Aircraft Leasing Soars to New Heights
WITH air travel traffic expected to double by the year 2000, one thing appears fairly certain: The aircraft leasing business is here to stay. That view was bolstered last week when the GPA Group Ltd. confirmed a massive order for 308 jets valued at $17 billion.
The order is almost certain to help this hugely successful Irish multinational keep its place as the world leader in jet leasing. GPA divided its order among Boeing Company, Airbus Industrie, and McDonnell Douglas Corporation. Boeing captured the largest share of the order - 182 aircraft valued at $9.4 billion.
GPA's business is based on a simple fact: Because aircraft are expensive, many airlines prefer to lease them rather than own them.
``Airlines no longer feel that it is necessary to own aircraft for the purpose of having access to operate their business, a business whose nature is essentially the transport of passengers and cargo from one place to another,'' says James King, GPA's chief operating officer.
GPA, founded by Tony Ryan in 1975, started leasing chiefly to third-world countries. It often ended up supplying a crew as well as planes. Now, it no longer supplies crews, but will manage an airline's fleet, working out its requirements for planes and routes. Along with leasing planes, GPA buys and sells them.
Through an operating lease, an airline acquires use of an aircraft without the obligation to pay back the full cost over the term of the lease.
The chief advantage: The carrier does not have to post ownership liability on its balance sheet. Also, such leases provide maximum flexibility for both new and established airlines.
Frequently, GPA acts as an intermediary, matching the requirements of airlines that wish to acquire and dispose of used aircraft, whether by lease or by sale. It acts on behalf of buyer or seller, which includes adapting and refurbishing aircraft to enhance marketability.
The average GPA lease is for six years, but can be as short as six months. GPA is paid monthly, with typical payments for a Boeing 737 about $250,000 a month.
The company makes most of its money in three ways: from the lease that airlines pay, from the sale of the aircraft, and from fees for its airline management services.
``We provide flexibility. We work very intimately with our airline customers,'' he says. ``We have a broad client base around the world, and we establish an intimacy that allows us to tailor-make these packages precisely for our clients.''
Competitors, though, are hot on GPA's heels. In May 1988, International Lease Financial Corporation, of Beverly Hills, Calif., its principal but smaller rival, signed an $8.3 billion order involving commitments and options on 102 planes. And Delta Air Lines last September signed an $8.5 billion order for commitments and options on 225 Boeing and McDonnell Douglas planes.
GPA keeps track of the world's fleet of 7,500 Western-made aircraft from a cavernous trade room at its headquarters in a tax-free zone alongside Shannon Airport. Here it collects and analyzes information from wherever aircraft fly. This enables management to act quickly on complex deals.
The company estimates that by 1990 about 20 percent of the world's fleet will be leased, compared with 10 percent in 1985. The 1 billion people who traveled by air last year will double by the year 2000, GPA figures. To meet this growth, the world's airlines will need 7,000 new jets and 3,500 turboprop aircraft.
GPA already owns 172 planes, and leases them to 64 airlines in 32 countries. Customers include British Airways, Scandinavian Airlines System, Air Canada, Pan American World Airways, Air Jamaica, and Finnair.
The company has joint ventures with four principal manufacturers - Boeing, McDonnell Douglas, Airbus Industrie, and Fokker.
GPA has grown rapidly and expects growth to continue. In the fiscal year ended March 31, 1988, GPA reported profits of $101 million. Industry analysts expect GPA to report profits of more than $150 million in the current fiscal year.
Air Canada owns 16 percent of GPA; Aer Lingus, Ireland's national carrier, 11 percent; and Prudential Insurance, 7 percent. The Mitsubishi Group has a 14 percent stake, and the Long-Term Credit Bank Group of Japan, 13 percent. Irish institutions, executives, employees, and others own the rest.