Flightpath with Alok | Kishore Korde - Air Lease Corporation

Yes, well, thank you so much, Alo, for the invitation. It's always a pleasure to talk to you, and I've known you for many, many years and watched as you grew from strength to strength over the years. So it's my pleasure to have this chat with you. As you started off, I am on the origination side at ALC. That's what I would say is the bread and butter of my job description, but that's only one facet. I also am involved in aircraft trading, and now that I've spent a few years in the industry, I also involve myself in other aspects of the business. For example, on the financing side, I help out when needed. So this weekend I'll be at a meeting at our annual bank meeting where we'll be meeting with all our bankers. We have bank relationships with more than 50 banks, and so I'll be part of the team that goes there, meets with them, spends time with them, explains the business. So the financing side's there. Then, of course, other issues that come up within the company that might need my intervention, attention, input—I pitch in. At ALC, our DNA is basically about rolling up your sleeves and getting things done. So we don't pigeonhole ourselves into little slots because we feel the broader the range of experiences we have, the more value we can bring to the company.

Well, if I were to go back to the very beginning, I grew up in Mumbai and went to St. Xavier's College for my undergraduate degree. I actually did an MBA and my law there as well, and then I came to the US for graduate school. To make a long story short, the graduate school was partly law, partly business because I had a business background. I went to a university that had a well-known business school called Wharton, and I ended up in a big law firm. That was just a regular law firm job, but it was just a job. Growing up, aviation was my passion. I just loved airplanes. I don't know why—ever since I learned to walk, my parents tell me, even before that, I was in love with airplanes. So after a few years in the law firm, I had this epiphany one night when I said, 'Well, I've always wanted to get into aviation. I love aviation, that's my passion, but I didn't know anybody there in the industry. I knew all about the industry because that's what I did in my spare time—read about airplanes and aviation—but I didn't really know anybody. Coming from India, I didn't have any contacts. And I said, 'You know, I don't want to have any regrets in my life. 20 years from now, I might be in the same law firm job wondering what if I'd done this, what if I'd done that in aviation.' So I said, 'Let's give it a shot. If it works, it works, but if it doesn't, then my conscience is clear. At least I know I tried. I don't have the regret about what if I had done this or that.' Having known about the industry and knowing all about aircraft leasing because of my interest, and ILFC was led by Steve Hazy, who's also our chairman at ALC and he's kind of like the Steve Jobs of the aviation industry in a way—he's a legend. I said, 'That's the company I want to go work for.' As I said, I didn't know anybody there, so I literally applied cold call and told them about my passion for aviation. So I guess it was 50% initiative and 50% pure luck because it just so happened that the legal department there was looking to add some people. But what was even more lucky for me was that the then General Counsel of ILFC, she had actually filled the spot, and she nevertheless, for reasons only known to her, took a chance on me and gave me a job. And here I am, 20 years later, still in the industry.

Well, they are certainly very happy because all my travel gets them their free mileage tickets to come to the US whenever they want, so they're very happy. Right now it's not about me, it's about the grandkids. So it's sure, but they're happy.

So I'm the only man standing, so they have all unionized and they vote against me as a union. My youngest is in elementary school, my eldest is in high school, so I have teenagers. Depending on which room I turn into, I'm either the smartest guy in the world or the stupidest guy in the world. So I'm getting the full range of opinions depending on which kid this is.

Nothing. Right, right. I have accepted defeat.

