GE Capital Aviation Services

201 High Ridge Road
Stamford, Connecticut 06927
U.S.A.
Telephone: (203) 357-3776
Fax: (203) 316-7865
Web site: http://www.gecas.com

Wholly Owned Subsidiary of GE Capital Services
Incorporated: 1975 as Guinness Peat Aviation
Employees: 200
Sales: $655 million (1999 est.)
NAIC: 532411 Commercial Air, Rail, and Water Transportation Equipment Rental and Leasing

Although it claims to have written its first aircraft lease in 1965, GE Capital Aviation Services (GECAS) did not become a global market leader until its takeover/rescue of Guinness Peat Aviation (GPA) in 1993. The brainchild of longtime Aer Lingus employee Tony Ryan, GPA mastered the air finance game and grew phenomenally during the 1970s and 1980s until its progress was stopped by a failed global flotation.

Origins

T.A. “Tony” Ryan was born in 1936, the son of a train driver and grandson of a stationmaster. He left school at 15 and by age 19 was working for Irish state carrier Aer Lingus as a dispatcher at the Shannon Airport. Ryan progressed smoothly through the ranks. When assigned to Chicago, he earned a business administration degree at night school. He then became manager of the New York station and finally was given responsibility for the airline’s leasing of aircraft in the early 1970s. In 1972, when Aer Lingus found itself with an excess Boeing 747 jumbo jet, after the “Troubles” in Northern Ireland, Ryan persuaded Air Siam to lease it complete with Aer Lingus staff—a deal that produced winners on all sides.

Having seen the large profits possible in the field, in January 1975 Ryan proposed an aircraft leasing venture between Aer Lingus, merchant bank Guinness Mahon (in which Aer Lingus had invested in 1972), and himself, after having borrowed IR £30,000 (US$50,000). Originally called Guinair, the new company was soon renamed Guinness Peat Aviation (GPA).

In writing to Aer Lingus CEO David Kennedy, Ryan outlined four key factors critical to the success of the venture: “high calibre personnel; introductions and high level contacts; access to back-up technical resources; ability to provide or organize financing.” Headquartered at a tax-free base in Shannon, the initial staff consisted of six people, including a secretary. They worked hard under the very demanding Ryan and were compensated extremely well. Ryan’s righthand man Mau-rice Foley joined GPA in 1976 as a nonexecutive director on behalf of Aer Lingus. He subsequently became chief executive. Foley’s strategic thinking was highly regarded.

GPA started out as an aircraft broker. At the time, many European and American airlines were attempting to trim their fleets due to the global recession. GPA matched these extra planes with needs in the southern hemisphere. As Ryan recalled in 1979, the market changed with the end of the recession in 1977 and GPA was required to purchase its own, new planes for lease. An independent airline, Air Tara, was formed to operate a fleet of fully staffed aircraft for hire. By 1979, GPA was one of Ireland’s main sources of hard currency. It had found great success among financially struggling countries (despite its proximity to England, Ireland was considered one of Europe’s poorer countries) eager to start airlines of their own. GPA’s “wet” leases of fueled and staffed jets allowed governments to set up their own airliners overnight.

Soaring in the 1980s

Air Canada bought a 22.7 percent holding in GPA in 1980 and General Electric Credit Corp., sought by Foley, acquired a similar holding in 1983 for $18 million. The Air Canada link allowed GPA to cull from among Air Canada’s diverse fleet to offer a greater variety of aircraft to its clients.

In the mid-1980s, GPA adopted an aggressive new policy of acquiring options for new aircraft before the company had customers in hand. By the end of the decade, GPA dominated aircraft futures and could command premium prices for its operating leases, as well as garnish steep discounts (up to 20 percent) from the aircraft manufacturers. In 1989, GPA had more than $300 million in nonrefundable deposit payments outstanding for aircraft due for delivery as late as 1996.

Leasing accounted for more than 50 percent of GPA’s revenue in 1986 and the company formed its own financial services division in 1987. That year, Ryan began to stock GPA’s board-room with business and political luminaries including former Irish Prime Minister Garrett FitzGerald, Economist Chairman Sir John Harvey Jones, Mitsubishi Corporation President Shinroku Morohashi, Allied Irish Bank Group Chairman and former Irish attorney general Peter Sutherland, Air Canada Chairman Claude Taylor, and former Rolls-Royce Chairman Lord Keith. Many were also investors.

