Quote:
May 10, 2007
The Real Owner of All Those Planes
By LESLIE WAYNE
LOS ANGELES — When Steven Udvar-Hazy was a teenager in New York City, he would often head after school to Idlewild Airport, as Kennedy International was known then, to watch planes take off and land.
Airplanes symbolized freedom to the young Mr. Hazy, whose family moved from Hungary when he was 12. For hours, he would spot different aircraft and pore over timetables to figure out where they were coming from, or headed to.
Today, if anyone were to watch planes taking off at Kennedy — or at most airports around the world — they probably would be looking at planes owned by Mr. Hazy, a billionaire three times over and one of the most powerful players in commercial aviation.
As founder and chief executive of the Los Angeles-based International Lease Finance Corporation, Mr. Hazy has a fleet of 824 Boeings and Airbuses, with 254 more on order, that dwarfs any airline’s in the world. He owns more planes than the industry leader, American Airlines, which has 679, and more than the combined holdings of Air France (265), Lufthansa (245) and British Airways (239).
But Mr. Hazy prefers to keep a low profile, a rarity in an industry that has attracted more than its share of big egos. He rarely grants interviews, and is more than happy to let his 157 customers — airlines like Cathay Pacific, Air France and American — paint their names and logos on his jets.
“Not to put too fine a point on it, but in our industry, Steve Hazy is God,” said Edmund S. Greenslet, editor of AirlineMonitor.com. “No one has more influence than he does. He has an enormous impact on how manufacturers design their planes. He’s the financial engine for airlines around the world.”
Airlines lease airplanes for the same reason that cash-short consumers lease cars — they can get new models for lower payments.
Nearly half of the airplanes flying today are leased by the airlines, and Mr. Hazy, with his $45 billion portfolio, is the biggest player, as measured by dollar volume, followed by General Electric.
In the 35 years he has been in business, Mr. Hazy has ordered 706 Boeing jets and around 600 from Airbus, making him the top customer for both companies. And they are eagerly courting him now in advance of the Paris Air Show, where he is expected to announce a big new order.
His personal wealth is measured at $3.1 billion, putting him at No. 83 on the Forbes list of richest Americans. And, Mr. Hazy’s place in aviation history was secure even before a $65 million donation helped get his name on the Smithsonian National Air and Space Museum Center at Dulles Airport.
Mr. Hazy became a pioneer in airplane leasing while still in his 20s, and is widely credited with creating an industry now valued at $129 billion.
He raised cash from a small group of fellow Hungarian émigrés and started making deals while an economics student at U.C.L.A. As a junior in 1966, he advised Aer Lingus on how to save money by reducing the aircraft types in its fleet, and, as a senior, he brokered the sale of a turboprop from Air New Zealand to Reeve Aleutian Airlines.
In 1973, he founded his leasing company with two partners, and invested $150,000 to buy a used DC-8 to lease to Aeroméxico. The group soon switched to the newest models.
Mr. Hazy’s two partners, a Hungarian father-and-son team, are today each worth around $1.6 billion, according to the Forbes’ list.
For Mr. Hazy, aviation is as much about emotion as business.
“For a lot of people, it is hard to understand what it was like to be a child behind the Iron Curtain in the 1950s, when the cold war was burning strong,” said Mr. Hazy, in an interview in his opulent office in Century City, Calif. “As a child, you get a lot of indoctrination. You feel trapped, like a prisoner. So I always associated planes with escape and freedom, and still do.”
Mr. Hazy said the idea to lease aircraft came to him when he saw the shift in the late 1960s from turboprops to jet planes.
“That transition involved a quantum leap in capital costs,” said Mr. Hazy, who flies his own Gulfstream V and who wore an Hermès tie with airplanes on it, airplane cuff links and an airplane lapel pin. He recounted that he saw that airlines “needed outside financing from someone friendly and catering to the industry, and not just from a bank.”
Today, Mr. Hazy has a staff of 170 employees in the top two floors of the MGM Tower (his penthouse office has a working fireplace). Nearly 2,000 models of airplanes decorate his offices.
“He lives and breathes the industry,” said John Leahy, the chief Airbus salesman. “When he was dating his wife, Christine, his idea of a exciting date was to go to the end of the runway and tell her about the DC-8 overhead.”
His company, I.L.F.C., went public in 1983, when it had a market value of around $100 million. It was acquired by the American International Group in 1990 for $1.3 billion. In 2006, I.L.F.C. had pretax earnings of $716 million on revenue of $4.1 billion.
Mr. Hazy has shown an uncanny knack for picking winners among aircraft types, and avoiding deals with airlines that went bankrupt.
