Steven Udvar-Hazy may lose his job but win back his fortune.
Udvar-Hazy in January dropped the title of chairman at International Lease Finance Corp., an airplane leasing firm in Century City that he founded in 1973.
Reports in Bloomberg News and the Wall Street Journal say that he is negotiating to buy some of ILFC’s airplanes for about $4 billion, with the goal of starting a competing company.
ILFC, a subsidiary of insurance giant AIG, is one of the largest aircraft owners in the world, with a fleet of more than 900 planes. Udvar-Hazy, 63, remains its chief executive. By relinquishing the chairmanship, he avoids potential conflicts of interest in buying back a portion of the company.
AIG has been trying to sell its airplane leasing subsidiary for more than a year in an effort pay back some of the $182 billion bailout the company received from the federal government. But so far there have been no takers,
Vaughn Cordle, chief analyst at aviation consulting firm AirlineForecasts in Washington, D.C., said air traffic dropped more than 8 percent last year, triggering a decline in the value of jet liners and the companies that lease them.
“Airplanes are parked in the desert, the manufacturers have large back orders that will never be delivered, and suddenly you have aircraft losing 25 to 50 percent of their value,” Cordle said. “The value of some older models has gone to zero.”
Cordle doesn’t expect the airline industry to recover until at least 2013. However, the slump means that Udvar-Hazy could acquire planes or an entire leasing company at a low price.
With an average age of more than 15 years, the U.S. air fleet is one of the oldest in the world, Cordle said. Airlines seeking to replace their old aircraft with newer ones don’t have cash to buy planes, so leasing becomes the only option. Also, with higher fuel prices, airlines will be obliged to use newer, more fuel-efficient crafts, including Boeing Co.’s upcoming 787 Dreamliner.
Robert Mann, president of airline consultancy R.W. Mann & Co. in Port Washington, N.Y., said many of the current planes – including those in IFLC’s portfolio – simply aren’t economical to fly.
“There is a substantial opportunity in the near term if you can restructure a leasing company or start a new one,” Mann said. “A portfolio of quality aircraft has real value right now. People who know how to run such a portfolio can increase that value, and Udvar-Hazy is one of those people.”
A challenge for Udvar-Hazy would be getting access to credit at the same cut rates that made ILFC such a success under AIG, which had an impeccable credit rating until the financial crisis.
Udvar-Hazy did not respond to an e-mail seeking comment. ILFC referred inquiries to AIG, which did not return calls for comment.
At one point, Udvar-Hazy could have financed nearly all of a $4 billion purchase from his own pocket, but with the vast majority of his fortune in AIG stock the Business Journal estimated last year that Udvar-Hazy’s net worth was down to $520 million.
Still, his reputation will help him get financing for either an acquisition or a startup.
“He has significant credibility both in the aviation industry and in financial circles,” Mann said. “His name and industry knowledge convey a strategic advantage to any company he may form or join. There aren’t many people who can do that, but he’s one of them.”
