Aviation entrepreneur Alok Anandexplores what makes the aircraft leasing business tick. He meets industry leaders on this journey and discovers their success secrets, and their career flightpath as well as understanding how different business models operate. Come along if aviation financing and leasing interests you and you are keen to learn from the practitioners of the industry.
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This 2nd season of Flightpath with Alok kicks off in style. In this first episode we are back in India and Alok catches up with Rob Taylor, Chief Technical Officer of Carlyle Aviation Partners Ltd (Carlyle). Carlyle has a large portfolio of approximately 380 owned or managed commercial aircraft worth an estimated US$ 12.1B, spread across 55 countries. Rob is responsible for the day-to-day technical operations and liaises with both financial and commercial disciplines with in the company; his career spans more than thirty five years, the majority of which has been working at a senior and management level, and for a variety of businesses. These have included private corporations; helped the start up efforts of the Canada based LCC WestJet Airlines; has experience working with helicopters, and at the aero engine OEM Pratt & Whitney Canada, as well as legacy carrier Canadian Airlines International. Rob received a Bachelor of Technology Degree (BTech) from British Columbia Institute of Technology (BCIT) and has a BTEC national diploma in Aeroscience (Mechanical) and is accredited by the Engineering Council of the UK as an Incorporated Engineer (IEng), as well as a Member of the Royal Aeronautical Society (MRAeS) and Chartered Management Institute of UK (MCMI). Additionally, Rob holds a Transport Canada Aircraft Maintenance Engineers License (AME) with multiple ratings. In this episode Rob shares with Alok about his early experiences, how a young want-to-be architect found himself enlisted in the army and how this set him on a path to aviation. Among the topics Rob discusses with Alok are the future of commercial travel; the growth in automation; the importance of attracting talent; how to share knowledge effectively, and the importance of being open as a business to new ideas. If you are wondering whether a career in aviation is for you, and in particular if aircraft leasing will provide you with the opportunities you seek, then this episode is certainly worth a listen.
Having a diverse team with different cultural backgrounds and perspectives is crucial for making well-rounded decisions in the aviation industry. - Attracting and retaining talent is a challenge in the industry, especially with competition from other sectors like software companies and OEMs. - The role of asset management is evolving in Carlyle, particularly with the focus on new aircraft and the need for skilled engineers and finance professionals. - Continuous learning and understanding of finance are essential for success in the aviation industry. - Optimizing resources and balancing costs is important in managing aircraft maintenance and operations. Acquiring portfolios of aircraft comes with technical challenges, such as converting data into a digital format and managing multiple aircraft. - Data and software play a crucial role in the aircraft leasing industry, and in-house software platforms have been developed to track and manage assets. - New technology, such as the GTF engine, has had an impact on the industry, leading to grounded aircraft and supply chain issues. - There is a need for skilled professionals in the industry, and mentorship is important for career growth and development. - Individuals entering the industry should be open to opportunities, listen more than they talk, and focus on moving forward rather than dwelling on the past.
CHAPTERS
00:00 Introduction and Career Trajectory 13:15 The Role of a CTO and Managing a Diverse Team 38:24 The Evolution of Asset Management in Carlyle 46:33 Overcoming Technical Challenges in Acquiring Aircraft Portfolios 01:06:09 The Impact of New Technology on the Industry 01:20:08 The Importance of India in the Aircraft Leasing Industry
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The Go First Situation Unfolding: A Deep Dive | Flightpath With Alok | Short Haul
jeudi 2 mai 2024 • Durée 07:12
Alok Anand from Acumen Aviation discusses the unfolding situation with Go First Airlines. With 54 aircraft in their fleet, many are being deregistered, posing challenges for the supply chain and MROs. Alok delves into the impact on lessors, owners, and the aviation industry as a whole. Learn about the potential re-marketable assets, regulatory hurdles, and the importance of enacting the Cape Town Convention in India. Tune in for valuable insights and analysis on this critical aviation issue. Don't forget to subscribe to Flight Path with Alok for more Aviation podcasts and industry discussions! As the host of Flight Path with Alok, I delved into the unfolding situation surrounding Go First in my latest podcast episode. The episode began by highlighting the deregistration of a significant portion of Go First's fleet, with 39 out of 54 aircraft facing this fate. This development has major implications for lessors and owners who have not received lease rentals for over a year. Moving forward, I discussed the challenges in the supply chain, particularly focusing on the maintenance, repair, and overhaul (MRO) sector. The process of bringing these deregistered aircraft back into service poses various hurdles, including the need for proper preservation and potential parts shortages. The involvement of original equipment manufacturers (OEMs) like Airbus and Pratt will be crucial in determining the necessary actions to restore these aircraft. Furthermore, I emphasized the importance of skilled manpower in the MROs and the careful selection of consultants to ensure the effective re-marketing of these assets. Regulatory hurdles, such as liens, charges, and taxes, also need to be navigated for these aircraft to return to the skies. A glimmer of hope lies in the re-marketability of some Go First assets, particularly those fitted with CFM engines, within the Indian aviation market. However, the future of GTF-fitted aircraft remains uncertain. I also touched upon the significance of enacting the Cape Town Convention into law in India, which could have expedited the repossession and re-marketing process for these aircraft. The episode concluded with a reflection on the lessons learned from the Go First situation and the potential impact on India's aviation credit rating. I encourage listeners to subscribe to Flight Path with Alok for more insights and engaging podcast episodes featuring prominent figures in the aviation industry. Thank you for tuning in and stay informed about the evolving aviation landscape.
Aviation entrepreneur Alok Anand explores what makes leasing businesses tick. In this episode of Flightpath with Alok, we hear from Hank Gibson, president of Regional One, a purchaser, lessor, and seller of aircraft, aircraft parts, engines, and engine parts, worldwide. Hank has been with Regional One since 2012 and has been prominent in the industry for over 30 years, holding multiple executive management positions in global sales and marketing, business development, and strategic planning. Hank has a background in finance having worked for financial services companies in New York and holds a BS in Finance from Florida Southern College, as well as a plethora of postgraduate management education programs. Hank speaks with Alok about why he left Wall Street for the world of aviation, he shares some of the successes and insights he has picked up through the course of his varied and interesting career and why those just starting out on their career paths may benefit from giving aviation a look.
Transcript:
Hank: There's an old saying on Wall Street, you can't fight the tape, right? And this goes back to the old analogy of a ticker tape. Details matter. One of the things that I've learned, having the opportunity to live in Singapore is that there is life and opportunity outside of the US. There's a distinct difference between, typically between the i-stat appraiser, and appraisers that are looking at aircraft versus parts. There's this saying, you know, do something you love and you'll never work a day in your life. And I have that luxury, right? I love aviation. It's a challenge for all of us to get young people to understand that there's more to aviation than being a pilot or an engineer.
Alok: Welcome to the Flightpath with me, Alok. I am gonna start with a small story, you know, to introduce Hank, and I know Hank, you're gonna laugh on this, but this is a story I always remember when we first met, 2013, in India. And this is, you know, it's not every day we go through our career, our life, we get inspired, but something which happened, that eventful day for me, we were in Alliance share offices in India. Alliance was owned by Air India, at that time. Now Air India is sold, they have been in news for, good and bad reasons lately, and Alliance is still owned by the Government of India. I'm sure Hank remembers Air India very well. And, what I saw that day, we were trying to negotiate lease of some airplanes. And two gentlemen who had come in all the way from Miami. It was my actually very first time being in their presence, meeting them, being in the same room, and seeing a lease negotiation happening. It went on for the whole day. And you know, I thought sometimes maybe it's difficult deal, it won't work through, it won't happen. But I saw firsthand what a good negotiation is, a good salesmanship it, and how to get deals across. For me, as being an aviation entrepreneur, it was a great learning experience. And if I have to just capture it in one line, my favorite line from that day, which I will say is that if the door is closed, open the window and if the window is closed, make a hole in the wall. And if that is closed, come through the ceiling. And it gives me great pleasure to, you know, welcome, for this very first episode of the Flight Path with Mr. Alok, my dear friend, Mr. Hank Gibson, the president of Regional One who was there with me that day. Hank, I'm sure you remember this story well. Welcome to the show.
Flightpath with Alok | feat. Donal Lowry & Ian Clark
Saison 1 · Épisode 9
vendredi 8 décembre 2023 • Durée 01:54:00
In episode 9 of Flightpath with Alok, The conversation begins with technical challenges in aircraft leasing and the evolution of the Chief Technical Officer (CTO) role. Donal Lowry and Ian Clark discuss their experiences in legacy and newer leasing companies, highlighting the differences in approach and culture. They also explore the impact of Irish and UK aviation experience on the industry. The conversation concludes with a discussion on the differences between technical teams in airlines and leasing companies. The conversation covers challenges with the V2500A1 engine, the difference between the airline and lessor world, pressures in management roles, the impact of GTF engines, handling repeat inspection requirements, negotiating solutions for engine issues, remarketing aircraft with engine problems, and resourcing the aviation industry. Attracting and retaining talent in the industry is also discussed. The conversation explores various challenges and trends in the aviation industry. It discusses the availability of choice and income for young professionals, the dependence on government subsidies for smaller airlines, and the challenges of talent retention due to financial pressures. The conversation also highlights the initiatives for training and apprenticeships in the industry. It addresses the difficulties in backfilling the industry with skilled professionals and the trends driving the industry, including sustainability and resilience. The conversation concludes with a discussion on the opportunities that arise during crises and the positive trends in the industry.
The role of the CTO in aircraft leasing has evolved to include risk assessment, risk management, and customer relationship management.
Legacy leasing companies often had a tougher approach, while newer leasing companies focused on building relationships and accommodating customer needs.
Flightpath with Alok | feat. Arthur Kushner | Chief Financial Officer and Principal | Jetstream Aviation Capital
Saison 1 · Épisode 8
lundi 2 octobre 2023 • Durée 37:58
In episode 8 of Flightpath with Alok, Alok travels to Miami to sit with Arthur Kushner, Chief Financial Officer and Principal of Jetstream Aviation Capital, which is the largest global aircraft lessor of commercially operated regional turboprop aircraft, with a fleet of 125 aircraft. Jetstream is also the largest single owner of Saab 340 and Saab 2000 aircraft and associated spares and engines, worldwide. Arthur is responsible for the day-to-day administration of Jetstream’s financial and commercial operations; his career spans more than forty years, thirty-five of which has been invested in working at a senior and financial management level and for a diverse range of entities including private equity-owned portfolio companies, publicly-traded businesses, banks, consulting and public accounting firms. Prior to joining Jetstream, Arthur was CEO of Apex Reporting Group a professional services company, part of Sunbelt Diversified Enterprises, LLC, a Coral Gables, Florida-based private equity firm. Arthur holds a Bachelor of Science degree in Accounting from the University of Florida; he is a certified public accountant and also holds a private pilot license.
Arthur talks with Alok about how, as a small boy growing up in Miami, his mother was a primary positive influencer in his life; how a high learning work ethic combined with exposure to small aircraft from an early age helped shape him and set him on an aviation trajectory. Arthur speaks about the opportunities and challenges faced in the regional 9 to 70-seat aircraft leasing space and discusses ways to attract young talent to join and grow as part of the team.
If you are wondering whether a career in aviation is for you, and in particular if India will provide you with the opportunities you seek, then this episode is certainly worth a listen.
In episode 7 of Flightpath with Alok, Alok is joined by Dr. Vandana Aggarwal, who superannuated from the Indian Economic Service, having last served as a Senior Economic Adviser, in the Government of India’s Ministry of Civil Aviation. Dr. Aggarwal currently serves on some high-level governmental bodies, that is, a Member, of CSIR-NAL Research Council for Development of Aviation and Aerospace Sciences and Technologies; (b) Lead Expert for Course Consolidation at the Indian Maritime University; (c) Chairperson of the International Financial Services Centre Authority (IFSCA) Committees for seeding greenfield businesses in India’s GIFT-City, including Aircraft and Ship Acquisitions, Leasing and Financing under Project Rupee Raftaar and SAFAL. In addition, Dr. Aggarwal serves as an Independent Director on the Board of M/s. Blue Dart Aviation Limited, India’s longest-serving private cargo airline. She has majored in Economics at undergraduate and postgraduate levels and holds a Ph.D. in Finance wherein her thesis was on Investment and Regulatory Aspects of Deep-Sea Mining. Dr. Aggarwal gives us some fascinating insights from the perspective of being a career civil servant and economist in various Ministries of the Government of India for over 36 years. In this, the 7th episode of Flightpath, we are given glimpses from behind the curtain on the workings of government in conceptualising, designing, and implementing public policy reforms. The focus will be on the topic of innovation and strengthening of aviation-related regulatory regimes in order to successfully and swiftly establish India as a globally competitive commercial aircraft financing and leasing hub. If you are wondering whether a career in aviation is for you, and in particular if India will provide you with the opportunities you seek, then this episode is certainly worth a listen.
In episode 6 of Flightpath with Alok, Alok is joined in the studio by Aidan Reynolds, Chief Technical Officer of Jackson Square Aviation (JSA), ranked one of the top twenty aircraft lessors in 2022. Aidan has extensive aviation experience having spent over 37 years working in a wide variety of roles encompassing engine shops, OEMs, aircraft maintenance, leasing and trading. Prior to JSA, Aidan worked for some well known companies including, more recently, Macquarie Aviation Capital as Head of Technical, and Director of Operations, Europe, Middle East and Africa for Pratt & Whitney. During a recent visit to Bangalore, Aidan spoke to Alok about the early years, career progression, current market trends and more. We find out how, as a small boy from Dublin, following in the footsteps of both his father and older brother, he developed a fascination of engines. We hear how it was this fascination that led him to apply for a position with Airmotive Ireland, a then subsidiary of AerLingus; how he navigated a period of very high unemployment in the '80’s, and how he managed to acquire the knowledge and skills needed to do what he does today. This is another example for young professionals with a natural aptitude for engineering, showing how you can use your passion and interests to help drive you forward and seek out an exciting and rewarding career, whether in aircraft leasing and asset management or something else entirely.
This podcast marks the 5th episode of Flightpath with Alok. Today, we hear from Enda Swan, Head of Technical with one of the world's largest aircraft leasing companies, Avolon. Enda has invested more than twenty years building a holistic career, which includes airline, MRO, and aircraft leasing platform knowledge, experience and expertise. As Avolon’s Head of Technical, Enda is responsible for oversight of all aspects of building new aircraft, transitioning aircraft from operator to operator, managing AOG, cargo conversion programs, as well as all material supply needed to support the Avolon operation. Enda speaks to Alok about the early years and what it was like growing up on a farm in rural Ireland; how someone with no exposure to air travel or aviation found their way into the industry, and the unlikely event that started the ball rolling. For those young professionals that may have a natural aptitude or leaning towards engineering, Enda’s experience certainly illustrates a great example of how one can find a fun and exciting career in the aircraft leasing sector; one which offers the next generation of young executives the purpose and fulfilment they seek.
In this, episode of Flightpath with Alok, we hear from David Power, a much-respected figure in the world of aviation leasing. David currently holds multiple board and advisory positions within the aviation sector. These include being, a special advisor to Aergo Capital; Vice Chair of the Advisory Board - The Hague Court of Arbitration for Aviation and Chair of Technical Standing Committee; Board Member of AviLease; Founder and Principal of Solus Capital Partners, and Chair of the board at FADO an Irish manufacturing company. Prior to this, David was the Chair of Orix, Hong Kong. David held the position of Orix Aviation CEO until 2019, crowning a career with the company, spanning more than twenty-six years. David grew ORIX Aviation from a small 20-aircraft lessor to an Asset Management powerhouse and top 10 lessors. At the time David left Orix, it owned and managed a fleet of approximately 300 commercial aircraft, worth US$12bn as well as a 30% stake in Avolon, a top three Lessor. David talks to Alok about his early years, what it was like growing up in a rural setting on the west coast of County Clare, Ireland, his early career and studies, and how he found himself on the path of aviation leasing. David speaks openly about the highs, lows, and successes of his career. And, David’s professional experience certainly demonstrates the level of variety and longevity a career in aviation can offer to the next generation of young executives, possibly considering their own careers and whether aviation may offer them the opportunity, purpose, and fulfillment they are seeking.
In this, the 3rd episode of Flightpath with Alok, we hear from Firoz Tarapore, Chief Executive Officer and member of the Board of Directors of Dubai Aerospace Enterprise (DAE). DAE is a specialist, global aircraft leasing partner boasting an impressive three decades of experience in the global leasing market. Firoz joined DAE whilst it was in its infancy and played a pivotal role in developing DAE, first as chief finance officer, then as a chief operating officer, before then taking the helm as CEO of what has become one of the world's largest aircraft leasing companies. His vision and strategic planning have helped DAE to become a key player in the aviation industry. Under his leadership, DAE has grown significantly and expanded its fleet size to approximately 500 aircraft. Firoz holds an MBA in Finance from The Wharton School, University of Pennsylvania and a Bachelor of Commerce from the University of Bombay. Firoz talks to Alok about his early years, moving to the US from Bombay to further his finance studies, why he stayed for 22 years, and why he decided to make the move to Dubai. Firoz speaks candidly about the successes and insights he has picked up along the way and gives some thought to what the next generation of young executives may benefit from as they consider their career paths and whether aviation may be what they are looking for.
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Website: www.flightpathwithalok.com
Hank: Yes, of course. Thank you, Alok. Appreciate that memory and certainly, that is a, you know, the start of our long personal and professional relationship. So I remember that story vividly um, always enjoy going to India, but I certainly remember that negotiation and meeting you like yesterday. Yea, it was fun.
Alok: I still laugh about it, man. It was fun. If you can maybe tell me a little bit about your early career. I know that you were in Wall Street earlier, then you moved on to Volvo Air Services and then now you are in Regional One for last many years. If you can tell us a little bit, you know, about your career, a bit about your career growth, where you started, what was your early days like and what got you into aviation from Wall Street? You know, that is, I think a very interesting bit.
Hank: Yeah. Thank you, Alok. Yeah, it's an interesting story and you know, I've had the opportunity to meet a lot of young people as we started an initiative at Regional one called Regional One University, and trying to get young people to keep an open mind. A lot of young people think they wanna be a doctor or a lawyer or do certain things, and in some cases that holds true. But I think I'm living proof of keeping an open mind and letting, you know, life's journey take you down a path of opportunity. My dream as a college student was to work on Wall Street. And when I graduated with a degree in finance, I did, in fact, go to work on Wall Street for a number of years and I enjoyed the enthusiasm of the trading and every day the bell rings and there's a new opportunity and, you know, the bell closes at the end of the day and it's just an exhilarating experience. And I think the collaboration of people, technology, and data, really resonated with me, for different reasons. I made the decision to, what I thought was temporarily leave Wall Street. I opened a restaurant in New York and then was getting married and was trying to decide exactly what I would do next. And I've had a desire to potentially attend law school. So I started negotiating contracts for a company in New York, which led to an introduction to an aviation company that happened to be moving from New York to Florida. So my wife and I, you know, closed up our brand new house. We had just gotten married, built a new house in New York, made what we thought was a temporary journey to Boca Raton, Florida. Within a couple of months, I ended up in Singapore. One of our competitors for the aviation company that I was doing some work with poached our entire office. So at a very early age, I had the opportunity to move from the US to Singapore, which was meant to be a temporary relocation. Ended up being five years. And I really just loved the culture, the people. Living in Asia changed my life in so many ways and gave me an opportunity to get exposed to aviation, outside of the contract and legal capacity. Ultimately made my way back to Boca Raton, and took a senior position within Volvo. And then, you know, kind of led my path to, ultimately to Regional One. So it's about collaboration and interestingly, you know, I talk a lot with our board about my background on Wall Street and taking that lessons of collaboration and data and understanding the need for people to interact in, in the way that we manage our business. So there's a lot of dynamics and I use a lot of analogies to the Wall Street trading to drive our team and get them to understand exactly how our business works, the combination of parts versus leasing versus trading. So the background has given me a great foundation to establish and grow Regional One under those parameters.
Alok: Yeah, I've, I've seen it firsthand in my dealings with you, the emphasis on analytics and how data can help. And we'll talk a little bit about what Regional One does, obviously, and how you bring in value into the how the business is a little different than what we have seen traditional leasing companies do, you know? But, you know, there is another aspect, which I want to highlight on with your permission, which is, here's the thing, you know, you and I speak, on calls every now and then, and a lot of times we have had these early morning calls with you, early morning for you, 3.30, 4 o'clock. And for those of you know, the people who are listening maybe who don't know when I've had those calls with Hank and I've asked you, Hank, what are you doing? And he's actually in the kitchen sometimes packing lunch or packing breakfast for his kids. Or maybe, I think I'm talking about a few years back, you remember that you were in the kitchen, preparing food and I was like, wow, this is like, I mean, from where I come from, you, I, and, I try and do that now, but I, I must admit part of it is because I've seen, or I've firsthand had the, you know, experience of when I, you are one of those people whom I'm inspired, inspired from, you know. And, and you know, it'll be great to know what, what role family, plays in your life because I'm sure it, it is a central role there and it would be great to know your thoughts on that, you know?
Hank: Yeah. It's interesting, Alok, you know, you, you go through life and one of the things that I've learned, having the opportunity to live in Singapore is that there is life and opportunity outside of the US right? And there's different cultures, and different time zones . So when I was in Singapore, and this was, you know, kind of pre this type of video call or podcasts, you know, it was a much more, you know, cell phones were just coming out. This was in the late eighties, early nineties. So it was a slightly different environment. But you know, I realized, I didn't have a lot of experience in aviation at the time, and I had to make that up by building relationships and really learning. I mean, the way for me to learn and piece that puzzle together was get on the phone and just talk and listen. Listen to what customers had to say, listen to what the industry was doing. So it's really been a foundation of my style, right, which is just getting on the. And making sure that I am courteous to other people's time zone and hours and cultures. So, you know, again, that resonated back and transitioned back to when I moved back to the US I get up very early and start working the phones in Asia. A lot of my contacts in relationships that I've developed, start my working my way back to Europe. So by the time, most typical, you know, US East Coast people are starting their work. I'm well into my day. So I look at it as a competitive advantage. What's happened, you know, in the last few years is technology has been able to allow me to have that work-life balance, you know, and we're not in a nine-to-five type of environment. There's certainly some positions in the company. that can do that. And I recognize that the, you know, the sacrifices that I've made in terms of, you know, working those hours, is probably in some cases not for everyone. But I think that there is an ability in this modern world to create that balance, where you have the discipline of being able to fit family in. Because for me, I, you know, honestly, I don't have much of a social life outside of, you know, my responsibilities of work and my family. So I have three very great kids, to your point earlier, they're outta the house now, so I don't get the luxury of making them breakfast literally every morning. So when I wasn't travelling and was not on the road, that was a responsibility that I enjoyed having the pleasure of making my children breakfast every morning. And that was kind of our family time. And, you know, I'm blessed with three great kids, a great wife, and a great family, and it certainly gives me good balance to the sacrifices that I've made to build Regional One and build a career.
Alok: Awesome. You call it a luxury, you know, I must say that that's true. And, I wonder too, in our line of work if there is something called a work-life balance. But you're right, technology has enabled it to a large extent and possibly it has been accelerated, since the pandemic hit, people adapted. Some of the meetings we sometimes do in person maybe could have been video calls. That's what you realize now.
Hank: A hundred percent. A hundred percent. And you know when, when the pandemic first hit and teams and Zoom started getting tracks, and not that I was resistant to it, but I was a creature of habit. So I, you know, intuitively would just pick up the phone and, and talk to people. Or I would dial into a video conference and just be on audio. And, once I got comfortable with it, like this call where I can see you, it's, it's, it's not the same as being face-to-face and not, you know, the same of being in each other's presence. But it's pretty effective. Right. And we've had a difficulty in getting other people to embrace it and, you know, this is kind of a new initiative for me at Regional One. We've just shifted our trading floor further north of Miami and consolidating a couple of offices. But I think whether you're in Nashville, Tennessee, or Bangalore, getting on a video call is not the same, but it's, it's, it's pretty good, right? And we're trying to get people to break the habit that I had to break, which was not just rely on audio, but get on the phone and see people's body language and their facial expressions and emotions, in a way that you can't on an audio call.
Alok: Yeah. Yeah. Okay. What I'm gonna do is, I'm gonna move on a little bit to talk about Regional One here, and obviously you're the best person to tell us about what Regional One does and what is the business. But just to open as an intro for that Regional One is an aircraft lessor. They deal in regional jets. They're also a very active parts trader, and they provide end-to-end solutions to their customers worldwide on that. But Hank, it'd be great to know from you a little bit more. Because I have a few follow-up questions as you can imagine on that, you know?
Hank: Yeah, no, you did a great job introducing Regional One, but I'll add a little more colour. We are, you know, typically focused on the 50, 70, 90 seat turboprop and regional jet market. We literally kind of fly under the radar. I often, you know, think about questions we get from analysts on earnings calls or from our board about competitors. And you know, when you look at the top, typical financier lessors, we're not in that market. We're not making a small spread over the cost of capital, looking at seven or 10 year leases, you know, our tax plays and that sort of thing. You know, thinking about my background, we are asset managers, we're portfolio managers. So we certainly have a large lease portfolio. We've got over 60 aircraft in our portfolio, and another 50 on the receiving line of commitments that we've made over the next couple of years. A very large engine portfolio as well. So in many ways, we appear to be a typical lessor. But in fact, we are more of an asset manager. You know, I meet with my team every Wednesday. We go through our entire fleet. It's very dynamic. You know, we're trading, buying, selling, moving engines, extending the life of assets, , really managing the interface with our customers and the maximization of value in our portfolio while at the same time trying to avoid expensive shop visits or expensive maintenance visit. So we have three primary revenue sources, parts leasing, and trading. Over the course of a typical cycle, you know, whether that's a, you know, a month, a quarter, or a year, there is some choppiness to it, but interestingly it, and generally becomes a third, a third, or third. So obviously if we have, you know, a reduction in parts required for a certain product line to tear down, we'll accelerate the teardown of an aircraft and put that in the parts revenue to keep that kind of balance of how we're generat generating revenue and managing our portfolio in that way. So again, you know, we talked recently about the I STAT conference coming up. There'll be a lot of typical banks and less orgs there. And then there'll be Regional One, you know, flying under the radar, looking for opportunities to buy and looking for opportunities to maximize our portfolio. But we're a little, little unique to a typical lessor.
Alok: I remember you telling me that sometimes you said, look, we buy airplanes, or we buy assets and we don't even take delivery and we trade them and we make returns from them. That's our business. And that, you know, it'll be great to draw an analogy that sounds like stock trading, to a certain extent. Right. So I just wonder if that is the business model as such, or is that something which you brought in, into the business as a value from your background?
Hank: Yeah, it's, again, it's an interesting observation, right? And I, to kind of go back to some of the analogies to Wall Street, there's an old saying on Wall Street, you can't fight the tape, right? And this goes back to the old analogy of a ticker tape, right? The trend of what's happening in the market, you can't fight it, right? If there's more buyers than sellers, prices are going up. If there's more sellers than buyers, prices are going down. Like no individual or no market maker can really buck that trend, right? Generally speaking, you can't fight the tape. So I use that analogy when we buy assets, right, and I'll use the most recent one. We've made a commitment to buy 57 ERJ 140s from American Airlines. And we're taking roughly three to five aircraft a month over the next, um, several quarters. So as the market indicates what it will bear, whether we part it out for parts, whether we flip it and turn around and sell it, or whether we put it in our lease portfolio, that's a reaction to what the market will bear. We're not gonna fight that tape. I'm not gonna say, listen, I do job business case, I wanna lease all these aircraft and I'm committed to, the only way I can make money is to lease these aircraft. We buy generally in the money, meaning that we feel like every asset that we buy, I can make money even parting it out. So we're never buying assets that have some goodwill or some premium to it's age. You know, we're in that kind of 10, 12, 15-year range, where we try and maintain the discipline of being in the money to give me that flexibility of monetizing it in multiple ways. I don't want to be, you know, again, a typical leasing company where we're committed to only generate lease revenue in order to depreciate an asset over a period of time in order to make money. So much different profile in how we manage our portfolio than most lessors.
Alok: Right, right, right. So the return cycles are shorter, obviously, in that case compared
Hank: Exactly.
Alok: to a typical lessor, so, right,
Hank: Exactly. And we're, you know, we're trying to return, you know, get a return on capital quickly. Now we do have a portion of our portfolio that we've developed over the last few years where we've brought in financial partners that wanna be in the longer term investment space, and use the expertise of Regional One in order to do that. So we've developed a compliment to our typical asset base where we'll put in somewhere between five and 20% of equity with a larger investor in a newer asset on longer-term leases, and we'll manage that for a fee and then ultimately manage the asset at the end of that life cycle. So that's a complimentary vision as that Regional One has developed over the last couple of years.
Alok: As a business has evolved, Regional One, you have been there for almost a decade now with Regional One, right? Or maybe longer I think. Right? And you know, one of the things we talk about sometimes and , is about how things have changed or how it's not in terms of just people but the industry, right? And there is this pandemic which happened and that made a big shift to the whole industry. But maybe we'll come to that in a few in a few minutes. But before that, you know, generally what, on a trend basis, what have you seen in terms of how the business has evolved from where you, where Regional One was and or the industry rather, you know, not necessarily just about Regional One, but from an industry perspective as an industry participant, what do you see? How things have evolved or changed? and then maybe a little bit insights from you on where do you see this heading? You know the whole trend in the market on the trading side, part side, because it ties into a lot of other areas as, as you know.
Hank: Yeah, it's, it's an interesting question, Alok, right? Like obviously there's been an evolution like there always is a maturity of certain businesses. With that comes competition, right? You get on the radar. One of the reasons why we don't, as you know, do a lot of press releases, right, is we just bring attention to ourselves in things that we're doing. So we generally try to, but whether it's, you know, portfolio management, you know, records management, data technology, all of these tools continue to evolve. I think where some people get lost is their inability to adjust to that technology. And I'm a big believer in data. I think at the end of the day, everything that happens in terms of demand, can be boiled down to a data point. And if you're understand the data and accumulate, accumulate enough data, , you can start using that, you know, outside of the, just the general trading and the, you know, buy, sell of parts, for example.
Alok: Can I stop you there? Sorry. Sorry to interrupt you. It'll be great. You know, if you can illustrate that with an example to us. There are two, two threads here. You did mention in the very beginning when we started speaking about for example, the technology we are using now to talk, and you said people resist. So there is a change management angle there, obviously, but , that, and you know, then the other pieces where you're talking about how you feel that data can be better utilized or data can drive. This is, we hear that all the time in, in God, we trust everyone else brings data. I think that is what, you're trying to say. But, I would, I would love to, you know, get a, a little illustration from you, an example, a real life example of how you told us about the trading of the assets. That'd be great to know how, how you feel the data has added value.
Hank: Yeah. I think in, in this industry, Alok, I think if you look at, you know, the barriers of entry to get into the parts business, for example, is, is really minimal, right? It's a, it's a self-regulated industry regarding the distribution of surplus spares. So, you know, we have large competitors, you know, that are public companies all the way down to one or two-man businesses, you know, littered around South Florida, they're all just kind of making a market in parts. And a lot of that is based on an individual that has personal knowledge of experience relative to a certain product line. So as businesses grow, and we went through this at Volvo, you have a series of individuals all with their Excel spreadsheets, all specialists in a certain product line. And as a company and as the president of Regional One, I never wanted to be victimized by having an individual or a specific person that's either managing our data, owning that data, or that's the only person getting the benefit of that data. So in order to scale this business and in order to take out some of, you know, potential misinterpretation of data points, we developed a proprietary system, at Regional One, and this methodology was a foundation of what I ultimately started at Volvo, but the advancement of technology has been able to bring it to life both dynamically and in the way that the data is managed, where any data we get-whether it's supply, demand data, pricing data, meantime between removal, repair cost- we're literally pouring that into our system-Nava- and allowing it to give us guidelines and give salespeople guidelines because, if the phone rings and a salesperson picks it up, and they go into Quantum, which is our E R P system, they have to make a series of decisions very quickly. When was the last time I sold it? Did I quote it but not sell it? How many do I have in stock? So they have to go through that waterfall of 20 questions. And what we learned is through that process is there was a lot of inconsistencies from individual to individual of what they might come to a conclusion of what that price should be sold. And what we've tried to do is use data to be able to allow that to happen a little bit more, consistently. And not be vulnerable to an Excel spreadsheet or an individual's ownership of that. And surprisingly enough, even though data has come a long way, there's people that look at me like I'm crazy, right? No. Everyone manages it. You know, in Excel or everyone has a product line person that they have to rely on or depend on. And for me, in order to grow the business, and in order to get the best benefit of that data, it has to be kind of an open system for all of our people to use.
Alok: That was, that was great, you know, what you've just shared on this because. As I was saying earlier, technology, there's a second threat for me, which is, for me, it is very close to my heart as you know. But, you know, interestingly enough as the leader, of the group, of the company, you know, what has been your biggest challenge when deploying technology? I don't want to hazard the guess, but, I think one of the challenges, possibly, maybe not the top one, but maybe none of the challenges always change management as which you alluded to earlier, how to get people to use it, whatever technology you're using, but how to get people to get on board because people are set in their habits. It's human nature, you know, to continue to work with what you're comfortable with. And, so how, how have you handled that? How have you, apart from just saying do it else, and I know that doesn't work always. So how have you managed to overcome that challenge? Or you, how are you still overcoming it? Maybe.
