Aviation Leader Interview Air Lease Corporation Executive Chairman Steven Udvar-Házy

Transcript

Nuala McGovern:Well, good to see you all again. I almost feel my next guest doesn't need an introduction, but please do put your hands together for Mr. Steven Udvar-Házy. You're so welcome.

Steven F. Udvar-Házy:Thank you.

Nuala McGovern:I mean, I'm not sure I have this title, but it's going to take about 10 minutes if I go through all of just your titles. But we do know him as Executive Chairman of the Board of Air Lease Corporation. I could also say a child who emigrated from Hungary, credited with creating the airplane leasing industry, comes with decades of experience. In 1973, he co-founded the aircraft leasing business that became International Lease Finance Corporation. He led it as Chairman and Chief Executive Officer until 2010. He then, of course, as I mentioned, is Executive Chairman of Air Lease Corporation. He's also an airline pilot, I think taking off after we finish here.

Steven F. Udvar-Házy:Yeah, I'm flying.

Nuala McGovern:Which I love. But I think before we get into your life and times, you wanted to comment briefly on what we were just watching?

Steven F. Udvar-Házy:Yeah, I really enjoyed this presentation because I'm a pilot. I'm a jet pilot. I've got 12,000 hours as a captain. In fact, I'm flying today on my Gulfstream 650. The one thing that I hope all of you noticed, or maybe it was a nuance that people missed, if you looked at that map of 2019 versus today, did you see that parts of Scandinavia, Germany, Benelux, There's been no growth in air traffic vis-à-vis 2019. Then you looked at other parts of Europe that were green and dark green with a high level of traffic. Why do you think that is? Have you thought of the politicians in Brussels and Paris and Berlin and Stockholm that badmouth aviation? Every day, and they think that we're ruining the planet. And these people are discouraging air travel. They create restrictions, they overtax, they create airport slots. A few months ago, they wanted to shut down Schiphol, which is the main economic engine of the Netherlands and one of the most important hubs in Europe. And where do you think the taxes go? They charge in tickets? Do you think they go toward improving air travel, infrastructure, air traffic control? Most of that money goes for other things. And then lastly, he didn't mention something that I as a pilot find appalling, and those are strikes. Whether it's the Italians, the French, the Spanish, right in the middle of the height of the summer season, these idiots go on strike. That affects critical infrastructure, and we wind up spending hundreds of billions— millions of dollars, not billions, sorry, millions. I don't want to sound like Trump. We spend hundreds of millions of dollars on diversions, unnecessary air traffic control strikes, and other disruptions that create great inefficiencies. We have the technology, but then we have at the other end these labor problems. It reminds me of the time where President Reagan fired all the US air traffic controllers because they went on strike. Those people should not be allowed to strike because it affects safety. One of these days, we're going to have a mid-air collision or some other horrible tragic event. And that will wake them up. But we have a lot of political undercurrent that damages our industry because people have this idealistic view that we are the sinners, we are the ones destroying this planet, even though we represent only about 2%, 2.5% of all pollution. Okay, now we can go ahead.

Nuala McGovern:Now we're going to go back. So there's a little bit. A little bit of Steven's thoughts on today, but I want to go right back and actually link it. You talk about going to Hungary afterwards. You're going to fly to Budapest. I want to know a little bit about your early life leaving Hungary. You were behind the Iron Curtain. It was in the Cold War. And I read that you, even from a little boy, associated planes with escape and freedom.

Steven F. Udvar-Házy:Yeah, well, that's, that's really the the seed for my love of aviation because as a little boy living in a communist country in the 1950s, I remember in first grade, I was 6 years old, and we had like maybe 14 children in my class, 7 girls, 7 boys. And this is in Budapest, Hungary. Guess whose portrait was on the wall of our classroom? Stalin on one end and Lenin on the other hand. And then for 1 hour every day, starting at the age of 6, we had to do 2 things. A, compulsory Russian, okay, which was a lot of fun. Then you learned to say nyet. And secondly, you have 1 hour of indoctrination about how Western Europe and the US are terrible people, they're evil. They're imperialists. They're out to destroy the world. There's inequality. It's terrible. Capitalism is a disease. And this is what you have to listen to as a child. Okay? So were people escaping from West Germany, West Berlin to East Berlin? No. All of the escaping was from Europe going west. Okay? That is because the system is rotten. At the age of 6, my father took me to an air show in Budapest to one of the small airports, grass airports. I saw these airplanes taking off and shining in the sky and the reflections. In my mind, I thought, okay, aviation is the only escape to freedom because the borders were closed. You can't leave with your whole family. If your mother leaves, your father can't leave. If your mother doesn't come back, they'll send you to Siberia in a work camp or a coal mine. In my mind as a child, aviation and planes were the only escape to the real world. That's why I got this passion for aviation. I would go to airline offices and study their schedules. I was doing CAPA-type work at the age of 10. Because in those days there was no digital information, so you'd have to get the actual paper timetables, and I would memorize what airline is flying what kind of plane where, and that's where this all started.