GPA was seeking to double its credit line to $1.5 billion, but had difficulty convincing banks to invest in the new and complicated world of aircraft finance. Ultimately, it did arrange for what was called the biggest financing ever for a private company. Most of the money went toward acquiring new Boeing 737s. Pretax profits were $71 million in 1987.

GPA ended 1988 with an implied market value of more than $1.5 billion. A group of Irish institutional investors had bought a 14 percent share in the company for IR £145 million. GPA was then controlled about one-third each by European, North American, and Japanese interests. Employees owned six percent of shares and Tony Ryan owned another eight percent. He was reported to be earning IR £9 million (US$13 million) a year.

GPA bought ten percent of Braniff Airlines in 1988, and Braniff agreed to buy a dozen new Fokker 100 aircraft from GPA. This transaction was executed through a joint venture owned half by GPA and 25 percent each by Braniff and Japanese interests. GPA also arranged for Braniff to buy 50 Airbus A320s that Pan American World Airways had on order, half of them via GPA leases. Braniff also acquired Pan Am’s 50 options.

In January 1989, GPA had a US$3 billion dollar fleet of 164 aircraft leased to 62 airlines in 29 countries, according to a Salomon Brothers analyst. The average lease length was more than six years. Most were not provided complete with aircrew. The Guinness Mahon merchant bank sold its shares later in the year after the collapse of its parent company, Equiticorp.

GPA had 170 employees and pretax profits of $150 million in 1989. It had ordered $850 million worth of advanced turbo-prop aircraft for delivery in the early to mid-1990s. By 1996, however, the industry was demanding small, regional jets for short commuter flights.

A Change of Direction in the 1990s

Only three or four firms were involved in aircraft leasing when GPA started; there were 30 competitors by 1999, including divisions of multinational corporations and aircraft manufacturers themselves. GPA’s largest rival was International Lease Finance Corporation (ILFC), of Beverly Hills, California, which had just 18 employees. Some observers felt ILFC’s smaller, less complex operation would fare better in a recession.

In 1990 a recession, it turned out, was just over the horizon. U.S. airlines together lost $5 billion that year. At this time, GPA had orders or options on 700 aircraft over the next decade. Further, GPA lost its tax-free status at its Shannon base in April 1990. It was not perhaps the most auspicious moment to launch a share offering, but Aer Lingus and Air Canada were reportedly eager to amortize their holdings to ease their own financial burdens. Still, the firm continued posting respectable numbers. Lease revenues for the 1990–91 fiscal year rose 66 percent to US$8.3 billion. Profits reached nearly $300 million when the company had about 300 employees—an employee-to-revenue ratio unheard of in most industries.

GPA announced plans for a stock flotation in the spring of 1991, but it was delayed for a year. Foley, then president, became CEO in March 1992, and Ryan remained chairman. Ryan took the CEO position back that September, however, as the company was scrambling to find financing. Ryan himself soon was ousted and replaced by Dennis Stevenson, director of the Tate Gallery. By this time the company was referring to itself as GPA Group.

Failed Flotation in 1992

After a year of haggling with advisers over the share price, the company launched its US$1.1 billion (IR £603 million) share sale in June 1992 in London, New York, and Tokyo. Ryan had hoped originally to value the company at $3 billion. Even at the lower price, GPA received applications for only 50 million of 85 million shares on offer, and the company abandoned the offering on June 18, 1992. Institutions avoided the offering, which was most popular with private investors in Japan. Likely factors in the offering’s failure included the general poor health of the aviation industry, a lack of understanding of the aircraft leasing business on the part of banks, and GPA’s own “icy” relationship with the financial press.

Had the offering succeeded, GPA would have emerged as the largest Irish public company, worth 20 percent of the entire Irish stock market. Instead, the news lowered all types of aviation stocks. As a result of the failed offering, GPA had its credit rating downgraded, forcing it into higher payments on its very substantial borrowings—its aircraft orders through 2000 were worth $12 billion. GPA was able to sell or cancel 66 percent of these, although not without penalty.

Company Perspectives

GE Capital Aviation Services (GECAS) is the world’s Premier aviation solutions provider with a fleet of over 900 planes leased to 155 airlines in 54 countries.

Our customers include: major flag carriers; large scheduled passenger carriers; charter operators; low fare carriers; regional jet operators; cargo carriers; selected start-ups.