Hank: Yeah, it, it, I think that's an important characterization, right? Because I think it is a perpetual process. Change management is difficult. You know, I think back, you know, the customer management system, the CMS that they use, or Salesforce right in this industry is very difficult. Volvo always spent a lot of money implementing an SAP system that ultimately failed because salespeople felt threatened by giving up information regarding their customers. And in the aftermarket and in the space that we're in, right, we don't manufacture anything. It's, so everything that we do, every part is very unique. The trace, the paperwork, the history, the operating environment. And the relationships that salespeople have, that's their lifeline to their career, right? So, at Volvo, we actually failed in getting people to use it, and as a leader, you're often challenged, you know, the outcome of forcing a rainmaker to use a C M S system at the risk of him leaving the company, right? So at the end of the day you say, what have I won, you know, I've lost one of my great performers, one of my great producers, because I had a policy that we insisted on people using this technology. You know, if I look at Regional one, you know, the data management has been difficult because a lot of people want to retain that knowledge in their head about certain part numbers or, you know, they've been doing this for 20 years in Excel and they don't understand why, you know, you can't just continue to do Excel. And, it is a very difficult challenge. And for me, in my position as we've continued to grow the business, it is very challenging. Um, you know, and when we recruit people from other lessors, particularly, you know, more traditional, lessors, they often find it very awkward at Regional One because we, we do things differently. We move very quickly, you know, we don't have, you know, meetings a week or two weeks from now, we're, we're making decisions live. And it's not a comfortable environment for a lot of people, but, change management is difficult and the only way I can really characterize it is, it's important for me to stay engaged with the team and that collaboration on the trading floor, which is why it's important that everyone's together so they can understand the dynamics of that's something that's very difficult to do in a remote environment.
Alok: Fair enough. I think you have, you have told us as much as you can, so, you know, and you mentioned that business is different than a traditional lessor. Yes, it is definitely for you, it is different, and I think one of the, what Regional One does is they buy airplanes. There is an airplane, which is having a three-year lease remaining, and it's old enough to be a candidate for a part out, a disassembly of the aircraft, and then harvesting the parts right? And how is that typically different? And if you have to classify that or benchmark it against a typical leasing arrangement, you know, you remember, you when, when you guys purchase, or even now when you do, you buy airplanes, which are already on lease from traditional lessers to airlines and, how they would've managed it typically, and then how you manage it in comparison, you know?
Hank: Yeah. So you go back to the Alliance transaction that introduced us, Alok. You know, that was a classic arbitrage of negotiating. So we bought the four different aircraft from four different lessors that had aircraft unleashed to Alliance. And in each case, we negotiated compensation in lieu of redelivery, right? Because again, there's a benefit to both parties in this case, right? For Alliance to go through a very long and expensive redelivery process on those aircraft, to meet the redelivery conditions for us, it's more advantageous for us to accept compensation in lieu of those delivery conditions. And that does a couple of things, obviously gives us cash quickly. But it also gives us the flexibility of taking that aircraft to a maintenance facility and being able to put it into a maintenance profile that would meet our next customer's needs. So we would look at it in, in fact, in many cases, the Alliance aircraft, we took compensation, ferry the aircraft to a maintenance facility, put minimal maintenance into it, where we would take, you know, a fair amount of risk with a new operator or in a jurisdiction that created a lot of risk. It wouldn't make sense for us to buy a 10 million dollar regional jet, turn around and put that into a very risky jurisdiction. So by taking that redelivery compensation, we take it well below the kind of in-the-money threshold of being able to say, okay, here, if I can't find a lessee, then I can go ahead and part it out, take the engines, put the engines in a lease portfolio, lease the engines for a couple of years, and monetize the assets in a different way. So that's generally the arbitrage that we're, we're playing on each of the decisions that we're making to buy assets for our portfolio.
Alok: That's because you have this huge warehousing ability, you know, to keep. And, I think the network of vendors and maintenance providers to do that, right? That, yeah. That, that is a unique advantage. And a typical lesser, I assume, would not do that. They would, they would be just happy to sell the aircraft as they did in this case, as you said, the four lessers sold these airplanes to you, or they would look at just trading it to another lessor. The part-out is normally, though I do know that over the last few years, a lot of traditional lessors have started getting active in the part-out market now. What they're seeing is there is value to be realized on that front also, but it is still not to the scale, which I would assume Regional One does, you know. You guys are like kind of specialists in that extracting value of the aircraft.
Hank: Exactly. And, you know, we typically will buy assets that are, you have green time remaining on lease, you know, the arbitrage between, you know, taking redelivery comp, in lieu of redelivery conditions. You know, we've bought airframes from lessors, we've bought engines. So our model gives us the flexibility of buying a flyer, buying a lease return, buying green time months remaining if you've got a lessor that doesn't wanna be bothered with the process of taking an aircraft back on redelivery or the uncertainty of going through that process. So, you know, we've bought assets from lessors at the end of life, after they've been through redelivery. Just a number of ways that we can acquire assets to continue to feed the need for each of those three revenue sources.
Alok: So interestingly enough, the arbitrage you mentioned, which, which you, which is what the one of the things which works in your favor, or the way that you operate your business model, you know, that is tied very, I would say closely to how the asset is valued then. You know, I'm actually moving on to the green time piece one, which is something you and I have discussed, and I think it'll benefit if, are you okay to talk about that a bit? That what you have in your mind because I think it is important for the industry to hear, you know, what your thoughts are on, just to set up a little background on that. So airplanes are traditionally valued by appraisers. The appraiser community is largely part of the ISTAT, the International Society of Transport Aircraft Trading. International Society originated from US, it's a not-for-profit organization, and it trains kind of, I would not strictly say trains, but it provides guidance to industry professionals to become certified appraisers. And they have a certain defined criteria of how they want to value assets. , there are different definitions, and I know you feel very strongly about that, that that is not, first of all, not fulfilling the requirements, of aircraft investors and especially, it is not suitable for someone who is doing the business of acquiring green time aircraft and then parting them out to realize for the residual value, you know? So it'll be great to know what your theory is on this.
Hank: Yeah, that's a full question. We could probably do a separate podcast just on this piece. But I'll, I'll try and answer you. So to your point, right, this has been one of the areas where I've really tried to focus more recently and it kind of got accelerated with the covid initiative, right? Where I realized many years ago that there's a distinct difference between, typically between the ISTAT appraisers that are looking at aircraft versus parts. And there really wasn't this kind of middle-of-the-ground solution where you could understand the real dynamics of how green time is being managed particularly on a module-type engine. So if you look at the CF34-8, and more recently, the dash 10, these are module engines that, for us, gives us a lot of flexibility in terms of how we're managing our entire portfolio. So oftentimes, appraisers will take a value of an engine up to its first limitor. And then make some assumption of a residual based on the balance of that. We actually extend our process into the module level knowing that we can take each of the four or five modules and, and swap them across our portfolio. So what we've done when Covid hit, we've tried to mature this to the extent where we've created a modified value-in-use model that we're looking at some point to get hopefully endorsed or represented at ISTAT to get the industry to understand that kind of middle ground of how an asset really should be appraised because it even gets into the detail of the prior history of the asset, the environment that it operated in, the pedigree of the parts, the pedigree, and the standard of the repairs that were done. So for us, a residual on an engine or an airframe. Is much more complicated than what a typical appraisal will put on that particular value, you know, based on, you know, some generic introduction that they had with respect to that asset.
Alok: Let me pick up an example on that. Sorry to interrupt you there. Let me pick up an example. You know, so let's say an ATR 72 500 and it's, let us say 15, 20 years old. I would say typically it'll have a, from a, from a classical appraiser methodology, it'll have a value of around two, two and a half million depending on, I know the engines, the life remaining, the LLPs. But what you're saying is that Regional One would possibly be able to extract more value from that aircraft, and there should be a new methodology devised, which should address that extra value which can be extracted from the aircraft. Am I right? I'm just trying to simplify what you just said.
Hank: Yeah, yeah. I think you're on the right path, Alok. I think in this case, you know, using your example there, for us, the real value is dependent upon the history of that particular aircraft, right? Where it operated, what the pedigree of the service bulletins, all of the details that went into that aircraft. The last time it, had a shop visit, the extent of that shop visit, what kind of parts were used? Like the details matter right, to a very large extent. And what I have seen typically is that most appraisals that are done are more generic. It's more based on a, you know, a blue book value or an industry trend or some high level macro valuation metric. And you know, honestly, in some ways I wonder if the industry, really, you know, demands as much as I'd like it to, to get a proper appraisal done. Because typically these are used for purposes of financing and, and other reasons. And, you know, a more generic, appraisal may suit their needs more than I'd like. But I do think that details matter.
Alok: Yeah. I'm wanna press you a little bit on that. And, so let's say an ATR is valued at two, two and a half million. And given, let us say all the stars align, what value will Regional One extract out of it, be able to extract out of it? The best case scenario, let's say if you're comfortable sharing that, you know,
Hank: Yeah, it's, it's a difficult question, right? Because again, the details matter in terms of the pedigree of that specific asset, right? So generally what we have seen is that Regional One has been able to extract more value than typically would be represented in a more generic appraisal, right? Because again, we're getting down to the detail of each part number. And Nava, which is our database, gives us the ability to very quickly understand at the piece, part level exactly what we expect to happen with that particular asset. It's also complicated by the fact that we can actually use those parts for our portfolio, for our lease portfolio to build other aircraft. But generally speaking, what we're finding is that our analysis harvests more revenue and more value than what you would see in a typical appraisal.
Alok: Okay. Would you, don't gimme the number, but would you say it is you going to achieve one and a half times, twice? If, you know, forget about what the value is the number, but, in a comparison, in a scale on a percentage, what additional value can one expect? It's just interesting to know this because, you know, that then adds context to this whole green-time valuation debate. You know, that's why I'm just asking this.
Hank: Yeah, no, no. As tempting as it is, it's not possible for me to give you an answer because again, the details matter. But I think the, for us, the, the green time, you know, again, particularly for a module engine, because it makes it so much clearer where you have, you know, a typical valuator whether it's an appraiser or an asset management, you're just looking at it from, you know it's first limiter. And by the way, we never take a hundred percent of the valuation for any limiter. Like we'll take a factor of that to suggest that it's gonna be 80% or 90%. So if we take the first limiter on one of our CF 34s, and we'll take a value up to the first limiter of, you know, 90%, the second, third, fourth module, we may take 80%. And that factor that we use in our methodology is largely dependent upon the details of where that engine operated when its last shop visit was and the experience of knowing the likelihood of getting 80, 90, or a 100 percent from that particular module. So again, details matter. Take the ATR example, the prop blades, right, the life of the prop blades, the number of all alls they had, all of that is going to play a significant factor in what that two-and-a-half million dollar number would be in Regional One's view.
Alok: Will that apply to us something like a CRJ as well?
Hank: Everything. There's very few exceptions where the, you know, the details don't matter.
Alok: I have a few friends over there in Embry, and I'm sure they would be very interested to know this too. I know we have a few more minutes left, I know you're busy. I'm not gonna take too much time, but maybe a couple of more questions. One is, you know about the, not going into any of the cliches about the challenges we all had. And I'd use cliche with all respect that it has been heard so many times now, the pandemic, the problems we all had, and especially the aviation industry had in general. But if like for in my case, yesterday was when I was in a meeting with my board, one of the topics of discussion was the impact of the pandemic. You know, how, how we are seeing, in our case, customer behavior is evolving. And it is, in my opinion, a long-lasting change which will have an impact. So in your case, specifically like Regional One, have you noticed anything which is, which is a pivot from pre covid to post covid or pre-pandemic to post-pandemic, which you think is, is worth noting?
Hank: Yeah, as we discussed earlier, Alok, the irony of, I had a board meeting yesterday as well. And one of the points that I made to our board was, you know, there's a lot of talk in the industry and we've had a lot of talk at our prior board meetings about the impact of covid to the industry and to our customers, and that sort of thing. And what we talk less about is the covid impact to Regional One internally, right? And I think there is, this hadn't been a trend obviously for people to work from home, for safety reasons and the uncertainty as to what, the pandemic meant and what, you know, what would be the outcome. And it's been difficult and challenging to get people to understand that that was, from my perspective, in the environment at Regional One, that was a temporary measure, it's not sustainable, right? Like there are some industries and some jobs and some capacity there you can work from home. And certainly, at Regional One, we give our employees that flexibility of having that ability to work from home when they need to or when it makes sense. But at the end of the day, our business model is based on collaboration and information. And if you think about, you know, any stereotypical Wall Street trading environment, that's what, that's what regional one is, right? It's, it's the open outcry, it's understanding information, it's being able to make decisions very quickly. So for us, the biggest challenge that I've had is convincing our employees, that there is a difference in that collaboration. There is a difference in communication and being together. And it's not that I don't want people to work from home, it's just that if, if that is a requirement for whatever reason, it just doesn't work in our industry in the way that Regional One is, is structured.
Alok: So human resource challenge is the biggest shift you're seeing?
Hank: Yeah. Honestly, for us, you know, COVID gave us an opportunity to acquire some great assets. You know, we had a situation where there was, you know, certain customers and airlines, that transitioned out of certain fleet types, consolidated their fleet types, which gave us the opportunity to buy. We did three various specific transactions during Covid, with the support of our board, and we did quite well on them being able to, you know, buy low, sell high, right? Again, that, you know, Wall Street analogy. So Covid in that way, we certainly had some challenges. You know, we had a number of customers that parked aircraft and didn't pay their lease payments. Like most lessors, we were patient and worked through it. You know, we didn't rush to foreclose and repossess aircraft. And in some ways, we're still working through the consequences of that piece. But the industry has recovered, you know, with the exception of the pilot shortage and maintenance backlogs and supply chain issues, right? The general flying public is returned to some normal stage now, and we just need to be prepared to take advantage of that. And for Regional One to thrive, we need a collaboration of people. We need people to understand the necessity to work together and create that collaborative environment. So that's been a challenge.
Alok: Right. Right. And if I can just ask one last question, someone let us say, someone starting their career now in the, and a lot of the next, or next to next generation I'm, I'm hoping we will be able to reach to them through this podcast the Flight Path. And, and I'm hoping that they will listen to it and they'll get inspired, obviously. But if you have one message to give to the, you know, the next generation coming in into this industry-aircraft leasing, financing, aviation, and I'm not talking about the class in the classic aviation sense of airlines, but this piece, you know, which we, we, you and I work in, what is one piece of advice you would like to give them, you know, so that they can, they can start on the right note and grow in their career.
Hank: Yeah, it's a great question, Alok. I, um, as I alluded to earlier, right, I, I have spent a lot of time just because of my background and never in a million years expecting that I would be in aviation. So when I meet young people and I've started Regional One university, we've started internship programs working with the local universities here, and it, it's, it's a bit of a challenge, right? Cuz they show up thinking they want to be a pilot or an engineer. There's a lot of, you know, they just don't understand that you could be, you know, a finance modeling person, you could be a, you know, a repair facilitator. There's so many aspects of our industry that they haven't been exposed to. And one of the messages that I try and give young people is to keep an open mind. And as I meet people and bring them into the organization, you know, I try and, you know, tell them a, you know, a funny anecdote here about, you know, keeping an open mind and you know, not to isolate yourself if you know you think you want to be something. And there's this saying, you know, do something you love and you'll never work a day in your life. And I have that luxury, right? I love aviation. But if I hadn't been exposed to it, you know, at the age of, you know, 25, I would've thought, okay, here what I love is working on Wall Street. So I would've spent the rest of my life working on Wall Street and, and probably enjoyed it. But what Wall Street couldn't give me was the ability to work internationally and meet people like yourself that have become, you know, not only important business partners, but you know, personal friends. So the ability to use aviation in that dynamic way internationally, it's a great industry and, you know it's a challenge for all of us to get young people to understand that there's more to aviation than being a pilot or an engineer.
Alok: Yeah. Yeah, that's, that's great piece of advice, I would say, and I wish I can find a way to amplify that, you know, for everyone. That's really great. And you're right. And I for one, I'm glad that you moved on from Wall Street and you got into aviation because you know, as the dots connect, we met. Otherwise, maybe that would've never happened because I can't imagine myself ever doing anything to do with Wall Street except maybe invest into some funds once in a while. So it's great. , for me, I'm, I'm very fortunate personally in that sense. I agree. And that we met, you know, Hank. Thank you very much. On that note, you know what I would like to say is you've given me a lot of time today. Thank you very much for making time, morning. I think it was morning 9:00 AM when we started in Miami. Great. Thank you very, very much again for your time. And it was great. It was just amazing too. Is there any message you have, anything else you want to say?
Hank: No, I just conclude it by saying thank you, Alok. I appreciate it. It's been enjoyable do this podcast. This is first for me.
Alok: Same here.
Hank: Look forward to hearing some of these subsequent issues and maybe someday we'll do it again. Look forward to it.
Alok: Yeah, yeah, yeah, a hundred percent. Same for me. And thank you very much for your patience and your time today. Really, before we just switch off, just like to leave a message for our listeners, you know that if they like what they heard please do, please don't forget to subscribe, through whichever channel you're listening to. If you're on YouTube, please subscribe. If you're watching us on YouTube, please subscribe to it. And, watch out for the for the future episodes where we are going to go to the industry and talk to more executives and industry leaders and, and learn from them. I just wish to thank everyone for that. Thank you very much.
The aviation experience in Ireland and the UK has had a significant global impact, with professionals from these regions making a mark in the industry.
Technical teams in airlines delve deeper into technical details while leasing companies focus more on monitoring and major technical issues.
The collaboration between airlines and leasing companies has improved over time, leading to smoother lease transitions and better understanding of return conditions. The V2500A1 engine created challenges for operators, leasing companies, and Pratt & Whitney.
The airline world and the lessor world have different pressures, with the intensity of pressures being higher in the airline role.
The GTF engine is a bigger problem than the V2500A1 engine, with a significant number of engines needing to be taken off wing.
Negotiating solutions for engine issues requires tripartite agreements between the OEM, lessor, and lessee.
The aviation industry faces challenges in attracting and retaining talent, and there is a need for more resources. The aviation industry faces challenges in attracting and retaining talent due to factors such as availability of choice, income, and job stability.
Government subsidies play a crucial role in sustaining smaller airlines, especially in regions with lower airfares.
Initiatives for training and apprenticeships are being implemented to address the talent shortage in the industry.
The industry needs to focus on backfilling technical roles and strengthening relationships between manufacturers and suppliers.
Trends driving the industry include sustainability, resilience, and the growth of the leasing community.
Chapters
Introduction and Technical Challenges in Aircraft Leasing
Evolution of the CTO Role in Aircraft Leasing
Contrasting Approaches in Legacy and Newer Leasing Companies
The Impact of Irish and UK Aviation Experience
Differences in Technical Teams in Airlines and Leasing Companies
Challenges with the V2500A1 Engine
Difference between the Airline and Lessor World
Pressures in Management Roles
The Impact of GTF Engines
The Role of OEMs in Engine Issues
Handling Repeat Inspection Requirements
Negotiating Solutions for Engine Issues
Remarketing Aircraft with Engine Problems
Resourcing the Aviation Industry
Attracting and Retaining Talent in the Industry
Availability of Choice and Income
Dependence on Government Subsidies
Talent Retention and Financial Pressures
Initiatives for Training and Apprenticeships
Challenges in Backfilling the Industry
Trends Driving the Industry
Green Initiatives and Positive Trends
Opportunities in Crisis
Closing Remarks
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Alok: Today I have the pleasure of meeting another esteemed guest in person, Mr. Arthur Kushner, who is the CFO and principal of Jetstream Aviation Capital. Welcoming Mr. Arthur Kushner in his offices in Miami, USA. Arthur, welcome to the show.
Arthur Kushner: Thanks very much, Alok. A pleasure to be invited.
Alok: Thank you. So, it's good to be in your offices, in your beautiful offices, I must say. And getting your valuable time. So let's get straight into this, you know, and start with knowing a little bit about you. First of all, I think my favorite question to start with my podcast is your career journey. If you can tell us a little bit about yourself and your career journey, that will be great to begin with.
Arthur Kushner: You know what, I grew up here in Miami. I studied actually accounting and finance in high school. My mother had an MBA, came from that side of the world, and pursued an accounting degree, started in public accounting. But what really got me then wasn't banking, private equity, a number of different things. But aviation was a key factor early on. My mother, who I just mentioned, actually had a private pilot's license. So my brother and I were exposed to private aviation as little kids. And I got a pilots license in high school probably would have pursued a military career or not for these bad eyes as you can tell from these giant glasses and always had an interest in the industry. So Stuart and I met in the early 90s. Stewart's one of our co-founders and our CEO. And he and I Consulted together the two of us for quite a number of years, predominantly in aviation, and we went off and did different things for a period of time. He was building a medical diagnostic business. I was working in private equity. And that was around the time where he started Jetstream with Conrad Tree and Bill Jones. And I was an early investor in the company and showing somewhat later on after they had already got their first capital commitments in 2010.
Alok: Right, right, right. So that's how you then came on board and now you are in this role in the business. That's great. So I would like to just do a little back and forth on your career journey as such, given whatever little I am aware of. You have already mentioned about the private pilot's license, which is great. That means you have a direct first hand, I would say aviation angle involved in your career.
Arthur Kushner: And that helps. Yeah definitely.
Alok: I do recall at one point of time you mentioned to be your exposure into the software side and your interest in software. That intrigued me when we were initially, when we met initially. I'd like to know a little bit more about that.
Arthur Kushner: Sure. One of the consulting opportunities Stuart and I dealt with was the estate of Eastern Airlines. So Eastern Airlines was a major US carrier. They had gone through Chapter 11 and then unfortunately a dissolution starting in like 1989. But the state had a number of assets and the state continued operating and one of those major assets was a software application that was fairly sophisticated at the time. But what was written in COBOL, was millions of lines of code. It was single input, multi-module interactive and you know when you think about that time frame it was fairly advanced and it was more advanced than any other airline had at the time. So the gentleman who was running the estate, who was trying to monetize what assets remain, this is after all the aircraft and engines and the core aviation assets, routes had been sold off. And then what's left are some intangibles and software and the like. So the objective was to try to market that software to other airlines. So Stuart was working on the marketing side. I was working on the capital raising side. And actually Delta Airlines did a test of the system. One of the challenges though we had was even though the software was extremely sophisticated, because it's a key operational application, trying to get comfort from the potential customers was a challenge. You're this bankrupt airline, and you want us to give you all of our key operations for the software, how do we know if you're gonna be there tomorrow? So that was sort of the first professional exposure to software.
Alok: You know the reason I also mentioned it is because at one point you and I were discussing software and I realized in our initial conversations that you had a immediate understanding of certain modalities about the software tool and the requirements and I remember that this is why it was it was refreshing for me that customer who is aviation leasing is also having an understanding of this piece because then it makes my life easier when I'm talking to a customer.
Arthur Kushner: I don't know if it's good or bad. My significant other tells me I think like a computer. So maybe that's not the best for interpersonal relationships, but it helps for this case.
Alok: Yes, it depends on which context you are thinking like a computer. Interesting. So moving on, let's talk a little bit about also Jetstream, Jetstream Aviation Capital. I think it's a very interesting business from where I look at it, not least because you have been I think heavily focused on SAAB Airplanes. And I have to admit that before I met Jetstream Aviation Capital, I had never dealt with this airplane type, though I had heard about it obviously, but I didn't even imagine that these airplanes are being leased so frequently. So, you know, it would be great to get a primer from you on, first of all, the airplane as such, why you invested in these airplanes. Secondly, then finally, what is the business model for you, Jetstream as such?
Arthur Kushner: You know we operate very similarly to any other lessor or even the large public companies. The opportunity that Stuart identified in this space was there wasn't anybody with institutional capital operating in a very professionalized manner in a 9 to 50 seat aircraft. So that was the opportunity he identified. And 34-seat aircraft were sort of key in that realm. And at the time, or still, the key aircraft in that 34-seat space were Embraer, EMB 120 and Saab 340. And Embraer had ceased supporting the EMB 120. So there were some issues there about longevity. And Saab, even though they had ceased production in I think 95, they continued to support at that time and until today, continue to have a robust engineering and part support program. So we started to acquire different portfolios of Saab aircraft on lease and initially started with sale lease-back opportunities. And you know initially, we had various types of aircraft in that realm from Cessna caravans that were still current production, Viking 400 Twin Otter, current production, but majority of what we had was out of production. We had some Fokker F-27s. We had an assortium of different type of aircraft in that space. But continued to build and build Saab portfolio. We're the largest owner-lessor of Saab aircraft in the world. So we have Saab 340A freighter, B passenger, B freighter. There's a B plus model. And beyond the 340, we moved into the SAAB 2000 space, which is a fantastic airplane. It's a 50-seat twin triple craft, very high speed, almost jet speed. And that was developed in the early 90s, right as the regional jet evolution was taking place. It's unfortunate they only built 63 aircraft due to the competitive pressures from the regional jet market. But the aircraft still is a very attractive platform.
Alok: Yeah, and I mean one of the things which I'm curious about, why SAAB, why did you choose this aeroplane model? I mean when we see at the leasing spectrum all across, I'm sure it's a great aircraft as such. But it does stand out, right, that you're a dominant lessor in that space and you're one of the maybe very few lessrs, I'm not aware of anyone else, but I'm sure there are others who are doing the SAAB airplane leasing too, a few of them.
Arthur Kushner: Yeah there are a few mainly smaller players.
Alok: Right, right, right. What attracted you like if I may ask?
Arthur Kushner: It had to do with the market where there were a number of small operators here and around the world that you know oftentimes are you know a fleet of 15 aircraft or less that were operating those aircraft. And based on what we talked about earlier with the continued support of SAAB, there was particular opportunity there. In fact, our first customer was just located here in Miami, Miami International. You can see it from here. So, it was an easy opportunity. In fact, SAAB had their own leasing portfolio and some of the initial aircraft we purchased came from the Saab leasing portfolio. And some of the initial aircraft we purchased came from the Saab leasing portfolio proper. And we said that, hey, we operate like a very large lessor. Some of the other parties in our space were very small, sort of mom-and-pop lessors. And then there were some others that were of more substance, like Elex and Falco, and then NAC, Nordic Aviation Capital, was the big player with hundreds of aircraft and Ford production slots with ATR and the like. So we've recently made our first acquisitions of ATR aircraft, ATR 72 600s. And that puts you into, it's a bit of a different customer base, some of our existing SAAB customers are migrating into ATR. But there's also plenty of other customers that operate mainline jets, and they have ATR on the bottom of their aircraft stack, and others where it's at the top. And the same thing on the leasing side, where for us the 70-seat airplane is at the top of our portfolio and there's other lessors where they have mainline jets and ATRs at the bottom. So there's some interesting crossovers.
Alok: Yeah, it is definitely because you know because one of the challenges I see like where I come from in India right now where the avaiton market is moving as everyone knows there's a big order book but one of the challenges which is happening is that there's a lot of so India government has a regional connectivity scheme. I think US has a similar scheme for regional connectivity.
Arthur Kushner: Yes, EAS, essential air service.
Alok: Yeah, so India something similar is there so is it other parts of Europe? But those operators who benefit from this scheme, they look for airplanes of exactly this type. And one of the challenges which we are seeing in Indian market at least as of now, is there is no one available to finance or lease them. So it's very interesting for me to know that someone over here has done that. And obviously, you're a global lessor. So it's a great proof of the fact that this can be done successfully and such operators with smaller feed bases can also be well supported. That's why it is very interesting in terms of, and so you have moved on to ATR 70, in the sense, maybe moved on is the wrong word. But you have just added ATR 72 600s and so far how has been your experience? I am not asking you to rate the two airplanes against each other, but if I have to talk about key differences, how will you rate that, as a lessor.
Arthur Kushner: You know what? Yeah, it’s, one there is a learning curve technically, with regard to the aircraft, which our technical folks have undergone. We had a good opportunity to acquire the aircraft we acquired, but they were on the ground. So we have to go through some extensive make-ready processes as opposed to stepping into a sale-leaseback situation where the aircraft are on a lease and there's no transition and there's no capex required in a make-ready process to get the airplanes ready. So it's been a heavy lift, but we're doing well. We're working with initially some existing customers that I alluded to earlier that are either already operating or transitioning into the ATR aircraft. And then it's sort of dealing with a different manufacturer. So for the most part, you know, we have a very close relationship with SAAB. One of our colleagues is Swedish, based in Sweden, you know, interacts with SAAB headquarters daily. And we've had a very collaborative effort in relationship with SAAB. So it's a new relationship with ATR and developing those relationships, learning the people, learning how the company operates, so on and so forth.
Alok: Have you got a French colleague yet?
Arthur Kushner: Not yet. I'm sure that'll come. All right. Or Italian. I'll get the Italian.
Alok: Right, right, our Italians, yes, you're right. So, let's talk about your role, what you do now. So as a principal at CFO, you are at Jet Stream Aviation Capital, Global Aircraft Lessor. Maybe tell me a little bit about your role, how your role has evolved, and what your role entails now.
Arthur Kushner: Initially, I think I was the fourth employee. You know, starting from scratch and building the organization, it's all the typical roles and responsibilities of the CFO position in any company, and it's just adapting to what the particular industry requirements, nuances are. In our case, one of the challenges we had is what brings us to talk about Acumen and Acumen Sparta software. There was not an enterprise software that was a fit for us. And Acumen is the first one that is proving successful in implementation. We had a couple of failed attempts of implementing an aviation leasing industry-specific application. And without that, you're doing a lot of disparate processes and analyses and it certainly helps to be able to tie it all together. So that's one of the things that we've been working on now as the company's grown. And there's been various times in the evolution of the company where there's time to take a breath in the portfolio has a static number of airplanes for a period of time. You can work on various improvements and implementations. And then there's times where you've raised new capital, you’re acquiring aircraft very rapidly and you know you're working at quite a pace and I just you know work to keep your head above water.
Alok: As a CFO, if my understanding is correct and it's very limited obviously in this space is compliance is a big part of the job of a CFO right? So however as an aircraft lessor, the lessor community is subject to additional compliances, being the nature of the global business, aircraft trading, et cetera. How do you see, if you really care to give me a little perspective on, as a CFO role- do you see your role being different than what a typical CFO will be doing in any other company? Like, in your particular role, are you involved in just compliance, financial control, or is it more to do also as a principal also I believe you also multitask as a deal maker at times, right?
Arthur Kushner: At times. There was a period of time when I was working on the commercial side more actively and some little niche opportunities having to do with certain engine types like one of our co-founders, partners, Conrad Tree, is in charge of capital markets and investor relations. So when we talk about, hey, what are the different disciplines, and how does it vary from other lessors? Obviously, if it's a large entity and a public entity, they're dealing with the public markets and regulatory requirements from the financial side. In our case, we're not public. We're sizeable, but not to the size where we have public debt or anything along those lines. So, we're subject to audit, but our compliance requirements are a bit different than you would find in some of the large public operators out there.
Alok: Right. Something I should have asked earlier, if you may, if you don't care to share with me your total current fleet size.
Arthur Kushner: We're about 120 to 125 aircraft currently and another 40 engines and an engine portfolio.
Alok: Right. And this includes the ATRs, SAABs, everything everything just currently there.
Arthur Kushner: That's everything, yeah.
Alok: Okay, that's interesting. On the overall business side, when it comes to leasing airplanes and I am soon going to go into a certain geographic region which I was very intrigued about when you mentioned to me a while back but before I do that you know, maybe tell me a little bit about overall your experience in making deals in terms of sales. I am just curious to know if I can ask this from a business model perspective. Do you do only operating leases, finance leases, sale-leasebacks? How does this work in your business?
Arthur Kushner: Sure. The majority of the transactions are dry operating leases. Five-year average term. It may be contrasting with mainline aircraft brand new, where it might be a 10 or 12-year head lease. So, for the most part, we're dealing with non-new aircraft and five-year dry operating leases. We have done quite a number of sale-leasebacks in our earlier development of the company, which I find quite attractive. We touched on those a little bit earlier about all the benefits of not having any transition costs. With moving to the ATR space there will probably be more opportunity to do that as well.
Alok: That's very interesting by the way, that you are saying there's no transition cost involved when it comes to talking about SAAB airplanes, right?
Arthur Kushner: Any type of airplane, I'm just talking about in a sale-leaseback scenario.
Alok: Right, but when you take the airplane back, at the end of the lease term, there is some...
Arthur Kushner: Oh yes, yeah, I'm just talking about initially, compared to leasing in an aircraft. We have to go to the market, we have to acquire an airplane, and then address its delivery conditions with a new operator, potentially have to do various maintenance. So there's a time and a financial cost to that, as opposed to a sale-leaseback, where on day one, when you consummate the transaction, you're earning rent without any capital cost involved, for the most part.
Alok: Right, right. And yeah, that's where you're talking about how you're now dealing with the ATRs portfolio which you acquired, which are coming with a certain maintenance requirements in advance.
Arthur Kushner: Right. And I'm sure there'll be sale-leaseback opportunities in that space as well. It just so happens there was an opportunity with the initial portfolio of ATRs where they were on the ground. And that creates the opportunity as well.
Alok: Great and which geographies you see particularly active for your business currently?
Arthur Kushner: Probably majority North America, US, and Canada. We have customers in Europe, we've had customers in Asia, in Central America, Australia, still currently. So global, although a concentration here, and obviously there are challenges with greater distance. And just like any other lessor, rule of law, jurisdiction, historical precedent with regard to reorganizations and accessing having access to your aircraft. We're all you know big considerations when it comes to picking a geography. And obviously now with what's going on in Ukraine, insurers are particularly focused on geography.
Alok: Yeah, true, true. That is true. Geographies, you have mentioned to me a while back Pakistan. I was very intrigued, not the least because Pakistan is a neighbor to India, yes, of course. And purely from a business perspective, how has been your experience there? Have you managed to lease anything there yet?
Arthur Kushner: We have not. We had a visit, we had some initial discussions with PIA actually. But yeah, I was very impressed. You always have an impression of a country never having been there. And in my travels, I'm often pleasantly surprised where it exceeds expectations. So I can say that about Pakistan. You know, everybody we dealt with was very professional, knowledgeable. You know, when you're talking aviation, you speak the common language of aviation. Yeah, so it was a positive experience overall. You know, that being a government-supported airline, the positives are that they had not really had, as far as I know, any defaults historically, but they were going through a lot of transition at that airline, and now the country's looking to privatize and they're having significant financial issues on a global basis. So it's probably best that we did not proceed in that case.
Alok: Right. And in Asia, you mentioned that you have a few assets there, but are you looking at other jurisdictions like maybe China, India, or other bigger jurisdictions there to do this?
