Podcast Ep 68: AerCap CEO Aengus Kelly talks about how an Irish-born business became the biggest aviation player on the planet.
It may come as a surprise to many Irish people that an Irish company whose origins can be traced back to the renowned businessman Tony Ryan and Guinness Peat Aviation (GPA) in the mid-1970s is today the largest player of its kind in the world with more than 2,000 planes, 300 helicopters and 900 engines.
In March AerCap, headed by CEO Aengus Kelly, agreed to acquire GE Capital Aviation Services (GECAS) in a $30bn (€25bn) deal. Shareholders and competition authorities are expected to approve the deal by the end of the year.
“Going into this most recent crisis we had learnt the lessons of the past that you always have to make sure you’ve plenty of liquidity, assets the customers want, and we are in the process of acquiring the No 2 in the industry”
The enlarged AerCap is expected to generate revenues of $7bn a year. This feat resulted in Kelly being recently named The Irish Times’ Business Person of the Month, in association with Bank of Ireland.
The right stuff for turbulent skies
“What we really want is the decision makers here because they drive young Irish people, they give them so much knowledge, they impart that knowledge and those people can then go and set up their own businesses”
It has been a turbulent year and a half for the aviation industry and under Kelly’s leadership AerCap has deftly navigated the troubled skies and aims to be in the right place and time for the recovery of the global aviation sector after the havoc wrought by Covid-19.
Kelly told ThinkBusiness that Ireland has the right stuff to be a leader in the global aviation sector through the right policy decisions, the right talent but crucially if it pushes the throttle on flying out of the pandemic. He laments that the country could move a lot faster.
Looking at the origins of AerCap, the GECAS acquisition represents a full circle journey for ownership of the business since GE’s purchase of the majority of GPA’s fleet of airplanes in the 1990s following a disastrous IPO attempt by GPA.
But the ambition and promise of a business born in 1970s never left the minds of its lieutenants and AerCap’s position as the largest aviation firm on the planet in 2021 is the culmination of that ambition.
AerCap, itself originally a GPA subsidiary, bought itself out of ownership from a consortium consisting of Daimler-Chrysler and five German banks in 2005 with the help of private equity firm Cerebrus and went on to list on the New York Stock Exchange in 2006.
“We learned a lot of lessons over the past 20 years about how to run this business and going into the financial crisis we had a lot more liquidity than any of our competitors and we grew the business during the financial crisis,” Kelly explained.
In 2013 AerCap bought International Lease Finance Corporation (ILFC) from AIG for $5.4bn, out of which $3bn was paid in cash and the rest in shares. The deal gave AerCap $43bn in assets and a fleet of more than 1,300 aircraft.
Since then AerCap has been steadily building up its fleet through acquisitions and lease agreements. In 2017 it placed an order worth $8.1bn with Boeing to buy 30 Boeing 787-9s.
Today it serves 200 customers in 80 countries with comprehensive fleet services.
“Going into this most recent crisis we had learnt the lessons of the past that you always have to make sure you’ve plenty of liquidity, assets the customers want, and we are in the process of acquiring the No 2 in the industry.”
Growing Irish aviation
For Kelly, it’s no surprise that Ireland has built up a formidable aviation sector. “After GPA got into trouble a lot of people were let go, so they set up their own businesses. And so, a cluster came out of that because that was the only thing these people knew how to do: set up businesses. So that was very helpful.
“We have more of the front office of this business than any other industry. But we could have more. We should have more”
“The withholding tax treaties the country had built up over 30 years and the 12.5pc tax rate were the real catalysts.”
But he believes Ireland could be in an even stronger position. “Unfortunately, we don’t have as many of the decision makers here as we would like. And that’s due to the higher personal tax rates that we have, so many people will leave Ireland or won’t come here for the senior leadership.”
Having the senior leadership in Ireland will be crucial. “What we really want is the decision makers here because they drive young Irish people, they give them so much knowledge, they impart that knowledge and those people can then go and set up their own businesses. It becomes a much stickier industry in a country when you have the intellectual capital here.