Nuala McGovern:Because you went, your family went to Stockholm.

Steven F. Udvar-Házy:To Sweden, yeah.

Nuala McGovern:Yeah, and then on to New York, where I read young Steven used to sneak into LaGuardia Airport.

Steven F. Udvar-Házy:Yes, so what I would do is In the afternoon, I would tell my parents that I'm going to the library to study, which was not exactly what I was doing. I would take the subway out to LaGuardia or Idlewild, which is now called JFK International. In those days, you could talk your way into control towers because you're telling them you're doing a study term paper.

Nuala McGovern:What age are you now? You're 12, 13?

Steven F. Udvar-Házy:13, 13, 14. I'd get into hangars. You get to see the inner workings of commercial aviation at the age of 13. I would study all the magazines. I would go to the library because I didn't have money for a subscription to Aviation Week.

Nuala McGovern:To look up aviation?

Steven F. Udvar-Házy:Aviation Week, every week I would study it and Flight International and all these other publications to understand airplane evolution. What the airframe manufacturers were doing. Back in those days, Douglas Aircraft Company was the number one. That was before Boeing was really a factor or Airbus didn't even exist. That was my fascination. I wanted to start an airline, which was the stupidest thing anybody could think of. At the age of 21 and a half, I put together a group of people to finance a small commuter airline. Within 6 months, I realized this was the worst business in the world. The only people making money were the people supplying us fuel, catering, the aircraft, and any other services, landing fees, etc. It was a disaster. All the money I made from brokering and consulting and dealing and wheeling, Almost all of it went down the toilet on this airline. It was called Astro Air. That was a quick lesson, and then I quickly changed gears to the idea of aircraft leasing.

Nuala McGovern:Let me stop you there because what was it that gave you this inspiration that leasing might be the way to go?

Steven F. Udvar-Házy:It was a very easy thing that apparently most people didn't gather. That is that the airline industry in the '60s and early '70s was going through a major transition from propeller aircraft, either piston engine or turboprops, to jets. The capital cost of those airplanes, I'll give you an example, like a Lockheed Electra was a million-dollar airplane. Then you go to a Boeing 727, That was like $6 million aircraft. The capital cost of upgrading fleets from the old generation propeller and turboprop aircraft was a huge step. Unless you were a government-owned airline or a major airline in the US that had access to capital, access to government guarantees, smaller and medium-sized airlines and charter airlines didn't have the capital structure to modernize their fleets. My idea was, why don't we start a leasing company just like people lease trucks and cars and other transportation equipment and apply it to aviation, but mainly on the international scene, not so much in the US because the US, the capital markets, financial markets were much more advanced. That was the idea. My first plane was a Douglas DC-8, 4-engine aircraft, 160 seats, used airplane, bought it from National Airlines, which later was acquired by Pan Am, and leased it to Aeroméxico for $57,000 a month. That was the first deal. The biggest challenge was to get a bank loan.

Nuala McGovern:That was it because I read, because you had a partner, Leslie Gonda as well, who sold the petrol station, the gas station to try and raise funds.

Steven F. Udvar-Házy:Yes. You were ready to— There were 3 Hungarians and one of them had a few gas stations. We borrowed money against the gas station to put down a down payment on a DC-8. From that single DC-8, I've now acquired 3,100 planes.

Nuala McGovern:That was my next question.

Steven F. Udvar-Házy:My first, of which more than 3,000 are jets. 1,400 new planes from Boeing, 1,200 new planes from Airbus, including launching a whole series of aircraft like the A350, which I redesigned because Airbus wanted to do just a makeover A330. We launched the A321 high-gross weight, A321LR, XLR. We launched the Boeing 737-800. We launched the 787-10. I was the very first customer in April of 2004 of the 777-300ER, which we leased to Air France. That just gives you a little dimension that we're not really just an aircraft finance company, but we're intimately involved in airline strategy, network planning, design, working with the OEMs, fighting with them every day. It's a much more inclusive business That covers the whole range of the industry.

