The birth and growth of the aircraft leasing business

The birth and growth of the aircraft leasing business

By Robert F. Agnew, President & CEO, Morten Beyer & Agnew, US

“To most people the sky is the limit. To those that love aviation, the sky is home.” – Jerry Crawford

It is my great fortune to have spent the last 45 years in aviation. First, I served in KC-135s with the USAF, then with two great airlines, and finally running an aviation appraisal and advisory firm, as well as chairman of the board of directors for a publicly traded airline.

The nascent time

The 1960s were transformative in the commercial airline business. During most of the decade, the US consistently produced between 5% and 10% GDP growth annually, and with that, greater travel for both business and leisure began. The jet age had just begun in the late 1950s with the introduction of the first two widely accepted jets, the Boeing B707 and DC-8. Passenger traffic continued to grow, and by the mid-1960s, airlines were looking for larger, more range-capable aircraft.

One of the major events of the modern jet age took place when Juan Trippe, CEO of Pan Am at the time, convinced Bill Allen of Boeing to design and build a much bigger aircraft. That aircraft became the B747 and held an extraordinary two and half times the number of passengers as a B707.

Lockheed Martin entered the race with the L-1011 Tri-Star. Enter the age of the wide-body aircraft, which were massive machines compared to what the public was used to flying and much more expensive to the airline. And here, as the Bard said, “is the rub.”

With the cost of aircraft escalating due to complexity and size, airlines began to look at alternative sources for growing and financing aircraft. Some chose to lease aircraft, but most airlines still believed in buying and owning, since many would keep the aircraft for most, if not all, of the aircraft’s economic life. In those early years, leasing companies were few and far between, with the likes of International Lease Finance Corporation (ILFC), GATX, and Guinness Peat all beginning in the early 1970s. These were the fathers of leasing, and from them many of the modern-day senior executives in the aircraft leasing world began their careers.

Impediments to growth of the leasing industry lay in several areas. First, worldwide fleet growth in the 1970s had slowed, resulting in annual net additions in the 100 to 250-unit range. This was down from a much more exuberant 1960s, which by the end of the decade had seen annual aircraft fleet growth between 500 and 700 per year. This resulted in far less of a need for the fledging leasing option.

The other issue of the time was the disparate nature of aircraft Original Equipment Manufacturers (“OEMs”) all competing for a rather small global aircraft requirement. These OEMs – Airbus, Boeing, Fokker, Dassault, McDonnell Douglas, Aerospatiale, and Lockheed Martin—produced competing products in numbers that made follow-on leasing much more complicated due to the fractured nature of the airline industry in terms of desired fleets.

Due in part to these factors, the 1980s began with only about 2% of the commercial fleet leased, but that was about to change.

Liberalisation of the skies

The next major industry change that occurred would have a major impact on the demand for aircraft. The skies, both domestic and international, were historically controlled by the governments of the world through “Bilateral Air Services Agreements” (BASA). This system was highly regulated and limited the number of frequencies and fares, which could only be changed with the approval of the government. These regulations impeded growth of the airlines, which found it cumbersome and costly to obtain changes to existing fares on their routes and to obtain new routes.

I remember supporting the economic route development group in the 1980s at the international airline where I was working. The process for just one new route took over six months to prepare. This situation continued to be even more cumbersome as traffic continued to grow and airline response was slowed by the US Government. The process was clearly antithetical to the laissez-faire attitude expressed in most industries in the US.

However, in 1979, Alfred Kahn, under the Carter Administration, made the first bold change in aviation by liberalising domestic travel. Although complete implementation of the liberalisation did not arrive until 1985, the seeds were sown. As with any seismic change, the effects were slow to be understood. At the start of the 1980s, leased aircraft still only comprised 2% of the total fleet of 6,000 commercial aircraft.

Now unfettered by regulation, the airlines began a massive market share grab. To accomplish this, many more aircraft were required. The airlines around the world added aircraft to the global fleet in the 10 years after US deregulation at a rate 25% higher than the 10 years before deregulation, increasing production from an average of 315 aircraft per year to 392 per year. In addition, the retirement of commercial aircraft remained unchanged at approximately 285 aircraft per year.