Arthur Kushner: We've not looked at China. We've looked at various places in Asia. India is always something of interest. One of my colleagues who came from the large jet world had a poor experience in India. So that's sort of...
Alok: You were talking about Wayne, yeah?
Arthur Kushner: It was Wayne and Kingfisher. Yeah. So that sort of has an impact. It always comes up. So, but you know, you being there on the ground, speaking highly about the government support, you know, it's encouraging. So I'm sure we'll continue to look at opportunities around the globe.
Alok: Because you know particularly as I was saying Indian market is now prime for this airplane type particularly because of the regional connectivity scheme and the operators there are looking for help there. Anybody who can come in with the leasing support to them provide them assets and attractive rates. Definitely, I think there is a market opportunity but I understand you have to assess your own requirements first. And now as a business, my understanding is while you have colleagues spread around the world, you mentioned you have a Swedish colleague managing your relationship with SAAB, but I think JetStream is primarily or the corporate office is focused only in Miami.
Arthur Kushner: We have corporate office in Miami, we have some team members that are in other states. So we have one person in North Carolina, one person in Tennessee. And then we have some folks in finance team that are in Fort Myers and Orlando that started during COVID. We had not had a lot of team members that didn't reside here in Miami and didn't meet in the office in person. So we've gone through that COVID experience where, for the most part, we've been out of the office since COVID started. And there's this big debate about to go back to the office or not to go back to the office. Overall, I think most companies, at least here in the States, are split. And we made hires out of town during COVID. And for my impression, it's worked well.
Alok: So, on a business perspective overall, the way the business has shaped for Jetstream and the operating model, the business model you’ve explained to me, what do you feel if you can say your role as a principal of the business, what do you see ahead if at all, any major challenges?
Arthur Kushner: In general, when you just look at the trajectory and growth of commercial aviation, it's very positive with regard to projected growth, and number of industry groups like ISTAT and others have quite a bit of analysis on that. In the short term, there's always ups and downs and it varies in sectors. During COVID, obviously, cargo did fantastic and now there's a bit of a, I'm trying to think of the right analogy to say, hey, after that sort of boom in cargo activity, now things are coming down and that's causing some stress in the industry. You know, I didn't mention that we have maybe a 60-40 split between passenger and cargo operators and it's a good balance. Manpower is tough, I think, across all spaces. We know about pilot shortages. Now there's quite a bit of a manpower shortage on the maintenance and engineering side. So those are constraints that have been growing for a while and then COVID brought about all these supply chain issues. And that is a major challenge where, you know, dealing with the OEMs and their subcontractors, everybody's backed up with delays in delivering material.
Alok: So supply chain issues are also there because of that.
Arthur Kushner: It seems that there's demand in the various inputs whether it be labor material or having a little bit of trouble keeping up and that applies to other areas of the economy as well.
Alok: Right. And you mentioned there's a 60-40 split between passenger and cargo. Did you also see a spike in your cargo fleet demand during the COVID times? And did you see, like what I'm hearing is now that seems to have cooled down a lot now? Is that the case for you also?
Arthur Kushner: Yeah, we're seeing that a bit. Our operators aren't having any significant issues because there was no real overextension. I think the people that have problems were all these aircraft that came out of storage in the desert to go back into service where those fleets were inflated where we haven't had that experience most part with our customers.
Alok: Okay, now that we have spoken about the challenges let's talk about something a little more positive. What will you say Arthur is the biggest strength or what is the USP of Jetstream?
Arthur Kushner: Yeah I would say size, nimbleness, and then just the type of customer relationships we have. So we earlier talked about large lessors, new production airplanes, the aircraft goes out on the 10 or 12-year head lease with a big airline, and the staffs are interacting. But for the most part, there's not much, there's not tremendous amount of interactivity at the higher executive level in those types of scenarios. In our case, particularly Stewart has direct relationships with all the CEOs and all of our customers. It's very interactive and collaborative and I see that as one of the major differences that also gives us a lot of flexibility.
Alok: So it's like maintaining bespoke relationships or kind of a boutique feel of a business relationship with customers.
Arthur Kushner: Absolutely. So I think those relationships are key to developing that kind of trust. So Stuart has great interpersonal skills on that front and you know we see it during tough times where you can work with your counterparties very well. We did that during Covid. Now, one thing I did not mention that's also different about Jetstream structurally is we don't have any debt on our balance sheet. So we're in a position where all of our aircraft are bought with equity. Some of that had to do with the average value of the aircraft before getting into the ATRs. The ATR scenario might be a little bit different just based on the relative values and benefit of leverage with those types of lease rates. But when it came to COVID and the ability to enter into forbearance agreements with our customers to help us collectively get through that crisis, we didn't have lenders sitting at the table being involved in that discussion or having requirements for their terms for those types of accommodations.
Alok: That's a huge advantage.
Arthur Kushner: Yes, that was a huge advantage.
Alok: That gives you flexibility to agree to your own terms which suits your customer and you without the pressure of the lenders' requirements. So that basically, okay that's a very unique point which stands out I must say. And okay now you know looking at the JetStream business, career you have had, illustrious career I think more than 35 years in the industry now right? If I may ask like you know from a people perspective you did mention one of the challenges you're seeing is people challenges. And I'm assuming that same for across-the-board retaining people and finding good people. And Jetstream, it seems, has been fairly successful in attracting young talent and retaining them. What do you feel has helped in being able to do that successfully? Maybe give me an example or two of that.
Arthur Kushner: Yeah, first of all, we're a small company, so it makes it easier. We don't have large requirements. But in the United States, we have a 3.5%, 3.4% unemployment rate. So there's competition for talent across industries. One of my colleagues went to a professional development course at ISTAT, the industry that we had and that feedback was interesting because he's dealing with his peers in that training course who are from airlines, from other lessors, and you get some insight into how competitive it is to attract talent. We brought on a couple of folks right out of college this year. One on the finance side, one on the portfolio side. And there's a lot of opportunity in the industry. So I certainly encourage folks that are trying to decide on a career path or change a career path at the aviation space, whether it's on the airline side or whether it's on the lease finance side, there's a lot of opportunity there.
Alok: Okay. So from a business side, you're saying Jetstream is focusing on career development for their younger executives to allow them to grow their careers. And that is one of the strategies possibly you're using to retain staff for long term, isn't it? Yeah. Is that correct? The way I've paraphrased.
Arthur Kushner: Yeah. And obviously, there's benefits of the company where you're enhancing those team members' skill sets. And they get the benefit of that ad infinitum, you know through their career in the future whether it's with us or somebody else so it's a win-win.
Alok: I can't help but think of the famous I don't know whether to call it a joke or a the famous meme I think. Since you are the CFO you know that what the famous CFO-CEO conversation?
Arthur Kushner: Let me hear.
Alok: Where the CFO is asking the CEO that why should we spend all this money training these people they're just going to leave it leave us one day and the CEO says, “What if we don't train them and they stay?”
Arthur Kushner: Exactly.
Alok: But you seem to have bridged that gap already.
Arthur Kushner: Yeah, those synapses connected. That was not a problem. Yeah.
Alok: That would not have been difficult for your CEO to convince you to spend money on. That's good actually. That's good because as a company we also believe in training and spending a lot of effort and investment into training people and putting them through like an in-house academy where we can enhance their skills all the time.
Arthur Kushner: Absolutely. Let's make that. And I'm sure people, younger people now are aware of that it's not just the cash compensation you get, it's what's happening from a career development standpoint. What are you learning? What skills are you going to get? How do you see different aspects of the business by moving to different disciplines or silos within the organization and so forth?
Alok: Right. So, someone who is given this wide spectrum of career journey, the business, the unique positioning of Jetstream and you know let us say someone is getting in this industry now. What is one career advice you feel has served maybe you well and what you feel will serve someone well looking to grow their career?
Arthur Kushner: I don't know if the question is for folks that are already in the aviation space or not. My career advice to any young person is whatever you think you want your career path to be, before you have a full commitment to it, educationally or whatever, you need to go and get practical exposure to it, however, you do that. If it's a summer job, if it's working for free, if it's, you know, arm-twisting somebody to have you shadow them for a couple of weeks in their position. But, you know, I went through that myself a bit where I was an accounting major. And for the most part, with an accounting major, you go to public accounting, you go to industry, but I had never worked in that environment before. And I can tell you, there was a bit of an awakening from studying a subject in school and maybe doing very well at it, to here's the day-to-day life of what that career is. And it's better to understand that ahead of time than after the fact. There's plenty of people they go through college and they don't like what they study for and they change their career and they go back to school or pivot or whatever. You're saying take advantage in advance and think ahead.
Alok: So get practical exposure is what you're saying. That is yeah that I think that is a good advice because one of the things obviously that goes hand in hand with hard work and putting the initiative and learning the bit but I think that is great advice because many times people who started to a career journey or a line of study are not maybe having a full clarity of what they're getting into without getting a first-hand exposure.
Arthur Kushner: Yeah, they're studying academically, but they don't know what the lifestyle is or what their job is. That's across I think any career path or industry. And that's about trying to match up your aspirations and interests with what the reality of that career path is. Unless it's, hey, I know what it is, and I'm going to work in that environment because I'm building the skill set. I don't intend to do it beyond, you know, 2-3 years and I have that feather in my cap and that knowledge, and I move on to what I really want to do. So it's just forethought planning and sometimes, you know, when you're young in college and a little bit wide-eyed, it's hard to have that foresight.
Alok: Right, right, right. That's very good advice I would say. Thank you and any message, we are reaching the very end of this recording but any message you have for our audience who will be listening to this, anything you want to say to the industry or you know even more so for the young executives who I'm sure will be watching and listening to this podcast with interest.
Arthur Kushner: That's a tough one I haven't prepared for. Other than I thought I just gave that advice in my, you know.
Alok: That was a good career advice. But if you want to give any message to the podcast audience, Justin.
Arthur Kushner: With my COVID gray hair here and my advancing years, I think it's just, look we all work in stressful environments, sometimes you get a little bit of tunnel vision and just try to keep things in perspective. And, you know, manage your mental health and stress and you'll be better off.
Alok: That’s something different and unique and I think it's a good advice, Arthur. Thank you very much.
Arthur Kushner: Appreciate it. Thanks for the time.
Alok: So, after scouting the globe the last many months, and speaking to a lot of senior leasing industry executives, I’ve finally managed to request and get time from a senior bureaucrat of the Indian Civil Aviation Ministry, an ex-bureaucrat, if I may just add. However, who is not in the mould of a typical bureaucrat, one that I’ve ever known. Her name is Ms. Vandana Aggarwal. Or rather I should say, Dr. Vandana Aggarwal. And she has played a key role in setting up the policy, and bringing about the rules and regulations and changes in the Indian Aviation space, specific to aircraft leasing and financing. Welcome Dr. Vandana. It’s a pleasure to have you in the show.
Dr. Vandana Aggarwal: Thank you, Anand. And to all our viewers, Anand is a ragtag whom I know for the last five years. I call him a ragtag simply because he's irrepressible, not for any other reason. I mean it in a nice positive way. So, well, presently, I'm holding a few positions. I'm member of the Research Council for Aerospace and Aviation of the Government of India, which is a high think tank on both aerospace and aviation matters, a small but high think tank, level think tank. The other is that I'm a member of the advisory councils for Indian Maritime University. I'm also a lead expert for them on course coordination. And finally, I'm also an independent director with Blue Dart Aviation, which, as you know, has been India's, was India's sole cargo carrier and for the last 27 years of its existence, has been profitable each year. Right through COVID and right through the global financial crisis as well. I'm not sure whether there are many cargo carriers which can boast this record. I also continue in two capacities which is as chairperson of the IFSC authorities, that is the International Financial Services Centres authorities committees which were set up, one for aircraft financing and leasing. And the report was presented and the ecosystem that has been developed is a result of that committee's work. So although I say it's an IFSC authority committee, so the implementation is happening through that, but the committee was actually set up by the Ministry of Civil Aviation under a project called Rupee Raftar. The second committee which is an IFSC authority committee of which I also chair is called the SAFL committee acronym for Ship Acquisition Financing and Leasing, again from Indian shores. These were two speciality financial services which had fled Indian shores about four to five decades ago. And we have been now fairly successful in bringing these back to the Indian shores. I did my schooling both in India and in England. I did my O levels, A levels in London. I have done my masters, BA Honours and Masters in Economics. That was from Delhi School of Economics. I'm a PhD in Investment and Regulatory aspects of deep sea mining. So it's a fairly eclectic mix of academic qualifications. I immediately went into the competitive exams after my Masters and I got into the Indian Economic Service, which is a specialised economic administration services. They recruit only about 15 people a year all over India. And we get assigned only to the economic administration desks in the center by and large. So there are very few of us and as I said it's a very specialised field. I have been very fortunate to be a part of the core economic reform team of India right from the onset. So the 1991 Indian Industrial Policy Reform under the Manmohan Singh's finance ministership and Narasimha Rao's Prime Ministership, which started the economic reform journey. So the Indian industrial policy reform was my dossier. I worked on it along with Dr. Rakesh Mohan from the Ministry. And we have written papers also on that subject. Fiscal reform, industrial, the indirect taxes reform and then capital market reform so I was shunted to finance Ministry thereafter too. So I was moved around basically to handle different segments of economic reform in. So we did the first ratings upgrade after India was jump upon status virtually. So that was also my dossier. We got the first double upgrade from Moody's and from S&P, a single upgrade. And then India went on to do many things thereafter. So it has been, I was then sent to commerce Ministry because that's where the trade policy reform was happening. And I was handling the WTO, World Trade Organization Desk, where we were doing investment related, trade related investment measures. We were doing competition policy, government procurement, trade facilitation. We were handling the first intergovernmental disputes and India, I don't know, we attracted the first, you know, 11 disputes in the first year of the WTO's existence. So dispute settlement was my dossier at that time as well. And we managed to have consensus or we didn't go to the actual, we did it at the arbitration on the consultation stage, we settled matters in seven of them. So, you know, things went on and I was then brought, I went as India's negotiator under the Doha development agenda to Geneva at the World Trade Organization. I was in the permanent mission of India. When I came back again, The Doha development agenda was continuing till 2008, when I think most people called it a pause on it. And then I went to infrastructure development. And the first PPP, Public-Private Partnership, in power transmission, I prepared along with my team. And we prepared the documents, the model documents. And it was an extremely successful PPP in a monopolistic, natural monopoly, which is a transmission network. And that also in a country like India, where you have so many distributions between the center, the states and the local bodies in terms of public, in terms of power itself-generation, the transmission and the distribution. Distribution is usually with local governments. So it was a very interesting way exercise that I thought. And then I was sent to the Cabinet Secretariat where I was handling many important issues including security related matters, political affairs, external affairs. And then I came to environment and forests and climate change and the UNFCCC and many other environment related issues. And when I say I came, it's usually a progression. You move on promotions by and large under the government system. And from environment, I came to civil aviation. And that was in May 2017. So I can just say that I am actually a baby or a school student where civil aviation is concerned as a sector.
Alok: I recall when I first met you, ma'am, in Safdarjung DDC office. You were there in a special position and you had informed us that you have been put there on behalf of the Ministry of Finance. It was a very interesting dynamic, what I understood that time. I was first time hearing about a role like that, kind of like a bridge between the Commerce Finance Ministry and Civil Aviation Ministry. And I think you took up Project Rupee Raftar right after that, if I recall. And as a result, we are where we are today in terms of a lot of initiatives taken in the aircraft financing leasing space. You know, it'll be good to know what was the thinking behind, if I may say so, a kind of a radical move on behalf of the policymakers and also, how did you think your role evolved in terms of your work in the Civil Aviation Ministry?
Dr. Vandana Aggarwal: So my career progression has completely been dealt with by the Department of Economic Affairs, Ministry of Finance. So they have, as I said from day one, put me as part of the core economic reform team or so I think because everywhere I went it was on a new assignment and you know now you have to deal with this. So let's work. It's not as though I was doing it alone. I was working within a hierarchy in whichever Ministry I was sent to. So it's not as though I don't want to self glorify myself or anything. It's just that the cardre, the Department of Economic Affairs, post you and they posted me in Civil Aviation when, as you know, the growth of the Pax sector was already in double digits. And I think there was a sense to capitalise on cargo as well to bring it up to speed. So among my first three assignments in civil aviation was air cargo, you know, come out with the new air cargo policy, which we did in 2019 in January. And then skill development in aviation. And finally, it was all tax matters. As you know, first of July 2017, the GST Act came into being and the aviation sector had a huge number of issues. And so my time from about 15th of May till about mid October was taken almost entirely in handling the GST issues. And we were able to correct so many things that I can share, you know, at least one of them, which will make a lot of sense to the readers here, or listeners here, that aircraft was not classified as a mode of conveyance. So as a good under the GST Act, every time an aircraft moved across borders, state borders, interstate borders, it would have attracted GST for the next state and the next state and the next state each time it did.
Alok: This was which year? This was which year ma'am sorry we're talking about?
Dr. Vandana Aggarwal: 2017
Alok: Wow as recent as that okay.
Dr. Vandana Aggarwal: As we said, GST came into being on 1st of July 2017, but the drafting had been done a little bit earlier, but somewhere somebody missed this aspect that an aircraft is not a good, it's a mode of conveyance. So when I was looking at the issues and I said, my God, and we calculated the amount of GST the aviation sector would end up paying just on movement of engines. Obviously, every airline is not going to stock an engine for each type of aircraft at each of its, you know, origin and destination airports. So, you know, they move spares as a matter of routine in the belly of an aircraft. So even then, and even things like stationary or if an airline is to move it's cutlery, crockery, any kind of thing, that would have been seen as goods movement. But then we worked very fast with the Ministry of Finance and they were very forthcoming, they were very receptive to changes which you could rationalise and present to them. And we I think, we were able to secure, on the GST front at least 80,000 to 1 lakh crore of GST benefits, not benefits but changes so that the Indian industry, which didn't have a turnover at that time, its turnover was 85,000 crores so you can't have a total GST out go which is going to be more than the turnover of the Indian domestic. So we were able to do that. That was a very interesting time. And you know GST was a new act that was coming in. And there was complete readiness to accept that not every sector could be covered to the last dotting of the I and crossing of the T. And then, as I said, around mid-October, we started looking at what else was missing in aviation which needed to be addressed. And I was looking for finance. I don't know whether it's because I'm a baniya or what. I said, where's the money? Where's the money? Where's the money coming from? Where's the money going? So whether it's airport financing, whether it's aircraft financing, I couldn't find aircraft financing or leasing anywhere in India. And even though 80% of the aircraft were all under lease, but they were all coming in from offshore. So I went to the Secretary and I said, I can't see aircraft leasing and financing either as a portfolio with any officer, nor do I see it reflected in our reports. So he said, yeah, go ahead, work on it. Tell me what needs to be done. He was such a wonderful officer, and so forthcoming and so were the Ministers and when we took up the first draft of the concept to the Ministers they were just absolutely stupendous and they said this is fabulous just go ahead work on it. And we worked on it so we came out with our report which was accepted in January 2020 and in no time at all, we had the Finance Minister accept our recommendations on an overall basis and a secretaries level committee was constituted to pick up all our essential and core recommendations and work on those so that there were different ministries that were involved, corporate affairs, commerce, you know from SEZ. You had the Department of Revenue, you had so many others in the play, including our own Ministry. And we worked on at breakneck speed to put in the raw framework. In October 2020 itself, the IFSC authority was set up because one of our recommendations was of a unified and dedicated regulator which would combine the roles of, in fact, we were the first ones to say that the IFSC Gift City is the platform that should be used to bring in aircraft leasing to India. And as you know, GIFT City had actually been set up in 2013. But it would not be an exaggeration to say that aircraft financing and leasing this initiative which the government picked up and, you know, it put all its weight behind this initiative. The speed and the total nature of changes is so enormous. We were building a green field industry in India initiative from a zero level to, as I said, we now have 24 lessors and the 24th lesser is actually Air India. So we should now see a huge amount of propulsion. So till now it had been the non-scheduled operators which had been our business aviation jets which were coming in. But now I think we should begin to see scheduled operators also. Indigo is also mulling on it. So is Akasa Air. And they have also been in discussions with IFSC authority. So I think the initiative is proceeding well.
Alok: Let us drill down on that a little bit. That is a good point you made about Air India and other airlines coming in there and setting up shop. If I'm not wrong, the way I understand a little bit of this structure is that if Air India or let us say any Indian operator XYZ sets up shop, that essentially in effect becomes a pass-through arrangement where they will be acquiring the asset on lease themselves, because most of the Indigo and Air India airplanes are also not the current order book or even the future order book is planning to be leased actually not purchased. That means they are leasing it and they are subleasing it internally to their entities or the operating entities within India. I'm sure there are tax and jurisdictional benefits to it and that is the main reason why they must be doing it. I think we will just come back to this but when you were setting up this whole program, this whole policy and etc. or getting this industry up and running, if I may ask you what do you think was the biggest challenge which you had? Which you feel, the reason I'm asking that is because that could form the basis for future learnings when similar attempts are made or efforts are made in this industry or other industries in future as well. That is one reason. And also, please share, how did you overcome it?
Dr. Vandana Aggarwal: So the two, when we had in writing the report, Rupee Raftar, we had looked at what were the main roadblocks or what were the attractions of the other global hubs, whether it's Dublin or Singapore or Hong Kong or Tianjin or whatever. So we were looking at comparing, we did a competitive cost estimation of each of these hubs vis-a-vis say a gift city, IFSC Gift City and what would be needed to make Gift City more than competitive, giving it an edge in terms of sheer costs. And that was the tax regime. And usually, industry ask is always on the tax regime. So both direct taxes and indirect taxes were our first focus. And we didn't want to present a wish list kind of scenario where we had not done our estimation. I you know the objective was that the all-in cost from IFSC GIF City has to be lower than significantly lower than the all-in cost a lessee or a lessor will find both. We did from both perspectives from say vis-a-vis Dublin or Hong Kong or Singapore and Dubai and we did we did an assessment with the top five leasing hubs of aircraft leasing hubs. So that was our first challenge that how do we get the go-ahead from government on the tax changes or tax breaks which are needed. The second was which we saw was regulatory. I know you asked me for one but if one of them is not addressed the whole purpose would have been defeated. And we needed to put in world class kind of regulations. And hence, for instance, a dedicated, unified regulator, which is unique in the world. So it's a single window concept with a difference. Normally, we understand single window to mean, Ok, you've gone to one window. That window is going to send it to the next window. And there's a third window. And so, you as a customer are approaching only one window but there are multiple windows which will be handled but they will be handled sequentially. And at the end of the day you will be given a result but we said no. When somebody has submitted it there is the regulator is a combined regulator of RBI, of SEBI, of insurance, of the provident fund, of the SEZ, and this combined regulator or a unified regulator is sitting and giving you the final approvals without somebody turning around and saying, no, this doesn't suit me. No, no, they have to look at the overall picture and then give the approval. So, for instance, I'm told that the Air India approval came within seven days, I mean, the regulatory approval. So that is a fabulous telling on how swiftly government moved on the regulatory front. Now how did we manage it? So one was there were certain taxes that were state government taxes and there were certain taxes which were central government taxes both on indirect and direct. So state government was stamp duty for instance of all the documents that have to be registered and our recommendation was to make it nil for the initial first 10 years at the very least and we approached the government of Gujarat. And they were very eager and they swiftly moved the cabinet note and went through their assembly process etc., legislative processes and we had a verdict very quickly from them. On the central taxes as I said it was not just taxes it was also changes in corporate tax for registrations etc. of lessors, the LLP etc So you had certain structure and we in commerce Ministry work very closely with the IFSC authority as well as with the Gift City administration as a troika to work with all the other ministries. The most important thing that I think when you said what is it that worked miracles for us? We worked out exact language changes to the acts or the sections in the rules and in the laws that were required. So that, you know, it's not as though we said, remove stamp duty. No, we gave actual language in the Stamp Duty Act to say, section so and so is to be changed to read as follows. So that there is no slip between the cup and the lip in the understanding of what the ask is. So we could have meant something. But the implementing government, which is either commerce Ministry or Finance Ministry, could have understood our ask in a different way. So we, as a committee, we worked out the precise draft and sent it to each of the ministries in advance so that they could work on it. And also, I held a number of consultations with these ministries before the release of the report so that we had them already on the page with us. So there was nothing we were telling them when the formalization was happening and the government had accepted the initiative and the recommendations at a broad level and said okay implement all the essential ones immediately and we'll come to the others in due course. So essentially everything was done only a few attractions are left when those can be handled. They're not compelling ones in that sense. So there was, as I said, consensus virtually in our consultations with different ministries. We had the language completely done so that there could be no misunderstanding or no exchanges of drafts going back and forth, back and forth. So we saved time on that. And finally, what I had very briefly mentioned. The government at the highest level set up a committee of secretaries and I used to process that committee. We used to have their meetings and very fast-paced decisions because this was at the topmost level of the bureaucracy that you were. Everybody wanted this initiative actually. So we were in a good world.
Alok: If I may ask now at this point of time, you mentioned that during the course of the study, you took references from other centers of excellence around the world in terms of aircraft leasing. I think you mentioned Singapore, Ireland, and you
Dr. Vandana Aggarwal: Dublin
Alok: China, Dublin.
Dr. Vandana Aggarwal: Yeah.
Alok: So one of the things is one example we always speak about is, and we don't have to emulate everything which every country is doing, every country has their own economy and their own way of working. But if we talk about this particular part of the industry, what do you think now to the stage where we have reached is great, but now to go to the next level, to be able to because if you look at the Indian aviation today, in the recently concluded Paris Air Show, India Indian Airlines were the biggest order book airlines. They announced some of the biggest orders. The orders by Indigo and Air India dominated the show. Nobody else ordered more airplanes than between these two. In fact, Indigo is now having a 1300 A320 family order book. By order book alone, they are the world's biggest A320 family operator. So obviously there is a massive opportunity. I'm just wondering, what needs to be done now from your perspective, what you think should be done now to take benefit of that, to take leverage of that, so that India can also have a fully organic international aircraft leasing setup here, which cannot only cater to the Indian market, which obviously is a driver of it, of this kind of industry. But also be a global lesser, like what has happened for example in mainland China, over the last two decades the lessors which have come up there have now are counted among some of them are counted among the world's top 10. So I think I'm not saying that we have to do it the way they have done it. That's not what I'm at all saying. I'm just wondering what should we do for our requirements to be able to also have that level of success.
Dr. Vandana Aggarwal: Yeah, so,
Alok: What do you think?
Dr. Vandana Aggarwal: Okay. Yeah, so this air show is not the only one Paris Air Show is not the only one where India gathered the headlines. I was there in the 2019 Paris Air Show just pre-COVID as well, where the first announcement with President Macron present was of Indigo's 20 billion engine order. So, 20 billion dollar engine order. So, you know, that was also the headlines. So, India has, Indian aviation is making the headlines at the global platform for some years now. And I do believe that India's aviation is punching way below its weight. So, the aircraft order is symptomatic of the low penetration, Pax penetration and cargo penetration, whichever way you look at it, of the Indian population itself. You know, it's I think the aircraft penetration, Pax penetration is about 12 percent, which means only 12 Indians are taking one trip a year in an aircraft and that's very dismal. You have a middle class which is the largest in the world and which is very prone to travel by air. So you know the aircraft penetration or the Pax penetration can only grow and grow and grow and that is why these airlines have placed such humongous orders straight after Covid. And you know the Indian story is actually half-told because we didn't in the government, I can't speak for the government in totality but as since I'm not now a part of it but I was there, and when during the COVID period the world over airlines were getting billions of dollars worth of treasury support, treasury back support. In the Indian aviation sector we didn't give treasury back support because we were so busy to other needy causes and you cannot take away from the poor farmers or from the poor labour migrants whom we saw or the small scale sector which didn't have the wherewithal to weather one month of shutdown, what to speak of such a long shutdown on account of COVID or disruptions in activities. So, Indian aviation had to make good its own ability during this period. Yes, we came out with a couple of schemes later on but that came much later on debt financing.
Alok: Extended credit guarantee schemes.
Dr. Vandana Aggarwal: Yeah, credit facility.
Alok: Yeah.
Dr. Vandana Aggarwal: So, we did do something for them and that was good. It was needed to be done. But I'm just saying there was a lot that had not been done. Secondly, the entire ecosystem which surrounds airline operations, that is also below par in India. What do I mean? I mean, I don't need to tell you you're such a technical boss. MRO operations from India are we punch well below our weight. India produces the highest number of engineers in the world annually and can you imagine we don't do MRO here. We have for instance the largest world's largest shipbreaking sector here with full ESG. Where aviation is concerned we just did two boneyard operations on a jet 777ER. during the COVID period, they were lying in Chennai. And that was a successful operation, mind you, very cost-effective, but successful operation. But until we become part of the IA, RI, et cetera, you know, there are all these little big boy clubs until our entities, yeah, it's, you know, an exclusion. It's a barrier. I have no hesitation in saying that. These are little big boy clubs, school tie. You don't want girls in there. So when I say girls, I mean, you don't want others to come in. You don't want a breath of fresh air. And India is an aviation, what to speak of breath? We are going to be the life support breath for global aviation in the times to come. Because we are growing because of a need to grow. We are growing on competitive terms, you know, there had been some talk about duopoly, etc. India will always have because we are continental in size, we will always have multiple carriers. Today, if you look at even cargo from one airline, cargo airline, we are now three cargo airlines. Indigo has an order for 10 conversions from Pax to freighter-P2F conversions. Sorry, we have four express because Spice Express is also there and you have that Amazon airline which is which is serving Amazon and you have one more Pradhanair. So there are
Alok: You’re talking about QwikJet, and Pradhanair
Dr. Vandana Aggarwal: Yeah, QwikJet, and Pradhanair. So we've got four cargo airlines at the moment from one.
Alok: There is one more starting from South India soon.
Dr. Vandana Aggarwal: Yeah. No, no. So I'm saying, can you imagine the competition is going to increase in cargo airlines, but it's gonna decrease in pax. I don't see that happening because the market is expanding. If the market were sort of reaching a plateau then the airlines would fight amongst each other and just have a duopoly. But yes, we're going to have two big players and we're going to have multiple others who will be serving either regional or niche sectors or some other. I'm sure the business models are being worked out even as we speak. So I don't want to press on that point.
Alok: Ma'am, so fine, I understand what you're saying. And I like the way you are totally positive about this. Frankly, so am I, and everyone who is a participant in this industry has to be.
Dr. Vandana Aggarwal: You know, you can’t but be positive.
Alok: I am
Dr. Vandana Aggarwal: Your question was that what do we do for attracting more? I'm telling you, the government has preceded industry demands in setting up this system. Far ahead of industry demands. I told you, one of the two big guys are already in-scheduled operators. The second one is in discussion. The third one is also in discussion, Akasa Air, I said. Now, did we set up a system, where the government has to pull everybody in? Or is India a model for this world where industry rules, unlike China, where the government decides what needs to be done? So government has put in place an ecosystem.
Alok: Ma’am, you’re right.
Dr. Vandana Aggarwal: No, I think this is a point. Like we are a democracy, we like the competitive strength of our industry. And that is why under COVID we could survive, because they were competitive to the end of the day of a crisis. Nothing could be better than that. So I will not hear a single thing negative about this equation. I have to come back for this.
Alok: I am not saying anything negative, I am actually trying to find out ways to fast track things. So I was
Dr. Vandana Aggarwal: No, I’m also going to give you one more sentence. Alok, I'm going to give you
Alok: Yes ma'am.
Dr. Vandana Aggarwal: One more sentence. Normally, it is said proof of the pudding lies in the eating. You have 54 engines. An engine is half the cost of a plane.
Alok: Yes, I'm aware, I’m aware.
Dr. Vandana Aggarwal: Which have already been leased out from Gift City. You have 12 aircraft, which have already been done. And I already gave you about the ground handling equipment. Already in the smaller tiers, who do not have risk-taking ability, have taken the risk and set up shop in India, not just to service India, but also to export from India. A couple of the engines have gone out as well. So India's IFSC Gift City is not an inward-looking hub. You look at it, as I said, it's competitiveness, it's regulatory ease, its financial ability. You can access all capital markets from IFSC Gift City because FEMA, which is the Foreign Exchange Management Act, is not attracted. You can deal in dollars. You can deal in any currency. You can have your administrative expenses in rupees, which are very low. You know. And the overall cost, as I said, is 30% cheaper in doing things out of India.
Alok: You're right. You're absolutely right on that.
Dr. Vandana Aggarwal: And the regulatory ease will be more for the lessors who set their shop in India, the financiers who set their shop in India. You know, you will find the Indian courts are also more at ease with players who are coming from India, who have invested in India. Why should they look favourably at people who are not investing in India?
Alok: Uh, Okay. I will edit that part out.
Dr. Vandana Aggarwal: But no, you really shouldn't edit that part out.
Alok: That's a bit too emotional. We should edit it out. Believe me.
Dr. Vandana Aggarwal: No, no, it's my take. Why should you edit it out?
Alok: Just joking. So Ma'am, I understand where you're coming from. I think you also know where I'm coming from on this. There are just two things if I may add as disclaimers to all the positive things you have said, which is actually I 100% agree with. There are only two factors which I want to emphasize on. And it is not necessarily going, you know, it is not something which will happen right now. It is and I'm aware, very well aware, these are also work in progress. One of them is, see one common factor when you look at all worldwide leasing centers, and this you can actually listen to it some of my previous episodes with other industry executives I've spoken to. Two things which have come out, and this is six, seven people prior to your recording I have spoken to who are from the industry. And they are all having an interest in India, I believe, because they all have assets leased here. So obviously, their interest is also that the Indian economy remains robust. It is in their interest. The more robust the economy is, the more the airlines flourish, they will get to lease more airplanes here. So I do give credits to some of the opinions I have heard. Two things among many things I have heard which stand out for me. One is, it will help going forward if the capital availability is made at par with the rate of capital and ease of accessing capital, what is in other centers of excellence, like in Dublin, China and even Singapore for that matter, are ahead of us, it seems so far. Number one. Number two, I would say, the other factor which plays a key role, which you have also touched upon, is the ease of doing business. When you say single window clearance, and this I am purely saying by my own first hand experience in dealing with the system. It is definitely far better than what it was. But it has not achieved the, still completely achieved though as I am adding a disclaimer, I am aware it is also happening soon. There is things happening which will achieve that too. But these two things having been achieved in the near future will really help in my opinion, to even fast track our ambitions in this. That is all I just wanted to add.