Nuala McGovern:I want to let people know you may have questions. Slido is there, the QR code, and you can ask your question that way, or you can feel free in the room if you'd like to do it the old-fashioned way. I'll try and keep an eye out. The lights are kind of bright.

Steven F. Udvar-Házy:They better be controversial questions, not just plain vanilla questions.

Nuala McGovern:Yeah, yeah, you're not afraid of them. I can totally tell. With that early lease, let's say with the DC-8 and others, Would that give you a sleepless night, or are you somebody who instead embraces that?

Steven F. Udvar-Házy:No, I thought it was just an adventure. If you have sleepless nights in this business, your life expectancy will be about 5 years. This goes back to my childhood. I looked at this whole thing as a game. It's just fun. It's just games, and you develop lifetime relationships. You deal with the challenges realizing that you're not going to win every battle. You're going to win at least maybe 70% of your battles, 30% you lose to a competitor or it was a stupid idea to begin with. You have to take it not close to your heart, otherwise it's going to affect your health. It has to be fun. It has to be enjoyable. You develop lifetime friendships, relationships, and you take each challenge as it comes and you learn from your mistakes. But you have to have a positive attitude. You can't let things depress you or set you back. Whether it was 9/11 or the pandemic or Ukraine, you weigh all these tragedies and all the negativity, but you can't dwell on it. You got to move on. Because this industry has a very bright future. People are not going to go back to the Queen Mary ship to go from London to New York. They're not going to go back to camels in the Middle East. This is the only form of mass transportation in the world. Let's accept that and build on that.

Nuala McGovern:I want to talk about— you talk about controversial things. I want to talk about one of the great rivalries in aviation history as I've been reading about it.

Steven F. Udvar-Házy:Tony Ryan?

Nuala McGovern:Of course, Tony Ryan. So he, Mr. Udvar-Házy, invented air leasing, but Tony Ryan was getting in on the act in Ireland with the Guinness Peat Aviation GPA, which many of you will know. And I was just wondering, does a rivalry in the industry propel you, perhaps make you more successful?

Steven F. Udvar-Házy:Yeah, it's like athletics. Okay. It's a sport and But the competition is very friendly. It's almost like the top tennis players in the world. They're going to fiercely compete on the court.

Nuala McGovern:Who are you, Djokovic?

Steven F. Udvar-Házy:No, he's Serbian. I'm Hungarian.

Nuala McGovern:I'm trying to think, is it a Nadal? Is it a Federer?

Steven F. Udvar-Házy:No, I'm more like the Swiss guy. I'm a nice guy.

Nuala McGovern:Okay, you're Federer.

Steven F. Udvar-Házy:Anyway, it's intense competition, but you have mutual respect and there's enough room for multiple competitors. Right now, we have around 25,000 commercial jet aircraft, Western-built aircraft that have more than 100 seats. That's going to go to probably 45,000 by 2035. There's no single company in the world that has the capital or the resources to take care of all of that for the airline industry. While aircraft leasing has gone from almost nothing in the mid-1970s to now 53% of all aircraft are leased, you can imagine the tremendous amount of capital that's required to finance, modernize the fleets of the airlines. There's room for multiple players. We're all friends. It's like a little fraternity.

Nuala McGovern:Well, I was chuckling reading some of it because Ryanair often talks that it owns all its own aircraft, but you did lease to Ryanair one time unbeknownst to them. Have I got that right?

Steven F. Udvar-Házy:Yes, the very first jet that Ryanair had, they were flying Hawker Siddeley 748s, which I don't know how many of you even know what that is. It's a twin-engine, 44-seat turboprop that was made in England, and they were flying it from Dublin and Limerick to Stansted. Their business was close to bankruptcy. Then I heard through a friend that they were looking for some jets. We had an airline in the UK called Dan-Air. I don't know how many of you remember that. It's called Davis Newman Shipping. It was actually a large charter airline. We took back some BAC One-Eleven 500s. British Aircraft Corporation 111s, like the size of a DC-9-30, on trade against 737s. I didn't really know what to do with those airplanes. A friend of mine said Ryanair might be an interested party. They never had jets at that time. We formed a paper company in Bermuda called Atlantic Aviation Holdings Limited, which was just a paper company. I put a friend of mine in as the CEO who wasn't really involved with us. He was kind of a shadow CEO. We arranged to lease those aircraft to Ryanair. Tony and his sons never knew till the day he died that those were really our airplanes.

Nuala McGovern:That the biggest rival had actually leased them.

