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GE, AIG See Air-Leasing Competition Heat Up

Stocks in this article: AIG GE BAC C MS GS JPM AER DB RBS

NEW YORK ( TheStreet) - Just as established players in the aircraft-leasing business are getting back on their feet, scrappy start-ups are giving them a run for their money.

Steven Udvar Hazy
Steven Udvar-Házy, who founded the airline-leasing business in the 1970s, left one of the largest firms at AIG to start up a smaller rival earlier this year.

Given the disparity in size between the biggest and smallest competitors, it may not make much of a difference. The two key industry players, American International Group's (AIG) International Lease Finance Corp. and General Electric's (GE) GE Commercial Aviation Services, dominate the industry, with at least three times as many aircraft as their closest competitors.

>>Q&A: AIG Aircraft-Leasing Division CFO

The battle is interesting if only for the high-profile players -- as well as the profits involved in each leasing arrangement as demand has started to heat up.

GECAS and ILFC have been at the top of the aircraft-leasing space for a long time, making it difficult for new entrants to build a book of business. The two firms now boast 1,800 and 1,000 aircraft, respectively; the next largest competitors have 100 to 300 aircraft and smaller start-ups might have less than a dozen.

Yet as the economic crisis grounded passengers and called to question the financial stability of both GE and AIG, other players sensed opportunity.

The most high-profile start-up has been led by Steven Udvar-Házy, the founder of aircraft-leasing at financial firms.

The Hungary-born billionaire founded ILFC in 1973 with two partners, who subsequently sold out to AIG in 1990, It was a mutually beneficial relationship: ILFC used the insurer's giant balance sheet to grow, while AIG benefited from the leasing business' fat profit margins.

But ILFC lost some of its luster when AIG became the country's single largest bailout case. ILFC's inability to access the capital markets to restructure debt or break free from its troubled owner frustrated Udvar-Házy, according to sources familiar with the situation. (Udvar-Házy did not respond to requests for an interview.)

After a failed attempt to form a coalition of investors to take ILFC private on his own, Udvar-Házy quickly started up a smaller rival, Air Lease Corp., taking 10 top executives with him. ("Three hours into retirement, I was restless," he told the Los Angeles Times. "I just decided that I didn't want to be retired at the beach.")

Within a few months, ALC had raised $3.3 billion in debt and equity financing, with aggressive plans to build a fleet of over 100 commercial jets in less than a year.

"There may be some amount of hyperbole to it, but Steve Házy actually invented the business," says Mike Smith, a partner at White & Case who focuses on aircraft finance and leasing. "He obviously had tremendous name recognition and was able to do a successful offering."

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