Dr. Vandana Aggarwal: On the first one, the affordable capital for the entire order book of India, which is the third largest in the world, it may have even now become the second largest order book in the world. I think this is a complete red herring. Global capital is going to be financing at affordable rates India's acquisition of aircraft, whether by leasing or by any other SLB or whatever, maybe the mechanism. So this is India's global center whereas I already said, Global capital is free to come in. There are more than 18 global banks which have already set up shop. We have been in touch with them. Some of them have been financing aircraft directly as well in the SLB operations. So I see no reason why they cannot do it for a lessor out of India, when the lessee on the hand, the risk assessment of theirs is the same. The capital is global capital. The risk on their capital is the same because it's going to an airline, regardless of where the hub is.
Alok: Can I just comment there?
Dr. Vandana Aggarwal: But here, all in cost is better. The EODB is better. Now you ask me, then I'll tell you.
Alok: Yes, so I was just going to add one line in between, sorry to interrupt you, is that I think one of the reasons you are saying why the Indian banks or even the Indian branches of foreign banks, so to speak, are why they should not do it, there is no reason. Actually there is one reason what I am aware of and I think this is something you have also pushed on a lot in your tenure, which is changing the rule in the Reserve Bank of India where the equipment leasing clause still does not cover aircraft. I'm simply saying this by first-hand knowledge of speaking with various bankers in the industry last few last one year or so. Whereas, you know, our company is also trying to take steps in this direction. And one of the things they have told us is, apart from the other reasons, which I don't want to go into, but the one of the main reasons which they show us is that RBI rules. And as I'm again emphasizing, I'm aware that it is also a representation which has been made to the Ministry of Economics and Finance who we are hoping will soon change these rules also. I hope they do, but what I've heard so far is the RBI regulation also has a certain restriction for the banks to be able to do it directly.
Dr. Vandana Aggarwal: Let me put it like this. Where operating leases and where financial leases are concerned, there is a slight nuance in the RBI regulations. If an Indian bank is to take up leasing on its shores or setting up its own subsidiary. But if an Indian bank is financing another lessor, who is registered in Gift City, there is no regulatory impediment other than the hesitation on the part of the Indian banks themselves. Now, which business model tells us that just because in another large country, their banks set up their own leasing subsidiaries, India has to follow necessarily that business model in order to succeed?
Alok: But they don’t have to
Dr. Vandana Aggarwal: I am confident. Yeah, exactly, because the kind of environment we have created is such that Indian capital now will, it will begin to come in. You will see by the by increasingly one because administrative expenses which are pretty large, your costs of arbitration which can now be done through gift city itself because the SIAC has been expanded and you know all your arbitrations can be done. So all that
Alok: Singapore, you mean Singapore Arbitration Center?
Dr. Vandana Aggarwal: Yeah, Singapore Arbitration International Center. So the tie-up has been expanded and now all arbitrations can be done from IFSC GIF City. So these are hefty expenses you can budget them now entirely in rupees. And there you don't need an RBI permission to do that because that is a part of your normal capital needs working capital and others. So I'm just saying by enabling financial leases in May 2022 in the Gift City, we have ensured that both operating and financial leases can work. Our banking sector, SBI, has shown in the last quarter a profit of nearly 50,000 crores. Now it has money. I'm sure it's looking for avenues and it is now for you guys to go and grab that money. It's not for government to tell you that go grab that money. I think the Indian industry, why Indian industry? The global industry, finance industry is not looking at where money is available at good rates. You see the way the Ambani's finance their oil tankers, fabulous rates they got. Why is it that aircraft which are also mobile assets, why is the shipping sector taking a march on the jet sector? It's simply because the aviation sector is full of players with entrenched protectionist interests. They don't like a whip of good air and that air is coming from India.
Alok: I am going to be neutral on that but I am going to go on and I want to go into more I would say even more controversial subjects which I am sure you will not hold back in giving your opinion.
Dr. Vandana Aggarwal: Please ask. Why should I?
Alok: So, Ma’am do you recall in your tenure the jet bankruptcy, Jet Airways bankruptcy took place. Airplanes were repossessed. I recall firsthand you played a key role in assisting many lessors on behalf of the Ministry, for them to be able to have their rights executed on access to assets. Let me tell you right before that a few years back there was Kingfisher Airlines bankruptcy also, obviously which you know. What I'm trying to tell you is I had seen that also firsthand. Obviously at that time the situation was very different. India had just ratified the Cape Town Convention in 2009. And during the time of Jet Airways, while Jet Airways bankruptcy was unfortunate, but fortunately for the lessors, India was a full signatory now to the convention. And then in between, I think Spice Jet had a near-death experience. Again, some assets were repossessed. I do recall us meeting you a few times on behalf of certain lessors, where certain policy matters were discussed, sometimes representations were made, and you gave us a very patient hearing. You know, and then now, unfortunately, what I'm seeing is, Go First is now going through a bankruptcy process now. I would just like to summarize my understanding of what this is. So India is a signatory to Cape Town Convention, but as you are very well aware, there is a Cape Town Convention Act, which the Indian Parliament has to enact. That has not yet happened. Now we are hearing that they are trying to get it done in this monsoon session. I don't know if it will happen this session or next session, but it is in the works. And then the IBC Act is already in place, NCLT. As per that, what the courts are doing right now, as you are very well aware from the news is the courts are taking the certain, the court is taking an opinion which is neither giving full rights to lessors. And it is to a certain extent favorable to the asset being placed in India, though Go First, current the old owners don't have access to their company anymore in that sense. It is under a resolution professional now. But from the lesser's point of view, the solution to this, in my opinion, cannot be just an Indian industry because that will take time, it will all happen. But no matter how big an Indian innovation leasing industry we build, we will still be a global industry, we will still need collaboration and support from global leasers also. This is one thing I'm just wondering how this has happened because when Jet Airways was happening it was a totally different story. I remember in a matter of record time we were able to get IDERAs which is the irrevocable rights of the lessor, the power of attorneys they get, where they get to repossess their assets, get the air planes de-registered. But now IDERAs have been put on hold, the matters are in court and I'm just wondering now I mean, surely you will agree with me that this is a bit of a step back for the industry because the lease rates and the credit profile will be in question now for the other operators for no fault of theirs from India.
Dr. Vandana Aggarwal: So I will say first two things, which I think all global financiers and lessors who might be gnashing their teeth at the moment should keep in mind. Actually three things they need to keep in mind.
Alok: Right.
Dr. Vandana Aggarwal: The first is that India has never been a financial defaulter in its entire history. And that I mean, whether it's on World Bank loans, whether it's ODA-the official developmental assistance, whether it is commercial debt, etc., we have never defaulted. And here also, I don't see us going into default. The second thing is that one swallow does not a spring make. One airline of India which has gone into bankruptcy, and there are certain a few aircraft which are held, does not give the India picture to that extent. The AWG was very precipitate in giving us a negative outlook immediately. That was so precipitate.
Alok: I'm just clarifying, you mean aviation working group of the aviation.
Dr. Vandana Aggarwal: Aviation Working Group. I mean, when there were 123 aircraft of jet airways, which overnight came to be grounded. There was no downgrade because AWG understood that the government does not mean to keep those aircraft on the ground. Government wants those aircraft in the air. The optimal time for an aircraft to be in the air is 12 to 13 hours. We wanted that and government moved on that premise alone. And why? Because everybody in the chain benefits. The financier benefits, the lessor benefits, the airline benefits, the airports benefit, everybody benefits. But when you do something like this, which is only to the benefit or you are looking only at a lessor or a financier's position and then you are putting a negative this thing on the negative watch list. It has not looked at the huge humongous orders of India and what impact is going to add. Or maybe, maybe they are doing it on purpose because then this jacks up the risk for Indian airlines to pay and that fatten the financiers and the lessors, and perhaps also the OEMs at the cost of India, or Indian taxpayer and Indian passenger. I don't think this serves any purpose. You have to look at the entire chain and make sure, that's why regulators, that's why standardizing agencies, that's why governments have to be very wise. They cannot be precipitous in what steps they take. I think AWG should review its position immediately. The third thing-the aircraft at issue, the courts are seized of the matter. They have already allowed MRO related access to them. Allow a little time and this will also be handled. Where is the problem here? How did the problem start? Did the problem start because Go First was not in a position to fly its planes? Yes, of course. Go First was not getting the engines, and both the contracts were faulty. So when parties enter into contracts which have clauses which are self-serving, what do I mean by that? The guarantees that were given and were accepted by the lessors were land-related guarantees even though this is asset-backed financing. So the airline has gone into litigation on account of the guarantees as well. So I'm just simply saying that you must negotiate, the third point, you must negotiate your contracts in a proper spirit so that the Cape Town Convention obligations are upheld by both sides. The responsibilities and rights accrue to both, the airline as well as to the licensor or the financier or the equity holder. So you know you have to play the game correctly. Somewhere in this Go First case the matter is not so simple.
Alok: That's what I'm trying to wonder. I'm wondering the same thing because Jet Airways, there was the same IBC Act.
Dr. Vandana Aggarwal: No, no, Jet Airways was a pure simple financing matter. The company said we have a certain amount of debt, we can't discharge that, you waive off that debt, State Bank of India, XYZ, etc., and we will be able to go into position. It was a matter between one or two entities. It was between the debtor and the creditor.
Alok: But they went under NCLT process?
Dr. Vandana Aggarwal: One minute. Here there are multiple players. There is an OEM, the engine OEM, who's not willing to provide the engines because you know your last podcast with Avalon's technical chappie who said that there are problems with PW engines and timelines they're not able to meet , etc. So that is a problem. So you bring in one more player into this dispute. You have others who are also there in this dispute, including those who contracted these engines and how the guarantees were given on the aircraft as well as the engine. So you have multiple players over here besides the airline. So this is a slightly more complicated game. We are sorting it out. India always sorts it out, to the best interest of all players. Rest assured, no lessor, no financier is going to suffer. The Indian market and the strengthening of the global market from India, both are going to benefit from it. And we are not unmindful of this. The narrative has to change. It is not India's fault here.
Alok: I'm not saying that it is India's fault anyway. It's a private company which is going through. So I was only drawing a comparison that the same two acts are in play which is one is the bankruptcy act which was there in the time of Jet Airways and one is the issue with Cape Town Convention. The very two sides of the arguments are still in play right now and another airline which has gone bankrupt. While I think it can be a separate discussion all together, I 100% agree with you and it is in public space then one of the reasons they are saying is engine problems. Yes, there are engine problems, nobody can deny that. My opinion is that is one of the key reasons, not the only reason why they have gone bankrupt. But having said that, at the end of the day there are two issues, bankruptcy court and Cape Town Convention which was in the Jet Airways situation and now also. So I am just wondering, you have thrown some more light on it
Dr. Vandana Aggarwal: I'll just add one sentence. Of course, the movable property, the Aircraft Act, which is going to have an enabling provision for Cape Town Convention obligations for the Indian authorities and also resolving the issue between the IBC and any other act and India's obligations under the Cape Town Convention. I myself have worked on the draft quite a bit, the original drafts while I was still in the chair. And so that is going to come. It's a matter of time. I think we are waiting for the signal to place the matter suitably. Now regardless of that, when we handle the Jet matter, how did we do it? We did it legally correct way because there was an earlier High Court order which allowed when the earlier bankruptcies of Kingfisher etc., had happened and Spice Jet that we were able to use the judicial rulings in order to enact certain rules which the DGCA has been following and it has been following them to a T. And those rules were well before the contracting parties when they were entering into negotiations with a Go First or with anybody else. So everybody prices in the risk. Everybody has already priced in the cost on account of a delay or a legal listing. So you know I am not crying for over the false tears of the lenders, etc. They have already priced in that risk, looking at the legal regime. And we will sort it out. India's commitment to sort it out at the earliest. I will not, you know, I will, I can't emphasize it enough. I said that India has never reneged on any field. Why would it delay in a sector? It is itself trying to promote and set up.
Alok: True, true.
Dr. Vandana Aggarwal: It's mindless. So that's why what is needed is as I said wisdom on the part of these players who will only benefit from India's sector and aviation growth story and the neighborhood.
Alok: So I agree. As far as the lessors are concerned, what I can tell you is they definitely are invested and confident of the India story. That is why they're continuing to be invested. Having said that, also that if and when a concern is raised, and I think as you're saying, the Indian court of law , etc., will solve the matter eventually. And hopefully the right decisions will be made which will make all parties, it will never be where everybody will be happy, but hopefully it will be the right decision. See ultimately the
Dr. Vandana Aggarwal: And the size of the problem is very small. You know, it’s just a few aircraft. So you know you don't make the tail wag the dog which is what is being attempted to be done at the moment. That is not correct. India is too big for them to look at 23 aircraft or 24 aircraft and go into a tizzy. In the Covid period airlines were falling like nine pins and all the lessors were not able to move their aircraft out for Covid reasons. Not in India but in the rest of the world. India still went courageously to Wuhan to take its people out. So you know there are so many good stories which need to be looked at from the India Aviation front. We went to every country in the world where there are Indians to bring out safely, for their safety, the Indians who were there, back to India. So you know we do things right, even from Yemen where there was, we took out 200 people who were non-Indian in origin because they asked us for our help. So you know, let us look at the big picture.
Alok: Yeah, I don't know, you're right, I... That part is given.
Dr. Vandana Aggarwal: India has built world-class airport infrastructure. Delhi airport is in the top 10 now, pax wise. And look at the fabulous infrastructure. I go abroad so many times and it's difficult to see such beautiful facilities which allow you. I was at Mumbai airport just last weekend. It was a wheeze through. It took me four minutes to reach my boarding gate.
Alok: Yes.
Dr. Vandana Aggarwal: And I didn't sprint.
Alok: No, ma'am. I also take hardly any few minutes because now India has the latest face recognition
Dr. Vandana Aggarwal: Yeah!
Alok: Digi, Digi Yatra technology, and for domestic flights, especially it's a breeze. It helps a lot. I 100% agree
Dr. Vandana Aggarwal: So, the ecosystem is also building up which will help leasing because Safran has committed to set up an engine shop,
Alok: In Hyderabad.
Dr. Vandana Aggarwal: Boeing has committed to set up a conversion pax to freighter conversion outfit in India. So, I mean you know the rest of the things are also falling in place which will promote the ecosystem of leasing out of India. This is also a point I want to emphasize.
Alok: See, one thing is given, I also believe that no country or no economy will have always a perfect straight line. There will be troughs, highs and lows all the time. And the matter is how to navigate them. When there are lows, how to navigate them. And I think that the bottom line is that ultimately the lessors or any other overseas investor who comes here, they look at rule of law. If the rule of law is there and there is consistency in enacting those rules of law and consistency interpreting them. That is what they look for mainly. And ultimately every country will have their own way of doing things, their own rules. As long as the rights which are rightfully recognized by the international laws are recognized, that should be that good. You know, that is where I think right now the lessors the concern is they're not getting a lease rental. Airplanes are there for a few months. Total fleet size is I think 60 plus for those guys right now, which is for Go First I mean. Half of the fleet is grounded, more than half is grounded. Your right injured issues are to be solved for the airplanes to fly. But ultimately the lessors are the ones who are holding the bag as of now the way they look at it. So let me now move on to
Dr. Vandana Aggarwal: Not for long, not for long. They won't be holding the bag.
Alok: I hope so
Dr. Vandana Aggarwal: They kept the bag for long.
Alok: I really hope so. I think I agree with you should not be too long.
Dr. Vandana Aggarwal: Yeah.
Alok: Moving on from we have spoken a lot about Gift City and your work in that space. Obviously, a very impressive career journey and the whole piece about building the aviation ecosystem and what are the next things. You have also given your perspective rightly on what you think is going right and what more can be done better. I think that is where it is very, very helpful. What I would like to know is, in your overall career journey, how you have in your career grown up the ladder and where you have reached finally, what are the key learnings, if I may ask you? Purely from a career learning perspective.
Dr. Vandana Aggarwal: Okay, so I,
Alok: Because so much you have achieved, it will be good to know that.
Dr. Vandana Aggarwal: It's very simple. Your objective function has to be right. What is it that you are aiming to achieve when you set out on a particular project or undertake a particular task? If that objective function is right, everything else falls in place with just sincerity and hard work. Nothing else is needed. If the objective function is right, here it was India needs for strategic and other considerations a hub from where aircraft can be leased into India leased and financed into India and the rest of the world because of India's position in the aviation market which is the third and so on and so forth. We can't afford not to have it. So once we got that objective function right, whenever we went out for change, seeking change in existing laws and ways in which matters were entrenched, nobody could say no. How can anybody deny that objective function? So this is something I have realized throughout my career. Make your life simple. Take up projects in the best interest, national interest, global interest, no self-interest. And just work, burn the midnight oil and get it done. And there will be enough people who will walk into your room to tell you where certain tweaking needs to be done, where things can be improved and that works because you are getting the best practical advice as well. Third is consultation. Like I said, consult everybody. We consulted all the ministries, took them on board, got their signature. Yeah, we are with you on all the recommendations. So the officers who are going to get the recommendations are already on board. The ministers who are going to look at those recommendations are already on board. So it is fast-paced. You are not doing it, Ok, I brought out all my recommendations, now let me go and consult. No, no, no. You've already consulted them. Simultaneity rather than sequential approach.
Alok: So prior consultation and working in parallel, right? I just wanted to know from you any message you want to give to the audience. The final message from your side. That would be great to know.
Dr. Vandana Aggarwal: Well, I can just say that the Indian aviation sector deserves a chance from global players who are still sitting on the fence. I think in my talks with most of them, and I've spoken to most of the lessors in the last three to four years, and I appreciate the fabulous commitment that they are showing. The good interest in all my consultations with them. The report didn't come out from a vacuum. I consulted them. So they are well aware of the things we were planning to do. They are sitting on the fence for some reason. I urge them to just get off their backsides and to put their money in the Indian aviation sector. That's my last message. You will not lose. You will only make millions. I thank you.
Alok: I love the candour, Ma’am, thank you very much. And I really appreciate your time. Thanks for sparing time today. I think you're joining us from Delhi all the way, from your home. So thank you very much once more and wish you a good rest of the week ahead. Thank you very much.
Alok-Hi everyone. Welcome to the latest episode of Flightpath with Alok. Today I have a very special guest and I think this is a very special episode we are recording, because for the first time we have a guest in person in our studios, Mr. Aidan Reynolds. Please join me in welcoming him. He has made time to be in person. He happened to be visiting Bangalore and I took the opportunity to request him to join us in person. Aidan, welcome to the show.
Aidan-Many thanks Alok. It's a pleasure to be here.
Alok-Maybe if you'll care to please share with our audience, your career journey, your own background, and how you managed to get into aviation and what you do now. It'd be great to know.
Aidan-Sure thing. I grew up in Dublin and the reason I sort of chose engineering as a career path was my father was an engineer and my elder brother was an engineer. And when I was a kid, I always liked, you know, fixing bikes, the girls, when I was younger, and that led into motor bikes and cars. And I always had a fascination with engines. So my first foray into aviation was working for Airmotive Ireland in Dublin. There was a subsidiary of Aer Lingus and we were overhauling, started on old 707 Boeing 707 engines, JT3Ds. Also, 737, 200 JT 8D engines. And, 747 JT 9D engines. And I had a great experience working in Airmotive Ireland. One of the CEO at the time was a gentleman by the name of Oliver Boden. Oliver was a great driving force in that business, and somebody I really aspired to. And also one of your previous guests on this podcast was a man by the name of Hank Gibson. He mentioned that his first foray into aviation was with a company called Aeges and, which the CEO at the time was Oliver Boden. So it's quite interesting how, you know, our different paths are intertwined. But in Dublin at that time in the early 80, mid eighties it wasn't a very pleasant place to be. Unemployment was, especially, you know, young people unemployment was extremely high and, to progress, and I was an ambitious person. To progress in that you were waiting for dead men's shoes is what we used to say. You know, the people didn't leave their positions, you know. So, I applied for a position with Monarch Airlines in the UK and I joined them as a mechanic working on aircraft and on engines. And I always had a forte for engines. I loved, you know, being, you know, around engines, et cetera. And I ended up, well, in my time working for Monarch, obtaining my, CAA license without type rating. And I stayed with Monarch for 10 years. And my path took a slight twist then. And I joined a company called Aviation Sales based in Miami, Florida, And Aviation Sales were into aircraft leasing, engine leasing, tear downs, parts, everything. And it gave me a great appreciation for the commercial side of aviation and it's really down to a part number level. And I think, you know, if you're, you know, in that trading environment, it is down to a part number level. So I spent a number of years with Aviation Sales and then progressed to work with Pratt and Whitney. I was in their, what was called their commercial serviceable asset team, and I was responsible for Europe, Middle East, and Africa for the used serviceable material that was predominantly not Pratt product. So we were buying CF six engines. We were buying CFM 56 engines and from the CFM 56 engines, we were feeding that, those engines in for part out into the Pratt engine shop in Norway at the time. And that was quite an exciting period of my career. And it sort of further developed the, you know, my valuations on the engines and getting an understanding of the commercial side of the engines. From that Macquarie, the Australian bank were starting an engine leasing business based in Dublin. And I joined a gentleman called Andrew Pierce in the, you know, the early days of that business. And, we built that business up to approximately 87 engines in about five years. And you know, it, we had a small team of approximately 12 people, in that team. And we, you know, it was quite a successful business. But, for reasons, Macquarie decided to sell the engine leasing business. And they leased, they sold the business to a company called ELFC based in Shannon. From there I moved to a Japanese company, which was MUL Aviation Capital. I joined the business in January, 2012 in Dublin, and, we further went on to purchase Jackson Square Aviation in 2013 and in 2014, we amalgamated both businesses into one. So MUL AC and Jackson Square became one entity at that particular time.
Alok-Interesting. I recall when I first met you in Ireland during one of the maybe events, you were still in Macquarie that time. I remember having a brief meeting with you first time, it's interesting how the threats connect. And so, let me ask you this, as the CTO now in Jackson Square Aviation, I believe a CTO's role is possibly not just technical, but also highly commercial oriented, right? It's a kind of an amalgamation that combination of two. Would you care to expand a bit about your current role and what are the skills you think, tech and commercial areas, how they are brought together in the new role, which you do?
Aidan-Yeah, I think both are inter intertwined. And quite simply, if I'm explaining, what does a technical team do within an aircraft leasing team? They are basically, asset value protectors. So the, you know, ensuring that we buy an aircraft that's brand new when we lease it out, that when we get it back, that it's the same value, you know, thereabouts as the aircraft should be, and that it's fully, you know, movable that we can move it from one jurisdiction to another jurisdiction. And, you know, and it's in an airworthy condition. Also, we translate in technical, we translate technical problems into dollars. So, it's to quantify an issue if there’s a technical issue on the aircraft that we quantify that for, you know, for the rest of the team.
Alok-Would you care to expand with an example maybe? That's a very good analogy. I think you have given that translate technical to dollars maybe. Some example just for the industry. Nothing specific to JSA, but.
Aidan-Yeah, so it, and the example that would come to mind is that-you have a brand new engine or brand new aircraft that you lease to an airline. The airline goes and does a shop visit on the engine. Most, if not all, leases would have value and utility. If you're replacing a part, it must be the same or improved value and utility as the part you're replacing. If the, you know, the airline replaces the parts, say the engine has 27,000 hours on the first run. And they replace the combustor within that engine, and it's got 57,000 hours. That's not the same value in utility because that particular part will only be repairable for a finite number of times. You've lost probably a third of the life of that part if you accept that in your engine. So it’s, that's the type of, and we'd quantify what would that mean for our business.
Alok-That’s a very good example. Thanks for expanding upon that. And, you know, let's move on a little bit on the, build upon that point, which you made on the industry trends. As to what we are seeing in the industry today. And, what is, because I think, if I'm not wrong, what I've understood is your background is primarily engines, right?
Aidan- It's strongly engines, yeah. But in the last sort of 12 years, it's sort of morphed into more on the airframe side and et cetera. But I, you know, my foundations is certainly is engines. Yeah.
Alok- In the role as a CTO of a global lessor as a Jackson Square Aviation, so the way I understand is that Jackson Square is a very interesting business as well, because I think they have a base in San Francisco. And you are based in Dublin. And I think they have offices another parts of the world. So on an operational level, do you in what, you know, there's a unique mix here, right, of American background, Irish center of operation, I think possibly office in Singapore and other jurisdictions too. From an operating culture and a business model point of view, how do you see that? Do you see any, any interesting learnings from there? Any interesting challenges or opportunities which help the business overall?
Aidan- Yeah. I, you know, Jackson Square hasn't got the biggest team in the industry. And we're not the biggest, lessor in the industry, nor do we aspire to be. But, we have very, very effective teams. You know, we've got, like in Dublin and San Francisco, we would have you know, all disciplines within the business. We'd, you know, we'd have risk, we'd have technical, we would have pricing, capital markets, commercial. And you know, in Dublin we have, you know, three of our, C-suite executives, and in San Francisco it's approximately the same as well. Communication is key. I think we communicate fairly effectively, you know, globally between each of the teams and also the teams in each of the regions do have a, a lot of autonomy, in, you know, to make decisions and to drive the business. So, yeah. Yeah.
Alok- That's interesting. The reason I asked that question was because from where I come from and what we do, we have a globally spread team too. And one of the initial challenges when I was setting it up was how to integrate the work cultures and get them to work as one unit. And I think one key thing you have hit is that the C-suite executives, that leadership is spread around. They're not all focused in one region. I think that may be one of the reasons why it helps to integrate the team together. Right?
Aidan- Yeah. I also, yeah, it certainly does. I do think it does contribute. But I think within Jackson Square we have a very flat structure in, you know, we don't have too many levels of layers of management. And also, you know, we, I hope, you know, and we work hard and everyone's voice is heard. And, you know, we have a very respectful culture within our business. You know, like it's, we listen to what people have to say.
Alok-So, the next question I have specific to Jackson Square Aviation is, what do you see are the unique strengths in terms of like, what your fleet strategy is? And how do you see Jackson Square as a uniquely positioned lessor among the market? Not necessarily just talking about the competition, but generally the aircraft leasing market. What makes Jackson Square special, let us say. I think that will be a good, good thing to learn.
Aidan-Okay, so Jackson Square has today, you know, honour Inner Fleet or to be delivered is approximately 210, 220 aircraft. Within that fleet it's about 25% wide body 75% narrow body. The business is probably about 40% based in Europe, Middle East and, Africa, and 30% in the Americas and in the Asia Pacific. Predominantly our business is sales leasebacks. But we do have an order book with Boeing. And we do have a couple, a number of other financial products that we offer to the market on a limited basis. Our business is really, you know, we're, is driven. Our fleets selection is, you know, we are, in A 320s, the A320 family, the 737 family. And then the wide body is the, you know, the focus is on A350, 787s. And we have a handful of A330s as well. But predominantly our business is driven by what the market is wanting. So we are, sort of, quite heavily, on the A320 more so than the max. And that's not by choice of strategy, that's just what the market is developed over the last number of years because of the grounding. I think the unique selling point that JSA has is that we're very reliable. We do execute and we do, you know, say what we're doing. And also I think our unique selling point, and I say this to within our technical team-what can a technical team bring to our business overall? And that is a level of fairness. We do not try to squeeze every dime out of a lease agreement. You know, we do consciously work and, with our airlines in a very fair and balanced way. And I think that, and that has shown dividends. We've had a number of airlines who've come to us at very short notice and asked us, could we step in because somebody else has stepped away and we've gone and executed business on that basis.
Alok- So that leads me to my next question, and I think it's also associated with the fact that you're right now in India. Obviously not your first time here, but I think it's your first time in Bangalore, right? So welcome again, but the question I have is, what is the, I think JSA has quite a few airplanes leased into India? So I would love to know, and that obviously means, the Indian market is an input partner for Jackson Square Aviation. But I would like to know your perspective on today, as a lessor into India, how do you see the Indian market?
Aidan- Well, you know, one of our largest lessees is Indigo Airlines, and we've been with Indigo for many years and we have very deep and strong relationship with the airlines. We've seen the recent orders that have come out of India. Indigo, you know, in particular is very large backlog. Air India now, with their recent large orders, you know, with the recent takeover by Tata, they're gonna be such a force, within not just the Indian market, but you know, the whole region. India is, you know, such a large percentage of the world business going ahead. So, yeah, you know, I don't think any lessor can ignore the Indian market. But I think, you know, we'll talk about GoAir. It’s in the media. Jackson Square as all lessors, have had great difficulty with the GoAir situation. The airline went into receivership in May. None of us have they been able to access our records or an aircraft. That is a deep concern and a challenge, I think for aviation in India, but not just aviation. I think the whole of India Inc. is going, it could be affected by this, and I'd hope that there's moves afoot within India in the judicial system to rectify that situation. You know, one of the most simplest, you know, rules in aircraft leasing is can you get your asset back? And if you can't get your asset back, then the question is, should you be doing business in that jurisdiction?
Alok-Right. So, obviously what you're talking about is the ratification of the Cape Town Convention. No, India is, and I'm just saying this for the sake of our audience, just to expand upon that. Basically all this is in the, in the news already. Cape Town Convention India is a signature to it. However, India has not made this or codified this into a law, into the Indian system. So unfortunately, the Courts have been taking an opinion that the bankruptcy court, the IBC, takes precedence right now over the rights of the lessor, which are driven by the Cape Town Convention. I am not a legal expert, but just to summarize, that's in a nutshell.
Aidan- That’s correct. That’s a good summary.
Alok-I think that is what is happening, and, you're right. It does not help the aviation industry in India because Indian aviation is hungry for airplanes. And, lessors like yourself want to enter the market even at a bigger scale and help the airlines to grow, but that requires your assets are protected as well. And that's, I think a fair point to make. And, in the short term, now, see, one of the challenges, and I think this is just leading naturally to the next question, is that GoAir has been claiming, as we all know, that their problems stem from issues with the Pratt agents. There are, in my previous episodes I have spoken to various, experts in the industry, and the opinion is mixed. Although everyone agrees that the engines have problems, yes. But the opinions are mixed about to what level those problems are. And I think I'm very keen to know, what is your perspective, obviously in your unique position as a CTO, but also because you are very well respected in the industry as an engine expert also. So your opinion matters a lot. And, if I may just mention in your career journey, you have been an, you’re an ex-employee of Pratt yourself, right? So it'll be great to know your perspective on the, and it's not just about Pratt, I'm talking about, I'm just talking about new generation engines. And the challenges the industry's having now, in general.
Aidan- Yeah. I think, and it is not just Pratt Whitney, you know. Other OEMs are having issues with entry to service on their engines, especially in harsh environments. India would be a similar operating environment, probably slightly less severe than the Middle East, but it still would be a considerably harsh environment to operate engines. And the time on wing, it being achieved on all new engines within harsh environments is not very good. It, you know, it's not just down to Pratt and Whitney. You know, with GoFirst's claim on the reason for the grounding, I think it is a contributing factor, but it's not the only factor that's, you know, caused to the demise of the airline.
Alok- What do you see technically the biggest challenge now? Going forward on the engines.
Aidan- As a challenge, I think from a technical perspective is the, we were all believing what the OEMs were saying is that the time on wing, the real expectations for the new gen engines would be similar to what the previous generation were. I don't believe that's going to be the case. And I think, the OEMs are, you know, are getting to that similar place. We're seeing increased advice on the cost of maintenance. I think the engine reliability will not be the same as the previous generation. They're running hotter, they're running faster, they've got more complex material in them. So I think, you know, we're going see less time on wing and we're going to see higher shop visit cost.
Alok- Do you have any insights or any, do you care to maybe predict when this situation will improve? How this or do you see, this engines technology catching up in terms of the problems the engines are specifically having, in terms of material development or such.
Aidan- I think the CFM have stayed, like they have issues on the turbine hardware in harsh environments in particular. They have said that they'll have a fix within the next, you know, 2-3 years that will be within the fleet. I tend to agree to that they'll achieve that you know, stability within the fleet. I still think, you know, the harsh environment will have a severe negative effect. That's a hard with the previous generations in harsh environments. Pratt and Whitney they still have their challenges. They've got the introduction of the advantage engine which should be coming into service towards the end of 2024. That will remain to be seen.
Alok- If today, in this environment over the last few years or now, any airline is specifically starting operation in this region, I think what you're saying is COs or classics are a better choice of assets for now to keep their cost and their serviceability or reliability of fleet up there. Am I right in drawing that conclusion?
Aidan- Yeah. You are.
Alok- And possibly the deals and new generation should be let , mature.
Aidan- Let mature. Yeah. So the re-paraphrase your question Alok is, you know, startup airlines in a harsh environment, should they be operating new generation engines? My opinion is no. If we take India as an example the V2 500 and the CFM56 added with, operated within the Indian environment very, in a very predictable manner. They were a very stable you know, engine. Now they had a severity factor in higher scrap rates and less time on wing. But you were getting a decent level of time on wing on both those engines. If you know, if it start up airline, no matter how well they are financed, no matter how well they're managed, if you end up with 50% or 40% of your fleet on the ground, it's going to have an impact.
Alok- Yeah. And we have a, we have a live example now, at least here in India. And, you know what, it's something very interesting. So, one of the gentlemen who used to work in Acumen's power plant team was Mr. Joe Jacob. And his past life, he used to be the Head of power plant of Jet Airways. There's something he used to say and is recently retired now, not working with us anymore, sadly. But a few months back in a conversation, he mentioned to me something which stuck with me. He said that while it is true that India is a harsher environment for engines, but his point was when the OEMs it's not more just engines, any other product also. When the OEMs make the sales pitch to the airlines in this region, that needs to be already taken into account. They are aware that it's a harsher environment. And the time between shop visits or time on wing, which is sold so to speak, needs to take that into account already. And his one frustration, which he always used to express was it never used to match, the sales pitch, which was there. And I'm sure there are other reasons also for it, not just the environment, but that used to struck me to a point which he used to make. And I take credence on that because he was heading the power plant for Jet Airways for many years.