Steven F. Udvar-Házy:We actually helped launch Ryanair into the jet age. Look at where they are now. They're the largest Airline in Europe in terms of the number of passengers they fly. So these are the kind of fun things you do along the way.

Nuala McGovern:And I will give one more anecdote with that, that Michael O'Leary, who is of course Ryanair's longtime CEO, apparently sent you a €20 bill addressed to the poor Hungarian farmer who started Ryanair.

Steven F. Udvar-Házy:I still have it.

Nuala McGovern:Yeah. So wonderful. Lots of questions coming in. No surprise there. I'm interested I'm interested in— there was one that was just asking, what advice would you give to somebody starting out now, particularly in this fast technology-driven world? Because just before we came on stage, you were talking about the aspects of technology and how important it is right now.

Steven F. Udvar-Házy:Technology is a tool. It's not an end in itself. The only really good advice I can give anyone who's starting out starting this path is listen to your customers. Listen to your customers and understand your customers. This was one of the great ingredients of our success is we would really analyze each airline, their route network, their competitive environment, their regulatory situation, their fleet composition, Their operating costs, their advantages and disadvantages. The more you understand about your customers, the better you can serve them. Then technology can even accelerate that capability. If you don't have a strong understanding of the DNA of your customers, you're going to be handicapped. That's the only suggestion I can give. I still spend my time on the weekends Studying that stupid OAG, those yellow books that have all the airline schedules. I look at different airlines, where they fly, what kind of planes they fly. To me, that's a fascinating way to learn the inner workings of what the airlines are doing.

Nuala McGovern:Getting back to basics as you did as a child. So interesting. I think this one, I was having a chat about Concorde last night, so I'd be curious for your thoughts on this. Taxiing to departure runway at Heathrow, you passed Concorde looking so miserable and irrelevant. Steven, what's your view of supersonic past and future?

Steven F. Udvar-Házy:I think the technology is there. It's been clearly demonstrated by military aviation. We've made huge progress since the '60s, 60 years ago when the Concorde was developed, even in addressing the boom, the sonic boom. I know Lockheed Skunk Works has spent a lot of time and money minimizing the sonic boom. The problem I see is a very practical one. Even if they develop supersonic capability, I guarantee you that the environmentalists will find a judge or a legal way to block, frustrate, slow down any operational civil supersonic aircraft. They could spend billions of dollars and then have some liberal judge in New York or California say, no, no, no, this is terrible because it's going to hurt the ozone layer. It's going to do this. It's going to do that. I'm telling you, that's what's going to happen.

Nuala McGovern:Is there not a way? Because we've spoken a lot about sustainability over the past couple of days and what might happen or need to happen with sustainable aviation fuel. Do you not think there is a way for aviation and those that put a priority on the environment to coexist?

Steven F. Udvar-Házy:Yes, but the supersonic is the total antithesis of environmentalism because to gain that speed, you have to burn energy, more energy per seat, per seat kilometer. There is no technology right now for a hydrogen-powered supersonic Because the amount of weight you have to carry for liquid hydrogen, it just doesn't make sense. It's not achievable. Maybe nuclear at some point could be some nuclear propulsion. I don't know. That's another conversation. For another generation. Using current jet engines in the supersonic, I think it's going to be dead on arrival.

Nuala McGovern:Are you planning to invest in COMAC and MS-21? That question coming in.

Steven F. Udvar-Házy:What's MS-21? Is that some kind of a bacteria or what is that?

Nuala McGovern:Who put the question in? Maybe somebody can elaborate for us. I'm just having a quick look here.

Steven F. Udvar-Házy:When we do a joint venture for an airline with Mr. Putin, we'll buy the MS-21s. Till then, we're not. Look, the COMAC, China has tremendous ambitions. We've done a lot of business in China with all the big airlines, Air China, China Southern, China Eastern. They have ambitions to become a major supplier. There's a few issues they have. One, certification from the FAA and the EASA. That's not happening. Secondly, they don't have a global airline support infrastructure for spare parts, engineering, operational support, training, simulators all over the world. Look how long it took Embraer, more than 10 years to even get a reasonable amount of support capabilities. The other issue, which is very, very critical, is that it's got US engines. It's got CFM engines. The 919 is the same basic engine as the 737 MAX and the A320. A321neo. At the snap of a finger, our new resident of the White House starting January 20th of next year could shut that off, could shut that off as leverage against China on all this talk about tariffs and stealing intellectual property and so forth. Most of the avionics and a lot of the key components, even like APU, are American-made. It's a really tough situation. Look, COMAC and the Chinese are ambitious. I think they're committed to be a major player in commercial aviation. Over the next 10 or 20 years, they will be a factor. There's no question about it.