GPA lost $993 million in 1992–93. By May 1993, the shares offered at $20 each were worth less than $1 apiece. With bankruptcy imminent, in September 1993, GE Capital announced plans to create a new subsidiary, GE Capital Aviation Services (GECAS), to manage GPA’s assets. It also bought 44 of GPA’s 464 aircraft outright for US$1.4 billion (IR £920 million). GECAS had the option to buy a nearly two-thirds stake in GPA by March 1998. GPA agreed not to use the names GPA or Guinness Peat Aviation after 2001.

GECAS was staffed by 160 GPA employees (25 remained with GPA) and based at Shannon. The virtual merger was complex and difficult, its structure devised to prevent GE Capital from assuming GPA’s liabilities. GPA essentially was divided into two companies, only the namesake being responsible for the $5 billion debt. GECAS was formally established in November 1993. GE Capital’s own San Francisco-based Polaris Aircraft Leasing, based in California, was incorporated into it.

Many of GPA’s high-profile board members resigned as part of the restructuring. Several GPA executives left during the transition period, uncomfortable with the change to a more hierarchical corporate style. Herb D. Depp, former president of Polaris Aircraft, was appointed GECAS president and CEO in March 1994 as former head Colm Barrington resigned to start his own aircraft management company in Dublin. In December, Depp moved to a vice-president job at GE Aircraft Engines to be replaced at GECAS by James T. Johnson, formerly head of the Large Commercial Engine unit of Pratt & Whitney. Johnson previously had been a vice-president at Boeing, giving him a unique insight into negotiating aircraft purchases.

GECAS owned or managed more than 900 planes at the beginning of 1995. After a lull in new aircraft purchases, in February 1996 the company placed an order worth potentially $4 billion with Boeing for five or six 777s and up to 178 737s. It followed that a few months later with a $2.5 billion Airbus order. GECAS earned an estimated $200 million in profits in 1996, compared with $368 million posted by ILFC, its smaller competitor. GECAS owned 424 aircraft and managed another 435 for other investors. ILFC owned 317 planes. Meanwhile, GPA finally secured a $4 billion bond issue in March 1996 after negotiating with 138 banks.

GECAS accounted for six to seven percent of the business of GE Capital Corp., which had 26 other subsidiaries. The corporate association seemed like good news for GE’s engine division, which consistently won GECAS orders over rival Rolls-Royce. Johnson planned to expand the unit’s business to include aircraft upgrades. He left, however, in the summer of 1997 to become COO and president of business jet maker Gulfstream Aerospace. Henry Hubschman became president after John-son’s departure.

GPA found another investor, Texas Pacific, in October 1998 after GE Capital dropped its option to buy its remaining shares. Texas Pacific agreed to pay $115 million for a 47.7 percent stake in the company, for which GPA had logged a $63 million profit in 1997–98, up 15 percent for the year.

In May 1999, GECAS sold the equity interest in 36 aircraft worth $1.3 billion to Miami-based UniCapital Corporation. Rival ILFC increased its portfolio by $2.8 billion between May 1998 and May 1999, closing within $700 million of GECAS. It also showed no signs of slowing. A half dozen smaller competitors, led by Ansett Worldwide Aviation Services, competed even more closely at the next tier.

In the late 1990s, GECAS helped its clients in Asia shuffle $500 million worth of aircraft away from the depressed region to Europe and the Americas. Operating leases remained popular in Asia, since they allowed for such risk mitigation as well as for flexibility in capacity.

Catching the regional jet trend pioneered by Bombardier Inc. in the decade prior, GECAS ordered 50 of that company’s Canadair regional jets for $1.3 billion in June 2000. The purchase followed similar ones from Empresa Brasileira de Aeronautica SA (Embraer) and Fairchild Dornier Corp. Even that order was dwarfed by one in July 2000 for 74 Boeing 737 and 777 airliners worth US$5.5 billion.

Principal Competitors

International Lease Finance Corporation; Ansett Worldwide Aviation Services; Boullioun Aviation Services; Singapore Air-craft Leasing Enterprise.

Key Dates

1975:

Guinness Peat Aviation (GPA) brokering venture is formed by Aer Lingus, Guinness Mahon, and Tony Ryan.

1977:

GPA starts buying its own new aircraft.

1983:

GE first invests in GPA.

1992:

GPA’s global flotation fails.

