In the second installment of an interview with Airlineratings, aircraft leasing pioneer Steven Udvar-Házy, founder of Air Lease Corporation, elaborates on what went wrong with the Boeing 777X. Mr. Udvar-Házy also discusses engine issues with the geared turbofan engines and the proposed Overture supersonic airliner. If you missed part one you can catch up on that here.

Part Two

Airlineratings: Did Air Lease Corporation order any Boeing 777Xs, and is it even a viable aircraft in your view?

Steven Udvar-Házy: We have considered the 777X, but we never ordered it. Boeing went in the wrong direction trying to compete against the A380. Once A380 production stopped, Boeing could have chosen a different path. They could have re-engined the 777-300ER. Incrementally, the capacity increase of the 777X is not all that significant, but the capital cost is very high. Right now, airlines are very frustrated—whether it’s Emirates, British Airways, Japan Airlines, Cathay Pacific, or Lufthansa’s Carsten Spohr—they’re all fed up.

We have a lot of 777-300ERs, and their leases keep getting extended. I haven’t seen the economics of the 777X work out. The capital cost doesn’t justify the incremental revenue. I also think the GE engines still have some issues.

Airlineratings: Is there a deeper cause behind the troubles with the Boeing 777-9?

Steven Udvar-Házy: The problem with the 777-9 is that it was designed to meet Emirates’ requirements. Emirates was the driving force. It reminds me of the days when BOAC was behind the Bristol Britannia and the Comet. You can’t design an aircraft to suit one airline. The same was true of the A380 with Emirates.

A lot of airlines don’t like the 777-9 because it’s too expensive and doesn’t suit their networks as well. Emirates is the only airline asking for very large aircraft to replace its A380s. For any aircraft to be successful, you need a wide customer base. You can’t develop a large widebody aircraft primarily for one customer.

The beauty of the 737 or A320 families is their broad appeal, with more than a hundred airlines using them. That’s when you have a successful product. Building a plane for one, two, or three customers is not a wise business strategy.

Airlineratings: Airlines are facing major reliability issues with new engine types, with many aircraft grounded as a result. What’s your reaction?

Steven Udvar-Házy: I don’t want to single out Pratt & Whitney, but they’ve had issues with the geared turbofan (GTF) engines on the A320/321 and A220 families. None of this is due to the gear system that reduces the RPMs of the engine relative to the fan. The problem lies in the hot end—the combustor and turbine blades.

But the truth is that all these new-technology engines, whether it’s the Rolls-Royce Trent on the 787, the Trent 1000, the Trent 7000 on the A350-900, the GE engine on the 787, or even the LEAP CFM engine, have encountered significant problems. These engines don’t have the longevity we used to see, such as with the CFM-56.

For instance, some CFM-56 engines on 737-800s and A320s last more than 45,000 hours on the wing without removal, requiring only occasional oil top-ups. I don’t see any of these new engines delivering that kind of endurance.

Airlineratings: How long will it take for engine manufacturers to fix these issues?

Steven Udvar-Házy: It will take several years for manufacturers to develop service bulletins and improvement kits to bring these engines up to the required reliability levels. They are fantastic in terms of fuel efficiency, noise reduction, and environmental performance, but their mechanical reliability and durability have been disappointing.

All engine makers—GE, Rolls-Royce, and Pratt & Whitney—are investing billions to address this. Currently, there aren’t enough spare engines, overhaul capacity, or even parking space for grounded engines. Repair shop turnaround times can stretch to eight, nine, or even ten months.

It’s a frustrating situation for our airline customers, as they still have to make lease payments whether their planes are flying or not. This has a terrible impact, with many aircraft grounded (AOG). Unfortunately, I think it will get worse next year and only start improving in three or four years.

Airlineratings: Boom claims supersonic travel with their proposed Overture SST airliner is the next big thing. Do you agree?

Steven Udvar-Házy: I just met with them. The question is: What premium are passengers willing to pay? And how restrictive will regulations be for flying over land? Supersonic flight is banned over land in Europe and the U.S., so they say they’ll only fly supersonic over water.

I used to fly Concorde all the time, with both British Airways and Air France. I miss it, but it wasn’t economical—they lost money. No airline has ever made money flying an SST. Boom would have to pay us to place an order.

The key questions are whether Boom can raise enough money to get the Overture certified and whether they’ll ever reach the finish line. It’s too risky for us to invest shareholder money in that program right now. The pre-orders from United and other airlines are more about PR than firm commitments.

The Company: Air Lease Corporation

Depending on the category, Air Lease Corporation (ALC) ranked third or fourth among aircraft leasing companies in 2023. Since Steven Udvar-Házy entered the aircraft leasing business in 1973, first with ILFC and later ALC, he has overseen the purchase of 3,100 jets—over 2,900 of them new—from Boeing, Airbus, McDonnell Douglas, Embraer, and Fokker.

ALC is the only leasing company to have been a launch customer for various aircraft types, including the Boeing 737-800, 737 MAX-9, A350-1000, A321neoLR, A321neoXLR, and the Boeing 787-10. These models became highly successful, even though Airbus and Boeing were initially hesitant to build them.

As of March 2024, ALC had $31 billion in assets, including 472 aircraft: 354 narrowbodies and 118 widebodies. By July 2024, ALC had 307 aircraft on order, including 197 Airbus narrowbodies, representing a total order value of $20 billion.

ALC has over $80 billion in liquidity, the largest unsecured banking revolving facility of any aerospace or airline company in the world. “We don’t use that money, but it’s available for acquiring aircraft or other companies,” says Udvar-Házy.

“Our formula is buying new aircraft directly from Boeing and Airbus to help airlines modernize their fleets with the most efficient and economical models,” explains Udvar-Házy. “We sell those aircraft when they’re between eight and twelve years old, then reinvest the funds in new planes, effectively recycling capital to modernize airline fleets.”

Since 2010, ALC has acquired $45 billion worth of aircraft and returned over $7 billion to shareholders. “The industry has an insatiable appetite for growth,” says Udvar-Házy. “In 2024, airlines flew 4.7 billion passengers worldwide. By the end of the decade, we estimate that number will grow to six billion per year. That’s a big business requiring significant capital and expertise.”