents have come down because cost of capital has driven it down.

Well, I think we remain a big believer in A380, and continuously trying to promote the A380 as an aircraft, as an efficient mass transport mover. I think there are lots of activity currently, where some of it is in the news, Hi Fly is looking to take some of the old Singapore, ex-Singapore aircraft. There are other things I know going on with them that I cannot comment on that will produce more positive story for the A380.

To some extent, I think we're like kind of a found the floor for that, and we would be good to see those aircraft returning to service, the one that's been returned from Singapore.

And, I think there is more legs in the normal side of the business for the A380 going forward, just from the growth and from the point of view that it is an efficient aircraft, once properly configured.

In terms of what we are specifically looking to do, it's also been in the press that we're discussing with some airlines the idea of an airline for airlines, where we're trying to get efficiencies increased by having more than one airline use an A380 flight.

Sort of, it's not a wet leasing, per se, but it's operating it for them. But it's operating in a kind of United Colors of Benetton, a neutral brand, where we would have friendly airlines who are not minding sharing space, to some extent, use the aircraft. And, that would allow us to, "A", remove the risk that airlines sometimes fear of having to fill such a large aircraft, and secondly create efficiency in terms of utilization.

If we can have more than one airline operating it, we can expand the network in such a way that we move from 13 hours a day utilization to maybe 16, 17 hours, which is enormous efficiency gain. And it can be done with this kind of approach. So, that is something we're continuously developing and looking at.

And I think, by the time we have potential returns in the next decade, I would hope that this platform we are discussing and developing will get traction, will get some legs, and introduce this new idea into the aviation world where it will be beneficial.

Even if I think of it just from a public policy point of view, an environmental point of view, to come up with a way where utilization is greater, will result in less aircraft that are needed to be manufactured, less resources used.

And speaking of the existing A380s, ones that are properly configured, which is about 600 seats, they become on a cost basis as efficient as operating a 787 or A350.

And you also have other benefits, in terms of sort of additional benefits of you need less pilots to fly them, so there's shortage of pilots. Well, if you can co-mingle a couple airlines using an aircraft together, then you end up also saving on resources that are scarce, such as pilot resources. So, we're definitely working on it.

Getting generally receptive reaction, they're listing to the idea, they kind of see themselves, perhaps, that in the future their brand value is more in a consumer interaction than in a physical product ownership.

And, obviously at this conference, we've discussed a lot of what's happening on the consumer side of it. And, it is moving in the direction where the actual product delivery by an airlines, whether it's an economy or super economy, or in premium seating arrangements, it's kind of becoming commoditized. And, we can provide that in the way that with few airlines generally.So, that's kind of been received positively.

I think there will be lots of friction in terms of getting everybody in their organization who have been ... Even if we got a CEO onboard, it doesn't mean that we can get an organization onboard. There will be lots of people who will raise concerns and issues that they historically have had in the way they purchased aircraft and brought them into the fleet.

But, the direction of travel is where this idea is getting more positive views from customers we speak with than otherwise.

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