Yeah, I mean, let me start with ALC and ILFC. I think we were always very focused on the diversity aspect, even before it became popular and the way it is today. We always, even at ILFC and certainly at ALC, focused on having people with diverse backgrounds, diverse skills, diverse language skills, for example. Even at ILFC, I would say just in the legal department—and this was not by accident but by design—we had people who spoke some of the Indian languages, we had French speakers, Spanish speakers, Russian speakers, Arabic speakers, Chinese speakers, and Spanish speakers. This was just in the legal department, and we felt that if we were to be a global leasing company, to help serve our customers better, it was helpful to have people with those backgrounds, diverse backgrounds, who could then relate to the customers that much more easily. And that extended to other departments as well. The same is true at ALC. We have people from different nationalities. In fact, Steve Hazy, our chairman, he was born in Hungary and he has a very interesting life story as well—how when the Russians took over and invaded the country, they escaped and made their way to the US. But that's a whole book in itself. But the focus has always been on this diversity. Then in terms of male versus female roles, as you know, aviation so far has been, let's admit, a fairly male-dominated industry. But we are certainly trying to do our part in terms of empowering women, elevating them to positions of responsibility. So our chief accounting officer, our head of HR, our general counsel, head of contracts—probably Sarah Evans and many more—are women in leadership positions in the company. The job is not done yet, and we certainly hope to keep improving on that. But these things are important. It's the right thing to do, and it's also the right thing for our customers because we bring to the table a team that can really relate to them. We try to match people to accounts where they are best positioned to serve the customer in the best way possible.

I think as an industry, we may need to make more conscious efforts to give people the chance. We found at ALC, back at ILFC, if you give somebody the chance, you are very often pleasantly surprised how they can blossom into the role. We have to be conscious that there could be unconscious or unintended biases in the way we think when we think of matching people to a particular job description. Nobody intends to consciously put somebody down or ignore somebody, but all of us are human beings. There's plenty of research now—we all undergo diversity training even ourselves here at ALC, and it's interesting to see how psychologically the human mind works. As I said, unintended, even if it's unintended, sometimes you might not be looking at a particular candidate who might actually turn out to be really good. I think we have to make a conscious effort to give people the chance to see if there would be a good fit. As I mentioned at the very beginning of the podcast, I'm exhibit A. If that general counsel at ILFC hadn't given me the chance, I wouldn't be here today.

Yeah, well, for somebody who has no knowledge really or background of what leasing is, I think the one fact that perhaps one can talk about at the very beginning is that especially post-COVID, leasing contributes to about 50% of the global airline fleet now. It used to be closer to 40%, but now post-COVID I think it's gone to around 50%, and some people think it's going to go up even higher. It's the big secret of the aviation industry that the average person has no clue about. Most people have no idea that when they step on an Indigo plane, for example, it's basically owned by some lessor. So I think that's the big secret in the aviation industry for people who are not in the aviation industry. Clearly, when you hit 50% of the global airline fleet, it is a significant portion which cannot be ignored. So leasing obviously is now mainstream, it's critical, it's no longer niche. When Steve Hazy started ILFC back 50 years ago, it was different. In terms of the leasing models, different lessors have different leasing models. Our model is focused on new airplanes, the latest technology, the most fuel-efficient airplanes. We have an order book today of close to about 400 aircraft, so we are an order book lessor. Then there are other lessors who also focus on new airplanes but they don't have an order book, so they get their planes by doing sale and leasebacks with airlines like Indigo or Akasa or now, soon, Air India. So there are SLB lessors—I use that term—and then you also have other players who focus on older used aircraft, midlife aircraft. So there are different types of lessors who play in different parts of the sandbox, so to speak. But for us, it has always been focus on being an order book lessor. For us, it has given us a strategic advantage. We are often the ones who launch new aircraft types. So at ALC, for example, we have launched the A321neo LR, the A321neo XLR, the A330neo, the 787-10. So that has been our strength. We also feel, especially in these times with the focus on ESG, we want to be focused on the most environmentally friendly, fuel-efficient aircraft that are possible. Some of the airplanes we have launched, of course, not only are they the latest technology, but in terms of how they are contributing to the environment, they are really punching above their weight. For example, if you look at the A321neo XLR, it's a plane with a very long range, and not only is it giving you the 15-16% fuel savings over an A321 CEO, but because of its range, it's actually replacing an A330. So you're not effectively looking at a 15% saving but maybe a 30% fuel burn saving because it replaces an A330 rather than a 321 CEO.

