Dave Labrozzi
CEO, Global Jet Capital
Keith Hayes
Senior Vice President, PNC Aviation Finance
Barrie Roesler
Vice President Asset Management, SunTrust Robinson Humphrey
Money Talks
Pre-owned business jet sales in 2018 were at a record high. CJI asks three US aircraft financiers why.
What is the biggest threat to your business?
Dave Labrozzi
The biggest threat to our business I see is probably the uniform threat that all of us in the industry see. It’s about the values and depreciation curves. It all comes down to the value of the airplane, which has a lot of drivers.
Keith Hayes
The market is becoming very competitive, seeing new players as banks target the aviation space, as well as other, non-bank, institutions. In addition, it appears regional banks are doing one-off aviation deals for their clients and structuring these aircraft loans with unconventional terms.
Barrie Roesler
What most firms would see as threats we see as opportunities to differentiate ourselves from our competition. One example would be our ability to quickly put together financing structures for our customers, which otherwise might not be possible without a long-standing relationship that leads to a deep understanding of where their company is in the credit cycle. A financial institution without much knowledge or insight into its customer’s business may not be able to execute on a timely basis, if at all.
What keeps you up at night?
Dave Labrozzi
Honestly, I sleep pretty good! When we compare what happened with the great recession and compare what happened with this industry, what a lot of people would refer to as a lost decade – everything else seems kind of benign.
Keith Hayes
Aircraft finance is what we do…and we do it well. Our team of 35+ members has an average of 14 years of experience in the aviation industry. My greatest fear is we lose track of why and how we became so successful. We must make sure our team continues to grow while getting the support they need. We can never take our people for granted.
Barrie Roesler
The general nature of the aviation industry is that it’s often one of the first impacted by an economic downturn or commodity crunch.
Why did you get into aviation?
Dave Labrozzi
By accident! I just happened to have a connection to this industry through some of my early days when I was working on a lot of equipment lines and when I was exposed to the corporate aircraft industry. I had a little taste, fell in love with it and jumped in with both feet.
Keith Hayes
I always wanted to be a pilot. But with the very poor vision I was given, the universe said that was not in the cards. I held numerous roles while at GE Capital for 28 years. In 2004, the president of GE Capital Aviation Finance offered me an opportunity to join the team in a sales leadership role and I have never looked back.
Barrie Roesler
When I was very young, one of my distant relatives flew his Cessna 182 to a family gathering at a farm. He circled the area, landed on a single lane gravel road and taxied up to the front lawn. I recall needing to be lifted up to sit in the pilot’s seat. From that day on aviation has a passion of mine.
How confident are you about 2019?
Dave Labrozzi
My lens tells me that we are going to have another very strong year. We’ve made investments and they are gaining traction and paying off. Perhaps it’s because of these investments that we’re getting a larger share of a slightly smaller pie.
Keith Hayes
We remain bullish on 2019, seeing activity levels consistent with 2018. My primary market concern is inventory level. For most of our target aircraft markets, inventory levels are in the single digit percentage levels of their fleet. As a whole, used inventory prices are stabilising (or at least not depreciating at the same rate as they have over the past few years). Manufacturers are remaining disciplined on the number of new aircraft they are building. With this said, I do have concerns there simply will not be sufficient inventory to meet 2019 demand. However, I think all of these conditions are positive for the long-term outlook of the industry as a whole.
Barrie Roesler
Our analysis sees overall US growth slipping from 2018’s stellar pace of roughly 3% to just above 2.5% in 2019 -- which is above the average of 2.3% since 2010. This economic cycle should surpass the 10-year mark in mid-2019, making it the longest expansion in history. That said it has been weakest in terms of overall growth. So, what we are lack in strength, we gain in length.
What type of deals are you currently doing?
Dave Labrozzi
We’re a specialty player. We’re focused on where we can add value for our customers and shareholders. Our primary focus is super midsize aircraft and up. We prefer operating leases, where Global Jet Capital assumes the residual risk and the future valuation. It’s a different business model.
Keith Hayes
With the change in the tax codes and increased activity of large corporate players, leasing has gotten a bit more attractive and interest in that offering has increased. At the same time, our asset-based lending product (requiring limited/no recourse and disclosure) continues to be attractive.
Barrie Roesler
We are seeing a lot of debt and tax transactions. The underlying assets vary widely including transportation, IT and manufacturing. As it relates to aircraft, there is demand for traditional credit-based debt deals. We have looked at single engine training aircraft, ultra long-range corporate jets and also helicopters.
What are your biggest concerns?
Dave Labrozzi
We work with a lot of clients helping them to determine what (we define as) their ‘buying concept’ is. Which jet do they need? Are they a first-time owner or operator? A lot of times they haven’t figurede that out.
Keith Hayes
Inventory levels dropping to the point where buyers decide to postpone new acquisitions due to lack of options. Also, remaining disciplined with our financing structures. It would appear that some of our competitors have forgotten what happened in this space not all that long ago…we do not want history to repeat itself!
Barrie Roesler
Businesses are struggling to find talent, which explains why we have seen wage growth hit its highest rate in nearly a decade.
What would be your perfect deal?
Dave Labrozzi
A perfect deal for us would be with a very strong client, who perhaps never owned and operated an aircraft before but has experience with it. From an ideal perspective, my preference would be a longer-term lease, where the customer needs change. We have the flexibility of an operating lease to move them into another plane if their needs change.
Keith Hayes
One that creates a great experience for everyone involved and enhances the relationship with our client, both our direct client and our relationship partners (i.e. dealer/brokers, OEM’s, attorneys, accountants, etc.).
Barrie Roesler
For us the best transaction is one where we get to be a true advisor to our client. That means that we are able to listen to their needs, develop a number of solutions, and give them the opportunity to pick what is best for them and their long-term goals.
