Insight: Revenge of the Irish as mega-merger restores air finance crown

Conor Humphries and Tim Hepher
January 19, 2014
File photograph shows the nose cone of an Airbus A380 next to the tail fin of an Airbus A320 at the Farnborough Airshow 2012 in southern England
File photograph shows the nose cone of an Airbus A380 next to the tail fin of an Airbus A320 at the Farnborough Airshow 2012 in southern England July 10, 2012. REUTERS/Luke MacGregor/Files

By Conor Humphries and Tim Hepher

SHANNON (Reuters) - Twenty years after the spectacular collapse of Irish tycoon Tony Ryan's plane leasing empire, the Emerald Isle has restored its grip on the world's aircraft fleet with a mega-merger that could pave the way for a wave of multi-billion-dollar IPOs.

The $5 billion takeover of U.S. leasing giant ILFC by AerCap, a firm that emerged from the ruins of Ryan's pioneering Guinness Peat Aviation (GPA), is set to send ownership of its fleet of 1,000 jets to Shannon, a small town in the west of Ireland where GPA pioneered the plane leasing industry in the 1980s.

A disastrous bet on an airline boom that was cut short by the Gulf War led to GPA's effective collapse in 1993 and an exodus from Shannon.

Ryan bounced back to found Ryanair, now Europe's largest carrier by passenger numbers, and firms set up by the jet-setting Irishmen he trained have brought ownership of about one in four of the world's commercial fleet back to Ireland.

"What goes around comes around is an expression I could use," said Patrick Blaney, one of the GPA executives who helped restructure the firm after a failed initial flotation in 1992 and who still lives nearby.

"It leaves me with a warm feeling, for certain."

Like other executives from the firm who remember how the exuberance of the late 1980s gave way to the airline failures of the early 1990s, Blaney sees some warning signs that not all of the world's aviation firms will survive the current boom intact.

Yet Ireland's rebirth looks set to whet the appetite of aircraft financiers holding their own mini-Davos gathering in Dublin this week.

Their industry is basking in greater market recognition in the wake of the purchase of ILFC and is at last supported by robust profits at many airlines after years of restructuring and adjustment to high oil prices.

"This transaction will drive a lot of people to look at the IPO market," said Aengus Kelly, Chief Executive of AerCap. "It may encourage people to get involved in this business soon, before the values start to move on further.

From shaky roots in the 1970s, leasing has become a dominant force in aviation, with aircraft portfolios at leading firms worth an estimated $200 billion.

The industry is credited with making air travel cheaper and safer. Operating leases allow airlines to avoid huge capital costs and rent a modern jetliner, potentially worth $40-50 million at market prices, with all the latest equipment.

A mid-level executive from Ireland's national airline Aer Lingus in the mid-1970s, Ryan, who died in 2007, spotted the same opportunity as his great rival ILFC founder Steven Udvar-Hazy in California.

When Ryan was tasked with finding a home for a mothballed Aer Lingus Boeing 747 during the winter months, he flew around the world until Thailand's Air Siam agreed to take it. He quickly realized serious money could be made by financing and operating planes for other airlines.

After founding GPA in 1975, he surrounded himself with a team of ambitious young executives who travelled hundreds of thousands of miles a year - occasionally dipping behind the Iron curtain - to match parked planes and expanding airlines.

At weekends they would retire to their country piles