1993:

GE Capital Aviation Services (GECAS) is formed in a rescue/takeover of GPA, though all existing debt still remained GPA’s responsibility, housed under the GPA corporate name.

1998:

GE Capital drops option to buy remainder of GPA.

Further Reading

Ashworth, Jon, “Acrobatic Manoeuvres That Pulled GPA Back from Brink,” Times, Bus. Sec., October 2, 1998.

“Breidenbach Resigns at Gulfstream—to Be Replaced by Boeing Veteran,” Weekly of Business Aviation, August 4, 1997.

Bryant, Adam, “General Electric Spreads Its Wings,” New York Times, Bus. Sec., May 16, 1996, p. D1.

Cameron, Douglas, “A Leviathan of World Leasing,” Financial Times, August 30, 1996, p. 12.

Canniffe, Mary, “GPA: New Deal Vital,” Irish Times, Bus. Sec., p. 16.

“Champagne Comes to the Country Fair,” Euromoney, April 1989, p. 39.

Chipello, Christopher J., “Unit of GE Orders 50 Bombardier Jets for $1.3 Billion, Acquires Options on 100,” Wall Street Journal, June 12, 2000, p. B4.

Cooper, Ron, “Is Ryan of GPA Flying Too High?,” Euromoney, April 1989, pp. 35–40.

Cope, Nigel, “GPA Comes Down to Earth,” Business, May 1991, pp. 58ff.

Cullen, Brenda, “GPA: The Global Flotation That Failed,” in The Search for Corporate Strategic Credibility: Concepts and Cases in Global Strategy Communications, edited by Richard B. Higgins, Westport, Conn.; London: Quorum Books, 1996, pp. 95–108.

Dobie, Clare, “Share Hop Leaves GPA in Crisis,” Independent, June 19, 1992, p. 22.

Dwyer, Rob, “ILFC Surge Brings It Closer to GECAS,” Airfinance Journal, July/August 1999, pp. 28–30.

Farrell, David, “A Total Fleet Solutions Approach to Strategic Planning,” Airfinance Journal, Aircraft Finance in Asia supplement, September 1999, pp. 8–10.

“GECAS Kicks Off Order Chase,” Airfinance Journal, February 1996, p. 12.

Harrison, Michael, “GPA Flotation May Be Delayed,” Independent, February 12, 1992, p. 23.

Kjelgaard, Chris, “The New Broom,” Airfinance Journal, February 1995, p. 26.

Mackay, Angela, “Ryan Takes Back Both Controls at GPA,” Times, Bus. Sec., September 7, 1992.

Maher, John, “GPA Shareholders Set to Approve GE Deal,” Irish Times, Bus. Sec., October 18, 1993, p. 16.

Narbrough, Colin, “Luck of the Irish Finally Runs Out for Tony Ryan,” Times, Bus. Sec., May 14, 1993.

Nisse, Jason, “Sea Change in the Air,” Banker, December 1987, pp. 90ff.

O’Connor, Anthony, “GE Force,” Airfinance Journal, May 1997, pp. 20–23.

O’Donnell, Thomas, “Never Too Late,” Forbes, April 23, 1984, pp. 54, 58.

Olins, Rufus, “GPA Takes Flotation Route,” Sunday Times, Bus. Sec., May 5, 1991.

Proctor, Paul, “GE Places $4-Billion Boeing Order,” Aviation Week & Space Technology, January 29, 1996, pp. 50ff.

Rudd, Roland, “GPA Rejects Advice Over Flotation Price,” Financial Times, Sec. I, February 3, 1992, p. 15.

Shanahan, Ella, “Fortunes Diminished As Issue Fails to Fly,” Irish Times, Bus. Sec., June 19, 1992, p. 14.

Share, Bernard, The Flight of the lolar: The Aer Lingus Experience 1936–1986, Dublin: Gill and Macmillan, 1986.

Urry, Maggie, “How GPA Will Restructure,” Financial Times, International Company News, September 24, 1993, p. 23.

Velocci, Anthony L., Jr., “GECAS Study Reveals Leasing Paramount to Aircraft Acquisition,” Aviation Week & Space Technology, November 25, 1996, p. 44.

Woulfe, Jimmy, “Former GPA Chief Still in Full Flight,” interview of Niall Greene, Limerick Leader, October 23, 1999.

—Frederick C. Ingram