ISTAT Jetrader - Winter 2019 - 11

Jetrader: What did the industry look like when you started versus today?
GL: There has been a remarkable transformation of the U.S. airline industry over
the last 35 years. When I first became involved in the airline business in the 1980s,
the industry was struggling to deal with the fallout from deregulation. Legacy
airlines like Continental had cost structures that made it difficult to compete with
the new generation of startup airlines. Legacy airlines had to adjust the way they
did business. For Continental, it meant two trips through bankruptcy. For others like
Pan Am and Eastern, it meant shutting down.
This transitional period lasted until the mid-1990s. The late 1990s was a
relatively stable period with most airlines generating profits. This changed on
Sept. 11, which, along with the economic slowdown that followed, forced another
industry restructuring. All of the major network carriers other than Continental
ended up in bankruptcy.
Thankfully, with the benefit of the financial restructuring and industry
consolidation that followed, today's U.S. airline industry is both very competitive and
nicely profitable. In essence, it is a more sensible industry. For the first 35 years
following deregulation (1978-2012), the U.S. airline industry lost $37 billion. Since
2013, the industry has achieved profits of more than double that number. This lets
us reinvest in the business for the benefit of our customers and provide a nice return
to our shareholders.
Jetrader: Airbus and Boeing are strongly competing with each other for new
orders, so equipment prices must be attractive. Investors love to put their
money in commercial jets. Lessors are ultra-competitive. Interest rates are
as low as ever before. Fuel price is "reasonable." As a CFO, is this as close
to "paradise" as it gets?
GL: It may not quite be "paradise," but it is certainly a lot of fun. Gone are the
days when we were fighting just to stay in business. We have sufficient liquidity to
weather any storm. We have been growing profitably and have attracted investors
for both our stock and debt who have been well rewarded for their trust in us.
In terms of the aircraft manufacturers, the industry benefits greatly from the
strong competition between Airbus and
Boeing. Both manufacturers produce
great airplanes, and the competition
forces both to continually improve
their offerings and keep prices from
escalating too much. With respect
to the lessors, we appreciate the
product they offer and occasionally
lease aircraft. However, because of
the strength of the debt markets, we
find it more attractive to purchase new
aircraft and use the EETC market or bank market to finance the purchases. As an
example, we priced a $1.2 billion EETC in early September with a blended fixed rate
of under 2.85%.

in the near future, I don't think we will
see much impact. In fact, we recently
signed an agreement to purchase some
midlife 737-700s at attractive prices.
Jetrader: What difference for a
major airline has the takeover of the
A220 by Airbus and the E-Jets by
Boeing made?
GL: Assuming the Boeing takeover
is completed, from our point of view,
I wouldn't say there's any significant
difference. Instead of having four OEMs
to talk to, we will have two. If anything,
it will help make both programs stronger.
Jetrader: With A310 and 767-200
not really successful "middle of the
market" planes in the past, what is
different now to turn the NMA into
a success?
GL: I can't really speak about the
A310 because that's an aircraft that
we never really looked at. But, I can
tell you about the 767-200, because
we did operate them. It's tough to
make the economics work when you
shrink an aircraft. The optimal sizes
for the 767 were the 767-300 and
400. We acquired a group of 767200s relatively late in the 767 life

Today's U.S. airline industry is both very
competitive and nicely profitable. In essence, it is
a more sensible industry.

Jetrader: Lease rates and market values of midlife and younger 737NG and
A320CEO family have been very strong in recent years, partly due to the
delays in NEO and MAX deliveries. Once these deliveries come on stream, do
you expect the values/lease rates of older kit to nose-dive?
GL: No, I don't think there's been a significant spike in values of the midlife aircraft.
While it is true that the MAX situation has resulted in some airlines, including United,
holding onto some aircraft a little longer, assuming the MAX situation gets resolved

cycle. The economics weren't great,
so we disposed of the aircraft. To be
honest, it's no different than when
you look at the 787-8, 9 and 10. The
economics on the 9 and 10 are better
than the 8, so most of our 787s are the
larger variants. I believe that Boeing
expects to size the NMA to optimize
its economics for its customers. If the
aircraft is priced attractively, it could be
of interest to us.
Jetrader

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ISTAT Jetrader - Winter 2019

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