Former Chairman and President at Airbus China
Laurence was the President and Chairman of Airbus China from 2004 - 2017 where he led the business to grow from producing 40 to over 160 aircraft per year and grew revenue to over €20bn in China. He joined Airbus in 1982 in aircraft finance where he ran customer finance for 10 years and then asset management for a decade. Laurence spent a total of over 25 years in aircraft financing and leasing before moving to lead Airbus China. Read moreView Profile Page
Laurence, could provide some context to when you first joined Airbus?
I first joined Airbus in 1982. Prior to that, I was practicing law, in Tokyo. I actually started my career, as a lawyer, in Paris, in 1974. In 1978, I went to Tokyo, as a French law lawyer, but I ended up doing quite a lot of aircraft financing, which was English law, which was fine as I studied law and was called to the bar in England, in 1974. I ended up going to Tokyo and doing a lot of aircraft financing, in the period 1978 to 1982 and I enjoyed that a lot. In 1982, I moved from Tokyo to Toulouse and joined Airbus, as a lawyer, specializing in aircraft finance. About 18 months, after that, I moved to customer finance and I ran customer finance, at Airbus, for about 10 years. After that, in the mid-90s, I set up and ran the asset management department of Airbus, for 10 years. In total, for about 25 years, I was very involved in aircraft financing and leasing.
How has the leasing market evolved in the last few decades?
It’s exploded in the last 20 or so years. It’s become a major force now. Some of the customers of Airbus and Boeing are the major leasing companies and the airlines depend, very much, on leasing companies, for a large part of their fleets.
What do the lessors offer that is so attractive to the airframers and, more importantly, the airlines?
For the airlines, it’s flexibility. First of all, financially, the airline doesn’t have to commit much capital. The leasing company who has ordered aircraft is doing the investment, as it were. So there is much less cash needed, from an airline’s standpoint, in order to lease an aircraft, as compared with buying an aircraft. It’s also availability. With popular aircraft, you sometimes have to wait many years before you can get your delivery. Whereas, often, leasing companies can offer a delivery on a much nearer horizon. It’s flexibility, both in terms of financial resources and in terms of operational flexibility or operational requirements.
How do you think Covid has impacted that relationship between the airframers and the lessors?
At the end of the day, both the lessors and the airframers need operators. In other words, the airlines. Right now, of course, it’s no secret that most of the airlines are going through a very difficult period, with most of their fleet on the ground and very few passengers. It’s an extremely tough time, unprecedented, I would say, for the world’s airlines and, therefore, it’s extremely difficult for the leasing companies and the manufacturers to just continue business as usual, because their clients, their customers and operators, are in survival mode.
What are the core factors you are looking at, in how this can evolve, today?
Right now, as I said, the airlines are in survival mode, so their number one concern is to hold on to their cash resources. Obviously, they have little or no income or revenue, at the moment, so they’re looking to minimize their outgoings, their expenditures. One area is lease rental. It’s been said that at least 80% of the operators have turned to their lessors and requested some financial support and relief, usually taking the form of rental deferrals.
How did that conversation go, do you think, with the lessor and with the fleet that they have?
You can’t really expect an airline that’s got no revenue just to keep paying and reducing its cash balance to zero and going out of business. I think, right now, everybody realizes that the airlines need some assistance, to get through this difficult period. Each airline, of course, is a different case. Some airlines will get government support, some will not. Some airlines were in financial difficulties before the coronavirus crisis, so should those airlines be allowed to survive? But I think, for those airlines that are expected to survive and get through this, that most lessors will take a pragmatic and positive approach, to getting through this period and, hopefully, getting back to normal business, as soon as possible.
You think the lessors or the creditors or equity holders that are financing those leasing companies, do you think they’re going to want to be the ones taking a hit in this, because they’ve got their fleet grounded? They’re not receiving a direct bailout, from the government and, therefore, they’re not receiving rent from the airline, but still have to pay financing.
Yes, I think some lessors are better off than others. Depending on their financial strength, their own availability of cash and the strength of their financial backers and shareholders, some will be in a stronger position than others. But it doesn’t really help anybody to push the operators into bankruptcy or into a situation where they fail. It’s something that both the lessors and the people who own the leasing companies will just have to find ways to accommodate, so that we get through this period and, hopefully, the airlines will begin to fly again and build back and the rentals, which I think, in most cases, will be deferred, rather than forgiven, will be recovered later on, when business returns to normal. Although, of course, it might be a new normal; it may not ever be quite the same as it was before. As I said, it’s pointless expecting businesses to bankrupt themselves, by paying all their bills, when they have no revenue.
I think, for those airlines that are expected to survive and those lessors that look to the future and to doing good business again, with their customers in the future, it makes sense to come to some accommodation. But, as I said, each case is different. Each airline is different. We’ll have to see whether, despite some resistance from lessors, whether these airlines will survive. We’ve already seen, in recent days, that it looks as though South African Airways is going to be liquidated, as the government there has declined further support. We’ve seen Virgin Australia going into administration, although they hope to recapitalize and emerge, rather than liquidate.
Already, there is some damage becoming quite visible.
How do you look at the lessor’s positioning then, medium to long term, with the aircraft they have, with the fleet they have, the potential reduction in demand, as you mentioned, this new normal, do you they’ve got an over-supply of aircraft in the market and, therefore, their fleet size?
The question of over-supply or if there is too much capacity is, really, firstly, to be measured at the airline level. The question really is whether traffic is going to return to normal quickly, or whether it’s going to take several years. Many commentators are now expecting the crisis to last into 2023, in terms of returning to 2019 levels of traffic. So that would suggest that there would be excess capacity and that not all aircraft that are currently grounded, will be returned to service. It might accelerate, therefore, the retirement of certain older aircraft and it might, also, accelerate certain airlines fleet simplification, by reducing the number of aircraft types that they operate.
The overall impact, in the short term, could be negative for aircraft values, both in terms of lease rates and residual values. But for those lucky enough to have the most sought after, modern and efficient aircraft, I suspect that, in time, those aircraft will not only return to service, but will become essential tools again, for the world’s airlines. It really is a question of looking at fleets and which aircraft are likely to be retired and which aircraft are likely to return to service as soon as possible. In the long term, which are the most desirable aircraft for airlines to return to service? But it’s early days. At the moment, most airlines are more concentrated on survival than they are on looking at how their future fleet will be made up.