All of this was the fertiliser for the leasing companies. OEMs could not respond with the immediacy necessary to satiate the demand of the airlines. This increased demand and provided the needed “foot in the door” for leasing companies to deliver aircraft earlier to the airline than newly ordered aircraft. The leasing companies also provided an additional means of financing the growth without encumbering the airline books.

This is evidenced by leasing companies, such as ILFC, that began deregulation in 1979 with 13 aircraft and increased its leased fleet to 79 aircraft by 1989, only 10 years later. GPA was the fortunate recipient of this new growth, going from six aircraft in 1979 to an amazing 152 aircraft 10 years later.

By the second half of the 1980s, the airlines were again making money, having just come out of four years of losses, and leasing had become the latest innovation to the industry.

It was in 1990 that leasing first began to proliferate beyond the major companies, and some of the names with which we still identify leasing, had just cut their teeth. Though I risk leaving some of the great names out, I would note that Michael Goldberg lead Aerolease International with six Hush-kitted DC-8Fs and Michael Chowdry was beginning his rise to fame with 12 aircraft ranging from DC-9-30s to 747-200s. Chowdry’s genius was cut short due to his early demise while flying his own aircraft home to Colorado.

Another early aviation figure was George Batchelor. George was a character with many colourful stories, which I can still remember as he held court at International Society of Transport Aircraft Traders (ISTAT) conferences. One of his shrewdest deals, as he told it, was the purchase and sale of a number of DC-10s in the early 1980s. He purchased these aircraft at approximately $19m each and sold them in 1985 for around $28m each. By 1990, he had established International Air Leases (“IAL”), which had 33 aircraft currently operating with an order for 10 Boeing aircraft.

Polaris Aircraft Leasing was an early entrant on the leasing scene when founded in 1974 by Peter Pfendler. Peter, a Harvard trained lawyer and US fighter pilot veteran, grew Polaris to be the largest leasing firm at the time. Peter sold the firm in 1989, when it had 217 aircraft to General Electric Capital Corp (GECC), which ultimately became GECAS.

The two other major participants in the 1980s are probably best known both inside and outside the industry. One was known for its visionary leader and the other for its part in incubating some of the leaders of the next generation of aircraft leasing.

ILFC and one of its founders, Steven Udvar-Hazy, became synonymous with aircraft leasing, and Hazy became a capable spokesperson of the industry. The firm was founded in 1973, and by 1980, it controlled 17 aircraft. Its growth was prodigious, and by 1990, it had 79 aircraft with a firm order book of 260 aircraft.

One of the most compelling examples of Steve’s sway in the industry occurred in 2006 at the annual ISTAT conference in the United States. Steve was asked about the new Airbus widebody design for the A350, which, at that time, was best described as an A330 derivative. Steve, in his very soft-spoken way, chided Airbus to take a step forward and stated that the present A350 would not be a game changer while Boeing was making great strides with its new B787. Airbus took Mr. Hazy’s advice to heart and went back to the design tables, whereupon, the A350 in its present form came to fruition.

I would also make a personal observation that in the many years I have known Steve, he remains highly interested in all different thoughts and ideas. Unlike many other aircraft leasing CEOs, who show little patience for sitting through any conference panel, Steve can usually be found in the front row taking notes. He is a true student of the game.

The other major leasing company, Guinness Peat Aviation (GPA), came from need and was driven by Aer Lingus having two B747s which it could not afford to operate or mothball. So, Tony Ryan stepped in along with others to salvage the issue, and, in so doing, began GPA in 1975. Under Tony’s tutelage the leasing company began its spectacular growth throughout the 1980s. In 1979, GPA had a total of six aircraft, but by 1989, it was the purveyor of 152 aircraft with 230 aircraft on order. As the 1990s began, GPA was breaking through all barriers and adding to its order book. It was preparing for an IPO, but things did not go as planned.

The Gulf War occurred, oil spiked, travel stopped, and airlines did not want to add more aircraft to their fleets. This led to the demise of GPA as the juggernaut it was. Although bankruptcy was avoided, part of GPA was sold to GECAS, and the other part eventually became Debis AirFinance, a unit of Daimler Chrysler. It was a sad ending for many involved, and for Ireland.