Aidan- I think the, the man was probably on the money. Yeah. It's, you know, we've seen that you know, when you're buying a car, you're buying anything, you know, paper does not refuse in.
Alok- Yeah. That's a good point. A good phrase. So let me ask you this, Aidan. What and what you're doing now, what, from an industry technical leasing perspective, what do you see going forward now in the immediate future, is your biggest fear or challenge?
Aidan- My biggest fear today looking at the, you know, from a technical perspective and also a commercial perspective, is the involvement of the OEMs in our business. In particular the engine OEMs and, you know. And not just, you know, being happy to, you know, be produce engines and sell engines and repair engines. But you know, where they're controlling the total MRO market. That's not healthy. And we're seeing that happening with one OEM on the narrow bodies. We've seen it with another OEM on wide bodies, and wide bodies has a limited population of engines, but the narrow body is an extensive. And to have that control over that market is of a particular concern to me. And we're seeing also one of the, not one of the OEMs, actually both of the OEMs coming out with LLP coupons or LLP vouchers at the end of lease. So they're entering, they're giving the airlines, in my opinion could be wrong, is a discount on the LLP pricing. And at the end of the lease where in their airline would particularly, usually, pay the lessor compensation based on the life they consumed during the lease time, there’ll be you know a compensation package required. Now they trying to have lessors accept an LLP credit that would go forward. Now, if you have an engine that, or an aircraft that's 12 years old and the next shop visit is, you know, two, three years, post that shop visit, you know, have an, and you have a 100 percent LLP coupon, the potential for you to crystallise and use the whole value of that LLP voucher is limited. It is a risk that you may not use it and you may be forced to do a shop visit at year 18 plus, which most lessors have no appetite to do. We at the end of the life of the aircraft, it's very much down to engine management because the cost of the engine shop visits at that particular time are pretty, you know, extreme, in comparison to the book value of the aircraft. So you would, you could end up putting $20 million into an 18 year old plus aircraft and under no circumstances with the rent you achieve, you know, cover that investment. So that is of particular concern to me, and how the OEMs are trying to control and influence the lessors business in particular at the, towards the latter stages of the aircraft life.
Alok- LLPs, life limited parts of engines is what you're referring to. I want to elaborate on this point a little bit. Would you care to give an example of options to the coupons. This coupon concept, which it was explained, which is frankly I have to admit, is totally new to me. I would love to know what was the case prior to that?
Aidan- Yeah, the case prior to that is traditionally, or up today you would have, the lease would terminate. At the end of the lease, there’s a compensation required and that is based on the life consumed. And that could be the life consumed on the engine, the life consumed on the airframe, but also the life consumed on the life limited parts. And you would have that cash. So you take that cash and you would go to the next lease and you would compensate the next lessee of the aircraft for the maintenance consumed by the previous. What the OEMs are looking to do now, not give, the first lessee will not give cash for the LLP, but they'll give a credit. But that that credit is linked only to that engine or maybe only to a particular part or module within that engine that you can use that credit. So it, and that if you could consume the credit at the first shop visit post the first lease, that may be something that's palatable. But if there's a risk that you're not able to crystallise, use all that credit and you're carrying, and the only way that you can use that credit is at a subsequent shop visit, that’s where it becomes very, very difficult.
Alok- Right. Right. And so this is related to the tri-party.
Aidan-Nope. There’s nothing to do with tri-party, nothing to do. No there's no tri-party agreement. There is an actual agreement at the end, at least between the OEM and the lessor.
Alok- Okay. Okay. So it's related to that though. But the airlines are okay.
Aidan- Yes. Yeah. Quite difficult.
Alok- Yes. Yes. This is totally new thing. Maybe we need to have a separate episode just to discuss this. This is very interesting. Okay. So I think do we care to move a little bit away from tech? And talk a little bit about your role in the commercial sense a bit given what you do in Jackson Square now. I think we initially mentioned that the role is more techno commercial, right? So, and you did mention with a very good example that you’re, the main role of the department is to serve the, or to protect the asset value, obviously. And I think, so on the commercial side, you know, what skill sets do you see coming in together in your role in there in the business?
Aidan- I think the, if I look back at my career I think in the parts trading section, I, it really gives you an understanding on a part number level of what the value of a part is. You know, a simple dash number going from a dash one to dash two can have dramatic effect. So that, you know, gave me a great grounding on the value of an aircraft on a piece-part level. So when, when you take it into the, the day-to-day business, and we're evaluating the condition of an aircraft, whether it be a redelivery or an aircraft or purchasing. I think that's a valuable skillset to have. I don't think anyone can be in a senior technical role within an aviation leasing company that doesn't have a commercial acronym. You know, it's technically if you're working in an airline, a lot of things are black and white. Is it serviceable or is it not serviceable? But when, you know, you're in a leasing company and you're interpreting the condition to certain you know, situations, you need to sort of appreciate the condition and appreciate the risks on forward, but you have to sort of have a commercial acumen to look at what's best for the business.
Alok- Yup. And, and that is true. I think it's true for any business. In fact I do recall , one gentleman in the industry here once mentioning to me that one of his frustrations and this, they have a they have a group of engineers in an unrelated area. But they were mentioning one of their frustrations is they struggle to have the engineers who also can get the commercial aspect of the business. As you said, they live in a black and white world. Maybe that is how they need it to be. But then the struggle is sometimes you don't have the commercial acumen, I would say, for lack of a better word. And then that becomes a problem. No pun intended. But that was the only word I could think of. To go on to the, you know another area which from an overall leasing perspective would be interested to know, does Jackson Square has a strategy on P2F? Are you into, are you looking at freighter market or are you already active there?
Aidan- We have secured slots for 737 conversions. We made that decision in Covid as an option, as a tool in our asset management of our aircraft. Today the passenger market is very strong and particularly it's very strong on the MG, the 737 MG. So we will keep the passenger, the freighter, you know, slots as part of our decision making process. But, you know, as we get closer to the induction date of those aircraft we'll make a decision whether it's best for us to convert the aircraft or to maybe postpone that to a later date.
Alok- So keep it as an option.
Aidan- Yeah. But I do see us at some stage being converting aircraft. Yeah.
Alok- The market was at a peak few years back, but I mean maybe 2 years back. But now it is a sight of cool down in a way.
Aidan- Yeah. But there, I still think or we still think that there is a place with our portfolio for conversions, you know. And there's a, you know, there's a stock of 737 classics that are, you know, in operation today, you know, with various cargo airlines. They’re hitting their life limits now you know. And there may be further retirements coming down the line.
Alok- Covid has brought in a lot of changes in how we work now. And I think you and I were agreeing yesterday in a way that there is no going back, it seems to a certain ways, right? What do you see, and I'm just asking this because, being active in Ireland. I see that the market for talent is always very hot, which is a good thing for people there, obviously. But also I think for business leaders like yourself, it could be also a good challenge. To manage, to retain people for long term because replacement is always more expensive no matter what you do. In terms of time also not just cost. So do you care to throw some light on, what do you think the market is like in terms of that? And what do you think is the right way to retain, attract the right kind of people and keep them long term?
Aidan- Yeah. If I look at my own career I always had a hunger to learn. I always wanted to do the hard job. I always wanted to, you know, not take the easy job, because I thought it was more of a learning experience when you took the most difficult job that was, you know, available at the time within the different companies I worked in. So I, and I always, I never had a hunger for money in my early career. It was a hunger for experience and education. Like if I looked back, you know, from when I started in the industry for the first 15-17 years, I was constantly learning. Constantly doing type courses. Constantly doing, you know, development courses et cetera. And trying to get, you know, identifying the best people within the team. And I worked with some very, very talented people, and I tried to learn from them. Hiring people, I think it is difficult, and in the current environment. But us in Jackson Square, we've been successful in hiring good people into our team. And I think that's, again, going back to the culture. Within Jackson Square, we have a very respectful culture and for, regardless of what the person's status, and everyone has a voice. So, I do think you know, we've grown. We've grown significantly in, particularly in Dublin in the last two years. And we've been able to hire the to good talent. Regarding, you know, Jackson Square does have a hybrid working team. Sorry. Jackson Square does have a hybrid working policy. That does have its challenges, like it does for all the industry. But I think we work it well. We, you know, it gives people flexibility for quality of life to, you know, balance their home and work life. So yeah it's, I don't believe there's any going back from that now.
Alok- And do you like it?
Aidan- That's a good question. From myself personally, I go to the office most days. I like the office environment. I like the collaboration in the office, but, I'm respectful, that's not for everyone.
Alok- I must say I like the in-person format and basically I'm just stating all the obvious that for me also, I like to be in office more often than not, you know. And I agree that that helps a lot in terms of career growth and opportunities for everyone. That's interesting. See the thing is the whole new work culture and the new workforce, which is coming in, one of the aims of this podcast is to actually appeal to that generation of young executives who are getting in the industry or are, who have just gotten over last few years and are looking to grow their career. You know, I think it'll be, it'll be great for them to know from you, career advice. What do you, what do you tell someone who is starting their career now and just recently started? What should be the right strategy for them to grow?
Aidan- I think one of your previous interviewees, you know, nailed it when he said aviation is just not about airlines and engineering. There's many strands that within the aviation business and aircraft leasing is one of those strands. And there's many strands within the aircraft leasing business, you know, from technical to legal, to commercial, to risk, you know, capital markets, et cetera, et cetera, et cetera. My advice is very simple. Work hard. You know what, you cannot beat a good work ethic. Attention to detail, you know, is so important because you build your credibility on your attention to detail. And also, you know, surround yourself with strong people. People with experience. Look at who the strong people within the business are, and you know, buddy up the those. And again, you get paid for your knowledge and your experience within this industry, you know. And so grow that knowledge and experience, you know. Don’t worry about the salary so much in the early days. It's not what it's about. It's getting your experience and knowledge. The salary will come later.
Alok- And I think that's a great point and, I hope more people hear it and follow it. It’ll help everyone. And in my own experience also, I think that is the right strategy, I would say. Definitely. One of the questions, Aidan, I have is related to environmental, social and governance responsibilities. ESG is now at the forefront. Even in the investments which are being done, there are investments which are called, so-called green investments, or green funds or ESG compliant funds. And I think your business, given the scale and the kind of shareholding you have, will definitely be, I think one of the key players in that area as well. Would you care to just throw some light on, from Jackson Square's point of view on that?
Aidan- Yes, it's certainly a look. Jackson Square has just entered into its first green lease with Air France. And so, you know, and we take ESG very seriously. We have an ESG committee within JSA to look at, you know, our own environmental footprint and what should we be doing. And it also, it does, how can I say, focus our investment decisions, you know. Like we are predominantly solely focused on investing in the latest generation, more fuel efficient engines. And also our shareholders are investing heavily in different initiatives, you know, within the business.
Alok- You just mentioned about green lease. Would you care to expand, for our audience, what a green lease is and how is it different from a normal lease?
Aidan- Yeah, it’s, there's incentives within the lease agreement that if a certain milestone is reached by the airline, there is a financial incentive for them to do. So they get a reduction in lease rates based on improving their, you know, their environmental footprint.
Alok- So example, maybe SAF?
Aidan- That could be one. Yes. SAF. Could be in increased use of SAF, or in fleet renewal programs and reducing their emissions over a, you know, a year on year. That could be another one. Yeah.
Alok- Do you see increasingly more airlines will opt for that?
Aidan- It's certainly something that we are seeing here and there. I'm not too sure. I'm not sure.
Alok- Yeah, it'll, I'm sure it'll have its own challenges too, but yes. Okay. That's a new one to add in our podcast green lease. So that brings me to the end of the podcast, Aidan. Thank you very much for your valuable time which you have spared from your busy trip here. One of the, you know, last questions obviously I have is, to any message you want to give to our audience, to the young executives out there, to the industry, people who are going to listen to this and watch this, that will be great.
Aidan- Okay. I think, you know, aviation is a very, very exciting industry to be in. It's something, you know that I've, I'm so blessed to have had my career in aviation. And I think, you know, if you enjoy what you're doing, it's not work, you know. And I would say coming into aviation, there's so many pathways, like where I started and where I've ended up is totally different. And it's, you, I don't think it's possible to do a planned career path. I think it's, you know, you come in and get into the industry. If you have a hunger to get into the industry, get in at any level. And that will open doors. And, you know, educate yourself, work hard, and you may take a step one way that will lead you in a totally different direction. But that's okay. You know, like the more experience you have, the better. But I highly recommend this, say industry to any person, any young person to come into.
Alok- Great. Well, thank you very much once again.
Aidan- Thank you.
Alok- And , I hope we do this again soon.
Aidan- Okay, pleasure. Thanks again Alok. Cheers.
Transcript:
Alok:This episode you are about to hear or watch, for me personally it is special, because my own background is aircraft engineering. And the gentleman who I’m interviewing today, he is from a technical engineering background himself. So I am going enjoy this podcast. I am going to really have fun while asking questions and learning, and I hope you have fun too, thank you! Enda, thankyou for joining me for this episode five of my podcast Flight Path with Alok. It's a pleasure to have you. All the way joining me from Dublin. I'm recording you from Bangalore right now and you know to start with straight up maybe an intro about yourself.
Enda Swan: Absolutely. Sure. Look, and look, it's a great pleasure to be able to join you on this podcast. I've been listening to the past episodes. I've enjoyed them all tremendously. Some ex bosses along the way. So, yeah, I'm Head of Technical in Avolon now. So it's a role that I'm very proud of at the moment. And I've been working in this role since October last year. But to give you a bit of background and tell you about how I started career, where I came from. So I guess starting way back to when I was a child, I grew up in rural Ireland. Again, very, very agricultural, heavy teamed upbringing. So I worked most of my childhood and most of my teenage summers on farms. And I guess it was there while I really, I really learned to be hands on with everything I could be. I loved getting down and dirty with everything, trying to fix machines, loved trying to figure out how a machine worked, an operating machine. So I really had a fondness for engineering and how everything came together to work. So oddly enough, I didn't have any exposure to aviation at all as a child. The family I grew up in, again, agricultural background, we didn’t, we never really traveled far for family holidays. It was always very local. So I never had any exposure to airports, aircraft, airplanes, anything to do with flying. So my interest in aviation came from a very bizarre place. Back when the first Gulf War kicked off, I was fascinated by the TV coverage of the first Gulf War. I used to sit in the evening time looking at the news reports, watching in amazement watching aircraft carriers, aircraft taking off from aircraft carriers, attack helicopters, all the sort of aviation themed war instruments, I suppose. Which is a terrible thing to say that that's where my interest in aviation came from. But that's what really awoke my sort of attention to aviation. As it sort of progressed then, I do know the closest I ever got to aircraft was really just sitting at home and looking up at the sky and see contrails going over my head and just wondering, you know, trying to figure out because I did have a love for geography as well. So I'd always try to figure out where was north and where was east, where was west, where was an aircraft coming from, where was it going, who was on that aircraft? I was just fascinated by it. But, again, I had no exposure to it. So it was just a sort of a desire that I had to get into it, but I had no real clear idea how I was going to get into aviation. I worked very hard in school. I was a good student, I wanted to get ahead in life. So I wanted to, I knew that I wouldn't have a really good career in my locality, in agricultural background or in any other roles that really were available in the countryside where I was born. So I knew I had to work hard in school to get to university and make a career for myself. Engineering was always going to be the direction of travel for me. And as I progressed through school, my choices were always sort of civil engineer, mechanical engineer themed. And as I was approaching my final exams in my school, and in Ireland, the final exams, you're sort of rewarded with points for, with how good you do for those exams. And all of your points add up to a total. And that's what sort of gets you into the courses that you apply for in the universities. So all of my top 10 courses would have been, as I said, engineering courses. But we had an absent teacher one day. So we had a free class in school and the career guidance teacher was actually looking after us. And, I was talking to him during the class and I told him about how I was interested in aviation. And he told me about this new course in the University of Limerick called aeronautical engineering. It was about three or four years old at that stage. And that I should look into it. So I did. I looked into it. The points were a little bit stretchy for me. I thought I'd be under a little bit of pressure to make those points to qualify for that course. But I put it number one on my list. And as I said, worked and worked and worked my socks off. And managed to get the point. So I was lucky enough, I qualified and got a place at the University of Limerick. But I nearly didn't make it there because the other side of my aviation desire was to fly aircraft. And that summer between school and university, Aer Lingus had offered up some cadetships for pilots. And there was about 2,000 young boys and girls applied for that year. And I was one of them. I don't very well. I got down to like the last 50 out of 2000. So I don't very well in the process. But when I got to the when I got to the final stages, the last few interviews, my I guess my lack of exposure to commercial aviation, my lack of exposure to travel, my lack of knowledge about Aer Lingus, what type of aircrafts they flew, how aircraft operated sort of was to my detriment. And I didn't get that role. But happy enough, went off to Limerick to start my training as an aeronautical engineer. So that was a four year course in Limerick and part of that course was we had to do cooperative education, which was a nine month placement with an OEM or an MRO or some sort of aviation themed company. And luckily for me, I got a placement in Shannon Aerospace in Shannon, County Clare, Ireland, and I guess like many people who work in aviation in Ireland, for sure, that have come through Shannon, once you once you sort of live and breathe Shannon for a few weeks or a few months, it gets into your system. And that's exactly what happened to me with Shannon, with Shannon Aerospace, with MROs, just being at a live airport, being able to get onto aircraft as I wanted to, being able to watch aircraft take off and land, the smell of jet fuel, it just, you know, it had me at that point. I knew at that point that sort of MRO, maintenance, commercial aircraft was the side of the industry I wanted to get into rather than design engineering or something like that. So I enjoyed my time in Shannon immensely, but really it was at that point that I really realized what area I wanted to go to when I finished university. A couple of years later, graduated out of university. There's a few very famous people in aircraft leasing that came from my class. I won't mention any names, but we had a good class of about 20 or 25 people that graduated. And luckily for me, I had an offer from FLSA aerospace at Dublin Airport to start a job in their MRO after university. And I was so excited and so anxious to get started that I took two weeks off between university and starting my career. I graduated at the end of May and I was working in Dublin Airport by the middle of June. Took me just two weeks to transition. So into Dublin Airport, again, now I had full on-teddered access to six hangars, to a really busy live international airport, the ramp, the smell of jet fuel, watching passengers, looking at aircraft taking off every day. It was just it was fantastic. It was a dream for me that first job at Dublin Airport. It was a real dream job for me. I began working in the engineering department as a systems engineer. And what FLS Aerospace did was we were a big MRO, number one. We had six hangars in Dublin. And then we had hangars in, I think, London, Gatwick and in Copenhagen and Manchester as well. But we had a very big engineering technical services team. And technical services for anybody who doesn't know, what we did was we provided a service for airlines where we were the engineering department for an airline. So we looked after Aer Lingus A330 and A320, family aircraft, technical services, Futura, Pegasus. And what technical services was, was evaluating service bulletins, evaluating airworthiness directives, issuing engineering orders, answering query notes from the hangar floor as to how to fix a problem. And it was fantastic exposure to the airline industry as well. So then FLS turned into SR Technics. There was a whole other story there. But luckily for me, seven years later, 2007, one of my ex-classmates from university, had left a couple of years earlier to join Oryx Aviation, a leasing company. And that's something that I had seen when I was at SR Technics all the time was people leaving to join leasing companies. And I didn't really know exactly what a leasing company was, but I remember in our engineering team, there was a fear of leasing companies. There was a fear of getting a job at a leasing company and having to pack your bag and say goodbye to your family and never see them again. And then as soon as you get home with a new ticket, then you are gone again. So a lot of people were really afraid of joining leasing companies. But my friend who had joined Oryx phoned me. He said, look, Oryx are hiring. We think you'd be a good fit. Luckily for me, I knew two of the technical bosses in Oryx. So Donal Lowry was engineering manager at Aer Lingus before moving to be the Head of technical in Oryx and then Paddy Ryan was head of planning in Shannon Aerospace when I was there before becoming into Oryx. So I knew the guys very well. Did an interview, interviewed with Mr. Power, who was your last podcast guest. And luckily for me, Oryx offered me a job. So I took a leap of faith. I didn't really know what I was getting myself into. I sat down at the time with my fiancee Ruth, who's now my wife, and we discussed it and we said, yeah, look, let's give it a go, I mean, you know, I couldn't really define how much travel I do, what the job is going to be. I knew there was going to be some travel, but we said it's for your career, so let's do it. So 2007 joined Oryx Aviation as a technical services manager and just really looking after all sorts of aspects of the technical side of aircraft leasing. And it was there where I started to transition aircraft. And I spent, I didn't spend a lot of time on the road, but I spent a lot more time on the road for sure. It wasn't as bad as what people made it out to be. But at the same time, you did have to spend long chunks of time away from home. So I spent a lot of time in Istanbul, Manchester, Prague, Hanover, a lot of time in Russia actually as well, just transitioning aircraft from one operator to another. But I learned a huge amount in Oryx. So Oryx was a great learning place for a lot of people in aircraft leasing now, for really just connecting the technical side of aviation. And the commercial side of aviation, bringing it together and really seeing how, you know, it's much more than just the nuts and bolts of aircraft and keeping them moving. It's also all of the financial side behind us and how money was made from aircraft. But also in Oryx aviation, it was a really, a really good grounding to accountability and to being, you know, really taking it to really taking charge of a project, owning a project and delivering on that project. And I think that's a reason why so many good technical people, for sure, came from Oryx. But during my time in Oryx, I transitioned a number of old A320s from Thomas Cook airline in Manchester Airport. And the two technical managers at Thomas Cook happened to be two gentlemen called Lucas Molen and Ian Clark, who we all know very well. So I took those aircraft back from Thomas Cook in Manchester, kept redelivering aircraft for Oryx. I was up in Presswick a few years after that, redelivering an aircraft from Ryner and I got a phone call and it was a certain Ian Clark from, used to work in Thomas Cook and he had joined this fantastic new leasing company that had been started in Dublin in 2010. And we had read all the reports and read all the news about this new company called Avolon that was, you know, it was bringing in the funds that were bringing in and the order books with Boeing and the order books with Airbus. And we were reading these stories thinking this was a great place to work. So what had happened was that Lucas Mullen became the Chief Technical Officer in Avolon, the first chief technical officer in Avolon. And then, a couple of years later, he brought over Ian Clark to help him. So Lucas and Ian were now from Thomas Cook in Avolon. And Ian called me and he said, look, we're hiring. We're going to expand the technical team in Avolon. I remember you from the Manchester days. Would you be interested? So it took me about a second and a half, I would say, to think that one over. I was straight on the phone to Lucas. Set up my interviews, went through a whole day of interviews in Avolon. At that time, Avolon interviews were maybe six or seven interviews for a whole day. And it was one after another. And at the end of the day, you got to sit down with Donal Slattery and John Higgins for an hour. And that was very interesting. But after a few hiccups, I'd say, I managed to get into Avolon. And at that time, our technical team was, I think, four or five, six people. And we were really jacks of all trades. We were, we done a bit of everything. So we weren't big enough to expand into specialized roles. We were building new aircraft. We were delivering new aircraft. We were beginning to plan transitioning of older aircraft. We were doing bits and pieces of everything, asset management, the whole lot. And so it was an awful lot different to Oryx because Oryx was an established leasing company transitioning aircraft that were naturally coming off lease. Avolon in 2014 were only four years old, so there was very little transition activity. It was all very exciting. It was, you know, quick trips abroad with marketing people to secure sale and lease back deals or secure the placement of an aircraft or deliver a new aircraft. It was very exciting work, but lots of travel. But it was really, really enjoyable. Like I remember leaving Dublin a number of times on a Sunday evening, flying to Ho Chi Minh City for maybe be there on a Monday after Monday evening, have meetings all day Tuesday, be on a plane Tuesday evening back in Dublin on Wednesday at lunchtime. And it was lots of that. It was just, you know, it was lots of travel and very quick trips, but it was really, really exciting. And then Avolon grew. So Avolon went public, then H&A, the Chinese large airline that they bought us out in 2016. And then we took on HACAC aviation, then we took on CIT aviation in 2017. And it was at that point that Avolon just, the technical, the need for a big technical team was there now. The need to split the team into different roles, different areas became very apparent. Luckily for me, I had shown a real interest in new aircraft. So I was asked to sort of be part of a new aircraft team. So I was second in command in a team full of people who built new aircraft, delivered new aircraft, but also run the engineering team, who the engineering team in a leasing company really is the team that changes the spec of the aircraft, from one airline spec to another during a transition. Worked in that team then from 2017, honoured the whole time up until last year. And last year, at that time, Chief Technical Officer Felipe Campos was promoted to Chief Operating Officer here in Dublin. And luckily for me, I got the role of Head of Technical in Avolon at that point. So, something I've been doing for the last six, seven months, enjoying every moment of it, but extremely, extremely busy.
Alok: Excellent. If I may just say so, you know, hard work is what you do and luck is what you get in return.
Enda Swan: Yeah, absolutely.
Alok: I think that's what has happened in your case. So congratulations on achieving that. And I know you have not named a few people and that's fine. Having said that, it's a small world, you know, like all the people you have named, few of them who you have named. We are all still connected with them and we are seeing them in various forms involved in the industry and still contributing, which is great. I don't want this to become an Oryx podcast, but coincidentally, the last conversation was also focusing a lot on Oryx for obvious reasons. And just a disclaimer, we are not being paid by Oryx.
Enda Swan: Yeah.
Alok: But we like the people who have come out of there, obviously. So it is great. And the people are still there. There is something I must share with you. For me, one of the reasons why I reached out to you to speak with you is, is because I am from technical background myself. I have been an aircraft engineer pretty much most of my life. And most of my working life, obviously, is what I mean. And I've been very close to the technical side of the business. And last few episodes which we have recorded in my podcast have focused on commercial, sales, business models. And I have been meaning to get into the nitty-gritty of tech. I think no better person than you, obviously, given what you're doing now at this big leasing company in which the tech ops is your responsibility. And that's one of the reasons. So for me, this podcast episode is really special because it's a subject I enjoy the most, apart from everything else.
Enda Swan: Probably the best subject to look.
Alok: Yeah, I still love it. I wish I could still go on the airplanes and inspect them. I wish I can. So what I'm gonna do is I'm going to move on to some of the tech pieces of the business, you know? And we will see, we'll do a little back and forth and maybe touch upon some other generic subjects. I do intend to ask a little bit about Avolon also, given what you are doing in Avolon and that you have a key role in Avolon to play now. But I think first and foremost, what I want to understand from you is technical asset management. Now, in last few episodes, you have spoken about asset management and balance sheet lessors, asset management lessors and all. But what I want to understand is, in all these cases, there is a common factor, tech asset management, technical asset management.
Enda Swan: It's a great question because I think no matter what aircraft leasing company you walk into, asset management will have a different role in each one of them. But certainly, asset management for Avolon, it's really the management of our aircraft, our assets while they're on lease to somebody. So technical asset management for us is a vital part of the technical team. And that's not always the case in some other leasing companies. Other leasing companies will have an asset management team that, I guess, would be a bit like what we would see as contracts or customer engagement in Avolon, which is sort of utilizations and, and just managing the sort of all of the different tasks that are in the contract, all the different milestones. For Avolon, technical asset management is a portion of the technical work. And the portion of it that it is, it's managing the aircraft while it's on lease to one of our airline customers. So when the aircraft is on lease to one of our airline customers, there's a few different, a few very important role, a few very important tasks that have to be looked at constantly. So one would be, for example, management of maintenance reserves and maintenance events. So as an aircraft gets older, there are some very big milestone maintenance events that are carried out on the aircraft. It's a bit like taking your car to the garage for a service every year, every two years, whatever it is. For most aircraft, you have heavy airframe checks. So on an Airbus aircraft, it's a six-year, a 12-year check. On a Boeing, it's probably eight, 10, 12 years along those lines. But these are heavier than normal structural checks. You have your landing gear overhaul, your APU overhaul, your engine performance restoration, and engine LLPs. So these are the big maintenance events. And when your airline customer performs these maintenance events, our asset management team will be the team that will look over these events and make sure that everything that has to be done in accordance with the manufacturer's instructions has been done. And it's been done per the right instruction. Once we are happy with the maintenance that it's been done in accordance with all of the proper instructions, we will then give the go ahead to refund the airline with any maintenance reserve pots that have been built up over the over the utilization of the aircraft to look after the maintenance, those maintenance events. So that's one of the prime roles for our technical asset management team. We have some other roles then. So for example, we would also we would also look after the periodic condition inspections of the aircraft. And that's where we will go to see the aircraft, inspect the records, or we will ask a company like Acumen to go and do that on our behalf. And that's where we go. We visit our aircraft. We have a look at the records. We will scan the records, make sure that we have copies of the records in our possession. But that really is just to protect the integrity of the aircraft. and make sure that the value is being retained in that asset. You know, we can't ever get away from the fact that these aircraft can be worked up to 150, 160 million dollars. So it's not, you know, it's not something that we that we want to be taking our eye off. We want to make sure that the aircraft's being kept as one piece. It's been kept in good condition and it's been kept operational. The other part of the technical asset management role that we would have would be asset surveillance, and it's a bit. It's a bit like the condition report, but it's just this constant monitoring of the airline. It's the constant monitoring of the utilisation of the aircraft. We all know that aircraft sit on the ground from very for various times. So during a maintenance check or, you know, every now and again, you will see patterns where airlines might rest an aircraft or not use an aircraft. But when you see something unusual in the utilisation of the aircraft, that's usually a warning sign for us that something is not right. And that's something could be the airline might be in financial trouble. They may not be able to afford to buy a part. The aircraft might have had an event and we need to investigate it further. So really, to us, that's the technical asset management role of aircraft leasing. It can be a little bit further, as I said, so it can be sort of like a contract management role as well, technical asset management in other leasing companies. Then, I guess the technical asset management just takes in all of the technical part of the aircraft leasing. And all of the technical part would be sort of my role at the moment. So my role at the moment being the head of technical, I manage a team of over 50 engineers and technical professionals. And we really look after our aircraft from the time that they're just aligned on a purchase agreement with Airbus or with Boeing. We take that aircraft, that sort of obligation to take delivery of an aircraft. We have to work with an airline and the OEM. We have to build that aircraft for the airline. We have to then deliver that aircraft to the airline. We manage the aircraft when it's on lease through our technical asset management function. But also, the technical team are the team that really move the aircraft from airline to airline. So when the lease expires with one aircraft, you're moving it to the next one, you could be changing the spec of the aircraft, changing the interior, changing some avionic mods, repainting the aircraft, moving it from one jurisdiction to another. And then also you're dealing with the end of life of that asset. So when it comes to the time to take that asset off of your books, how do you do it? Do you do it through trading? At which point the technical team have to support the trading activity. It could be through part out or it could be through something like what we've got into recently, which is passenger freighter conversions as well. So technical asset management can be all of that or it can be a part of that. In Avolon, it just happens to be part of the wider technical function.
Alok: So when you say it's part of the wider technical function, it drives me, I can't help but think about something. What I came across over a decade back was, and this was, I'm talking about pre-Avolon era really, there were leasing companies I interacted with. Maybe I can name one of them who's not around anymore, ILFC for example. Since they're not there, I hope I'm safe to name them. So
Enda Swan: We'll see, we'll find out.
Alok: We'll find out when this episode is published. And then there were other leasing companies, which I will not name. They had different ways of working, and especially it came to technical. So one thing you have touched upon is how you carry out regular inspections of the assets. You run an inspection program. But I very categorically remember ILFC had no such program. And the reason I remember is, having met the people who were running the show there, their thinking was complete hands-off, quite enjoyment, clause of lease agreement, they're not touching the asset, something goes wrong, then we will go in and do what we need to do. And obviously, they were a very big leasing company, 1000 plus airplanes when they were sold finally or acquired. And then there was another set of lessors we came across who were very proactive, annual, two-year. What, in your opinion, works better and why?
Enda Swan: I guess, so fundamentally, the requirements to periodically inspect your aircraft and to know what the condition of the aircraft is, is probably going to come from the funding of your company and how your company is set up. So, for example, if you're an aircraft leasing company that's set up through a bank, you know, so like, for example, Avolon took over C&T. number of years ago. So CIT had a very successful and a very large aircraft leasing company that we all knew very well. And they probably didn't spend as much time inspecting aircraft that were on lease. The same thing, it was quite enjoyment to let the operator use the aircraft per the lease. And at the back end of a lease, you're always protected by the return conditions that you have on your lease anyway. So you should be able to, if the airline survives and if the aircraft goes through its natural lease term, you should be able to predict what you're going to get back in any event and what way the aircraft is going to be, what way the records are going to be. But if you're a company then that's actually, you're privately funded or it's money that you're taking on loan from a bank and that bank actually wants to wants to know what the condition of their assets is that they want to know what it's going to be looking like more regularly. So you have to do those periodic inspections. To me, for me, I think the right answer is really it's down to the it's down to your risk assessment of the airline. So again, you know, if you're if you have your aircraft on you're not so worried about the condition of that aircraft. You know, if you're if you have your aircraft on lease to an airline that has two or 300 airlines, it's a flag carrier. It's always going to be in place. All the aircraft are kept well. They're always in the media. Everybody flies with them. You know, you're pretty sure that your aircraft is going to be kept in good condition. Whereas if you if your aircraft is one aircraft of a fleet of four flying for a smaller airline. in a riskier country or a riskier jurisdiction, then you're going to want to inspect that aircraft a little bit more regularly. Because I think the chances of you maybe having to step in at some point to take that aircraft back earlier than the end of the lease term is much higher. So you're always going to want to know to some extent what your next move is going to be or to be able to quantify. Nearly always be able to quantify what your next move is going to be with that asset.
