Jetrader - Spring 2017 - 32

In the Beginning:
The Birth of ISTAT

By Andy La Stella, Principal, AirCapital
The International Society of Transport
Aircraft Trading is the world's largest commercial aviation networking organization.
It serves the industry as the ultimate networking vehicle for a global business with
more than 4,100 members from all aspects
of commercial aviation, including airframe
and engine manufacturers, aircraft lessors,
financiers, aviation lawyers, appraisers and
maintenance providers. It hosts conferences around the world and has a presence
at every major airshow.
Members hail from every corner of the
globe. Last year, ISTAT held holiday receptions in New York, London, Dublin, Miami,
Hong Kong and Tokyo. But it wasn't always
like it is today. Those of us who were there
at the beginning worked diligently just
to keep the nascent organization alive.
Like many great stories, this one has very
humble beginnings.
The aircraft leasing industry was just coming into its own in 1983, the year ISTAT was
founded. Leasing at the time was mostly
concentrated among large banks using U.S.leveraged leases to finance aircraft, because
their large ticket sizes generated enormous
tax benefits that banks could efficiently
deploy to reduce taxes on their profits.
Operating leasing was in its infancy. George
Batchelor's International Air Lease focused
on secondary market aircraft leasing.
Two new faces emerged to develop an
operating lease market for new aircraft.
International Lease Finance Corporation, a
Los Angeles-based company run by Steve
Udvar-Hazy - a man with some very creative
thoughts on aircraft placement - began its
steady growth into one of the largest aircraft
lessors in the world. Meanwhile, in Ireland,
Tony Ryan was similarly launching a competing aircraft operating lease business by the
name of Guinness Peat Aviation.
The banks continually faced difficulties
in obtaining consistent valuations from
the then-existing aircraft appraisal community. With aircraft beginning to come off

lease, lessees frequently chose to exercise
their fair market value purchase options. If
a fair market value strike price could not
be negotiated, the fair market value was
determined by an appraisal process. The
process generally required that the lessor
and lessee each appoint an appraiser to
determine value. If the two appraisers could
not agree, a third "tie breaker" appraiser was
brought in to settle the stalemate. The process was fraught with divergent methodologies and terms. Further, a secondary market
was developing where aircraft returned to
lessors and aircraft being phased out of
airline fleets were sold or leased. The need
for standardized appraisal methodology and
standards of ethics in secondary market
trading was apparent.

Shared Interests
While there were conferences offered
in the areas of air finance and aviation
in general, none were focused on topics
specific to the needs of secondary market traders and lessors. Education on the
impact of maintenance on aircraft value
and the significance of lease return conditions were subjects that would help those
in the industry become more proficient in
their jobs, but conferences were becoming extremely expensive. ISTAT was born
against this backdrop.
I'd like to tell you that several of us met
in a smoke-filled room (it was OK to smoke
most anywhere in 1983) with a very creative
idea, but that's not how it happened. At
the conclusion of an Avmark conference
held at the Roosevelt Hotel in Manhattan,
several of us met in the bar to discuss how
to develop a set of standardized terms and
criteria for aircraft appraisals. The need
for standard terms and criteria became
obvious to us when, at the end of a lease
of DC9-30 aircraft from our bank to Eastern
Airlines, we had appraisals supporting the
lessor's opinion of fair market value at
$5 million each. The Eastern Airlines team

32 The official publication of the International Society of Transport Aircraft Trading

ISTAT logo on a 1999 issue of Jetrader.

had appraisals supporting their position
that each aircraft had a fair market value
of $1 million. Clearly something was not
in sync!
There is not much written history of those
early days. The organization was developed
in concept by Joe Murphy, our first executive director and the founder of Air Transport
World magazine. Early organizers included a
cross section of the parties that were part of
the aircraft trading business. They included
bankers, airline fleet managers and a few
asset managers.
Mort Beyer, principal, Avmark; Mike
Metcalf; Pete Seidlitz, Dave Sutton,
Steve Fortune and Ron Anderson, FedEx;
Jim Matthews, American Aeronautics Corp.;
John Duncan, Bankers Trust; myself and Jeff
Knittel of Manufacturers Hanover Leasing;
Dick Spaulding, US Airways; and George
Dutton, Eastern Airlines helped get an
organization off the ground that could set
standards for appraisals, serve as a forum
for secondary market trades and plan conferences that were reasonably priced and
focused on relevant topics.
The name International Society of
Transport Aircraft Traders was adopted

George Dutton,
the first
ISTAT president.

Jetrader - Spring 2017

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