Jet-leasing mogul wants to bring firm back under his wing
If you’ve flown on a commercial airliner over the last two decades, there’s a good chance you were in a plane leased from Steven Udvar-Hazy.
The Hungarian refugee, who came to America as a child in 1958 with little more than a love for aviation, is now one of the richest men in Los Angeles. He amassed his estimated $2.2-billion fortune by building up a global aircraft-leasing empire and selling it in 1990 to insurance giant American International Group Inc.
But now Udvar-Hazy, who was allowed to keep running the business under AIG, wants part or all of the company back. The struggling insurer received $182.5 billion in bailout money from the federal government last year after its near-collapse. To pay back the government, AIG is selling off its assets and has the aircraft-leasing business, International Lease Finance Corp., on the market.
AIG’s board is scheduled to meet today to consider “strategic alternatives” that may include the future of the leasing unit.
ILFC, based in Century City, owns 955 passenger jets, and its planes are flown by nearly every major airline. It is the biggest customer of Boeing Co. and Airbus, the world’s remaining makers of large commercial aircraft.
Although Udvar-Hazy, 63, doesn’t own ILFC, he’s its chief executive and is still considered the driving force behind the company. Under the deal with AIG, Udvar-Hazy has a free hand to run the company as if it were a separate entity.
But analysts say Udvar-Hazy is worried. AIG’s downgraded credit rating has hurt ILFC’s ability to finance the purchase of jets.
In a Securities and Exchange Commission filing this year, ILFC said that access to financing had been hampered by its parent company’s troubles and that without new loans “there could exist doubt concerning our ability to continue as a going concern.”
It marked a dramatic reversal from Udvar-Hazy’s motivation to sell ILFC in 1990 when AIG’s deep pockets drove the sale.
“In the leasing business, you need someone with access to cheap money,” said aviation analyst Richard Aboulafia of Teal Group Corp. “AIG provided that.”
That’s far from the case today. But why does Udvar-Hazy, a billionaire with a sprawling Beverly Hills mansion reportedly worth $50 million and a personal $60-million Gulfstream V jet, care to continue in the aviation business?
“He could retire and live on his own island somewhere,” Aboulafia said. “But he loves the business too much. He lives and breathes it.”
His public stature outside aviation grew a few years ago when he donated $66 million to help build the Smithsonian National Air and Space Museum annex in Chantilly, Va., that bears his name. It was the largest donation ever received by the Smithsonian Institution.
Udvar-Hazy declined a request for an interview, saying AIG didn’t want him to talk while ILFC was still on the market.
But Udvar-Hazy’s life story is well-known in the aviation community. Born in Budapest in 1946, he moved to New York in 1958 with his family after the Soviet Union put down the Hungarian revolution.
As a boy, Udvar-Hazy hovered around Idlewild Airport in Queens (now John F. Kennedy International Airport), where he walked through the aircraft hangars and watched mechanics tinker with planes.
It was an obsession that blossomed into a lucrative business in the mid-1960s when he was an economics undergraduate at UCLA. At 18, Udvar-Hazy started a consulting company, Airline Systems Research Consultants -- a name he thought would impress potential clients.
Udvar-Hazy would contact airlines he thought were wasting money. He would send off letters and telegrams, anything that wouldn’t reveal his young age because he was afraid of scaring off potential clients.
In 1966, he got his first break when he advised Aer Lingus, Ireland’s national airline, on how it could save money by reducing its fleet.
The deal laid the groundwork for his first million-dollar deal. After his classes at UCLA, Udvar-Hazy often hung around airports, where one day he was told that an airline was looking for an Electra four-engine propjet. He discovered that Air New Zealand was trying to unload an Electra.
Udvar-Hazy brokered the deal between the airlines and walked away with $50,000. He was still an undergraduate.
In 1973, Udvar-Hazy persuaded fellow UCLA alum Lou Gonda and his father, Leslie Gonda, to each put up $50,000 for what would later become ILFC. They would pioneer a business that is now a standard in the airline industry.
