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ge commercial aviation services is the
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commercial aviation financing and
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leasing
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business of g within g capital um
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it was essentially put together in 1993
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or 4
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through a merger of a small business ge
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hat and g's purchase
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during a downturn of a company called
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guinness pete which was the second
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largest
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aircraft leasing company
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we have approximately um
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350 people involved in our main business
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line and approximately 150
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who are involved in a spare parts
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business we have
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it's a it produces i think the largest
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net income per employee of any business
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in ge
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uh for the last two years net income has
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been roughly 1.2 billion dollars that's
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net income
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based on only i guess it's 500 people or
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350
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and we're engaged in all facets of
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commercial
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mainly aircraft but also engine
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financing and it can be equity it can be
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debt and so on
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the industry has been impact different
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ways depending on whether you're an
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airline
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a manufacturer or a financier such as we
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are the airlines have been impacted
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first and foremost in the period running
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up to
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last july july 08 by the enormous
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and dramatic rise in fuel pricing
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uh pricing doubled in a period of a few
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months
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essentially the entire industry model of
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operation had to change because this was
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an industry which was a high fixed cost
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industry and suddenly fuel which had
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been historically maybe 10
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12 percent rose to over 40 to 45 percent
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which necessitated a complete change in
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strategy
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for the airlines now
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the airlines themselves have have been
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benefited by the fact that fuel is
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dropped on the other hand
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demand passenger demand which is the
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ultimate driver
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is also dropping and most particularly
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premium traffic that's put a drain
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obviously on their cash balances and the
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like
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fundamentally the cause the cause of all
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this
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is an imbalance between passenger demand
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and the supply of aircraft
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because that dictates fares it dictates
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load factors
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and that specifically is the area
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that most of directly affects us the
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supply
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of aircraft and the demand for erica
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in the form of passenger demand and
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where
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supply is exceeding demand as you can
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imagine
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values fall lease rentals fall
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etc so for us
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for the airlines and for the
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manufacturers who are now
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facing deferrals and cancellations
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and the need to finance aircraft because
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financing is not generally available
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it puts an enormous strain on the
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industry
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gcass has been through
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as a company one of the other most
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significant
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downturns and that was the downturn
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precipitated by the
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tragedy at the world trade center our
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strategy
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in every downturn is very similar
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and that is uh we focus very
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operationally
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on the execution of leases
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and the
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management and oversight of the aircraft
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technical oversight and the like making
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sure that our
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accounts receivable do not get out of
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control
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often being very proactive and
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taking aircraft out almost immediately
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when there's a default where others
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usually will wait and see if there's
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there's some hope that an airline will
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survive
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and the other element which we've used
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successfully is that we'll use that time
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um to finance because the industry's
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sort of counter cyclical
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meaning when the industry is going well
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everyone wants metal
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and that was true from the third quarter
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2004
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to the end of 2007 one could not meet
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the industry demands from
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metal so our metal meaning our fifteen
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hundred
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aircraft were in great demand everyone
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had access to capital
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so they didn't need our financing since
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the first quarter of 08
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it's reversed no one is looking for a
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lot of metal
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and but everyone needs cash and that's
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where we have
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generally moved so that we try to deal
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with the counter cyclicality through the
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offering of various
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products metal or money
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management across a global organization
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can be challenging
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it's obviously been simplified because
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of
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the internet and access to electronic
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means of communication
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otherwise it will be almost impossible
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because
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this morning a half an hour ago i was on
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an email with our china team who was
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dealing with the default
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and they wanted my approval for
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something and if they had to
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send a letter in and whatever it
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wouldn't work
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but the biggest challenge i think is
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just making sure
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that communication first of all
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is consistent
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and clear throughout the organization
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one can be very surprised at how
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messages can
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can be garbled between connecticut where
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i'm headquartered
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and our team in stanford uh our team in
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dubai
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our team in singapore our team in russia
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our team in china number two i think
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it's very important
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and and it's proven to be true that we
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have to be mindful that the conditions
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that our team
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works under are not necessarily as easy
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as our conditions are here in the states
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it's not to say that there isn't access
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to internet but often the distances they
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have to travel
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my leader in singapore uh you know when
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he has to travel
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from singapore to australia new zealand
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up to japan
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we're talking about enormous travel time
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which puts a burden
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on him personally and on his team
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those are the main things but we have we
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have
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for about eight years had a very global
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mindset we have been pushing
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more and more into the developing world
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and the team has responded well because
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like most
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energized people they want the
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opportunity to succeed
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so as we've been allocating more
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aircraft to china
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to russia to india to brazil
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to malaysia okay that team has responded
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because
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they see a growth of the business in
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their area
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there is a significant difference both
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in the global markets and even
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domestically between
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gcass and our competitors including even
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the the really outstanding ones
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in two respects i would say we are the
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most global in terms of our penetration
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of offices we have
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more feet on the street closer to the
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airlines anyone i'm not aware of anyone
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who has
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two salesmen in russia i'm not aware
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anyone who has a team actually focused
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on
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africa specifically we have more people
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in china um
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and people's in latin america where
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they're constantly and our
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our view is that if you're going to
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service the customer you've got to be
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near the gun that's one
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i think the second and equally
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significant issue is that
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generally speaking our competitors fall
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into one of two categories
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they are either financiers of aircraft
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mostly banks
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who provide debt or they are operating
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less source such as
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ilsc which is in was still an aig
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subsidy or a cit
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or royal bank of scotland or whatever we
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are the only
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party in this field that we know of that
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is large in both areas we are both a
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financier
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meaning an airline has purchased an
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aircraft and is looking for financing
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we will provide either equity or debt
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or we and we buy speculatively from
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boeing and airbus and bombardier and
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embry air and then we look for customers
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we're the only ones who do that we're
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the only ones who provide spare engine
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engine leasing we're the only one who do
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part trade out
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so we have a much more comprehensive
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suite of
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products and services than we offer
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and historically because of that
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we've been able to do better
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during the various cycles because it's a
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very cyclical industry unfortunately
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well a challenge is to keep me awake at
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night i'm going to put aside my teenage
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boys for the moment
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they're the ones who keep me awake
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mostly
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are that um
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the length
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of this cycle one
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most cycles have come and gone
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in two or three years this one could be
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longer
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we simply don't know we don't know
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because we don't know when we're going
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to hit bottom
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and that's the question that everyone
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from our president
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to the leaders around the world does not
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know so
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and that could be a difference and the
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second thing that always keeps me awake
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although not right now
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is is there going to be some sort of
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technological breakthrough
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in the next generation of aircraft which
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will
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obsolete our existing fleet of over 40
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billion dollars of aircraft
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more quickly than was in our business
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plan
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and that is something
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that worries me um i think there are
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many things that concern me
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um you know i think that the governments
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particularly the u.s and
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western europe must do something to
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improve air traffic control
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and that would be an enormous benefit to
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the industry
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because the industry then could manage
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their aircraft more efficiently
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avoid costly uh fuel and
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reduce emissions and make flying
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actually a more hospitable thing
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for for the flying public for more
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business news and analysis from
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