Alok: Then that obviously plays a role into the cost aspect of it. I think, as you rightly said, it is a credit worthiness of the airline, really the risk assessment which drives that requirement. And so in my mind, I'm still not sure why somebody like ILFC would never inspect, but even if it is bank's money, but I see your point, what you're saying from their perspective. Maybe that made sense for them. Maybe they were placing them in their mind in all A credit airlines. And so, moving on from that subject on the whole technical asset management, obviously in what you do, one of the key functions is managing the budget or how the allotted money is spent by the department. And this is possibly close to our hearts, both of our hearts from our previous backgrounds. So when I was in an airline and I was running the line maintenance and all, I was always at odds in getting budgetary approvals because engineering is considered a cost center when you're in the airline at least. At least the time I remember I'm sure it's the same pretty much right now. How is it for a typical leasing company? I'm not asking about Avolon by the way but a typical leasing company in your opinion. How does it consider it? Because what you have said falls in between, right? It could make money for the leasing company too, in some ways.
Enda Swan: As my finance colleagues always remind me, we're very good at spending money in the technical team here in Avolon. But look, aircraft maintenance is expensive, and aircraft are expensive to maintain. So it's just one of the functions of owning aircraft, I guess. But you're right, if you're an engineering team, a technical team in an airline, you are a cost center. So you're a part of the company that can make money. So if you think back to the example I gave you about Thomas Cook, for example, where Lucas and Ian and Manchester Airport, that was a prime example. It was a hanger where Thomas Cook airlines would contract Thomas Cook maintenance to do maintenance for them. And in return, Thomas Cook maintenance would recharge that maintenance back to the airline again and make money to pay the engineers, pay the facility, to pay whatever bills they had. We don't work like that in leasing companies for sure. In leasing companies, I think technical, the technical team are more of a service provider to the other teams in the in the in the leasing company, and that's the way we see ourselves as the technical team in Avolon for sure. So What we do is we just provide a service for the other teams that are in the company here. To give you some examples, so the marketing team, we would be a big, we provide a lot of services to our marketing team. We're always providing them with the specs of our aircraft, advise them on the configuration of our aircraft, what spec changes can be made to the aircraft, what maintenance has been accomplished on the aircraft, what maintenance needs to be done on the aircraft. what needs to be done to transition an aircraft from one airline to another, to transition an aircraft from a jurisdiction to another. So these are all questions that our marketing team would be asked by an airline when they sit in front of them trying to market an aircraft to them. And these are all answers that we would provide to our marketing team, arm our marketing team so that they're able to answer those questions to the airlines. Other teams that we would be provide a big service to would be, let's say, for example, our risk team. So we touched on the surveillance of aircraft just a few seconds, a few minutes ago. And the surveillance of aircraft is very important for our risk team to know. You know, so they're reviewing the airlines all the time to see what airlines are, should we be worried about what airlines? Should we place more aircraft with, what airlines should we place less aircraft with? And the way that we would be providing a service to them is that we're always telling them the condition of our aircraft, if maintenance events are being done, if they're being done correctly, what service providers are they using, what service providers are accomplishing the maintenance for them, are the aircraft being kept operational, but very important, can we move aircraft all the time? So You know, we have to be able to, at any point, be able to say to our risk team that, yeah, our aircraft are flying with airline X, but you know something, we feel confident that if we had to go in there tomorrow or next week, that we would be in some way able to repossess those airplanes or take those airplanes back, because that forms a vital part of the decision making tree that the risk team would have to get to. The finance team, so our finance team, so as I said earlier, we do like spending a lot of money in the technical team. And I can tell you that no more so than building new airplanes, because when you build new airplanes, you're spending huge amounts of money well before the aircraft is even delivered from Airbus or Boeing. So when we build an aircraft, let's say we're building a Boeing 787, you're actually committing to spend money on that aircraft for... maybe 24 months before the aircraft arrives into your possession. You're speccing the aircraft with Airbus or Boeing. And it's our obligation to buy the furniture that goes on to that aircraft. So the furniture, the buyer furnished equipment, we call it BFE. And BFE for an aircraft is very, I mean, for a 787, typically 10, 12, 14 million, depending on the spec of the airline. So it's very expensive. But What it means is that we have to be able to show our finance team what the movement of money is going to be in the next number of years so that they can plan for being able to fund the business adequately. It's the same thing with transition budgets. So when removing aircraft from airline to airline, it's also to put the transition budgets together. And the transition budget would include changing any spec items on the aircraft. You're changing the spec from airline A into airline B spec because they'll have a different operating requirement. You'll have to paint the aircraft, you'll have to pay reps to be on site, you'll have to pay for flights and hotels and aviation authority certificates and licenses. So the budget to move an aircraft from one airline to another is quite large as well. And then really, I guess the other team would be the legal team. So we do spend a lot of time working with our legal team and they'd be a big customer of ours to, you know, to help them negotiate LOIs, negotiate leases, make sure that all of the proper technical covenants and aspects are contained in the, in the lease agreement. But also if a dispute comes up with an airline, we want, we are the ones who the legal team would come to, to get some technical expertise to make sure that our side of the argument is correct and we're pursuing that argument in the right direction. So I see us more of a service provider to the other teams in the Avolon team rather than a cost center.
Alok: I think the next thing which I wanted to ask is you have mentioned, very nicely explaining your career path, how you heard about Avolon, this great new leasing company starting at that time, right, 2010. And obviously, you worked hard through the ranks. What I want to understand is, in your opinion, from where you are and how you have shaped your career in Avolon, what do you think makes Avolon special? What is, you know, it's a new leasing company, right, in comparison
Enda Swan: Is it?
Alok: to many other legacy lessors. So it would be great to know that.
Enda Swan: It's a fascinating question because to me, it's a fascinating company. So I said to you earlier, I joined Avolon in October 2014. To me, it feels like I'm still a new person in the company. I still feel like I'm new every nearly every week. I get that feeling that I'm a new person here. And I guess that's just because I'm learning something new every day in this company. It's definitely the most enjoyable company I've ever worked in. It's a fantastic company. And we were just talking at lunchtime about it, about, you know, people who've left the company and the amount of times that we get approached by people who've left the company to see is there is there an avenue back into Avolon again? Because I think once people leave, they realize that was a good place to be. It certainly is. For me, I think you have to break it down into three different areas, three prime areas for Avolon. So firstly, it's the people. The people here are just phenomenal people. It's a phenomenal ex-co that we have here at the moment, phenomenal leadership team, right the way down to the people working on the first floor here. It's a fantastic place. We've over 200 people here, multinational, multi-professionals. We enjoy doing what we do in here every day. We spend a lot of time working with the community on care initiatives. We spend a lot of time at company events, social events. We organise a lot of initiatives and programmes for our people as well to help them develop. So a good one would be that. Once a year Avolon has a week in, it used to be in September, it was May this year, where we would bring everyone from the company back to Dublin for a week and we would have an off-site week. And the off-site week always culminated in a one-day off-site day, which was just a big, big party and it was great fun. This year, but other years it was a week of sort of team building and dinners and just catching up with your colleagues. This year our HR team developed a new, it was a new program called Evolve and it was a fantastic program. It was on the back of an aviation school that we ran earlier in the week. In the aviation school, we brought people from rising sort of rising talent from a hundred airlines and banks from across the industry to Dublin to give them a run through aircraft leasing, Avolon and aircraft leasing to sort of educate them into how aircraft leasing works. And it's always a great event. It's a two day event. After that, then we had our Avolon Evolve event and that really was, it allowed everybody in the company to sort of step back from their day to day and to come together and to reflect and to challenge ourselves to help us develop really as individuals and teams. And that's what Avolon is always about. It's always about making ourselves better. But we have a famous saying in Avolon that is, we're very proud of what we do, but we make sure that we have a lot of fun doing it. And that's really important to us here in Avolon. The second thing I think is that the corporate values, the corporate values that Avolon have, and Avolon's corporate values, they're embodied in the acronym TRIUMPH, which stands for T for transparency, R for respect, I for insightfulness, B for bravery, and E for ebullience. And those values are really the basis of how we run our businesses and it's how we interact with each other and how we interact with all of our stakeholders and it really defines who we are and what unites us as a company. So it's so our tribe values are hugely important to Avolon And I think lastly for me as a with a technical background like yourself, I mean, you know My job my role would be nothing if I didn't have an involvement with aircraft For me, so it's the platform as well. And the fact that we have such a diverse fleet of aircraft here. So we have over 10 different aircraft types in our fleet. We have over 160 different airline customers across 50 different countries. We have a very young fleet. So I think the average age of our fleet at the moment is about 6.8, 6.9 years old. And even though our fleet is very young. What we do with that fleet, the range of tasks and the range of work that we do every day with that fleet is really diverse. So we're building new aircraft, we're moving old aircraft, we're parting out aircraft, consignment, we're converting aircraft into freighters. So there's always something new in this company. As I said, you're learning every day. We absolutely, we never sit still in this company, but we have a lot of fun doing what we do every day.
Alok: You mentioned six and a half, 6.9 years average age. That's amazing because if I may say so, that's even after you have acquired the CIT fleet a few years back. Right?
Enda Swan: Yep.
Alok: Because CIT fleet was traditionally on the older age side, I believe. And so Avolon has done very well in merging that fleet in, or maybe I believe trading out or parting out some of the older fleet also, which is great. And If I may ask, what is the total fleet size right now under management?
Enda Swan: So we have just under 600 aircraft in service and just under 900 aircraft between in service and on order. So something like 270, 280 aircraft on order. And that’s across everything from 320s to 737 Max. We recently announced a top-up of our 737 Max order for another 40 aircraft. So that was an exciting moment. And it really demonstrates our demonstrates how involved we are with Boeing and how involved we are with the MAX program.
Alok: So you have given me the cue to move to my next topic then from Max.
Enda Swan: I'm getting myself in trouble here.
Alok: New technology, we're talking new technology. Max is new technology. We know what happened with Max. Max is a very successful aircraft now, obviously, at this time. But engines, we are now dealing in a new world. We have new technology engines. And you being the man who is managing the technical affairs, and given your background, maybe tell me a little bit about what are the trends you're seeing in new engine technologies. How do you see those challenges and how do you see as an asset manager managing those going forward?
Enda Swan: Yeah, again, it's a good question. So I should have added that when I took on the role of head of technical back in October last year, I also took on the relationship management for all of our engine OEMs as well. So I am the point of contact in Avolon for Rolls-Royce CFM, GE, Pratt & Whitney. So I should be able to give you a very good answer here. But I don't want to fool you.Alok: I would love to be a fly flying on the wall. Let's stick to one of those meetings.
Enda Swan: I don't want to mislead you. I'm not an engine expert. I can guarantee you that. So we have a team of five people in a power plant team down on the third floor here, engine experts. And each one of those guys would have more engine knowledge in their little toad than I would have in my whole body. But I'll give you as much knowledge as I have about the subject. Yeah, so look, we're very we're obviously very committed to new technology, to new technology aircraft. And you can see that through our purchase agreements and through our purchase agreements for new aircraft, we're obviously committed to new technology engines as well. And it's really, you know, it really shows displays the goal of Avolon to be able to equip all of our airline customers and the industry with the newest technology aircraft and engines that there is available. The new technology engines fantastic engines and I think we can see it through the fuel burn savings on all of those engines. You know, they are all double digit fuel burn savings compared to the last generation of engines. So are they doing what they were designed to do? They absolutely are and probably a little bit more with some of the engines. You know, some of these engines I think are probably performing a little bit better with fuel savings than anticipated. Some of them are maybe not there, but they're not far off it either. All of them have huge savings compared to the last generation of engines. But to be able to produce those fuel savings, the engine has to be more efficient. For the engine to be more efficient, the engine has to run at a much higher temperature in its core. And what's that done a lot is that has really, it really means that all of the new technology engines now they're really all still trying to find their feet in the industry. Because if you think that NEO aircraft came into service in maybe 2016, 2017, around that time, the same thing with Maxis and Trent 7000s on A330 NEOs came in 2018, 2019, GenXs on 787s. They're all new technology. They're all trying to find their feet at the moment. And definitely as we travel around and we listen to our airline customers, a very prevalent complaint from all of the airline customers is that new technology engines are, you know, they're not meeting engine reliability numbers that we saw on the previous technology engines. The time on wing is not there. There is huge shop visit constraints at the moment, supply chain issues, trying to get engines through shops and new engines are just not meeting the ultimate life that they were designed or that the design criteria that was set by the airframe OEMs, the engine OEMs are not reaching that. They're nowhere near reaching that on some of these engines. So that is a complaint from all of the airlines and of course, asset owners as well. And all of these things come together to, at the end of the day, all of these things come together to cost the airline more money. Because if you don't have reliability in your engine and if you don't have... durability in your engine, that means your engine is off wing more. And if your engine is off wing more, it's in the shop more. And it just so happens that at the moment, you have particular engine types that your engine comes off wing and it's going into a queue for two or three months to get into an engine shop visit. And then once it goes into the engine shop visit, it can be in there for six months. And then we've supply chain issues, which is slowing it down even further. And when you add it all together, there's some of these new technology engines, they're coming off wing early, way too early, and then they're not available to go back on wing for eight, nine, 10 months. And for all that time, your airline customer, if I'm an airline, I'm paying for a spare engine, I'm paying for all other types of support to be able to keep my aircraft flying. So all of these issues are all coming together to cost the airlines and cost the asset managers much more money to operate aircraft. There is no doubt that a lot of that cost is being offset by fuel savings. But I think that's where the big problem is at the moment. And until the engine manufacturers can, number one, they have to really fix the engine shop visit sort of clog that we have at the moment. And then after that, then hopefully progress the engine through time so that the engine gets more robust, higher durability, it gets to stay on wing longer, so that the airlines can get to enjoy more on disrupted operation of their aircraft. I think. To sort of further on your question, if you were to think of the current technology engines, I think a few years ago, the thought was always that there was probably going to be one more squeeze in current, in sort of the internal combustion engine technology, and that there would be one more step with these engines. But I think what we've seen in the last few years, I think the engine OEMs, airlines, and everybody involved is probably looking at it now and going, you know something, everybody? We've pushed these engines far enough and we should stop now. And now is the time to actually start thinking of something completely new. So something completely new is always on our radar. We don't know what it's going to be yet. I don't think anybody really does, but look, we're tremendously excited about new technologies like open rotor technology, which CFM and Airbus are testing at the moment. But realistically, any new engine technology is going to require a new clean slate aircraft to be installed on. And we don't see a new clean slate aircraft being introduced anytime before the end of this decade for sure.
Alok: I think you have given the pro and con both of the new technology engine and you also mentioned that in your opinion or what you see is the fuel savings are kind of to certain extent offsetting the current problems. But am I right or am I wrong in rather saying that the fuel savings were promised when these engines were let us say sold at a certain price point right there was certain fuel savings which were part of the package and the reliability bit was also part of that package so is it that they are delivering more fuel more fuel savings much more than what was promised and in that effect then offsetting the challenges which are happening or is it delivering the fuel savings, which is great, but to the extent which was promised or nearby but still having these reliability problems. I think you got the gist of what I'm trying to ask here.
Enda Swan: Yeah. It’s definitely the latter. They are achieving their fuel-borne targets, but how far they've pushed the engine to achieve those targets means that the engine is just not as durable on wing as what the previous technology engine was. So I don't have the figures off the top of my head, but I definitely remember redelivering 737-800 aircraft that had first-run engines that were hitting 30,000 flight hours before a shop visit.
Alok: Yep.
Enda Swan: Current technology or the new technology, LEAP engines, Pratt & Whitney GTF engines, they are absolutely not reaching that. I think if they're reaching even 15, 16, 20,000 hours, I think you're going to be very lucky. So the durability of the engine on wing is not there. The cost of shop visits has probably gone up. Definitely the amount of, the length of time you're spending in the shop has gone up and the ultimate life of the definitely LLP. So LLP ultimate life. So an LLP is designed to have a life or it's removed after 15,000 cycles or 20,000 cycles or 25,000 cycles. And all those cycle limits were very well established on the older technology engines. At the moment, they're just they're a target for new technology engines. And we have a lot of engines, especially the wide body engines, where the ultimate life is nowhere near what was promised when the aircraft was being designed or being sold.
Alok: Yeah, and that then adds an additional layer of complexity in the already complex technical asset management, or I would say your engine management team, right? Which is, I mean, it's very interesting by itself.
Enda Swan: Yep. Absolutely.
Alok: So, yeah, so this is going in a very nice sequence, by the way. So you mentioned new technologies, you mentioned the open rotor technology and all. And also as a matter of fact, Avolon, is a partner in a new generation, I think, vertical lift technology. I think vertical is the name of the company, if I'm not wrong, right?
Enda Swan: Vertical correct, yeah.
Alok: Yeah, so, and which is developing a totally different thing. It's a kind of a drone-based technology, if I may say so, right? And so that and this Open Rotor also has an impact on the ESG initiatives, you know, not necessarily going on to the company level, but I think on a departmental level and the areas which you look after. Would you care to just maybe list out a few how ESG initiatives play a role in this area of your business?
Enda Swan: Yeah, I think it's very hard to break it down to a department level for a company like Avolon because I think you can't forget that, so Avolon are not the end user of our product or our asset. So it's somebody else that's using it. So it can be a little bit tricky for Avolon to try and improve our ESG rating or environmental rating. I think It's probably a case that, you know, the answer that I'm going to give you is probably going to be more of a company, a holistic company. I can definitely delve into a few areas where our team and our department are working on some initiatives. So if you think about it, one of them would be at the moment, we're reconfiguring three seven eight seven aircraft for moving them from one airline to another. And we have we're running a case study on those three aircraft at the moment. They're being they're being reconfigured in the Middle East for a Latin American airline by an asset manager that's based in Dublin. So, if you put all that together, that's a lot of air miles between the various different stakeholders in the project. But what we're trying to do is we're working on a case study to see. how can we deal with the material that we take off those aircraft in an environmentally friendly way and in a way that sort of how can we deal with them at source so that they come off the aircraft in a location, we deal with them in that location and we're not causing we're not causing excess movement of those parts around the globe to different storage facilities. So maybe years ago, you would take off a set of seats in the Middle East and you would send them back to Dublin to be stored in Dublin or in Shannon or someplace. What we're trying to do at the moment is to deal with all of that equipment at the aircraft so that we're leaving that MRO facility not with a container full of seats or not with a container full of old parts. And we're dealing with those parts in various different ways. So we could be selling those parts to somebody, but we're selling them at that point. We're not moving them for somebody. Or we could be just donating them to some sort of to some companies who in turn are donating them to companies based in like, I think one of the companies that we're donating to is based in Kenya. And this company in Kenya actually bring all of these, they're all the composite material, so sidewalls and bins and bin doors and things like that. And they can break them down and turn them into sort of slates that can be used on housing in the locality. So, really good stories at the end of the day. But we're trying to deal with all of our equipment at source so that we're saving ourselves from having to ship parts halfway around the world just to put them in storage for two or three years before we decide to recycle them or to scrap them. So if you think about it, like that's one area that our team is working on. We also just recently, actually just this week, it was announced that there is an association called AFRA. It's called the Aircraft Fleet Recycling Association. And they had an AGM this week in Orlando, actually. And at that AGM, Boeing, in conjunction with Avolon pledged to use only AFRA associated recycling facilities to recycle any aircraft. What that means is that basically any time that we have an end of life asset and we have to consign it, we have to part it out, we have to scrap it, we're only doing that in facilities that have met all the different protocols of the of AFRA, of the Aircraft Fleet Recycling Association. And by doing that, you know, we hope to raise the awareness a little bit that there are such associations out there and there are. It's a shame to have to recycle some of these materials sometimes. And definitely in aviation, you know, we do recycle a lot of material, especially a lot of interior material. But there are ways to do it in an environmentally friendlier way than just not thinking about it at all.
Alok: If I may just share something, you may be knowing this. So the older airplanes, the older technology airplanes, which are all metal, unlike the new generation, I had come across a company in North India, where I am right now, in the North part of India, where they were exclusively in the business of automobile recycling. And they were owned by a big Japanese group and we were talking with them about opportunity to do recycling of airplanes. But you know what came out in the study, these guys are like metal experts. You tell them metal, you tell them aluminium alloy type, they know what to do with it. And we shared with them the data on alloys of skin sheets, sheet metal of airplanes. And guess what? There was no end use available for those aluminium alloys of airplane sheet metal. And we figured, finally, we went to different companies to do this study. And we found out that all that metal has to be just dumped in a scrap yard. It can't be reused because of the certain grade of aluminium alloy which was used. So you're right. It's a challenge. And it's great to know what Avolon as a company is doing in that direction to manage that better from an environmental friendly way.
Enda Swan: Yeah, and like, you know, we do feel that, certainly from my perspective, when I talk to a lot of part suppliers, a lot of interior, so, you know, seat manufacturers or galley manufacturers or... I think all those companies together with the big OEMs, Airbus and Boeing, they need to come together and figure out a way to actually be able to recycle parts in unison together. So it's OK for a manufacturer A to recycle a manufacturer A's seats in accordance with their procedure, but they won't recycle manufacturers B seats. I'm not talking about Airbus and Boeing here, I'm talking about seat manufacturers. But you know, and that's wrong, you know, because it's the same material in all these seats. And at the end of the day, it's, you know, recycling seats, for example, it's all material that can be used again. But certainly, you know, certainly there's a lot to be done. And I I really do feel that all of the manufacturers, and I think it has to be driven by Airbus and Boeing because they're the ones that really qualify the suppliers and they qualify the parts suppliers for their aircraft. And they need to be the ones, I think, driving the initiatives to get all those people talking together to be able to come up with proper ways to recycle material and only use material that is recyclable.
Alok: Let’s go to another topic of, again, something you mentioned when you were talking about Avolon fleet. P2F, passenger to freighter conversions. There were some announcements in the last few months, opportunities in the P2F space. I think Avolon has also been involved in that. The market was thought to be there with a boom, especially with the pandemic situation where everybody was buying everything online and a lot of new freight orders have been placed. In fact, I think a few months back there were just no slots available, I believe, for P2F conversions anymore. And I believe as an asset manager, as a lessor, Avolon is also involved in the industry on P2F and they see opportunities there. So, you know, from your point of view, what do you see as the challenges and opportunities ahead on the P2F market?
Enda Swan: Yeah, it's actually very exciting at the moment. So I'll give you a little bit of background about how Avolon got involved in it. So back in 2021, we launched our A330-300 P2F program. And we launched that in conjunction with IAI industries in Tel Aviv. And anyone familiar with the industry will know that IAI are one of the most renowned freighter STC developers and conversion houses in the world. Huge heritage with 747, 767, 737 conversions. And really, at the time, this was 2021, we're in the middle of COVID, we're in the middle of when we had probably the most AOG aircraft that we've ever had or we ever want to see. And we had to look at ways of dealing with as many of those aircraft in different ways as possible. So for Avolon, being one of the largest, or if not the largest, owner of A330 aircraft in the industry, the big problem for us to fix was A330s. So A330CO aircraft, Avolon own over 50 of them. If you include NEO aircraft on that as well, between delivered orders and aircraft that are due to deliver to airlines. I think we've another 50 aircraft. So we've well over 100 A330 aircraft. And we were starting to see a lot of A330 aircraft, especially the CEO aircraft, being grounded during the pandemic. So we wanted to look at a way of trying to deal with those in an alternate way, because once they go into storage, they're very expensive aircraft to put back into service again. And if you add in, you know, if you add in... reconfiguration or some sort of mod work on those aircraft, they really become a struggle to be able to put those aircraft back into service with an airline on low rent and to be able to make sense of a deal to make money on it. So the freighter market was something that we looked at. IAI came to us and they said that they were thinking of launching a product and we jumped at the opportunity to be able to work with them. We do know that EFW, who are the partnership between EFW, obviously Airbus and STAero have already had their STC and they had that from before the Covid pandemic. They're probably after converting close to 30 aircraft at this stage, A330 aircraft. But when we looked at the when we looked at the 330 market. So this is really the sort of mid wide-body market, which is really dominated by the 767 at the moment. And the 767 feedstock is just naturally going to dry up in 2026, 2027. So the prediction for mid wide-body freighter aircraft is that between now and 2030, that another 500 aircraft will be needed to enter into the fleet, the worldwide fleet. If you take then the 76s drying up, that means that probably 200s, 250, 300 A330s, there's a possible possibility that amount of A330s will be converted. So, also it was a no-brainer being such a large owner of A330s to get into that market. So, you're right that the next available slots for A330s at the moment would be 2027, I think, EFW, 2028 for IAI. But, the challenges, getting back to what you asked, definitely the challenges on the freighter side at the moment. I guess number one, it's like all sort of all the challenges that we see in the technical world. It's just bringing it back to the technical world again. I look at its supply chain and the amount of slots that there is out there at the moment, the amount of conversion slots and will the conversion houses be able to maintain the staff, maintain the supply chain issues for materials to be able to convert all those aircraft and we are seeing it already that not with IAI because thankfully IAI are not converting a 330 yet, they're only developing the SDC. But definitely EFW, there are some delays with the EFW program at the moment and it's all down to just supply chain and the fact that, during the pandemic, people were left off and now trying to ramp back up to get back up to their target again. But other than that, obviously, you know, we have seen that the reason we got into the freighter market was because of the amount of AOG aircraft. That sort of heightened our interest in it. What could we do with AOG aircraft? We're now approaching that time where AOG aircraft is, you know, the AOG fleet is getting very low again. So we're probably somewhere between five and ten percent AOG of what we were at the at the maximum during the pandemic now, which is great news for Avolon. And the even better news for Avolon and less are things that airlines just cannot get enough aircraft at the moment. And airlines can't get enough aircraft at the moment is because of delays with production of aircraft. And then the with engine issues, other engine other aircraft going AOG, so they need more aircraft in their fleet. But the more aircraft that go back into service, that means that there's more belly capacity to carry freight around on. So definitely the big challenge for the freighter market going forward is that you have this surge of freighter slots that have been sold in the last number of years and the market was very buoyant. It was going up at an unprecedented rate and now market is starting to come back down again because there is that belly, there is the belly capacity. But, you know, luckily for us Avolon, just speaking for Avolon now, with the mid wide-body freighter market that we're after jumping into with the A330s, like that's sort of known as the express market and it's the express in that it's e-commerce, it's Amazon, it's large volume over short sort of sectors. And that fleet is actually growing at about six percent per annum at the moment. We do know traffic cargo traffic, I think, is predicted to grow at three percent over the next 20 years. So there are a lot of positives there. There's a lot of tailwinds. We do feel that we're in the right market with the freighter, with our freighter side of the business. But there is certainly going to be some challenges for, I think, maybe the narrow body and possibly some of these big wide body STCs as well going forward.
Alok: Right. You know, just for the sake of my audience, I just want to add a little context to what you have said. One is STC. You have used the word STC. And as I mentioned earlier, our audience has asked me to always define some of these terms. It's a supplementary type certificate, right? It's basically that's what STC stands for. And the topic of this podcast is not to explain what that is, but I'm sure our friends who are listening in can find that out. And I'll be happy to help. And also you have spoken about AOG. I just want to be, just want to explain a little context and please feel free to edit me wherever I go wrong. Aircraft on ground, but I think from a lessor point of view, an AOG basically would most often mean airplane which is not on lease,
Enda Swan: Exactly.
Alok: Right? And from an airline's point of view, it's a technical AOG where the airplane is grounded. Possibly technical or operational reasons, more often technical than operational. And that's I think a fine nuance between a lessor and an airline. I just learned this on the job myself. I didn't know this before.
Enda Swan: Absolutely. And I remember back in the pandemic, I was managing new aircraft at the time, obviously, but that was a work-stream to really dry it up. So I offered to my boss at the time to set up a team in our technical team called the AOG team to look after to look after all of the AOGs. Because don't forget, an aircraft leasing company is not set up to have a technical team to look after AOG aircraft. We're set up to have a technical team to put aircraft into airlines and then just monitor those aircraft as they fly and move them from one airline to another. Managing aircraft through a storage period was something that we just didn't have the manpower for. So we actually transformed our new aircraft team into an AOG team. And there was a lot of confusion in the industry. I'd ring up various different suppliers and try to explain this to them. And they were like, what do you mean? All your aircraft are grounded for what part do you need? And I was like,
Alok: Exactly.
Enda Swan: No, no. little bit different.
Alok: Exactly that is the reason I was explaining that. Because when I was in an airline job many years back, I was heading AOG team also for a few years.
Enda Swan: Yeah.
Alok: And our job was obviously to go to a station, recover an aircraft. And
Enda Swan: Yeah, there's always work in technical Alok. There's always work. It doesn't matter what you're living through. There's always some sort of work in technical.
Alok: Absolutely. OK. And that is a very well-recorded podcast, I must say. We have covered a lot of ground today. And at the very end, we have taken a lot of your time. Very thankful for that. One of my favourite questions to always ask is when I speak to someone like you is, what do you tell the young people out there, people joining in your company or working in your department or otherwise in the industry, what do you think is a good career advice for them to listen to from you?
Enda Swan: Yeah, that's so. So look, I think starting off, if like the start of this podcast, I spoke about working hard. So, you know, you cannot be afraid to roll up your sleeves and work hard. I wouldn't say that this industry has to be detrimental to your work life balance or anything like that. It's not like that. It's a very enjoyable industry to work in. But there are times when you really do have to roll up your sleeves and work hard. And certainly as you as you climb the ladder, it's good to get involved in something that you're uncomfortable doing, because that's where you really learn and develop yourself. And it's really where you where you'll push your boundaries to make sure you're always stretching yourself to learn something new. I would always say as well that, you know, don't try to overshoot too early. And we see it a lot where. It's very easy to come into a leasing company and especially in the technical background and pick up a little piece of knowledge and become very good at doing something and just picking up little bits sort of through proximity from listening to other people and there's always a lot of there's always a lot of movement within the leasing companies, especially in the technical teams as well, movement of staff and movement of people. And it's very easy sometimes to sort of try and to always be looking and to see that the grass, you know, to think that the grass is always green or somewhere else. And I'm not saying that you should always just join a company and stick with them for the rest of your life. But, you know, sometimes it's better to just get into a company and take your time going through the relative steps. And it's something that we're trying to do in our technical team here in the last few months. We're trying to reshape our technical team so that we can bring in graduates and we can put them on a continuous development through the technical team. That they can come in as a sort of a junior asset manager and maybe every three years you sort of rotate into a new role where you learn a new skill, a new discipline, a new part of the business. And ultimately in 12 years or 15 years, we'll turn you into one of the, a very experienced technical project manager, a person who's out there moving aircraft from airline to airline, negotiating visas at the real sharp end of the technical world. So I'd always say to pace yourself through your early years. Don't get yourself in too deep, too quickly. Pace yourself, learn off those around you. There's so much knowledge out there. Just always be like a sponge when you're around the more experienced people, because these people have been through so many tough times and so many different scenarios that they know how to deal with basically everything and every type of person that you come across. And other than that, like it is here in Avolon, you just have to have fun. You just have to have fun as you're going through your career. Enjoy life. Don’t. Work hard, but enjoy your life as well.
Alok: That's great advice. Thank you very much. And building on what you just said, one of the things we have tried to do in the area we work in, this is necessary for career growth, is cross-functional training, like training programs which you're running. For example, if there's somebody working in just data management, or he or she is interested to learn what maintenance reserves are. So there are training programs where people's skills can be developed. And in our company, like for example, we have seen people have been able to move roles thanks to those opportunities. So that really helps. You're absolutely right.
Enda Swan: It does, yeah. And we're trying to do that here at the moment as well. It's a sort of a buddy system. And it's a system where we give the younger people the opportunity to put their hand up and ask for another area. I want experience working with power plant or I want experience in new aircraft or asset management. And we sort of take all that together and we mix it up and we see where we can place people for four or five months just to give them a little bit of a flavour. And actually, it's surprising a lot because everybody assumes that everybody in the technical team wants to end up as a project manager moving aircraft from one place to another. And that's you know, there's no doubt about it. It is the direction of travel for the majority of people who come into a technical team. But we have seen with a few people and the experience for it for a few months and to go. It's not for me. I'd prefer to be in engineering or I'd prefer to be in power plant. It's just, you know, it's the uncertainty, I think, of, you know, you never really have control over an aircraft that's moving from airline to airline. You never know what tomorrow is going to bring, whereas if you work in a more controlled environment, you're always in control of what you're doing every day. So it's funny you see that when you give people a little bit of experience doing different roles. Sometimes they can change their opinion on what direction they want to go in.
Alok: Yeah, spot on, I agree. That was great. So we are at the end of this. It's taken a lot of your time again, as I mentioned. Thank you very much, Enda. Any last message you would like to give to the podcast listeners?
Enda Swan: Nothing really other than congratulations on this. I look it's a really it's a really I've listened to all of the podcasts that you've recorded so far and they're all fantastic and actually very educational as well in one or two of them, so I find them fascinating. But aside from the podcasts, you know, well done on your own career and what you've done, you know. So you've built a fantastic company, a company that Avolon used quite a lot. We have deep relationships, which is really well done.
Alok: David, welcome to the show of this podcast Flight Path with Alok. This is the fourth episode I'm recording and I'm very grateful and thankful for your time, which you have especially made to join me today. You are in Portugal right now, morning 9am for you and I'm recording you all the way from India. So, let's get right into it. Just to know, if you can just tell me a little bit about yourself. I know you have been in the legal field in the very beginning of your career, right? And so I would just like to understand how you got into aircraft leasing. What has been your background? Where are you from really? A little bit about that.
