Roughly two years after billionaire Steven Udvar-Hazy bet that he could repeat his earlier success in the commercial aircraft leasing business, his Air Lease Corp. is making its mark among passenger carriers in the world’s fastest growing markets.
With two large contracts signed in the past two weeks, the Century City public company is set to supply jetliners to China’s three largest airlines over the next three to four years. Last week’s 18-aircraft deal with China Southern Airlines – Asia’s largest airline – was the company’s largest lease placement to date. The planes were valued at $800 million.
The contract followed a 13-aircraft deal announced the week before with China Airlines, and an earlier contract with China Eastern Airlines and several regional carriers in March of last year.
“It’s a we’ve-arrived moment for us,” said Ryan McKenna, assistant vice president for strategic planning and investor relations at Air Lease.
Last week’s order from China Southern follows an earlier contract with the carrier. Air Lease delivered two new Airbus A320-200s to the carrier late last year.
Air Lease has lease deals throughout the Asia-Pacific region, including South Korea, India and Australia, as well as Russia, Europe, the Middle East, Africa and the Americas. The new China contracts will be filled with fuel-efficient Boeing and Airbus passenger jetliners that were ordered about two years ago based on Air Lease’s projections what potential clients would need to expand service or replace aging aircraft.
Air Lease also buys smaller planes from Embraer and ATR to serve smaller commuter and regional carriers.
Udvar-Hazy, chairman and chief executive of Air Lease, was a founder of Century City aircraft leasing giant International Lease Finance Corp. and stayed on as chief executive after it was sold to American International Group Inc. in 1990. Udvar-Hazy, 64, left ILFC in 2009 in a dispute with AIG, which required a $180 billion government bailout during the financial crisis. He ranked No. 11 last month on the Business Journal’s list of Wealthiest Angelenos, with an estimated personal worth of $2.85 billion, up $800 million from last year.
“The reason (Air Lease) has been able to do so well so quickly is that this is a relationship business, and these people have been in the business for a long time,” said analyst Helene Becker at Dahlman Rose & Co. in New York, which has a “buy” recommendation on shares. “What’s nice about Air Lease is they are young, they have a lot of aircraft on order that are fuel-efficient, next-generation aircraft – the aircraft that everyone wants.”
Udvar-Hazy and the colleagues who came with him from ILFC decided to target high-growth markets. The company plans to buy new aircraft – which typically have a 25-year life – and lease them to airlines for six to 12 years depending on the size of the aircraft, then sell rather than lease them again.
Air Lease last week also continued to plan ahead for future deals as it adds to its 124-aircraft fleet. Last week it also finalized a contract with French aircraft manufacturer Airbus for 36 of its A320 Neo aircraft, including 20 larger-size A321 Neo planes expected to be in commercial service by late 2015. Air Lease now has orders out for about 100 Airbus aircraft.
The company orders planes direct from manufacturers and also arranges for sale-and-lease-back arrangements with a carrier that may have a jetliner on order but decides to have the lease company take the financing risk.
Analyst Scott Valentin at Friedman Billings Ramsey & Co. in Arlington, Va., estimates that Air Lease’s fleet will reach 160 aircraft by the end of the year and 200 by the end of 2013, although the company itself has not been that specific.
Valentin has an “outperform” recommendation on Air Lease shares.
“It’s attractive (for an airline) to lease an aircraft for seven to 12 years and then be able to give it back and get another new plane,” he said. “It’s also cheaper for a lease company to buy a plane because they are considered less volatile and have a lower cost of capital. Every five or 10 years, the airline industry goes through a bankruptcy cycle so carriers aren’t considered as good of a risk.”
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