Well, that's a fact. I'll send them an invoice after the podcast. I should send them this clip and say, 'Listen, if you want the whole thing, you have to come on board as a sponsor.' But you see what I'm saying? These airplanes are getting so much more efficient, and with their added capabilities, they really are replacing far more fuel-guzzling airplanes. So we try at ALC to stick to that part of the sandbox.

The three legs of the stool, if I were to use that analogy, are basically: number one, the first leg is try to get the airplanes, buy the airplanes at the cheapest cost. The second leg of the stool is finance them in the cheapest way possible. And the third leg is lease them out at the highest lease rate possible. That basically are the three legs of leasing.

I would tend to agree. We feel that our order book gives us a strategic advantage in that sense. We are more in control of our destiny in terms of the supply of airplanes that we have access to. Clearly, there is a role for sale leasebacks and SLB lessors. But in that case, I would think a sale leaseback lessor is more dependent on the supply of airplanes from Airline A or Airline B or Airline C. If for whatever reason Airline A or Airline B decides not to do sale leasebacks, then that supply of airplanes dries up. In that case, those lessors then may be forced, if they want to keep growing, to go to other lessors, maybe make portfolio purchases. So there are other ways for them to get access to airplanes. But for us, this has always been our focus. As we like to say, in good times, airlines need our order book; in bad times, they need our balance sheet. That's kind of the way we describe the ALC situation.

So with respect to the first part, where the airlines need our order book because we are often the launch customers for a particular airplane model, we get early access to the early delivery positions. Very often, that's where the strategic advantage comes in. We have very often been able to secure delivery positions for airplanes which are sold out for years. If you go to Airbus today and say, 'Here, I have a zillion dollars but I want to buy some A321neos,' Airbus will say, 'That's wonderful, but wait for another five or six years.' That's the back of the queue. Whereas we, by virtue of being a launch customer as I said—we launched the A321neo LR, the XLR—we have early positions. So even if people might have the money, they might still not be able to get those positions, and they will have to come to a lessor like ALC or some other order book lessor to get access to those positions. So that's what I mean by in good times they need our order book. In bad times, they need our balance sheet because we again, one of the key aims for us is to build a fortress balance sheet. Obviously, airplanes are not cheap, but we also want to diversify the risk in funding sources. That's why, as I mentioned earlier, we have a bank group in excess of 50 banks, and that's just one part of it. We are an investment grade company, we raise bonds on Wall Street, and we focus on unsecured lending. So what we are doing is financing ALC as a company as opposed to financing each airplane on an individual basis. That gives us a lot more flexibility to help airlines in terms of their specific needs in bad times. Airlines need that kind of support from the lessor, and COVID has shown that the lessors significantly helped their customers. That's where the second part of my statement comes into play.

Yeah, absolutely. And it's not just waiting in the queue. There are airlines that don't have the financial strength to buy 100 planes. There are startups that we have helped to support which have now grown to being huge airlines. But they started out with two airplanes, three airplanes, four airplanes. For airlines who don't have the financial strength of a British Airways or Air France, leasing becomes really the way to enter the aviation industry. They wouldn't otherwise be able to launch if leasing wasn't there because the residual value risk, the cash outflows that you would have if you were to actually buy a plane, go away if you're just leasing it from somebody like us.

I think it's safe to say that India is viewed positively by the leasing community. The proof is in—let's just take Indigo, for example. They have been leading the sale leaseback model now for a few years, and clearly they don't seem to have any major difficulty in attracting people to do the sale leasebacks. They keep on happening. On the flip side, to keep the lessors engaged and keep them interested, the airlines also have to do their part in terms of performing under their leases. So it's a good win-win situation for both, and then it becomes a self-fulfilling prophecy. Once we say, 'Oh, this airline is performing under leases,' then more people are interested in doing sale leasebacks, and so on and so forth. So I think the perception certainly has improved since the Kingfisher days. But at the end of the day, God forbid there's another airline failure, but the proof of the pudding will also be in terms of how it all pans out if an airline runs into trouble, because that also factors into the risk assessment that the credit committees at these different lessors will engage in.