David Power: Great, thanks, Alok. Good to see you. Good morning. And, you know, it's great. Technology is fantastic. Now we can have a proper fireside chat conversation. You're in Bangalore and I'm in Portugal. So, you know, the joy for technology. But yes, I did. I started my career as a solicitor and I trained in Dublin, Ireland, and I worked for a large firm called McCann Fitzgerald. And it was one of the top two or three firms in Dublin at the time. And I went to school in Dublin, but I grew up in West Clare, actually west of Shannon, which would have been just west of GPA, where GPA, Guinness Peace Aviation, one of the first aircraft lessors started in the late 1980s, 1985, 1986. And I grew up in a very rural part of the west of Ireland where there were not too many roads. A lot of singing and dancing and a lot of Gaelic sports and you know, a very, very nice place, but very rural and very poor actually at the time. And I was close to the Shannon Free Industrial Zone and that was the start of aircraft leasing and actually many other businesses that now form, not those businesses, but subsequent businesses that formed the core of the success of Irish society and Irish financial services. So there's a long and rich tradition, both of musical and heritage and young people and people going to the American US and then the Shannon Free Zone, and then ultimately the Dublin IFC growing out of that environment and Guinness Beat Aviation and the start of aircraft leasing. But back to myself anyway, that's a long, long way around. I grew up in the west of Ireland and then my parents moved to Dublin like almost everybody else. And I went to university in Dublin. I didn't study law though. I studied accounting, finance, maths. I got a bachelor of commerce degree. And during that degree I had to do a law module and I discovered that I liked it. So I sat night time exams, to do the solicitors exams. And I passed them and I got my apprenticeship or traineeship with McCann Fitzgerald. And then they, by coincidence, worked for Aer lingus. And Tony Ryan had left Aer lingus to set up GPA and they were acting for GPA. And given that I was not a lawyer as such, so I was an outsider to the lawyers because I had to be gone. I didn't do a law degree, but I'd passed the law exam. And this was good for McAnviss Herald, as they saw it at the time, and placed me immediately into the aircraft leasing section. So I grew up as a baby in aircraft leasing, basically, carrying various people's briefcases, learning how to draft documents, and learning about corporate debt facilities. And actually, I remember one of my first tasks was a task probably nobody wanted to do, but I thought it was great. It was great to be innocent and young. Like it's great to be young because you don't really sometimes understand things. So I was doing the worst job in the world, which to me was the best job in the world, which was going out to all the countries in the world because they had a corporate debt facility at GPA. Actually at the time it was even massive and it was almost a billion dollars. It was NatWest and Chemical Bank and others. And this was in the late 80s. It was, I think, it was extended from 800 million to 1.2 billion. So I put it in perspective, it was a big business even then. And my job was under Catherine Dean at the time. I think you know Catherine Dean. And she was chairwoman of, or I should say chairperson of McCann Fitzgerald. I don't know if she, maybe recently, I don't know if she still is, but she was directing me. I had to go out to all the countries with a questionnaire. and find out what the legal system was like. So India, China, you know, Saskatchewan, South America, you know, Brazil, places that were barely, you know, and that I'd barely heard of that were on my world map, my Atlas, you know, we had Atlas's then and we had Globes and things, you know, and so that was my job, go out to all of these countries, do a questionnaire, find out what the legal system's like. and get the legal opinion for placing aircraft in those jurisdictions. So a very, very great introduction to the world of aircraft leasing. I was also doing stuff like I specialized in tax for a while. So it wasn't all aircraft leasing, but one, I remember one of the jobs I had was to find out where, you know, I could set up companies with no capital tax. So I found out a great country, a great place is called Manitoba, Saskatchewan. And then you got Isle of Man, and you got Guernsey, and then of course you had Sartre and other places like that. Because at the time people were able to double or triple dip aircraft. So you could buy an aircraft one place, you could sell it to another place, you could lease it to another place, but you might get three sets of capital balances. Of course that was legal and permitted at the time, of course all of those things have changed. Another big part of my job was going to Sweden. with Mike Dolan and Mark Pearson and people like that. Mike Dolan passed away, may he rest in peace, and they used to sell the aircraft into Swedish investors. So very early on I was getting a broad taste of how aircraft leasing and financing worked.
Alok: So David, through your career path, as I mentioned, after Audix, you moved on into various roles. And what you're currently doing is you're working as a member of board of directors of AV Lease. And I think you're also a special advisor in Ergo Holdings and principal in Solus Capital Partners. Right? If I may just request you to just give us a little understanding of your role in these organizations AV Lease, Ergo Capital, Solus Capital, that will be great to know please.
David Power: Great, thanks Alok. So AV Lease has been set up over a year by the PIF of Saudi Arabia and it's a really exciting company. It's being run by Ted O'Byrne, who you know from Carlisle and from Air Cap days and it's growing very rapidly with a regional focus in the first instance and then a pivot internationally. Really proud of my involvement with that company and on the various committees audit committee, remuneration committee and transaction committee there and I think it's a company with great prospects and future obviously very well capitalized and looking forward to the growth there. With Ergo Holdings, I'm an advisor and given my background in asset management, I've set up for Ergo their asset management division. Historically, actually it goes back to your first question, historically there were balance sheet lessor managing funds for their main investor, which was Carval and now they've pivoted to be an international asset management company. And actually since then we added about, there's been added in the last two to three years, 6 billion of assets. So it's a very significant growth within Ergo, 4 billion of which are assets under management. So a very, a period of very strong growth. Solace Capital is an asset manager in the wealth management fund and I set it up in 2016 before I left Rx and it basically provides asset management and fund services as in It has set up a number of investment funds, particularly in Malta and it's UK regulated. And I'm the principal of that company. I founded it and we'll see where that goes. So far, so far it's still going good, which is, which is, which is good. And then there is the arbitration court issues as well.
Alok: That's excellent. It looks like you have 48 hours in a day, not 24.
David Power: Yeah,
Alok: That I can say already.
David Power: yeah, well, it's
Alok: You do so many things, you
David Power: important to time yourself
Alok: know. Yeah. Yeah.
David Power: as well. I mean, you can play a role, but not In some occasions be too much in the weeds either. So it's important to have the right perspective.
Alok: Another thing which came to my notice was that the in your I mean, the since I have known you when I remember first meeting you were in Aurex Aviation. I remember how kindly you took out time to meet me a few times when you were the CEO in Aurex. And one of the things which stood out for me over last few years is a lot of the if I may say so the alumni, you know, in quotes of Oryx have spread out all around the world in some very important, I may say, leadership positions in different leasing companies and in the industry. So, it seems like Oryx aviation of that time was a great breeding ground for future leaders. And obviously, for me, in my mind, the connection is there with you being at that time, the lot of people whom I meet in the industry now have worked in some form or other under you directly or indirectly. So
David Power: Yeah.
Alok: I would like to know what do you think was the reason what what was unique one of the things possibly I can think is Oryx was an early starter in the industry obviously but other than that you know what played a role in shaping up these future leaders what do you think was was happening what was the secret sauce really which helped to groom these leaders.
David Power: Yeah, so I'm really pleased you asked that question. So I can quote a fact, which is that there are currently five CEOs of aircraft lessors who worked for me or with me in RX. So I think that's a pretty good track record to have. And I do think we did have a secret sauce. So let me take you back a bit before I answer the question to go to what is that secret sauce. Not so secret, but probably a combination of things that collided. When I became CEO of Oryx, I spent some time in asset management, in finance, and I spent a lot of my time working with technical people. One of the things which I really enjoyed in my career, and I enjoyed it intellectually and physically and mentally, was to be with technical people, engineers. Now, of course, I'm not an engineer and I don't think like an engineer. I hope I don't look like an engineer. I mean, as a pen, I can put in my pocket and I could imitate one. But we had great fun. And the fun we had was because we were different. So an engineer and a finance guy and a marketing guy, they're three different things, you know, they're chalk and cheese, really. And what I enjoyed, though, was when I was working with the engineers was we would be drafting the detail of return conditions or say an engine shop visit or say the maintenance reserves provisions. And there's big shifts in money in this and I think that I was lucky early on that I recognized and was part of drafting some very complex engine agreements and other things and I understood both the marketing implications and the financial implications, and I could translate for my technical friends, you know, and I had some really great people that I worked with, but I could translate their words and concerns and risks and opportunities into contracts. And I think that was a great foundation for me to become a CEO in the aircraft leasing space. And when I did, I set up a strong, separate asset management team, not reporting to finance and not reporting to, you know, slightly separate outside the core finance team so that we could manage technical.
Alok: Was it something which was unique at the time? Because now it is that is how all the leasing companies are mostly now right or is that something which was a different thing to do at that point of time?
David Power: Yeah. Well to be honest with you, when I didn't, another point that came up in some of the other interviews, I didn't spend much time worrying about other leasing companies. You know, I had my own job to do and so I had to carve out a business. When I started with as the CEO of Rx, we only had like 28 odd aircraft that were bought and they were A1 powered A320s. So they were problem aircraft technically. And I grew that company by 2020 to 300 aircraft and 12 billion of assets and a huge asset management business. So it was a vastly different business at the end than it was at the start. But the foundation throughout was the same. Oryx was a very disciplined, it is a very disciplined, technical company with a very strong asset management tradition and that's at the core of its activities. And that means we are not just a banking operation. In other words, buying paper with a certain yield and letting it out to the market. So the vision that I had for Rx at the time was it was very strong on both, of course, very low cost of funds, so it could compete very effectively, but also that it had a very strong asset, legal, technical capability. And that then leads itself into the market presence. You know, you get the market presence by having those other capabilities. And obviously, you know, I grew it through a number of crises. We had, you know, the SARS, we had, well, it's September 11th to start with. With them, with SARS, we had the global financial crisis and. The ultimate challenge of all of course was COVID, which I retired though from, I retired in 2019, leaving in June 2020. So I had, I'd done 30 years from, you know, starting really the company and growing it and developing it to a huge powerhouse in aviation at that stage. So it was good timing. But the secret sauce for us, and we didn't look, I don't think we were looking too much at what other people did. And it's an interesting point because I was always looking at the other top 20 aircraft leasing companies in terms of how they're all different. Not in terms of how we all do the same things or trying to copy what they emulate, what they were doing, but they're all different. They have a different shareholder, they have a different focus on the aircraft they want, they have a different ambition. They're sometimes more focused to be a fund. They're sometimes more focused to be a banking type operation. They're sometimes more focused on the Japanese operating lease market, the asset management side. So actually the segment is very differentiated in the top players. They're not the same, they're different and they behave differently and they chase different assets at different times.
Alok: One question which maybe just to, this is very interesting what you have just explained about how Oryx was heavily focused on the asset management piece also, right? I mean, and I know a big part of, if I'm not wrong, Oryx business was from the asset management side. I mean, is there a way where you can maybe define for the sake of our audience how that... asset management model is different from just a pure leasing model for example. Just a way to and I think this is more like an academic question just to understand the difference.
David Power: Yes, so Oryx was both a balance sheet lessor and an asset manager. So a balance sheet lessor is effectively buying, selling, trading aircraft, holding them, but not bringing in external investors or capital. Whereas an asset manager is either going out to the market and managing assets on behalf of existing owners or distressed owners. Or buying aircraft and specifically putting them in, say like Castle Lake to the ABS market, like Oryx to the Japanese operating lease market, like other, you know, B-BAM, etc. So they're asset managers and they're placing aircraft into specific marketplaces, be it the ABS market, like Carlisle, be it the Jarl market, be it US investors and funds who want to hold the assets for the yield, or pension funds who like the lower yielding but higher credit type assets. In fact, almost everybody is an asset manager as opposed to a pure balance sheet player. Aircap is the most pure balance sheet player, but you could say it's a public company which manages public money and puts it into aircraft. So ultimately, everybody's an asset manager. But some players are much like ALC and Aircap are much more focused on their balance sheet and taking public money, creating a balance sheet and creating profitability and growth for their investors, which is the public. So they are in effect an asset manager also, but they're more using their balance sheet as opposed to providing investment products in different segments.
Alok: I think that's very well put. If I may try and summarize it, my understanding is that all lessors are effectively asset managers as you have already said, but that doesn't mean that all asset managers are necessarily lessors. There could be asset managers who are not lessors, but all lessors are definitely asset managers as you have rightly explained, I think even though they're managing public money. So, you know, looking at your illustrious career, if I may say David, this is really impressive. I have this list here of, since you moved on from Oryx, you have been on the board of various companies. And recently, you're associated with Airgo Holdings as a special advisor as well. And one of the things which I noticed, which you're doing, is a great initiative is on the Hague Court of Arbitration for Aviation, where you're working as a vice chair of the advisory board.
David Power: Yeah, yeah.
Alok: Would you just like to just? tell us a little bit because this is a new initiative. I think it will help the audience to understand what is this all about and what is your role in this and what is the hey code of
David Power: Yeah, of course. Delighted. So, Paul Gepley, lawyer. Usp Pillsbury and is now with us, actually had the idea to set up the Hague CA, which is the Hague specialist court of arbitration, which works within the framework of the Hague international court of arbitration. And he started that endeavor 2020. And since then, it's obviously up and running. And I'm the vice chair of the advisory board. and the chair of the standing technical committee. So the court is designed really to be an arbitration court with very specialist focus on aviation. And that's why we've brought together over 80 experts from the aviation sector, from the lessors, the finance side, the MROs, the manufacturers. etc. to advise and input into the rules of arbitration in the first instance and now that the rules of arbitration have been settled with the Hague Court, with the rules of mediation. So our focus now just currently, and we just had a meeting on it last week with a large number of attendees, actually it's very challenging to have these meetings because we have so many attendees to get a time slot and to have an agenda and to get the minutes right etc. But what we're trying to do now is to have more influence on the mediation rules so that people in aviation can with confidence put in a mediation or arbitration clause into their contracts knowing that they won't just be going to a court where maybe that court doesn't have the specialist expertise and not just to an arbitral institute which you know so they go they can get a specialist arbitral and mediation service but actually, our viewpoint is that we want to promote arbitration generally whether it's in London or Singapore or the Hague court as well because it's a not-for-profit operation organization, it's a foundation. in fact and I think that over time It is not a quick fix. I mean, over a few years, three, four, five years, it'll begin to have a major impact. I mean, I was just thinking about it the other day and thinking about all the supply chain issues and Alok, you'll be seeing it in your business.
Alok: Yeah.
David Power: And there's terrible disputes can come out of that, but also it's not the forum to litigate either. So you have genuine... problems in the supply chain, but that doesn't obviate manufacturers or suppliers from certain responsibilities, yet litigation is not the answer in the first instance. So I think that's a very good example of where mediation or arbitration clauses in those contracts can be meaningful and it can also lead to much quicker resolution. And for example, the cost of mediation as compared with, I think, arbitration litigation is in the small percentile. I was told a percentage and I didn't believe it. It was so low. So it is significantly cheaper, quicker and more responsive. But in particular more, the experts that will be used are experts in the area, which is a much quicker way. to access as well as justice are the right answer in terms of these type of disputes.
Alok: yeah. Yeah. So, and you're right. And this is where I was leading this question to the next point of a live example from where I am right now, which you must be very well aware, what is going on with Go First Airlines in India, it is going through a bankruptcy process. And they have said that their reasons are one of the reasons, key reasons is Indian issues with PW. While we may have our own opinion of why they are going down. But at least on the face of it, they're in a dispute now with the PW on their engine issues. And I believe they went through some arbitration, et cetera, et cetera. So I'm wondering, a HAC-CA possibly, when it
David Power: Yes.
Alok: Would be fully ready, can play in future a role in this kind of situation and help resolve the situation faster and in a more cost effective manner, isn't it?
David Power: Yes, and that's a really good example and I believe also that India has, and you probably know more about this than me, but I think it's adapted some legislation or it's in process to demand that certain companies have arbitration clauses before they resort to litigation. And I think that could be a growing trend. internationally. Certainly it's far far sighted by the Indian government to be introducing such legislation I believe.
Alok: Yeah, definitely. And in India, as you know, in the gift city of India on the West Coast, Gujarat state, they have they're setting up, you have mentioned the very beginning when Ireland was growing the air craft leasing business, they had set up an IFSC. So India has set up its first IFSC, so to speak. And it is in early days right now. But one of the positive steps they have taken is they have set up the Singapore arbitration bench there, so that the various parties who operate there can resolve matters through arbitration rather than through litigation.
David Power: Yes. Yes.
Alok: So I can imagine if tomorrow Hague CA is spreading and looking at various regions, possibly one of the places they would look at is also gift city in India. India is such a big country. And I think that's a very important point. India is such a big country. And I think that's a very important point. India is such a big country. And I think that’s a very important point.
David Power: And possibly with my ergo hat as an asset manager, I'll have to go down to Gift City and see if there's any investors there. So yeah, you know, it's a big world and it's always opening up and new opportunities. I mean the growth in India over the next 10, 15 years will be phenomenal.
Alok: Yeah, yeah, it looks like that. It definitely looks like that. I am going to change the beat a little bit because I have a set of special questions just for you
David Power: Oh lovely,
Alok: because
David Power: lovely,
Alok: I think
David Power: thank you.
Alok: there are areas on which you can contribute. I mean, beyond the usual, because I pretty much have tried and summarized your career here and got a little understanding of the new initiatives. But there are certain things I think, which I believe, David, you are the best person to tell us. This is a topic you know very well about JOL and JOLCO and I'm going to just Spell out the full form because I got feedback from my audience That not everyone who is hearing this podcast knows everything about the full form of these terms, you know, so Japanese operating lease is JOL and JOLCO is Japanese operating lease with a call option now I think Oryx in your Oryx days and maybe even now you have been very close to these right and during the pandemic time especially till last year I know there was a case which was most publicized about JP lease and some assets in Vietnam which had some Jolco related issues and apparently at least what I have heard is there is an issue that maybe Jolco people are saying is a thing of the past I don't know. What is your opinion? Are they still active or will they not be active now anymore?
David Power: Yeah, so I think the, actually I just read, before I actually started this, I did a bit of reading and I read because the Tokyo conference was on in Tokyo, obviously, Tokyo, conference in Tokyo
Alok: Yeah. Yeah.
David Power: just a couple of weeks ago. But it seems that the Jalco market has come back a bit. But let's just get back to a little bit of definition. So a Jal will be a single investor, and a Jalco will generally be multiple investors. So now, what happened in the years 2017, 18 and 19, which were obviously very good for aircraft leasing and aircraft leasing was growing. I mean it was growing as a percentage of aircraft operated from about 42% and heading up towards the 50% mark and the airlines were moving into profitability making about 30 odd billion in aggregates, and the JAL market had expanded to about $4 or $5 billion worth of assets annually or more. It's not really transparent. So a lot of Japanese investors had bought widebody aircraft with Southeast Asian carriers and then moving to Latin American carriers. So if you take initially that the credit risks of the Jalco Airlines was a top 15 to 20 in say 2012-13 and then by 2018-19 it was a top 40. So, as soon as COVID came, unfortunately for the Jalco investors, a lot of the airlines obviously had significant payment difficulties and problems which are well documented. So the JAL market has recovered to a stage where it's the top 15 airlines that can attract JAL funding and is beginning to recover. But there are other issues such as the strength of the dollar, you know, et cetera. So yeah, I expect the JAL market will recover. And I think the particular note is that the Japanese economy and the Japanese stock market is rising strongly and there's significant profitability within Japanese companies. So it's an improving situation for the JAL market, but slow. And credit is paramount to that market. I mean, investors need to know that the aircraft will be purchased in the case of the JALCO or that it'll get to the end of the lease term in the case of a single investor, JAL. And there is more debt in the aviation sector. I mean, debt had increased immediately post-COVID to about 800 billion, whereas pre-COVID, it was still a startling 600 billion. And I believe Ishka just issued numbers, so about 50 billion has been repaid. So there is a repayment going on by airlines. But post-COVID, what we see is that the percentage of the lease market controlled by the leasing community, is roughly 60 percent whereas pre-COVID it was you know touching heading towards 50 percent.
Alok: Yeah.
David Power: But this is a very big move upwards and also the ABS market is currently effectively sort of in hibernation until the interest rate issues. So the only market you've got other you're wondering why I'm answering that in the context of the JAL market. But the only other market you have other than the ABS market currently will be the JAL and JALCO market. And with the state of the Japanese economy being relatively strong, actually, but with the dollar, yen issues, that looks like a recovering market, but a focus really on the top, top 15 names, which actually compresses the JAL players into very tight economics with a few airlines who can command very good pricing on both the debt and the least rental side in that market place.
Alok: JAL and JALCO market traditionally has always been particular about high credit worthy airlines only.
David Power: Yes.
Alok: But what I'm understanding you're saying is that possibly that will become even more stringent in the short term now for time being.
David Power: Oh yeah, in the short term I think it's paramount that it's the top 15 of the airlines worldwide that can attract JAL or JALCO funding.
Alok: 15 or 50, sorry, 15.
David Power: No, 15. No, no, it's not top 50. No. Do you have a top 50 of airline credits? I'd love to see it.
Alok: That's why I qualified. was wondering.
David Power: I don’t mean that the bad way, but everybody knows airlines are, you know, airlines are very susceptible. That's why the industry is so interesting. We're all very susceptible to external shocks and to oil price movements, to GDP, to consumer demand etc. But the airlines are doing fantastically at the moment and it's great to see. I've been travelling a lot and I'm sure you have. Everywhere you go
Alok: yeah, flights are full.
David Power: it’s busy, it's very busy. I'm here in Portugal at the moment and it's, I would say, twice as busy as normal in the Algarve, which is a holidaying spot and it's very, very busy.
Alok: Oh, you're right.
David Power: It's great to see, but long may it last as well, but we are seeing a huge uptick in travel
Alok: You absolutely right. Last week, I was in US, and a couple of airports I transitioned through, and there was no space to, frankly, one of the airports, there was no space to stand. It was that busy. I was surprised.
David Power: Yeah.
Alok: One flight was delayed by two hours, and the airport was just jammed. It
David Power: Yeah, yeah.
Alok: was a good problem to have for airlines.
David Power: Oh yeah, it's definitely a parts world problem, but the only thing I wish actually, you know, I always feel sorry for my airline customers because I often think they're very let down by the airport authorities and I'd love to see better accountability by the airport authorities for some of their decisions around the way they, you know, load passengers onto planes to space to give to airlines. generally the security aspects as well, you know, going to some bizarre sort of queues and unnecessary hindrance to travel. It's probably quite something we should debate at some of the conferences, but there should be, you know, the airlines should be better served to get passengers in and out of airports. And it also goes actually to the environmental issue because we talk a lot about SAF, we talk a lot about you know, aircraft, but simple solutions such as not having aircraft, you know, idling and taxiing for hours might be a good way to start.
Alok: Yeah, the full one is high and you're right, bad for environment. On the support to the airlines, you know, one area which maybe you can weigh upon even more, I was hoping to hear what is your thoughts on the supply chain issues. You mentioned that briefly in the previous answer, but those issues are very much here. They're staring us at the face now and we are seeing the impact real time. I am like the kind of the airplanes which we are managing, for example, through various processes for various clients. We are seeing airplanes getting delayed, stuck in MROs, waiting parts, all that is really happening. And engines taking time to come out of the shop. Do you see that ending anytime soon? Maybe do you have any inside knowledge to share with us as to what do you think will happen eventually? How will this play out the next few months?
David Power: Well, I'm quite concerned about it because there's some conflicts of interest there. In fact, as you know, some suppliers may benefit from the supply chain issues in that they charge higher prices for their stock and also for the refurbishment of parts. There may be a shortage and they can charge what they want for exchange parts. So I think there is a real problem in the supply chain and I don't see any resolution to it within 2023, more likely 2024, 2025. Now in capitalistic systems, these things generally resolve themselves because the void is, the vacuum is met by somebody else producing and supplying. But in the case of aviation, you can't get the licenses. You don't have the intellectual property. So, you know, in a situation where you have a duopoly, effectively, there needs to be real focus on this by Boeing and Airbus and the major manufacturers, and it needs to be resolved. And I would suspect that people will soon become very tired of it and we'll see a lot of disputes. You know, because there is significant cost being added to the airlines by lack of parts and on occasion, lack of an ability to get an engineering drawing. So how long can it take to get an engineering drawing? In your mind, Alok, and you're well used to looking at reconfiguring aircraft, how long would you say it would be reasonable to procure the drawing? This is before you even start the modification work.
Alok: Engineering order for a cabin modification matter of few days is what we have been used to at least in the past.
David Power: Well, what would you expect it to be today?
Alok: I think today it is a matter of it has gone maybe exponentially high. It's even taking two to months is what I’ve been told and in case of some of the parts as you rightly mentioned the pricing of refurbished parts, computers and all I've heard is gone three times now from pre-COVID times. So you're right there is a serious problem here and what you mentioned underlines to a large extent why that is happening. So hopefully it will come to a head and get resolved at some stage soon. But right there is only so much the industry can take.
David Power: Yeah, I think it's a big problem and I think you'll get resolution through people having some hard conversations, maybe eventually through arbitrations or litigations, but unfortunately, but it's definitely a major feature of the world we live in, the transitions of used aircraft are all the more difficult in this environment. It sort of goes back full circle to where we are about asset management and that's why when you're dealing with asset managers are less or so to speak, you need to have people who can navigate their way through that just as you need sort of your technical guys and your technical team who have specialized and who have you know hands-on experience not like last year's experience, but you know experience within a continuum and that's why I think the aviation sector is so interesting because there's so many different experts that we have to draw them all together so we get good outcomes.
Alok: This whole story, the way it is playing out now, like I mentioned to you about Go First and what is happening with Pratt engines. And I know Pratt has come back with their statements about Go First, and maybe none of us are in a position to basically say who is right or wrong. We don't know. Though we know there is some there is a middle ground, there is somewhere the truth is somewhere in between as always. But having said that, the fact remains that Pratt engines, the gear turbofan engine is causing problems worldwide. Yes, India is maybe the most affected due to other reasons too, but it is having an effect not just in India, it is having an effect in Europe and elsewhere too. That's what we know of. How will this, how is your opinion this affecting the market in the law? How like in your role as an advisor in various companies as a board member, what advice are you giving to those boards or what is your opinion on this? How this is weighing on the market?
David Power: Yeah, so I don't want to comment specifically on that case or the practice with the engines, but I can tell you what the impact of such issues is, is that there is a shortage of aircraft at the moment and there's a shortage developing because more capacity has been put into the market and is being put into the market. But for the manufacturer in the long term. It means a residual value differentiator of their product versus other competing product. And that's not good for the engine type. Obviously, my early career was spent dealing with a rather difficult engine type, which was the A1 powered V2500 engine, which ultimately was resolved through various initiatives by the manufacturer.
Alok: Actually you have answered that question very well David without getting into the actual engine manufacturer whom I asked about but you have explained that point extremely well. So that is exactly what I was looking for just to get an understanding of the impact. And you know, I have a follow on question though. So we have been also seeing tri-party agreements. I know pre-COVID there was a lot of talk about tri-party agreements with between OEMs, lessers and airlines, PBH, total care etc. these are the names some of the names of these kind of agreements. Do you think as a lesser would you recommend that now knowing what you know now would you recommend that lessers enter into such agreements or asset managers lessers enter into such agreements now going forward?
David Power: Well, in many cases you have no choice because the manufacturer is so well established with the airlines and has programs in place. Would I prefer to revert? So let's go back for those who probably don't know the full history, but originally the lessor would take a maintenance reserve for the unconditioned part of the engine and separately for the life-limited parts. And what you're talking about is tripartite agreements with GE or Rolls-Royce on the engine side. But now the GE and Rolls-Royce have set up systems to supply the parts of payment by the airline directly to Rolls and payment for the on-condition nature of the engine and then ultimately for the replacement and use of the engine life-limited parts. Those agreements can work well if well administered as between the airline and the engine manufacturer and there's clear visibility of what the payments are by the airline to the manufacturer and clear transferability in the event of a default of the airline. And I think these are the areas that the agreements may fall down as we see. You know, the lessors need to understand what the agreement is with the airline. They need visibility of what the payments have been. And if there has been any default by the airline, it should be notified to the lessor, but that hasn't always been the case. So the lessor can in some occasions be disadvantaged by these arrangements. In general though the arrangements should work well, whereby once it's in a TCA, total care arrangement, call it that, that the manufacturer and the airline are making sure the engine is fully funded because these on wide-body aircraft, you know, 777s, on, you know, A330s, 787s, these are massive amounts of money and it's right that there is proper provision made for those events. So you've asked a really close to the bone question as I've actually just placed on behalf of Virgo 7879s, 17878, and at the core, and we're marketing some A330s, so at the core of those arrangements are whether they're in the TCA or whether they're not in the TCA. and do we have visibility of how much it takes to put them back in the TCA and do we have visibility of how much the airline paid, the previous airline that may no longer exist, has paid to the engine manufacturer. So right because they're very complex arrangements as well and there can be significant differences between engines operated in, for example, India or Mexico, or North America, or Southeast Asia. And for example, in Southeast Asia, Thai, which went into restructuring, we saw a whole lot of problems arise due to certain humidity issues and other things like that. And then you see other things in India, depending on the climatic zone, and obviously in Middle East as well. tends to be very hot and sandy. So, you know, you've different environments as well. And in a way, it's, so there's positives and negatives. I mean, in a way, it's very good that the ultimate responsibility falls with the engine manufacturer. But I caveat that with a whole load of points around assignability, visibility of what the payments are and transparency in the arrangement.
Alok: Yeah, because the new generation engines, let's move away from naming any engine manufacturer but new generation engines as they go to the airplanes on which they're fitted as this aircraft moved through the second phase of their lease life as they get re-marketed five years, six years. I am just wondering how will like PBH for example, for our audience sake, I'm just going to say power by the hour agreements. Let us say that is a name for such agreements. How will the rates change? What impact it will have? What role will that then play from a lessor's point of view for re-market ability of the asset? And someone will have to hold the, as they say, pay the check, right? Somebody will have to bear the cost of it. So I'm just wondering, how will that all? You may or may not have an opinion on that.
David Power: I sort of already told you the answer because, but you know, I'm going to say you've gone very serious all of a sudden, we're getting into edge and total character. I mean, you told me this is going to be a light artist interview and now you're getting deep into the, into the book.
Alok: I can edit this out. I can edit this serious part out.
David Power: Like this is about the most serious sort of really, I don't think, everybody's turned off about 15 minutes ago.
Alok: Yeah, yeah, yeah. No, no, I'm trying to learn, you know, from you. I’m taking the opportunity to learn things which I don't know about.
David Power: Yeah. Well, I think for me, the key thing is not so much. Well, it's that as an owner, you have visibility of the payments by the airline to roles or GE under the arrangement and that you have the ability to assign that arrangement to the next operator if your current operator, unfortunately, has problems. So it's an asset that should go with the aircraft. And that's where a lot of problems arise. There may not be the transparency that you thought there was, and there may be cross fertilisation of pots across engines. And we need to have accountability by the manufacturers in those arrangements. But I'm sure now you've really bored everybody. But if you're full of...
Alok: It’s a great point.I tried to squeeze the juice out of this.
David Power: Yeah.
Alok: Okay, so I'm going to change the topic. I hint well taken. I'll change the topic and I'll ask you one more question about the market, but not about any of the engine issues. Air cut values, you know, at the long haul short haul airplanes.
David Power: Yeah.
Alok: You just mentioned about the kind of transactions you have been involved in. So which is a better or a safer investment in the current climate in your opinion? A long haul or short haul and why?
David Power: Yeah, so again, you have to just have a really quick look at the past. And in the past, wide-body values have declined much more steeply in downturns. And I think in recent downturn, we've seen that some of the wide-body values are at 40% of what they were pre-COVID, which is a pretty dramatic loss of value in the aircraft. Now narrow body aircrafts recovered much more quickly and that's in part due to the fact that a lot of wide bodies are located in the APAC and Asian region and that was where zero COVID, the Chinese policy, extended into that whole region and really the opening up raid occurred in December 2022, January 2023. So it's actually just, it's hard to believe four months ago, like I was residing in Hong Kong and it was still zero COVID up to mid-December 2022. So the opening up and the renewed demand for A330s and 737 900s and you know, triple sevens, the bigger demand areas only occurring right now. Whereas narrow bodies to recovery began very strongly actually at the, It's hard to remember because things have happened so quickly, but if I'm right, it was about January 2022, it was really autumn 2021. And then, unfortunately, we had the Ukraine invasion by Russia. I think that was that February 2022.
Alok: Yeah.
David Power: Yeah, and that, so before that, actually a lot of confidence was returning to the narrow body market, but not to the wide body market. And that confidence was really dented until about, it took about three months to understand what was going on. And then through the summer of 2022, we saw marked uplift in narrow-body rentals, but very little uplift in wide bodies, which we began to see actually with the anticipation of China opening up in the autumn of 2022. And so much so that like 787s and A330 market has risen 30, 40, 50% in terms of lease rental. But you know, 50% of nothing is still not great and they're still way off where they should be. I mean these are aircraft that sold at over 120 million dollars say 2018. And I'm not going to say the trading price for them, for those few
Alok: I'm gonna just ask that now.
David Power: aircraft that did trade, But it was dreadful and I think the recovery is ongoing. I think there's about 110 store day 330s, which had been about 300 last year. So the storage level is going way down and the reactivation level is going way up. But these aircraft are also caught in the supply chain issue. So to get them back into service is taking six to nine months. But I do expect a continuing recovery and strong recovery, but strong because, you know, percentages don't tell you a lot. You had power by the hour arrangements plus minimums, they should be gone now. And the fundamental value of these aircraft is far more than even today's value, if you look at the valuers who would reflect. So I think I see strengthening demand and value for the triple sevens, the A330 and the seven eights. But they won't recover to their pre-COVID levels, those that have been caught in the situation.
Alok: They will not recover you are saying like for a while now.
David Power: No, not recover fully because they've lost three years of value. Don't forget aircraft that have sat on the ground for three years, you have another issue around the maintenance cycle, etc. But the other point about it is they're bloody great aircraft because they haven't been used as much as long as they've been stored and brought back to life correctly, they have the effect of life in them of newer aircraft.
Alok: Interesting you mentioned that because like in Acumen we have our iStat appraisers in our team and one of the topics which they told me they have been debating with customers back and forth especially since last year post the pandemic kind of getting ended was this exact topic of how the values are getting affected on the assets which have been grounded and also on the supply chain what you mentioned is I am sure you are aware of I heard that the first 787 just got parted out. So whoever parted it out must have done it with a solid business case, writing on the fact that there is a supply chain problem, and parting it out makes sense, and they can make good money on it. Yeah.
David Power: Yeah. I think they did and I think that they'll make good money on it because there's a lot of 787 currently returning to service.
