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Steven Udvar-Hazy hopes to set a new course for his jet-leasing firm

The billionaire sold International Lease Finance Corp., which he helped launch in the 1970s, to AIG in 1990. Now that the insurance giant has hit major turbulence, Udvar-Hazy wants to buy it back.

September 15, 2009|W.J. Hennigan

If you've flown on a commercial airliner over the last two decades, there's a good chance you were in a plane leased from Steven Udvar-Hazy.

The Hungarian refugee, who came to America as a child in 1958 with little more than a love for aviation, is now one of the richest men in Los Angeles. He amassed his estimated $2.2-billion fortune by building up a global aircraft-leasing empire and selling it in 1990 to insurance giant American International Group Inc.

But now Udvar-Hazy, who was allowed to keep running the business under AIG, wants part or all of the company back. The struggling insurer received $182.5 billion in bailout money from the federal government last year after its near-collapse. To pay back the government, AIG is selling off its assets and has the aircraft-leasing business, International Lease Finance Corp., on the market.

AIG's board is scheduled to meet today to consider "strategic alternatives" that may include the future of the leasing unit.

ILFC, based in Century City, owns 955 passenger jets, and its planes are flown by nearly every major airline. It is the biggest customer of Boeing Co. and Airbus, the world's remaining makers of large commercial aircraft.

Although Udvar-Hazy, 63, doesn't own ILFC, he's its chief executive and is still considered the driving force behind the company. Under the deal with AIG, Udvar-Hazy has a free hand to run the company as if it were a separate entity.

But analysts say Udvar-Hazy is worried. AIG's downgraded credit rating has hurt ILFC's ability to finance the purchase of jets.

In a Securities and Exchange Commission filing this year, ILFC said that access to financing had been hampered by its parent company's troubles and that without new loans "there could exist doubt concerning our ability to continue as a going concern."

It marked a dramatic reversal from Udvar-Hazy's motivation to sell ILFC in 1990 when AIG's deep pockets drove the sale.

"In the leasing business, you need someone with access to cheap money," said aviation analyst Richard Aboulafia of Teal Group Corp. "AIG provided that."

That's far from the case today. But why does Udvar-Hazy, a billionaire with a sprawling Beverly Hills mansion reportedly worth $50 million and a personal $60-million Gulfstream V jet, care to continue in the aviation business?

"He could retire and live on his own island somewhere," Aboulafia said. "But he loves the business too much. He lives and breathes it."

His public stature outside aviation grew a few years ago when he donated $66 million to help build the Smithsonian National Air and Space Museum annex in Chantilly, Va., that bears his name. It was the largest donation ever received by the Smithsonian Institution.

Udvar-Hazy declined a request for an interview, saying AIG didn't want him to talk while ILFC was still on the market.

But Udvar-Hazy's life story is well-known in the aviation community. Born in Budapest in 1946, he moved to New York in 1958 with his family after the Soviet Union put down the Hungarian revolution.

As a boy, Udvar-Hazy hovered around Idlewild Airport in Queens (now John F. Kennedy International Airport), where he walked through the aircraft hangars and watched mechanics tinker with planes.

It was an obsession that blossomed into a lucrative business in the mid-1960s when he was an economics undergraduate at UCLA. At 18, Udvar-Hazy started a consulting company, Airline Systems Research Consultants -- a name he thought would impress potential clients.

Udvar-Hazy would contact airlines he thought were wasting money. He would send off letters and telegrams, anything that wouldn't reveal his young age because he was afraid of scaring off potential clients.

In 1966, he got his first break when he advised Aer Lingus, Ireland's national airline, on how it could save money by reducing its fleet.

The deal laid the groundwork for his first million-dollar deal. After his classes at UCLA, Udvar-Hazy often hung around airports, where one day he was told that an airline was looking for an Electra four-engine propjet. He discovered that Air New Zealand was trying to unload an Electra.

Udvar-Hazy brokered the deal between the airlines and walked away with $50,000. He was still an undergraduate.

In 1973, Udvar-Hazy persuaded fellow UCLA alum Lou Gonda and his father, Leslie Gonda, to each put up $50,000 for what would later become ILFC. They would pioneer a business that is now a standard in the airline industry.

The company's business is similar to leasing an automobile. ILFC leases planes to airlines and then sells or re-leases them after a fixed period. Airlines like it because they can get new planes for a lower price.

For ILFC, it buys in bulk and gets the kind of discounts few airlines can get on their own.

By the time it went public in 1983, ILFC had assets worth more than $200 million. In 1990, AIG bought ILFC for $1.3 billion in a stock-swap but kept Udvar-Hazy at the helm.

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