Gecas executive has aerial view of jet-lease industry
We’ve a lot of players in the market at the moment. There’s been excessive competition
The annual migration of global aviation executives to Dublin begins in earnest this weekend, as hundreds of them descend on the capital.
They're in town for the 'Airfinance Journal' conference at the Convention Centre Dublin next week, and the Airline Economics event that takes place at the Shelbourne Hotel.
For restaurants and hotels, it's a boon in what could otherwise be a lean January. For lessors, banks, lawyers, aircraft and engine-makers, it's a chance to do deals and press the flesh.
The conferences also underscore Ireland's position as a leading centre for the global aircraft-leasing business. The statistics are widely known now - about 60pc of the world's leased aircraft are managed from Ireland, equating to assets worth about $110bn (€96bn), and the leasing sector supports about 5,000 jobs here.
Many of the world's largest lessors, such as Gecas, Aercap, SMBC Aviation, Avolon, Goshawk and Orix, all have either their headquarters or major offices in Ireland.
As chief commercial officer of Gecas, Declan Kelly has a top-down view of the industry. He insists it's in good health, despite challenges facing the global economy - to which airline capacity growth is closely linked.
Chatting at a Dublin Airport hotel before he heads to Seattle, Kelly says Gecas has just completed a review of all its global operations and that "everyone is very positive". But he's quick to acknowledge that there are headwinds.
"We do see a slowdown in [passenger] growth happening at the moment, and it's more of a tapering than any shock to the system," he says. "We've had seven to eight great years and we are prepared for this."
Gecas, which has its roots in Tony Ryan's Guinness Peat Aviation, has a fleet of about 1,900 aircraft, including 1,550 fixed-wing and 350 helicopters. It tussles with Aercap for the accolade of being the world's biggest lessor.
"Traffic has been growing at 6pc or 7pc [per annum]," says Kelly, who was appointed to his current role a year ago. "So you're going to see that tapering off a bit, probably to 4pc or 5pc. From talking to the industry leaders and looking at the OEMs [Original Equipment Manufacturers including Boeing and Airbus], that's generally the consensus."
The International Air Transport Association (IATA), which represents about 290 airlines accounting for 82pc of global air traffic, last week said that passenger growth is moderating. Its director general, former Air France-KLM boss Alexandre de Juniac, said there are "clear signs" of the slowing pace of growth, but IATA still expects to see 6pc demand growth this year.
"But trade tensions, protective tariffs and Brexit are all uncertainties that overhang the industry," said de Juniac.
Kelly (55), who hails from Ahascragh outside Galway, lives in Shannon, where Gecas has its operational headquarters. He's also the vice-chairman of industry body Aircraft Leasing Ireland. Like so many other of his peers, he slipped into the aircraft-leasing sector without any broad plan to do so. He studied engineering at college, but had no flightpath set for the aviation world.
"Remember, at that time it was the 1980s, and there was very little employment. You filled out applications for everything. Aer Lingus came up for me," he says. He joined the airline in 1981.
There, he was involved in providing line maintenance for aircraft, before moving to Shannon to join International Aviation Services in 1987. In 1991 he joined Guinness Peat Aviation.
It would be just two years before the company, founded in 1975 by Tony Ryan, would be rescued by GE. Kelly says that Tony Ryan and others [Ryan had himself worked at Aer Lingus, where he first dipped his toes into the leasing sector in 1973 by leasing one of the airline's new 747s during the winter to Air Siam] were appreciative of the grounding that Aer Lingus gave many staff.
"They saw that there was very solid training in Aer Lingus," according to Kelly. "They could move people quickly from that environment to leasing."
Gecas is expected to have generated earnings of about $1.2bn (€1.04bn) in 2018. It contributed $1.4bn in net income in 2017.
Last year, Kelly's boss, Gecas CEO Alec Burger, told the Irish Independent that he believed the leasing sector was in a "golden era", but agreed that it would have to plateau. Boeing and Airbus both had record years in 2018. Boeing delivered 806 commercial jets, and Airbus 800. The plane-makers also have bulging order books.
For some, the question is whether there is sufficient demand to fill these jets.
Lessors point out that a chunky percentage of new jets will go towards fleet renewal, and that the balance which are swelling global fleets are catering for continually rising demand for air travel, propelled by Asia in particular.
"Trees can't grow to the sky," says Kelly. "There will be some tapering as we go forward and we're beginning to see that.
"But when we look at the market, we look at it globally and domestically, at what kind of aircraft will be used in those markets.
"The narrow-body side [including jets such as the Boeing 737 family and Airbus A320] is holding up very well for us and everyone at the moment. There appears to be equilibrium between supply and demand. There's a huge technology shift going on at the moment too, from old to new, and that always causes disruption, with displacement of aircraft retirements," he adds.
"You're probably seeing a slight softening in the wide-body market [wide-body planes include the Boeing 787 and Airbus A330, for instance] but other than that we don't see any major shocks."
Kelly says a "slight distortion" that's been seen by Gecas in China is a result of the US-China trade war.
He refuses to talk about Gecas's own future. GE, struggling under a huge debt pile, has been looking to deleverage for more than a year. CEO Larry Culp said in November that he feels "urgency" to cut debt and will do so via asset sales. Gecas has spent more than 12 months in the spotlight as a prime disposal candidate.
At the beginning of January, it was reported that US investment giant Apollo was considering a bid for Gecas that might value it at as much as $40bn (€35bn). But some analysts think it's worth more in the region of $30bn (€26.2bn), and that figure would wipe out all of GE Capital Services book value.
Kelly also believes there will be more M&A in the market, focused on the smaller players. There's been activity at the top end, too. Dublin-based Goshawk Aviation acquired Sky Leasing last year to create a top 10 lessor with a $9.1bn fleet. CIT Leasing was sold to Avolon in 2017, while Orix acquired a 30pc stake in Avolon last year for $2.2bn.
"You are seeing more M&A coming into the leasing side," he says, adding it will probably more prevalent among smaller lessors. "We've a lot of players in the market at the moment. There has been excessive competition in our space."
Much of it will be evident in Dublin next week.