Alok: Yeah.
David Power: So it does make, it makes total sense.
Alok: I am going to move on to a favorite topic of yours, not aviation.
David Power: Uh, what?
Alok: And a topic of a topic which is of which is your favorite but not aviation.
David Power: Oh good.
Alok: Soccer.
David Power: Oh soccer. Well my favorite is playing soccer, not talking about soccer.
Alok: Yeah, so I should tell you why. I know that you love soccer and I have also heard that when you were in Oryx, you used to hold a weekly soccer match,
David Power: Yes, yes.
Alok: form teams and you used to play yourself.
David Power: Oh yeah, of course, yeah.
Alok: So my son, he's into soccer too. He's right now in school learning soccer. And I mentioned to him yesterday that I'm about to talk to someone tomorrow in my podcast who is into soccer. So he's like, please ask him what is his favorite team. So because
David Power: Well,
Alok: he loves soccer too and Thanks.
David Power: my favourite team, this is going to shock you, but it's Chelsea because my son follows Chelsea, which is a bit of a disaster at the moment. But, actually, because I thought this was a light-hearted interview about the job and how you, I think soccer is a great metaphor for how you can be successful aircraft leasing companies should work. And it means that you pass the ball, you know, teamwork and passing the ball is really critical. So actually we had a great, we had great fun. And we played soccer actually sometimes twice a week in Winter League. There was quite tough, quite tough competition. Sometimes we lost like as much as 15-0 because
Alok: Did you ever lose David? Did you ever lose or are you always in the winning team?
David Power: No, actually,
Alok: Tell me about that.
David Power: no, we played against GCast and we played against, we went down to town, we had, that was the full 11 aside with ourselves and we did well in all those matches actually. We did very well when we put the whole team together. But we played in Winter League, close to us, where we got trashed because the players on the Winter League were guys who were coming after work who probably played for a sort of League of Ireland team and wanted to get in a bit of practice. And they were really good. And they just ran rings around us. But we kept playing and we kept enjoying it. And that was the main thing. We won a few games as well. But I thought we had great team spirit from it. And soccer, basketball, anything you couldn't play as a team, I mean, anything. Tiger rugby, any of these sports, they're just great within companies. I think sports and companies go very well together in terms of inclusion. I mean, soccer probably isn't the most inclusive because that was a male team, but we had a mixed team as well. And, you know, so anything that promotes health and teamwork is great in the, you know, in the corporate environment. It also breaks down barriers because like nobody can be too snooty if they're on a soccer pitch on a cold wintry night in Dublin, you know, there's hailstones coming down them to have to kick a football, you know, you just it's a great leveller now
Alok: Yeah, you're absolutely right. I mean, nothing like that to break barriers and build a team culture.
David Power: Yeah, if I was in India, it would probably be a cricket team, but I don't know how
Alok: Yeah.
David Power: many players you need or all the rest. Of course, you Indians guys get too passionate about it, there might be a fight.
Alok: So cricket is same 11 players but in our company here in Bangalore we, our teammates here they mostly play soccer too. They actually have been participating in local tournaments every once in a while.
David Power: Yeah. It's actually, it's a great game for your health as well, because it pumps
Alok: Yeah,
David Power: your heart.
Alok: it’s very popular in India now.
David Power: Yeah.
Alok: Yeah, it's quite popular. And last year we had an Acumen offsite and we had a beach side soccer match. So that was a lot of fun. So David, we are at the very end. Thanks so much for giving so much time. I have a question I like to ask
David Power: Cool.
Alok: always, a couple of them actually, we need to end this. But first is like, you know what? What advice, from a career perspective, have such an impressive career you have had, such a long lasting innings and you're still going very strong, which is really impressive and inspiring, as far as I’m concerned, frankly. And I would love to know what advice you would give to the new generation of executives coming in the industry, the people who are, in fact, trying to get into the industry as well, those who are at junior, mid-level. What is one advice you think they should hear to grow in their career in their lives?
David Power: Yeah, probably there's a load of things that you touched on soccer. I think one thing because it's quite a hard and we travel is a bit of training. It's always good to keep some fitness, you know. It's also good to, you know, also socialize. So I think combining the two is a really important aspect to your life. And I think though that don't be afraid of the detail, don't be afraid of hard work. What this industry shows. And the word that comes through again and again is resilience. So it's a very resilient industry. And if you ever want proof of that, look at COVID. I mean, COVID was very, very destructive. We've sort of put it behind us now in our minds. But I remember you could almost cry. I was on the the cable car that goes to the big Buddha in Hong Kong, and I could see Hong Kong airport and there was no movement. There was a helicopter. flying over the airport and there was FedEx and Cathay aircraft all parked and you could see everything. I have the photograph and it was an amazing sight. You know, we've been through a hell of a lot and it recovered. We were through a hell of a lot in the global financial crisis. I mean, living in Ireland, we all got letters to say, oh, you've lost all your money, you know, so and we came through that as well. We had SARS, SARS was very severe in Asia in 2003. They had obviously September 11, a disastrous scenario. So aviation is very resilient, new challenges. I think the other thing, because you could labor it, but is to be very open and giving of your opinions with your colleagues is very much an interactive sport. And I say sport because I've always considered working to be fun. not working. So, you know, enjoy yourself, but be very, I mean, I learned so much from my technical colleagues and then more from the finance people as I had to raise money. And then I realized, God, the marketing side is great. So I sort of leant into every one of them at different stages of my career. And it's until you lean into these areas and sort of learn them that you really appreciate them. There's, I wouldn't, the one thing I'd be very against is being siloed. If I found in my career I was being siloed, in other words, oh, you do this, but they do that, and you can't talk to them, I'll talk to them, and they'll talk to me and I'll talk to you. Yeah, I'll move on from that sort of scenario. So I think, and the other thing is that in aircraft leasing and financing and there's great companies, you know, but they're all different so you have to pick which one suits your needs and your skill set. But I'd be very much in favour of people who are open and smile a lot and optimistic because God knows you've got to be optimistic.
Alok: Yeah, optimism always wins the day, no doubt. Right, David, we are at the very end. Thank you very much for giving us so much time. Is there any closing message you would like to give, anything else you would like to say? And then we can wrap this up, because that message which you're going to give us, we'll put it at the end of this as like a closing message on your behalf.
David Power: Oh, great.
Alok: So my request is if there's anything.
David Power: Thanks, Alok. It's great to see you. I actually must have the pleasure of a revenge interview with you at some stage. So that would be fun. But yeah, no, I'm looking forward to it. I'll probably work for another, I'm thinking about 30 years. though, you know, probably keep working for another 30 years and enjoying it. So I think I think there's plenty of room in aviation for expertise and people to expand what they do and how they do it.
Alok: Right, right, right. Well, thank you very much, David. Wish you a
I wanted to set a context and I have never had this opportunity to sit down with you actually.
Firoz Tarapore:
Hahaha
Alok | Flightpath:
So I’m personally very glad that I'm getting that, even though I've known you for many years now. And before I even start, I'm actually very curious, your full name is familiar to me because I think the name comes from a place called Tarapur in Maharashtra. Please allow me to welcome you to the show. This is the third episode of The Flight Path with me, Alok. And it's a pleasure that you have accepted to give us time. I think you're in Dubai right now, morning 9.30 AM for you. So thank you very much for making time. I think I'll straight away start with knowing a little bit about the story, I don't know much about your story, basically. Please tell us, especially your upbringing, where you're from, how you have come to Dubai, and now you are leading this big firm, DAE.
Firoz Tarapore:
We're trying to make it bigger. Yeah, so listen, my background is relatively straightforward as it comes. I grew up in Bombay and I still continue to call it Bombay. And I studied there, I worked there for a little bit, and then I went to the US to do further studies in finance. And as it turns out, when you are a kid, growing up in India and you go to the US for studies, the financial obligations at the end of those studies are not insignificant. Then you say, maybe I'll work for a year or two years and see if I can pay all that out. So 22 years after that, I left the US to come join a startup company in Dubai called Dubai Aerospace. And I joined them as CFO because my background is essentially finance and transactions and structured operations and stuff like this. And it's been a ride since then where we've taken this startup through global financial crisis, where there were things that we had to worry about that were not in the original business plan, but we dealt with those. And then today, you know, we are kind of what we are. So it's been a journey, but it's relatively straightforward. Study work, study work, and here we are.
Alok | Flightpath:
Ok, you have kind of oversimplified it.
Firoz Tarapore:
HA!
Alok | Flightpath:
But Ok, I'll take that. That at least gives me some insight. And now, what I understand is Dubai Aerospace is a very interesting company, because Dubai Aerospace is not just a lessor. There's a group, DAE Capital, obviously. It's a big lessor. But you also have DAE Engineering. And it's a very interesting combination. I think possibly the only lessor I know of who is having this interesting mix of an MRO and a capital provider leasing company at the same time. How has that come about? And I was wondering from a business model point of view, what is the thinking behind this and how do you see it drives value, you know?
Firoz Tarapore:
Yeah. So to understand that we have to take two steps back. As you can surmise from the name of our company, it says Dubai Aerospace. It doesn't say Dubai Leasing, Dubai Aviation Leasing, Dubai Aircraft Leasing or whatever. And when we started out live, the mandate was to establish a footprint in six different protocols within the aviation space. And that's the reason for the broad name of aerospace because we were intending to have a large footprint in the manufacturing side of things, in the engineering side of things, in the servicing, education, et cetera, et cetera. And when we had to refocus our resources because resources were limited after 2008-2009, we focused essentially on those two elements out of those six that we could establish a strong market presence in and that also were kind of profitable as opposed to spending years and years and years investing before you break even before you start making money. And those two segments were leasing and engineering. And just as background, at that time, we owned the world's largest independent engine MRO called Standard Arrow. And Standard Arrow is now a huge company because after we invested it in 2015, the owners after that did incredible consolidation and it's a bigger company. But at that time, we had a very large engine MRO presence. But it was headquartered out of necessity out of North America because that's where the engines are by and large. It was a global business, but all the facilities, nine out of our 13 facilities were in either US or Canada. And the strategy at that point was to have acquired all of this to ultimately bring the nexus of all of that to Dubai. But as it turns out, in the engine MRO space, the economics are massively skewed in favour of the OEM as opposed to the independent MRO because you have to buy parts from them, you have to buy IP from them and when you end up paying for all that, what is left really is just margin on labor, which is a hard global business to run. So we changed our focus, we got rid of the engine MRO business, which is a great business for somebody who can do different things with it. And then we instead invested in an airframe and everything other than MRO business in the region. And so we established that beachhead through the acquisition of Joramco. And then we spent the last few years turning that operation from what it was to the world class business that it is today. Revenues are now double what they were when we acquired it. And our business plan is to double them from this point forward within the next, I would say five-ish years by expanding, by doing different things. And so I think broadly speaking, our ambitions are to create a broader aviation company, not just a leasing company. Predominantly, in the region when you look at everything other than leasing. Leasing is a global business. You can't be a regional resort. That doesn't make any sense because these are mobile assets. We can globally move them around. But on other stuff, for example, Joramco is one of the leading MROs in the region. There are other areas that within aviation that have been dormant and it's quite dormant for us. And it's quite likely, quite possible that as we think now about next steps, that we might acquire something that fits with what we do and what our overall aspirations are and are consistent with the developments in the industry. So if you think about technology, if you think about the momentum around what’s going on with decarbonization, if you think then about what aviation needs at the vector of all of those things, there are opportunities that we might consider. So think of us not just as a lessor, although we're a very large top 10 lessor, as a broader aviation company, but everything we do, we do because it makes sense on its own two feet. We don't buy an MRO because it helps the leasing or we don't do leasing because it helps the MRO, because it doesn't. There are two separate businesses. I've got leaders running those businesses and each of their KPIs is set based on what they can do, not what they can do because of each other. And even today, you know, there is a purely arm's length relationship between our division. So one division wants to use the services of another, they pay the rate that the division is asking, they stand in line consistent with their request, and that's kind of how it works.
Alok | Flightpath:
So you know the other question I have from an aircraft leasing perspective. As a business, as aircraft leasing is evolving, you are a unique lessor, in terms of your geographical location, and ability to, I think, deploy capital and assets in a large part of Middle East. But also you have this big unit now, since around five, six years back, you had acquired EVAS, you have a big setup in Dublin. So it gives you a very unique perspective. And one of the things which I have been researching is how the different lessors are operating, like some lessors I know out there, they like to call themselves order book lessors, where they go about placing a big order book and then deploying them. SLB is not typically a model for them. I believe DAE is doing kind of both, DAE capital, I mean, they're doing order booking, but they're also doing time to time SLB leasing, right? I was just hoping to get a perspective from you. And this is purely an academic question, as to what are the merits, how you think these models work and what works possibly best for DAE and why.
Firoz Tarapore:
Yeah, so I'll describe to you kind of what we are doing as a way to answering kind of what models work for us and why this versus something else, right? And so first of all, you know, if you just aspire to be a me too company, you're always going to have me too returns with it that those are never enough. Those are never adequate. So when you ask yourself the question, you know, what do you do differently? Why do you do it different? For us, there are two or three things. One is we have created a model that allows us to serve multiple masters. So because each master cannot do everything in the universe. And what I mean by that is that when I take my own capital and acquire assets, we have a very tightly defined envelope of what we will buy. This kind of asset, this kind of LSC, this kind of structure, this kind of return, this kind of that, this kind of that. And so if you imagine that this is the space in which we operate, our envelope is maybe like this. But that means we're not able to play in all the other stuff. But there are dozens of people who say, I don't want to play here, I actually want to play here, I want to play here, I want to play here. And the model that we have created is a capability set, our platform, that can serve multiple masters that can say without prejudice, without bias to say this is good or this is bad or this is preferred and this is not preferred. We can deliver returns to those people who only want to buy, say brand new aircraft on lease to Delta Airlines or British Airways or Qantas or some like that. We can provide adequate returns to people who only want to buy assets between 12 and 18 years and manage the grease part of the asset, which is actually very profitable. But we have capability sets that will allow us to effectively do the front end, the middle end, and the backend. And so one element of our business model is to have differing elements of capital or differing pockets of capital that allow our platform to punch way above its weight class. And that's very different because, and we're developing that slowly, we're not there yet. We still have many pockets to fill. But within that, when we look at our own capital, but also managed capital. One of the things that we find is that because this is a cyclical business, you know, attractiveness is different at different times, being wedded to one origination channel is not the greatest thing because all origination channels produce different returns depending upon what part of the cycle they are in. Today, one can argue that if you have an amazing order book position along with the shortage that we see in the planes, those are amazing returns that people are producing on that sort of distribution. But what we have done, but that's not always the case because when it's the opposite, you're effectively taking a $40,000, $50,000 discount just to get the plane off the books if you will. So what we have done is that we have said, that instead of relying just on one channel, which is the OEM channel, we rely and keep an active presence in all four channels. So we do OEM, SLBs, trading, which is just bilateral from other counter borders, and four M&A. And if you look at how we've done, in 2017, we bought AYVAS. In 2022, we bought Sky. In 2020-2021, we leaned in very heavily on the SLB channel because we were the only lessor in the top 10 group who was not focused on reducing their order book exposure because there's no. Instead, we were saying, we have capital. Please give us product. And we were able to underwrite a lot of attractive things in the SLB channel. We also placed a tiny kind of OEM order in that. And then today, if you look at the trading channel, it is extremely attractive for a variety of different reasons. Because the capital markets are closed, the ABS market not closed, but unaccommodated. The ABS market is not particularly helpful. So the relief valve is asset divestiture. And that is creating a very attractive opportunity. So when we look at our returns. We say that one of the reasons we do so well is that we lean in on the channel at the appropriate time of the business cycle. And that for us has been fantastically helpful. I don't think we would change that going forward. So even if we had a 200 aircraft order, let's say 100 each with Boeing and Airbus, we would still contextualize that depending upon the business cycle and do a lot of the other stuff that we do as well, because M&A, if you think about AOS, it allowed us to get to scale the world, otherwise it would have taken us God knows how many years. Same thing with respect to deploying capital during the pandemic. Those returns are substantially different than kind of steady state returns. So for us, it's a multi-channel approach and we continuously want to be different. We don't want to do what other people are doing because there's no money in that. You know, we want to earn incredible returns because we're doing definitively different things.
Alok | Flightpath:
So part of that equation is your fleet type. One of the other things which stand out for me is that you have turboprops also in your fleet. And I know that is also, if I may say so, is a good ESG move. But I don't think it is just that. Given what you have just explained to me, I'm sure it makes a lot of commercial sense from a returns perspective to you for you to get into the turboprop space. How do you think that playing out the turboprop in comparison to the narrow body jets, you also have a lot of wide bodies of course, but that has traditionally been the case always, you know, but in comparison to the popular narrow body jets, how do you think the turboprops are failing?
Firoz Tarapore:
Yeah, so let me just clarify one thing. We don't do turboprops as an asset class. The only thing we do is one non jet asset, which is the ATR 72-600, right? So we don't do any other turbo even within ATR. We don't do the ATR 42-600. The only non jet aircraft that we do is the ATR 72-600. And the reason we do that. And we placed that order in 2014. So it's nine years on now. And because NAC is exiting, we're now the world's largest lessor of 72-600s. Because it is a unique product in the 70-seater market. First, its competitor is now gone. So it pretty much is the only product if you are a 70-seat operator. And the trip cost and the seat cost of that aircraft is simply unmatched by anything else in sight. There's nothing else that can come even remotely close to what an operator can get in terms of efficiency. When you then combine that with the fact that the OEM makes only between, call it 50 and 70 a year, in pandemic years, it's lower, in some years it's higher, but call it 50 to 70 a year. And you combine it with the fact that it is not overcrowded in the lessor space, all that translates into a rational economic operating environment which produces kind of very decent returns from our perspective. And if you step back, you asked me a question about narrow-bodies, if you step back and broadly compartmentalize our portfolio in four buckets, narrow-body, wide-body passenger, ATR 72-600, and our world leading position in the factory fresh 777 freighter. In terms of profitability, ATRs are way up there because of all the things that I just described. I mean, narrow bodies are wonderful and liquid, but because of the competition in there, the returns tend to have a kind of a fairly tight range to them. But in these products, not only are they liquid, meaning they will trade, and their operator base is almost as wide as a narrow body operator, sorry, a narrow body OEM product. It produces really incredible returns for us. The OEM, sorry, the ESG story is just kind of, you know, icing on the cake,
Alok | Flightpath:
an add-on
Firoz Tarapore:
if you will. It just comes with it because fundamentally it is a perfect match between operator and aircraft provider.
Alok | Flightpath:
One of the other things which you have also mentioned now in your answer, in the last question, is about the pandemic and the effects of it. I was wondering that from a corporate business perspective, has there been any changes? I know the usual things which all of them have gone through, hybrid work mode, working offline, online, all that stuff. But, I'm just wondering is there anything which you feel has permanently changed now going forward as a business for you or for any business who's running in these times in general post pandemic?
Firoz Tarapore:
Yeah, I mean, listen, the short answer is that we're still not completely out of it. And the complicating factor is that just as the pandemic was ending, we have the Ukraine invasion, which is now kind of compounding some elements in our supply chain shortage, et cetera. From our standpoint, when you take a longer term historical kind of view of what our industry has gone through. So if you think back to the 70s and the oil shock and subsequent shocks, whether it's SARS or whether it's World Trade Center, aviation in particular, or whether it's some other financial crisis after that. Right when it happens and right after it happens, you always feel that you're in the middle of a structural change. But if you let time pass, the trend line suggests that there is a very strong kind of mean reversion with a very upward bias to it. So whilst we saw everyone make incredibly fast, incredibly nimble adjustments to what they had to do to survive and to prosper. I believe that all of those were in response to an environment that is steadily becoming an environment that's kind of, you know, yeah, we had a pandemic just like SARS was a big thing and all of the other stuff that seemed, you know, nobody had flown two commercial airliners and brought down two skyscrapers before. But we were able to kind of contextualize all of that. And I think that over time, this will kind of be in that way as well. And all along the way, I believe that the industry has learned the lessons from each of those things. So now the question is, can we learn the lessons from this and can we improve our business model going, our meaning of industry going forward? And I believe the answer is yes to that question as well. You know, one of the fundamental questions is, you know, what do you do? So what do, what do lessors do when your customer loses up to 100% of the revenue? Well, what, what do you, I mean, there is no textbook that'll answer that. So in each case, I think there is a, but, but there are extremely valuable lessons that we can learn from the last 36 months that we can then incorporate into decisions that we make going forward. One of them, for example, is that all governments don't behave in the same way. When the sun is shining, lovely, but when the sun is not shining, they behave like they're non-governmental entities, which is a useful differentiator in our credit models going forward.
Alok | Flightpath:
All right, that is Ok. I was actually going to ask you to illustrate what you just explained with an example. And you're actually given a very good example already.
Firoz Tarapore:
Just don't ask me to name the government.
Alok | Flightpath:
No, no, no, I'm not going to. So I do enough business now worldwide to understand that, not to ask that question. How do you see now next five to ten years spanning out from an industry forecast? And I think this question is I'm actually more targeting to the audience back home where I am right now, because in India, there is a lot of interest now in this part of the industry. So I think I'm just wondering that if there is a message there for the capital providers or bankers to understand what the market forecast is looking like over the next few years.
Firoz Tarapore:
Yeah. Okay. Well, that's, you know, so as you know, India is not only the fastest growing market, but as we look out at the next, I believe five-ish years, India is solidly projected to become the number three market in the world. So US, China, India or China, US, India, whichever way you want. And if you look at the core numbers for India, they're just staggering in terms of how many new people get on a plane each year and therefore how many planes are needed too. And so this is not an easy one, but I was just presenting at an industry event in New Delhi last month, where the Civil Aviation Minister and some other government officials were there as well. And we were very encouraged to see the policy support that the sector is getting in terms of infrastructure investment, in terms of promoting smaller cities, the last mile connectivity, if you will, in aviation, and also the streamlining of provisions to kind of the major airlines out there. India has always been characterized by very intense price competition. So I think this is one of the things where the capital expenditure is huge, local interest rates are high, the rupee continues to devalue, etc. So there's a lot of headwinds. And within that, the intense price competition has always been an issue that people like us worry about because when you're committing so much capital, and India is our number one country by now, that how will, and as you have seen, a few operators have just not made it in the last few years. But I think that ensuring some level playing field where people can do business, I think it would be very helpful. We are seeing sector support that is very useful. The one development that I would say, which is an extremely well-intentioned development, but with a little bit of tweak, can actually provide much more tailwind to the business, is this creation of GIF City. So if you recall, GIF City is a free zone in Gujarat where the government has been encouraging outside lessors, or outside providers of capital to set up shop people, et cetera. And of course, it hasn't taken off in the way that it was intended, because the requirements are quite burdensome. So if you think about it from our perspective, we operate in 60 countries. If we had to set up shop in every country, we wouldn't make any money, because the infrastructure just doesn't work. And so therefore, we would say that GIFCity is a wonderful idea, but instead of asking lessors to be there, what we think is a better way for the government to use that structure to incentivize aviation is for each of the airlines to set up a subsidiary in GIFCity and do all of their leasing from that subsidiary, which allows us to deploy our cost efficiency, which allows them and, not only cost efficiency, there is incredible protection that comes with having a GIFCity counter-party as opposed to a mainland counter-party from taxation, from all the other things. And so I think that with some of those things, India has the potential of not only becoming a very large aviation market, but also being assured that the capital it needs to get there is readily available, because you don't want that interruption, because it takes a long time to kind of regain trust and all of these things. So I think the enablers are stable tax policies, stable infrastructure policy, and then developments around this tax efficiency, I think would be very, very helpful, and will continue to ensure that India kind of becomes, and stays right at the top of attracting capital for aviation. And aviation, as you know, is not just the business in itself. The impact on GDP, the impact on the economy in general from aviation is quite a large multiplier as lots of other nations have studied, and concluded.
Alok | Flightpath:
So to just carry on from that point, sir, what you made about airlines trying to open units there and leasing in. The way I understand the model here is if that happens, that is actually not going to cause much benefit to the airline as such, because the tax liability which an operator bears in their hand when the aircraft is anyway leased to them will remain the same. It is simply shifting the liability from one bucket to another bucket as far as they are concerned. is what we have understood so far. It may have its benefits, but in the long term, I think what the government is trying to do, and I'm sure you're already well aware, is to set up a homegrown aviation leasing ecosystem in India. Now, to your point, you're absolutely right that as a global lesser, you cannot be expected to be opening shop in every country. And I do know, and speaking to the policymakers, they're kind of expecting that from most of the lessors in some form or other, while we have been advocating a little different approach to them. Now, what you have just mentioned is very different. I have not heard this kind of suggestion before, too. Now, what I would like to also ask you is that keeping aside the fact as a lesser, whether you may open shop there or not, it's a separate thing. But I think as an industry perspective, if you have to give suggestions, if like taking an example of China- all said and done to a certain extent, China and Hong Kong have managed to create an aviation leasing environment there. They have homegrown lessors. There are arguments for and against it, but at the end of the day, they've done it. And this is, I think, what the Indian government has been trying to do since 2017-18 when they started making the rules towards this. You have rightly said they have not achieved it yet. They're trying to. So maybe one thing to learn from you is... what are your suggestions? What can they do better to allow that kind of aviation leasing ecosystem to be built in the country? If there is something which you feel can be done right.
Firoz Tarapore:
Yeah, so I think first of all, it's a broader. It's a broader question than just aviation. And I mean it in the following way. You know, India is a full democracy. India's banking system has state-owned players, but also commercial players. And India is at a different stage of economic development than China, think about infrastructure, think about other things. So the broader question, I think, from a policy perspective is, if you look at the liquidity in the Chinese banking system, which is enormous, enormous, one of the questions that I assume policymakers ask is, how do we deploy this liquidity, right? Do we fund other people? Do we let leakage in the system? Or do we use that to create a closed loop system to fund our other ambitions, whether they are in space exploration or aviation or military or whatever it is, right? And so I think from the first question is, if there is excess liquidity in the Indian banking system, which needs to be deployed for economic development, and that's hard to do it if all players are not policy players, some are commercial players. The sector prioritization is a governmental thing that they have to look at. Does aviation float to the top? And if it doesn't float to the top, you do other things that you need to do and then this kind of gets to it. If you put that aside, let's just say that you say, yes, we've got everything going, right? It is not entirely clear to me. And I would say it's not entirely wise to create a closed loop system where you're the provider and the user of capital. Because otherwise you're just kind of commingling the issues, for example. Are you better off using other people's cheaper cost of capital, because rates elsewhere are different, your rupees depreciating, etc. to fuel the growth in aviation? Or are you better using your own liquidity? Or should you use your liquidity for other more important kind of domestic priorities, if you will. I would argue that whilst on the face of it, leasing looks easy, you know, lend and whatever. It's not. There is a significant technical body of knowledge that needs to be acquired over time. And then the question is, how, what mistakes are you willing to tolerate in the meantime? Because no learning experience is free of some stumbles somewhere. And I think I believe that just takes too long. So from a policy perspective, I would argue that if liquidity is a scarce resource, which I would argue it is, that aviation needs to get that only if it is at the top of the sector. If there are other things that are more important, then those should get that. And because there is such a large global provider base of very inexpensive capital relative to domestic cost, that would be a great way to leverage other people's capital to significantly boost aviation. But it's a policy thing. I mean, it's easy for me to sit here at a desk and give this kind of perspective. But for policy, people will do different things, meaning, I say, okay, 10 years of pain, no problem because the next 100 years will be better. So I think it comes right down to that kind of thinking.
Alok | Flightpath:
OK, I think that is, I think what is important is what you have said, but also what you have not said. I think it's a very good answer, it explains. About ESG, I have seen the annual report, which has come out of the DAE ending December. Very impressive, by the way, congratulations. And what I have also noticed is that you have scored very highly on the ESG front. One is the front about diversity, of course, women participation, multi-nationalities, and the, but my interest is on the E, and the front of environment. What I wanted to understand, is there a thought process, I don't know if you can tell me, not tell me, or if it's there in the future, about looking at any radical moves in terms of investing into the new technologies in transportation space? Because I'm sure as you were also in San Diego, you would have heard a lot of talk about that recently, about investing into new tech. It's not about just hybrid fuel, hydro-electric aircraft, but now there is unmanned vehicles being tested. I'm personally very passionate about that. So I just wanted to understand, I'm just wondering, is DAE has any thoughts to do anything radical in that space?
Firoz Tarapore:
The short answer is no. I think that these are very important developments. So when you look at vertical or beta or all these other things that are going on, either VTOL or CTOL or manned or unmanned, I think those are all things that are important. But as it turns out, these projects are quite nicely funded through a variety of different investment pools that are more specifically catered to those types of investments anyway. In some cases, like vertical, it's public, but in other cases, so for example, there are large US corporations who have dedicated investment funds for environmental projects, et cetera, et cetera. And so I think for us, investing in something that is this early stage is not the right thing for us to do. One of the investment criteria that we have is, that it must have a very clear path to scale. And once these technologies are promising, they don't have a clear path to scale at the moment. And so I think we would much rather focus on those technologies that these propositions would use as opposed to the propositions themselves.
Alok | Flightpath:
Okay, short and sweet answer. No, I'll remember that. One of the things I actually like to ask is about sales, but you already told me in the beginning, your background is aviation finance. Finance is your lifeblood, sir, if I'm not wrong, right?
Firoz Tarapore:
I’m happy to talk about sales or anything else you want to talk about.
Alok | Flightpath:
Yeah, yeah. I was hoping to get a couple of insights. One is about salesmanship overall. You know, see, evasion leasing is highly marketing and sales driven. And by marketing, I mean marketing to your customers, right? That is the kind of marketing we do in the aviation leasing industry. And sales is a big part of it, relationships and how sales. I would like to know your insights on- what do you think, if let us say you are hiring, or you are looking for people to begin, or you are looking to, what kind of skill sets would you look for? What do you think counts for good salesmanship? What helps to be a success in this industry in that sense?
Firoz Tarapore:
Yeah, so we have a, just to put it in perspective, we have about 25 people, just a couple shorter than that, in our sales organization. So these are front-facing people to our customers. We talk to approximately 200 commercial airlines and approximately 100 customers. 120 of them are our current customers. It's quite a wide net that we spread. And for us, when we look at success in that side of the business, it really comes down to a few things. One is do our salespeople know what they're talking about? Which means do they have the product knowledge and the knowledge of how we construct our leasing product, to make it efficient for our airline customers to engage into a dialogue. If not, why do I want to train somebody else? So we look for people who understand the product that we deliver and that product is both a product product, like an aircraft and then the leasing tool. Second is we enable these people, but that's part of the process, to deliver to the clients only those things that the back office or the back end can deliver. So for example, it's quite easy for a salesperson to say, yeah, no problem. Let's sign an LOI. Then you go back to credit committee and they say, what were you thinking? I can't do this. I can't do this. It's a very sour commercial experience, if you will. So from a modeling, from a sales success perspective, what we have tried to do is to throttle the speed of the front and the back office in the same way so that when the front office is making representations to our clients, they're not kind of getting ahead of themselves, if you will. And the third and the last element, which I think works for us time and again, because remember, we're now doing this for 35 years, is once we say that we're going to do it, we're going to do it. Meaning there’s no crazy surprises, there's no weird U-turns, there's no nothing like that. And what that allows us to do is ensure a higher degree of success on our next transaction because everybody remembers you negotiated well, you delivered what you said, and therefore there are returns that accrue from that. There are incremental returns I would say that accrue from that. So from our standpoint, the sales process is really veterans, full understanding, full calibration with what the franchise can deliver and the franchise always delivers.
Alok | Flightpath:
Ok, well articulated. And we are at the very end. I have my mandatory question of career advice. And I'm curious because I see the new generation having different requirements. I think it's the case with every new generation, right? We're all different. So what is the career advice you will give? Because this is something which ties into the retainer-ship of staff when you bring them in, how you grow their career. But also, what advice will you give somebody who's starting to start their career?
Firoz Tarapore:
Yeah, so listen, for me, it's fairly straightforward because I'm, you know, I kind of like black and white is nice. And so I think the when I look at the folks that we have and we have we hire every year from the graduate program in Dublin and in Dubai and in other places as well. So we have a very constant supply of fresh talent coming in. And those perspectives are very useful to us as well. And I'll say the same thing that I say to just about anybody who was coming either at that level or who has spent kind of say less than 10 years but are interested in doing more. You know, there's only really one way to do really well, which is to keep your head down and just do the job that you have been asked to do or that you want to do and kind of follow your heart. So if you're a job person, work for a company, do the best you can. If you're an entrepreneur, forget all that and start the business that you can. Because if you follow your passion, you keep your head down, don't get distracted by what he or she is doing. Before you know it, you float it to the top. And it just works absolutely, kind of without fail, if you will. If you don't like, if you're in it, because you know, you know, in a few people who say, oh, well, I love the metal, et cetera. But the work is very different. And if yo find that, go do something else. But if you like it, just put your head down, do exactly as people ask you to do, or you want to do, do more than that. And it just miraculously a path opens up that has a very nice upward trajectory to it.
Alok | Flightpath:
Excellent advice. Thank you very much, sir. I would just like to know, is there any last message you would like to give?
Firoz Tarapore:
The last message that I can give is to point to an example of an entrepreneur who I'm talking to right now, who has grown the business in an amazing way in the last decade or so, maybe a little bit more. And I would say that if you're looking for an inspiration for a success story, look no further than some of the things that you have done and how you've gotten about doing that. And I think maybe you can do your audience a service by being a guest on your own show because there’s lots of good things they can learn from all the various ways in which you come to the position that you are in today. So listen, congratulations on the incredible empire that you're building and continued success in doing that.
Alok | Flightpath:
Thank you very much. This is very kind of you. I'm yet to reach a stage to be interviewed, but hopefully soon. Thank you very much. I really appreciate it. And I wish you a good day and good weekend ahead.
Firoz Tarapore:
Thank you Alok, all the best!
Alok | Flightpath:
Thank you. Thank you once more. Thank you, sir. Thank you.
