Jetrader - May/June 2010 - 10

Q&A
more? Is it worth the same as the existing? And then of course, the airline operator himself wants to get the primary beneﬁts of that cost efﬁciency—they don’t want the lessor to get it, they don’t want the manufacturer to get it. So, it’s a really difﬁcult equation to answer at this point. JT: And how long does the technology carry over? SH: Yeah, and when will it be obsolete by the leapfrog of the next generation of replacement aircraft? The situation we have today is that Boeing and Airbus have way overspent on their current programs—Airbus on the A380, the A400M military freighter and the A350 will all experience signiﬁcant cost overruns and program delays. And Boeing with the 787 and the 747-8 are spending a lot of money, but there’s no money to begin with. So they need to sustain production on the existing airplanes. Do they have the ﬁnancial resources to now start an all-new airplane? The answer is no. So, re-engining is almost like a poor man’s way of ﬁlling this gap because neither large manufacturer right now has the ﬁnancial resources to embark on an all-new program that would cost $15 billion to $20 billion to develop a whole new family of aircraft. So, these are the issues that we have to think about. JT: What is your view on the latest production increases announced by Airbus and Boeing? SH: Again, I think it’s more ﬁnancially driven to maximize the cash ﬂows and revenue of the manufacturer and less marketdriven. I think the market would accept 34 A320 family a month, just as much as they would accept 36. I don’t think it is demand that is driving that, although there’s been some overbooking by both Airbus and Boeing. I think it’s more their hunger to have cash inﬂows to subsidize these expensive R & D programs I just talked about. This year, Boeing was supposed to deliver probably between 70 and 80 787s in 2010. So, that’s like $8 billion, $9 billion. But they’re still spending the money. They have just as many employees; they have just as many expenditures. So they have to offset that with revenue from legacy products like the 737 the 777 and at Airbus on the A320 and the A330. So, it’s a natural economic response. I don’t think it’s a market response—the production increases. JT: The owners and investors had some issues in the past with the residual value of the previous generation regional jets built by Embraer and Bombardier. Are the new C-Series and the E-jets that much better investments? SH: Well, let me just compare to the car industry. If you go back, when I was a kid in America, we had General Motors, Chrysler products and Ford products. And they dominated the consumer sector. Now look what happened with the German cars, the Japanese cars, the Korean cars and so forth. It changed the whole landscape. There’s more opportunities, more options for the consumer today than there were if you go back 40 years ago. So, I think it’s the same evolution in the commercial aviation industry. We’re going to have more suppliers, more competition and it’s going to separate the good from the bad and the A’s from the B’s and the C’s. So I think it will put more pressure on Boeing and Airbus to become more efﬁcient, more capable. These new upstarts, or the new young players, will have to be cost-competitive and their products will have to be just as good or better if they want to sell them. So, I think it’s a healthy situation. Imagine if the import cars didn’t come in, in the last 30 years. What would the U.S. automotive industry look like? Would they be building better cars or worse cars? So I think competition forces innovation, forces improvement. It forces cost-efﬁciencies. So, I welcome the new players. I think it’s good for everybody. JT: We’ve all read that you’ve left ILFC. SH: I retired. It’s a very elegant retirement. JT: Do you have new plans? Are you going to do another ILFC? SH: Yes. The answer is yes, but we are going to do a major public announcement in another few weeks. So I’m not at liberty—because of the SEC quiet period, I can’t really sit here and proclaim what we are going to be doing. I can’t give you an exact date because we are formulating that. I’m committed to this industry and the airlines to contribute to their future. JT: Is there a way of doing a start–up leasing company differently? SH: Well, we’ve learned a lot in my 40 years in the airline industry. So, we’re obviously going to take the best practices, the best experiences and the knowledge base we’ve developed having run the most successful leasing company for 37 years. We’ve obviously learned from that, and we’ll hopefully apply what we’ve learned in this new enterprise and do it even better. I mean, that’s the goal. There’s always a striving to be better than what we were a year ago or ﬁve years ago or 10 years ago. So, we’ll do some things differently, but some of the basic philosophies might not be that different. But operationally, functionally, tactically, we’ll do things smarter than we did it before. JT: Is there room in your new leasing company for other players besides Airbus and Boeing? SH: Oh deﬁnitely. Yeah, I’ve said a number of times now publicly, in fact last week I spoke at the J.P. Morgan Transportation Conference in New York with 1,100 guests, that the duopoly is coming to an end. The Airbus/ Boeing duopoly is coming to an end. So, it’s now going to transition into a multi-player ﬁeld with Asia being front and center from China and Japan. The Canadians are going to turn up the heat. Brazil is not going to sit, as you heard yesterday. They are going to continue to evolve. And the Russians are in there. So, it’s going to be an interesting playing ﬁeld. And one of the challenges will be picking the winners—winners versus the mediocre players. So that’s going to be very interesting. JT: Any closing comments? SH: I just want to say that both Jetrader and ISTAT have come a long way in the last decade. It’s been tremendous. You can see from the attendance, the quality of the audience, the quality of the issues. I think it’s become a real forum; these conferences and the publication have become a very important part of the industry and a very important source in the industry. So, I want to commend you and keep up the good work.

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

Jetrader - May/June 2010

Table of Contents for the Digital Edition of Jetrader - May/June 2010