Which U.S. airline owns the most planes?

None of them.

Minneapolis Star-Tribune 09/19/05
author: Mike Meyers

Who puts the most airliners into U.S. skies? It's not American Airlines, United or Northwest.

General Electric sends more planes criss-crossing the air each day than any other U.S. company. GE, through its financial arm, owned 1,342 commercial aircraft at the end of 2004, more than any of the four largest airlines -- American, United, Delta and Northwest.

The planes bear the insignia of those firms and other carriers, but they are operated under lease. And unlike the airlines, GE is making good money off those planes.

GE Aviation Services made $1.9 million a day in net profits in the first half of this year by providing leased aircraft -- and loans -- to commercial air carriers.

Northwest, for one, owes the GE arm $1.1 billion in leases and loans on nine Airbus A-320s, two Boeing 747s, one Boeing 757 and 85 regional aircraft.

At Delta Air Lines, the airline arranged $1.7 billion in financing to be available to it while it is in bankruptcy. The lenders are Morgan Stanley and GE's Commercial Finance unit.

In short, while many airline analysts believe that the industry won't ever be healthy until there are fewer planes, and fewer carriers, GE has good reason to keep as many aircraft flying as possible.

More planes mean GE's aircraft engines and components remain in demand. And the aircraft leasing and aviation loan profits have sparkled even as the airlines bleed billions.

Net profits for GE's Aviation Services unit in the first half of 2005 came to $348 million, up nearly 26 percent from the same period a year earlier. Put another way, for every dollar of revenue in aviation services, GE made a net profit of 21 cents.

"Obviously, there's a sense that suppliers generally are helping to keep airlines afloat when otherwise they might sink," said airline analyst Patrick Murphy, at Gerchick Murphy Associates in Washington, D.C.

Anthony Sabino, a New York lawyer who has represented creditors in every major U.S. airline bankruptcy in the past 20 years, said GE has a unique relationship as a lender.

"Symbiotic? Most definitely. Perverse? Yes, in many ways," he said.

GE rejects being cast as an "enabler" for a wayward airline industry, however.

"That's a little silly. We're not in the business of deciding how many planes an airline should fly," said GE spokesman Eric Jones. "The airlines should make those decisions."

That's a view shared by some outside GE.

"I don't know that it's GE's job to decide who lives and who dies," said Mary Anne Sudol, airline analyst at Caris & Co. in New York City. "GE probably would like to see market forces sort it out and let airline passengers make the decisions."

Acting as the financier of last resort to the airlines isn't a new business for GE. The company has been doing it for years, and market forces actually make the business more attractive now than ever.

New airlines sprang up after the end of regulation for the industry in the late '70s. That meant more competition and more carriers operating with little margin for error. After the first Persian Gulf War, rising oil prices led to a shakeup that sent Continental and TWA into bankruptcy court. Others, such as Pan Am and Eastern, eventually folded. TWA merged with American.

Many of those airlines got their chance at a new life, or at least lasted longer than they otherwise would have, thanks to ready cash from the likes of GE, attorney Sabino said.

GE is "committed to keeping these guys afloat by renegotiating terms," Sabino said.

In the early 1990s, GE ended up taking back planes from defunct airlines and parking them in the Mojave Desert.

In the latest round of airline financial woes, the scene looks far better for GE.

Demand for aircraft in China, India, Eastern Europe and even Russia mean that GE doesn't need to renegotiate plane leases, airline experts say.

A 50-seat regional jet, the Bombardier CRJ-200ER, leases for $80,000 to $90,000 a month in the United States but would fetch 20 to 30 percent more overseas, said Gueric Dechavanne, manager of valuation services at BACK Aviation Solutions in New Haven, Conn. A 189-seat Boeing 737-800 could lease for as little as $325,000 a month in this country but command as much as $365,000 a month abroad, he said.

Indeed, some analysts say, GE stands to make more money leasing -- at higher rates than in the United States -- to fast-growing foreign airlines than to financially strapped U.S. carriers. That's a force that might make leasing firms less open-handed with bankrupt airlines, even ones with the global reach of Northwest.

"GE often takes back some excess aircraft and is then able to re-lease these to other airlines, often at higher monthly leases, when markets are tight for aircraft leasing, as they are currently," wrote Nicholas Heymann, airline analyst at Prudential Equity Group in New York City.

"As one of the largest lenders to each carrier and [as it has] gone through more than 200 airline bankruptcy proceedings as a lender over the past three decades, we believe GE is very well-positioned to ensure its shareholders' interests are adequately protected," Heymann advised clients. "As such, we do not view the [bankruptcy filings] by Northwest or Delta as a negative for GE."

GE agrees.

"Everyone, in general, will tell you the demand for aircraft and the opportunity to redeploy aircraft in other parts of the world is excellent," said Jones at GE.

"We have 18 airplanes that are coming out of ATA [an airline in bankruptcy proceedings] and all of those airplanes are going to carriers outside the U.S.," Jones said. "Sixty-one are coming out of the new US Airways [the combined US Air and America West] and many of those already are on their way overseas."

Northwest and Delta also are likely to pare their fleets.

"Airlines that do go into bankruptcy do not come out the same size as they went in," said Murphy, the airline analyst. "The rule of thumb is a 15 percent reduction in size."

Last week Northwest asked a bankruptcy judge for permission to reject or abandon 13 older aircraft that the airline said no longer can be operated economically.

It's not clear who owns those planes. But if it's GE, Northwest's motion might not be a problem.

"GE has no worries whatsoever," Sabino said.

"They will not only survive but prosper," he said. "They're smarter business people than the people running the airlines."