He buys planes with price tags like $40 million for a Boeing 737 and $200 million for a 747 (though he never pays list price, of course, since he buys in bulk and is such an important customer). He then spreads them around to many carriers, a process he calls seeding.
“If we buy 50 planes,” said Mr. Hazy, “there could be 75 more sales from us indirectly.”
Not surprisingly, his opinions are treated like gospel within the industry, and Boeing, Airbus and leading jet engine makers often seek out his advice.
“He leads and the market follows,” said Jon Kutler, president of Admiralty Partners, a Los Angeles investment firm specializing in aerospace. “He’s been responsible for commercial aviation trends and what comes off the assembly line.”
Mr. Hazy says he is not shy about telling Boeing and Airbus what to build: “We are saying to the manufacturers, ‘Here’s what the plane should look like.’ Our loyalty is to the airline industry that serves the public, and the product has to be optimized for the airlines and not for the manufacturers. We are thinking about what the customer and what the industry need 20 years from now.”
That includes jet engines. Charles Caldwell, former vice president for commercial jet engines at General Electric and now a consultant, said Mr. Hazy “pushes us on fuel consumption, maintenance and emissions standards” — especially now that Europe, in particular, is becoming more demanding about such environmental issues.
Perhaps the most telling evidence of Mr. Hazy’s influence is the very public role he played in forcing Airbus to go back to the drawing board and spend $8 billion to $10 billion to redesign its new A350 twin-aisle midsize jet after he found the design lacking.
Before a stunned crowd at an industry gathering last spring, Mr. Hazy lowered the boom on the A350 and, almost overnight, killed the design. This followed months of private discussions with Airbus executives in which Mr. Hazy complained that the proposed A350 was just a “warmed up” version of an existing plane, and that its wing design made it too slow.
Yet Airbus executives did not want to spend the billions to overhaul the A350 since they were already plowing billions into developing their new superjumbo A380.
“I said they needed a new design,” Mr. Hazy recalled. “And they said, ‘Well, that’s easy for you to say, Mr. Hazy, it’s not your money.’ I felt Airbus was paying attention, but was not embracing our ideas. I was so frustrated with Airbus because they were stalling.”
Once Mr. Hazy publicly criticized the A350, two crucial customers, Singapore Airlines and Emirates , joined in. At the Paris Air Show a few months later, Airbus was scrambling to unveil an entirely new design — the A350 XWB, for extra wide bodied.
At a Paris news conference, the Airbus chief executive, Christian Streiff, went out of his way to cite Mr. Hazy, whom he called his company’s “No. 1 customer,” for pushing Airbus to redesign the plane.
“We were surprised that he said it publicly, but we were not surprised by the information,” said Mr. Leahy of Airbus.
At the moment, Mr. Hazy has orders for up to 20 new A350s, but the contract will not be finished until the final design is set.
He also lobbied Boeing to create an extended-range version of its popular 777 and, in the case of Airbus, Mr. Hazy pushed to create the A319, one of Airbus’s most successful planes, over the objection of Jean Pierson, the managing director at the time, who wanted to build a bigger plane, not a smaller one.
But, Mr. Hazy, over a glass of wine in Paris in 1993, convinced Mr. Pierson that there was a large market for a small jet and that he would buy the first six.
“He had a glass of wine and said O.K.,” Mr. Hazy said. “Now it’s sold 2,000 planes.”
As for Boeing, Mr. Hazy has 24 of the new fuel-efficient midsize Dreamliner 787 jets on order and has publicly said he wants to buy as many as 100. Because of continuing negotiations with Mr. Hazy, Boeing declined to comment for this article, but did issue a statement saying that Mr. Hazy is “one of the most recognized and respected leaders in our industry.”
Mr. Hazy is outspoken on other industry matters as well. He is critical of American carriers, which he considers arrogant toward him and the industry. He has warned Boeing and Airbus that the days of their control may be numbered by the growth of the Chinese, Russian and Japanese aviation industries. And, he has told the industry that it had better start taking a growing environmental threat more seriously, saying that airlines will probably face increased taxation if they do not.
In fact, Mr. Hazy does far less business with American carriers, which he says have a short-term mentality, than international ones, with whom he has built long-term relationships.
“Big U.S. carriers, since the dawn of the jet age, act almost like superior beings,” said Mr. Hazy, who said that half his customers sought to re-negotiate leases after 9/11. “They want all the benefits when times are good, but if they are bad, they want you to sacrifice.”
Still, with I.L.F.C. making money at a time when American carriers are having financial problems, Mr. Hazy feels that he may have the last laugh: “Our company is stronger than any major U.S. carrier. The day will come when they need I.L.F.C.”