Nuala McGovern:Interesting, because I was just asking Steven as well. I was in the US a couple of weeks ago and I was just saying, with Donald Trump in the White House, does that make a difference to President Biden? You said yes, very much so, particularly when we begin looking at some regulatory practices, for example. I can't believe we've only got 5 minutes left. I want to talk about—

Steven F. Udvar-Házy:Yeah, I have to go flying.

Nuala McGovern:Yeah, I know you do. You're a busy man. First, let's take a moment to recognize the 20th anniversary of the Steven F. Udvar-Házy Center. Now this—

Steven F. Udvar-Házy:It's about 20, 21 years.

Nuala McGovern:21, okay.

Steven F. Udvar-Házy:It was 20 last year.

Nuala McGovern:Okay, and so you got to celebrate that. Yes, indeed. I think it was the end of last year. So Steven donated $60 million to establish the Smithsonian's Air and Space Museum. at Dulles Airport that has his name on it. Here's a list of some that grabbed my eye when I was reading in. The B-29 Enola Gay that dropped the first atomic bomb on Hiroshima, one of the final acts of World War II. The Space Shuttle Orbiter Discovery, the Gemini 7 capsule, the Air France Concorde, the SR-71 Blackbird.

Steven F. Udvar-Házy:Yes.

Nuala McGovern:I mean, I started looking at the pictures. It's a thing of beauty. What does it mean to you to have that? And particularly, I can't remember, 24 million people that have gone through the doors, perhaps?

Steven F. Udvar-Házy:Yeah, and my wife talked me into donating even more money, so let's not talk about that.

Nuala McGovern:Let's talk about that.

Steven F. Udvar-Házy:Well, basically, the US government was looking to build a large aviation aerospace museum because the one in downtown Washington, DC, is small and has limitations. Basically, I discussed that with the Smithsonian, which is the largest museum network in the world, whether it's art or history or whatever.

Nuala McGovern:It's incredible.

Steven F. Udvar-Házy:Yeah, it's an incredible museum, and it's a nonprofit. The state of Virginia near Washington Dulles International Airport had this big property, that was designated for a new museum, but they could only pay for the infrastructure. They couldn't pay for the building of the actual museum. My family, we decided to support this museum and to build it, but more importantly, besides the money we gave them, which is about $66 million, I got all the manufacturers, Boeing, Airbus, Lockheed, Rolls-Royce, Pratt Whitney, British Aerospace, all of these big aerospace companies donated money because it was a $200 million project. The idea was to open this museum on the 100th anniversary in December of 2003 of the first flight of the Wright brothers in North Carolina, the first flight of powered flight. We were able to achieve that. Since then, it's become the most visited museum, and it's a fabulous place. All of the things that were sent into space, like the Mercury, the Apollo, they're all there.

Nuala McGovern:I just named a few. It's quite the list.

Steven F. Udvar-Házy:I talked Air France into donating one of their Concordes, and it actually flew from Paris to Dulles Airport and taxied in right to the museum.

Nuala McGovern:It's fun.

Steven F. Udvar-Házy:We're about to announce an expansion, a 20-25% expansion of it, because you have so many artifacts from World War I and Korean War and Vietnam War and the Cold War, because it's got military things, it's got space, it's got commercial aircraft, It has the first Boeing 707, the very first American-built jet airliner. There's stuff that's hanging from the roof. It's a huge building. It could, I think, house about 8 747s.

Nuala McGovern:I can feel the passion and the love is still there. One question that came in, a question that I also have, is what's left to do?

Steven F. Udvar-Házy:Well, we have a big family and I want to I want to encourage young people, motivate young people to carry on because the airline industry has become so vitally important to the development, economic, social, and educational development of our planet and young people. I spend a lot of time encouraging, grooming, motivating young people. I think that's really important.

Nuala McGovern:What do you think That little Hungarian boy that was still behind the Iron Curtain, was in Hungary, what would he make of the life that you've had?

Steven F. Udvar-Házy:He would think that it's not possible. It's an impossible dream that came true, but it's also a demonstration that if you have the commitment, the drive, the passion, you can accomplish things. that you didn't think were possible. I think it should be a message of optimism to all of you that we can conquer challenges along the way and have a better future for our children and grandchildren.

Nuala McGovern:Steven F. Udvar-Házy, our CAPA Hall of Fame latest inductee.

Steven F. Udvar-Házy:Thank you. Thank you very much.

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