On the Record with
HENRY HUBSCHMAN, PRESIDENT & CEO, GENERAL ELECTRIC CAPITAL AVIATION SERVICES (GECAS)

For a man who bought $12 billion worth of regional jets last month, Henry Hubschman is very unassuming.

"I never want to say I'm more insightful than our competitors," the president of GE Capital Aviation Services, the world's largest aircraft leasing company, told Show News. But having missed out on the first round of 50-passenger regional jets, GECAS has put its money on the table to lead and stimulate a market for larger regional aircraft that doesn't yet exist.

Just six weeks ago GECAS ended a one-year order drought for 70-90 passenger regional jets with the largest-ever buy in the history of that industry-up to 450 aircraft from Bombardier, Embraer, and Fairchild-most of which are still paper airplanes.

"We chose all three competing manufacturers because our customers have different requirements and expressed preferences for them all," said Hubschman, who is here at Farnborough as one of the airline industry's most sought-after buyers.

Specifically, GECAS placed $1.3 billion of firm orders with Bombardier for 15 CRJ200s, 25 70-passenger CRJ700s and 10 90-passenger CRJ900s, with options for another 100 worth an additional $2.6 billion; it ordered 50 Embraer ERJ 170 70-seaters worth $1.2 billion and took options for another 100 of that model and the larger 90-passenger ERJ 190, worth an additional $2.4 billion; and with Fairchild Dornier it placed 50 firm orders for the 728JET regional jet, worth $1.4 billion, with $2.4 billion-worth of options for another 100.

The massive order has lit a fire beneath that sector of the market -- but so far GECAS is the only leasing company to express faith in its future.

"We've been looking at the regional market for some time," said Hubschman. "We talked extensively to our customers and thought there was an opportunity to provide a range of products and services. The issue for us always was could we get terms and conditions from the manufacturers that make this a transaction worth doing, and structure it in a way that brought an appropriate balance of risk and reward."

Evidently he did. Eight months of deep analysis and bargaining brought one of the manufacturers to the table-and when the other two discovered a deal was about to be made, they, too, wanted in. Each negotiated their own contracts-"so the conditions are not the same for all three," Hubschman said.
In leading the market GECAS wrung concessions that wouldn't have been possible if order books were bulging. "If I may say so, if I'm following the market then I don't expect to get the terms and conditions from the manufacturers that I want. GECAS had a chance to lead the market a couple of years ago on the 50-passenger jet (before Hubschman joined the company). We missed that opportunity. We realize that was a mistake and we're not about to miss that opportunity again."

Hubschman argues that leasing regional airliners is just as profitable as the 950 larger aircraft on GECAS' books when it comes to return on equity or investment, although the dollar amounts are less. He sees the move as a chance to diversify his portfolio: "If you are 100% certain that the long term is going a certain way, then I guess you never need to balance your positions," he explained.

While GECAS expresses "a deep conviction" that airlines want fleets of 70-90 passenger regional jets, it will provide a further stimulant to demand by offering the aircraft in many ways and with many extra services, ranging from operating leases to structured finance, and from leasing of engines and rotables to flight training and fleet planning. It can also help an airline change its fleet mix by taking aircraft in trade or constructing tailored finance packages.

"We have the ability to help in a way that differentiates us from someone who just offers the product but doesn't have the ability to help the other side," said Hubschman. "If you just offer the operating lease that in itself gets you a certain amount of success, but it's the rest of the services and the understanding of how the dynamic works that makes us successful."

Regional jets could eventually comprise 20% of GECAS' growing fleet. "If the market responds as we think it will and we get the kind of return we think is reasonable and satisfy the customers, we could take all 450 aircraft," Hubschman said. "But we won't pick up the options unless we're confident we can place them at reasonable terms."

By John Morris