The company’s business is similar to leasing an automobile. ILFC leases planes to airlines and then sells or re-leases them after a fixed period. Airlines like it because they can get new planes for a lower price.
For ILFC, it buys in bulk and gets the kind of discounts few airlines can get on their own.
By the time it went public in 1983, ILFC had assets worth more than $200 million. In 1990, AIG bought ILFC for $1.3 billion in a stock-swap but kept Udvar-Hazy at the helm.
It was a smart move, said Jon B. Kutler, president of Century City-based private aerospace investment firm Admiralty Partners. Udvar-Hazy’s tough-as-nails-negotiating skills and his discriminating eye for detail led ILFC to become the world’s largest aircraft-leasing company, with a fleet larger than that of any airline in the world.
Armed with unrivaled purchasing power, Udvar-Hazy has also influenced the development of new aircraft.
“He’s a visionary,” Kutler said. “He’s had his fingerprints on virtually all of the major launches of the last 20 years.”
Kutler points to the Airbus A350, which Udvar-Hazy publicly criticized as having a shoddy design. After he voiced his disapproval, others joined the chorus. Several months later, Airbus began a redesign.
“It’s a much better aircraft for it,” Kutler said. “He anticipates trends and sees the problems very early on. Airplanes to him are not just another entry on a balance sheet.”
Everybody has a hobby, said John Leahy, chief commercial officer at Airbus. “Some people play golf, some people collect cars. For Steve, it’s his job.”
His Century City office is flush with thousands of model airplanes. And it’s not strange to see Udvar-Hazy wearing airplane cuff links or ties. Leahy has known Udvar-Hazy for about 25 years. ILFC is Airbus’ biggest customer, so Leahy has been on the opposite side of the negotiating table from Udvar-Hazy.
“It’s not fun,” he said. “He likes to play two sides off one another.”
Leahy found that out one day in 1995 while at an aviation get-together in Hawaii. Both he and Udvar-Hazy were in attendance. Leahy woke up one day to see on the front page of the Wall Street Journal that ILFC had put in a multibillion-dollar order for 50 Boeing airplanes.
Later they had a poolside meal together. Somehow, Udvar-Hazy “ended up slipping into the pool after he reached for something,” Leahy said.
“There’s been a rumor that I pushed him in,” Leahy said, chuckling. “But that’s never been established.”
Whatever happened, Udvar-Hazy’s wife, Christine, pushed Leahy in after him.
Edward M. Liddy, the former chief executive of AIG, called ILFC “one of the crown jewels.” ILFC reported operating income of $1.1 billion last year, an increase of 26.3% from $900 million in 2007. That’s not easy considering the economic conditions and decline in air traffic last year, he said.
“ILFC has great value, but it has a lot of leverage on its books and it’s a tough market right now,” Liddy said.
ILFC has about $32 billion in debt -- most of it incurred to buy planes -- and some of it will mature in October.
Unless the government guarantees that it would cover the debt in case of default, it will be impossible to strike a deal, said Roger King, an analyst at CreditSights Inc., an independent research firm.
King also said aircraft leasing companies are out of favor. The Royal Bank of Scotland and CIT Group Inc. are also looking to sell their aircraft-leasing companies, making it even more difficult for Udvar-Hazy to line up investors to help him buy back ILFC.
But Udvar-Hazy is getting frustrated waiting for something to happen, said Adam Pilarski, senior vice president of aviation research firm Avitas Inc.
“He used to do a billion-dollar deal with dinner and a handshake,” Pilarski said. “Now he’s dealing with a government-owned company where everything moves at a snail’s pace.”
(BEGIN TEXT OF INFOBOX)
Name: Steven F. Udvar-Hazy (pronounced OOD-var HAH-zee)
Title: Chief executive/founder of International Lease Finance Corp.
Education: Bachelor’s degree from UCLA, 1968
Birthplace: Budapest, Hungary
Residence: Beverly Hills
Family: Wife, Christine L. Henneman, and four children