I think on the whole, these efforts are positive certainly. It's a recognition that the government sees that leasing is a big part of the aviation industry today and should get the recognition it deserves. So it's nice to see that the government is trying to take steps to enhance and develop a leasing environment in India. Looking at the issue from outside the country, I know people have spoken to me expressing concern about whether this would change if the next government comes in. Unfortunately, whether we like it or not, we still have the legacy of cases like the Vodafone tax case, which have left an impression. People look at those kinds of situations and say, 'How will I be assured of certainty in terms of these policies staying the way they are today?' Investors need that continuity, they need the reassurance that things will not change because a new government comes into power, because that also obviously affects people's decision making. The lack of certainty or continuity plays into the risk assessment that people from outside the country will engage in. So I think the reassurance that things will not change—if there are policies that are announced today, those policies will continue—those are the kinds of things that investors from abroad will look at.

Well, I don't know if there's a magic silver bullet that solves the issue. I think it's a collection of different data points that people will look at. For starters, you mentioned Cape Town. The concept of Cape Town has been around for more than 10 years now, and we are yet to sort of go through the entire process. We're getting there, but that for starters would be something that is low-hanging fruit. Then on a broader level, people will look at how—and when I say this, I'm not talking of only aviation, even outside of aviation—how these different tax laws, rules, etc., are being implemented and honored. That all feeds into what opinions people will form about the aircraft leasing space specifically in India. So it's basically not an issue of one particular thing solving it; it's a nationwide perception that people will basically be looking at.

Yes, you're absolutely right. That's a very valid point. It's a mindset that has to change, and that's why it takes time. That's why I say there's no one thing that needs to be done; it's a mindset shift that has to happen. The countries that are enablers in terms of helping businesses get off the ground rather than restricting them are the ones that you find the companies gravitating to.

Well, speaking for ALC, I don't think we have drastically changed our way of doing business post-pandemic. The pandemic, for sure, has highlighted the importance of cargo. Clearly, the airlines that did well during the pandemic were the ones that had large cargo operations. So there were airlines—people are surprised to hear—that actually made profits during the pandemic, but their cargo operations sustained them. But that's more on the airline operating side. As far as the lessors themselves are concerned, and as I said for ALC, I don't think we have really changed our business model in any big way. I think if anything, what the pandemic did for us was positive in that it reinforced the need for the newer planes because the first victims of the pandemic in the airline fleets were the oldest airplanes. Airlines wanted to retire the oldest, most fuel-guzzling airplanes. So from ALC's perspective, it actually helped us because now the focus was even more on getting new airplanes. In Europe, when airlines were bailed out by the governments, they were often tied to specific environmental goals being achieved. So they were contingent on environmentally friendly policies going forward into the future. They extracted that from the airlines. I can give you an example where we had a European airline that flew Boeing 737-800s as well as 737 MAXes. We had leased them MAXes, and the airline had never flown to Heathrow, and they wanted to fly to Heathrow because now slots were available since airlines weren't using all their slots. Heathrow said something very interesting: 'Okay, we will give you the slot, but you can't fly the 800; you need to fly your MAX because of the environmental issues.' So this is an example where not just governments but even other players in the industry like the airports, who have leverage, are exerting their muscle in terms of these environmental issues. So for us, it actually was more beneficial because of our model of focusing on the latest new generation airplanes. So in that sense, we are not complaining.

Absolutely. And these are airlines that can otherwise afford airplanes, can otherwise order these airplanes on their own. I'll give you an example: Air Canada a year ago signed up for 15 A321neo XLRs from us, and these will deliver still a few years before they will deliver. But even these big airlines like Air Canada are coming to us because we have the airplanes that they need for the future, and we are the ones who have the earliest positions.

I think the empathy and the other thing if you're talking about sales would be earning people's trust. By that, I don't mean being a yes man. I think if your customers see you as a trusted advisor, that means you give them good news, you give them bad news. People ask me about airplanes, and ALC has pretty much every airplane type available, so I can lease. If somebody says I want airplane type A, I'll give it to them. But my first question usually is, 'Well, what are you going to use the airplane for? Is this the right airplane for you?' There have been times when I have had to tell them, 'Well, I'm not really sure I agree with what you're trying to do. Maybe this other type might be the better one for you.' They think about it, they analyze it. But building that trust is also important, and sometimes that means saying no.