However, from the ashes of GPA came a plethora of educated and talented entrepreneurs and leaders. Many of today’s most successful aircraft leasing firms can trace their management lineage back to GPA. Some of the most noteworthy are Aengus Kelly, CEO of Aercap; Peter Barrett, CEO of SMBC Aviation Capital; Domhnal Slattery, CEO of Avolon and former CEO of RBS Aviation; and Colm Barrington, CEO of Fly Leasing. For this and other reasons, Ireland, and specifically Dublin, became the mecca for leasing companies around the world.

The time of growth

With all of this activity, the 1990s saw a 13-fold increase in leased aircraft, resulting in 14.7% of the commercial fleet being leased. Larger companies were getting involved as evidenced by Ansett Aviation, a subsidiary of Ansett Transportation, moving into aviation and having 41 aircraft on lease by 1990, with another 56 aircraft on order. This growth continued unconstrained so that by 2000 almost 25% of the commercial fleet was leased. With the new decade came the placement of the last major foundational stone for global aircraft leasing.

Globalisation of leasing

The underside of the leasing business is recovering or repossessing the company’s assets. Once the aircraft was registered in a country, it was bound under the laws of that country. These laws were obviously not synchronised for aircraft repossession and it was common for extended legal battles to occur before the leasing company was able to regain possession. Only the savvier of leasing companies considered placement of aircraft in countries where the law was vague or pointedly favoured the airline within the country.

To recover an aircraft from some of these countries required considerable cost, which usually included hiring a local law firm and time in court to obtain rights to the aircraft. Only then could the lessor begin compiling the aircraft records and bring it to at least ferry condition for relocation and preparation for leasing again. While all of this occurred, no lease payments were being received to cover the costs of the lessor.

Then, in 2001, a number of countries came together to develop a treaty to standardise transactions involving movable property. This treaty covers rail rolling stock, space vehicles, and aircraft, including engines, and is commonly called the Cape Town Treaty, as this is where it was first signed. The aircraft component of the treaty became effective in 2006, with eight parties signing initially. As of 2018, there are now 73 signatures, 72 countries, and the European Union. With the treaty in place, lessors had fewer impediments to leasing aircraft globally, and the treaty further accelerated the growth of leasing, especially in Asia and the Middle East, as can be seen in the accompanying chart.

Growth of the aircraft leasing market


The 2000s brought many challenges with the terrorist attacks and the financial crisis, but traffic again proved to be resilient, and with the constant growth of traffic, the leasing companies grew. As shown in the accompanying chart, the percent of leased aircraft continued to grow and compete against owned aircraft. By 2015, the fleet of leased aircraft reached more than 9,000 and was 39% of the commercial fleet.

Aircraft in fleet

Today, smaller and niche lessors are becoming evanescent, as the average size of top leasing companies continues to grow. In 2018, the top seven lessors comprised 50% of the leased aircraft by fleet value. The fleet value for the top 50 lessors is about $300bn, and the top three lessors comprise over 25%, with the top seven over 50%.

Lessors have grown and prospered because of their ability to remove residual value risk, provide alternate financing, increase flexibility in orders, and until recently, enable off balance sheet debt.

What the next decade will bring is difficult to say. The leasing community is going to be part and parcel of the next wave of aircraft and engine technology, but with a large embedded fleet size, they now have fuel, inflation, UAVs, and other unforeseen occurrences that will stand as some of the challenges ahead. Yet, I am sure these challenges will be met with the same alacrity as challenges in the past.

“Aviation records don’t fall until someone is willing to mortgage the present for the future.” – Amelia Earhart



Robert Agnew is President & Chief Executive Officer of Morten Beyer & Agnew (mba), one of the world’s leading valuation and technical due diligence firms in the world. Robert has over 40 years’ experience in aviation and business consulting. Prior to founding mba, he was SVP of Marketing & Sales for World Airways. He began his commercial aviation career at Northwest Airlines after serving in the United States Air Force as a Rated Officer with the Strategic Air Command. Mr. Agnew is Chairman of the Board at Atlas Air Worldwide Holdings (AAWW), which operates more than 100 freighter aircraft. He also served on the board of the National Defense Transportation Association (NDTA), and chaired its Military Airlift Committee for the Commander of the USAF’s Air Mobility. In addition, he is a former board member of SatoTravel and the Airline Reporting Corporation.Mr. Agnew holds a Masters of Business Administration from University of North Dakota and is a recognised Certified Senior Appraiser and member of the International Society of Transport Aircraft Traders (ISTAT).