“If the intellectual capital of an industry is not in the country then it’s far more challenging to maintain it in that country when things get tough, because people will retrench to where the decision makers are. So, it’s a tremendous success story. And to be fair we have more of the front office of this business than any other industry. But we could have more. We should have more.”
Kelly joined GPA while working as an accountant with KPMG. “GPA was their biggest client at the time, and I was sent down to Shannon on secondment and I never left the place.”
Tony Ryan’s GPA had grown to become a global leader in the aviation sector in the 1990s. However, it plunged into crisis following a stock market flotation that failed due to an aviation industry downturn following the 1991 Gulf War.
“If you have a great group of people around you who are all committed to the same goals, there is nothing you cannot do”
Kelly said that while the business floundered in the 1990s, the ambition remained, and it was always a question of when and not if the aviation business would take off again from Ireland.
“There was still a belief with the small group of people that they could take on the world, and they could beat it. And that’s infectious. You’ve now got the combination of an incredibly exciting industry that’s growing.
“It’s important to say to anyone who is looking to business to get into an industry that’s growing, not one that’s declining. There was a group of people there who believed they could take on anyone, anywhere in the world. And that belief is something everybody needs throughout their career, sometimes people need to remind you in dark times that you can do it if you work extraordinarily hard. If you have a great group of people around you who are all committed to the same goals, there is nothing you cannot do.”
Kelly pointed to the famous Margaret Meade saying as his inspiration: “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.”
“I think that is something that will always stay with me from those days, and I hope it will always stay with this company.”
Profit from Brexit
Kelly said that he believes Ireland needs to move fast to capture opportunities that lie in the wake of Brexit and Covid-19.
“I think Brexit is an incredible opportunity for this country. We’re the only English-speaking country in the European Union, we should embrace it and shouldn’t be fearful of things. Life’s about taking risks. I think too often in this country in the last few years we’ve been just too afraid. And we have to go out there and go for it.
“Brexit is a great opportunity, but you have to put the conditions in place to maximize it. It’s a one-time shot to bring in massive amounts of investment that are going to go somewhere.
“The UK is the biggest recipient of FDI in the world. They’re very competitive and it’s brutal out there. Every day countries are competing for jobs and, particularly post-pandemic, the world is going to be a much more challenging place. It will be more difficult to attract high class industries. And, you know, we need a few vertebrae in the backbone of our leadership to do the right thing rather than what is expedient in the short term.”
Firing on all jets
What Kelly is getting at is his belief that Ireland could be flying out of the pandemic crisis a lot faster than it is doing.
“It is the least advanced country in the developed world in terms of restarting the economy. And we’re paying an enormous bill for that every day.”
From the vantage of the aviation sector, he says traffic levels indicate how countries are recovering. “China is back at 110pc of what it was flying before the pandemic and that recovery started in June of last year. In the US we’re back to about 75pc of pre-pandemic traffic levels. The US is booming. Ireland, every day that you look at the European traffic statistics, is last every day. And even though we’re an island, which accentuates the problem even more because if you’re a land-connected country you don’t need aviation as much, and you’re last out of 30 you are disproportionately a lot worse than anybody else.”
Kelly said he is seeing a rebound in aviation leasing globally. “But we have leased nothing in Ireland, we’re taking airplanes out of here.”
Despite this, he believes Ireland still holds the cards to be a decisive player in global aviation in terms of the skills and opportunities available from finance, accountancy and banking to engineering and law. The company operates a successful Master’s in Aviation, Finance and Law with UCD.
“I’d say those professions like engineering, law, banking and accounting all have a path in here. The programme at UCD shows that someone is genuinely committed to it from the start right out of undergrad.
“But it’s like anything. Once you’re in somewhere you’ve just got to work as hard as you possibly can. You want to be in an industry that’s growing and in a company that’s a meritocracy.”
AerCap CEO Aengus Kelly was recently named The Irish Times’ Business Person of the Month, in association with Bank of Ireland
By John Kennedy (firstname.lastname@example.org)
Published: 23 June 2021