We have made some changes in the way we do things. We have a hybrid work week now where we can spend a couple of days at home and then some days in the office. I think that is the way the world seems to be going, and we have to keep up with the times. The question though which I have for the young folks—and we see this not just in people we interview but I've heard about this from my peers in the industry—the young folks, when they interview or when they're looking for job opportunities, the hybrid work schedule, for example, is the question that probably comes up either number one or number two in the conversation. While I think there are certainly benefits—and this is just my personal view, not ALC's view—while there are certainly benefits to a hybrid work model, and I'll be the first one to say that I enjoy my hybrid work week because I have a long commute and the two days at home do add to my productivity, so I think there is a lot to be said for the benefits. But when we focus on the young folks, I do wonder—and I don't have the answer to this—but one of the questions I would like them to think about is, in terms of the company culture when they join a new company, how do they see themselves integrating into and absorbing a company culture, especially when it's a unique one? We at ALC like to think that our culture is very unique. So how do they assimilate into the company? That's number one. And number two is the benefit of just the tribal knowledge of dealing with the more senior people, sharing their experiences. A lot of that happens in very casual hallway conversations. I learned a lot in my career just going for lunch with people from other departments and just talking casually about what's going on. You learn so much about what issues are ongoing, how they are being solved, and you really broaden your breadth of knowledge by absorbing all these experiences from the senior folks that you're just having a very casual conversation with. So from a career perspective for the young folks, perhaps one question they should be asking themselves is also how do I enhance my skill set, how do I further my career? When I say further the career, you're also talking about mentorships and things like that, and that I feel happens best when you have a face-to-face interaction. You can't really do that over Zoom or Teams. So I think a balance needs to be struck. When people are overly focused on how many days this company is going to let me work from home, I would encourage them to think of these other things because they directly affect their careers. It doesn't affect my career because they have to integrate into a new company, they have to learn about the company, get to know the people, get to know their experiences. My personal view again is that you can't forget that aspect of this new hybrid work culture, and you can't just have the pendulum swing entirely to work from home. Of course, I'm generalizing here. I'm talking specifically about our industry. There could be very well industries where you don't need to do that. If you're programming something, maybe five days a week at home is fine. But I'm just talking from my life experiences and my career experiences. I would encourage the young generation to ask those questions or think about those questions because ultimately it benefits them in terms of their learning and career progression.

So that would be my take on the post-COVID developments. As far as advice to people, it sounds like a cliché, but really love what you do. That is really, really important. All of us, including you, we work really hard. There is no free lunch. So it's really important to love what you're doing because otherwise we'd be miserable. So it's a cliché, but I think that's one. The other one, and that was sort of part of my life experience as I mentioned earlier, don't be afraid to take a chance. You never know where it can lead. One of the good things about America—America is not perfect—but one of the good things about America, I think, is this fact that failure is not frowned upon, it's not a stigma. The DNA generally is about trying something. If it fails, it fails. You move on to the next thing, pick yourself up, and go forward. The pioneering entrepreneurial spirit that exists in this country—and I know, I grew up in India, it's very different than what I grew up with. So I would encourage people to take that chance, and you never know where it leads. Obviously, within reason, I mean, robbing a bank is not what I'm talking about. But within reasonable boundaries, you don't want to have those regrets.

Well, the final message really is to thank you for this idea and for taking the effort because it involves a lot of your time and commitment to go find people like me to talk. I really applaud you for bringing aviation a little closer to the folks, especially in India, who are perhaps looking at aviation as a career but don't know too much about it. There are so many different aspects to aviation, and you are playing an oversized role in helping the next generation make their decisions about what kind of careers they want to pursue. Certainly, I think the young generation in India owes that to you.

Well, that's just my two cents, as they say. Thank you again for the invite. It's always a pleasure, Alo, to talk to you. Keep up the good work. Take care.