GA Telesis takes 'cradle to grave' approach to aircraft leasing
CEO and President of GA Telesis, Abdol Moabery, shared his thoughts with CAPA on the influence of fuel prices on the LCC model, the B787-10 and when and why the oil crisis will ease.
GA Telesis is currently the 31st largest lessor by fleet size, yet 49th largest by fleet value. Is it part of GA Telesis’ strategy to acquire a high number of smaller aircraft?
GA Telesis is principally a lessor of mid-generation aircraft. We have a cradle to grave strategy, but our ownership typically starts when an aircraft is older than 10 years of age. This certainly equates to more aircraft with a lower per unit cost.
Do you think the B747-8 will fare better as a passenger or a freighter? Is GA Telesis interested in acquiring this aircraft for its customers?
I am not sure how the passenger market will take to the 747-800. Certainly the 747 family has been very successful for many years. However, the only current comp is the A380 and the test will be whether it is possible to fill the airplanes with passengers in line with load factor hurdles. Additionally, four engine airplanes are not very popular with oil prices on the rise. Take a look at the value drop in the A340-500/600 market. However, I think as a freighter, the 747-800 will be very successful.
Can you comment on the idea of the B787-10 being a candidate to replace the A340-300 or B777-200?
Certainly as a candidate to replace the A340-300. Simply put, two less engines and better operating economics. As far as the 777-200, I think in terms of age, there is viable replacement strategy, but all being equal, the 777-200 is a money maker and I don't think the efficiency economics justify a fleet change.
Will you be targetting the LCC market?
LCC who? It seems like more and more LCCs are moving toward a full-cost model. Look at Southwest and JetBlue as an example. This seems to be the trend. I guess the driver is fuel. You can't sell low-cost tickets if oil is USD120 a barrel.
GA Telesis’ average fleet age is 20.9 years, a little over the lessors average. Can you explain the rationale behind this strategy?
It is actually closer to 18 years, but yes that is part of our strategy. Are we a leasing company that parts out aircraft or a parts out company that leases. Any way you shake it, we think the beginning of the ownership chain is equally as important as the end.
Do you think older aircraft will get reabsorbed among lessors and redeployed?
Yes I do. It happens after every cycle and typically lags the new generation aircraft market by 12-18 months. The big issue this cycle is the difficulty to finance vintage aircraft. Once there is greater liquidity in the financial markets, you will see a sudden shift.
Do you see the industry’s recovery leading to an increase in demand for leasing companies?
I think airlines are looking at leasing and lessors to step up in many ways, but mainly as a way to solve two fundamental issues. Cash needs and residual protection. Cash needs are extremely important in times like this where oil prices are wiping out their cash reserves. The smarter airlines look ahead and manage their residual exposure by getting aircraft off balance sheet in the good times when prices are high. That provides them significant residual downside protection when it is time to renew the fleet.
How do you see the fuel environment being played out in 2011? Do you think this will be a boon or bust to the leasing industry?
So far, I haven't seen much bust. In fact the opposite. This was apparent when ALC listed in April. I think oil price spikes are being driven by two things: 1) volatility concerns related to the Middle East; and 2) speculation. Oil consumption increase for 2011 was raised by roughly 1 million barrels per day. That is a roughly 1% increase in consumption with a 30-40% increase in demand pricing models. We are not consuming enough oil to cause a demand surge like this. I predict oil prices will normalise in the next 12 to 18 months.
Is the Asia Pacific market one GA Telesis is interested in targetting?
How flexible are your growth plans and do you expect to recalibrate in the near term?
Our growth plans are extremely aggressive and we will continue on that track. Our industry is growing and will grow with it. This may mean that we enter into areas of the sector like we did when we entered the MRO sector in 2008. There are just so many opportunities out there, that we will explore every avenue to grow our industry footprint. We have had an average CAGR of 28% over the last nine years and we have no intention on letting up.