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SPEAKER_04: Getting an airline is a miserable thing. It's 24-7, and everything goes wrong. And I said, the guy that was making money off this project is the guy in Arizona. Not you.
SPEAKER_02: Not me. You're losing money on every flight unless it's totally packed. Yeah, we're almost, say, 90% full.
SPEAKER_04: And that was a turning point mentally in my life. I was losing money, and he's making money.
SPEAKER_02: Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Steven Udvar-Hazy fled communist Hungary as a kid, started two companies worth billions, and became a force in global aviation.
SPEAKER_02: You might not know who Steven Udvar-Hazy is, but there's a good chance you've flown on one of his planes. That's because around half of all commercial flights happen on planes that are leased, not owned by an airline. And Steven's company, Airlease Corporation, does a lot of that leasing. It owns more planes than Air France and British Airways combined. And it's a big business, a business that's made Steven Udvar-Hazy a billionaire many times over. I first heard of him about a decade ago when I went to one of the most amazing aviation museums in the world. It's called the Steven Udvar-Hazy Center, and it's just outside Washington, D.C. Inside that museum, there are some of the most historic spaceships and aircraft ever flown. And it was his massive donation that helped finance the museum. Steven, who also goes by Steve, was actually born in Hungary, but after the Soviet Union invaded the country in 1956, his parents managed to get him and his brother out. As a teenager, Steve would go to airports around Los Angeles and watch planes take off and land. He'd memorize schedules and timetables. And by the time he got to college at UCLA, he was offering his services as a consultant to airlines. This was the dawn of the jet age, and Steve soon realized that the gold wasn't in the gold mines, but rather it was in selling the pickaxes and shovels, and in his case, owning the planes and charging the airlines to use them. How he made his money is a story of an obsession, an obsession with airplanes that started from an early age.
SPEAKER_04: When I was six years old, my father took me to an air show, which was completely mesmerizing for me as a six-year-old. And there was civilian aircraft, aerobatic aircraft, military aircraft flying and on display. And living in a communist, totalitarian Marxist country, I found that airplanes and aviation was sort of a fascinating dream almost to be able to ultimately get away from this communist Marxist country that I was living in. Steve, were your parents political in any way?
SPEAKER_02: No. No.
SPEAKER_04: No. My father refused to join the communist party, and that did not enable him to progress in his activities because if you're not a member of the party, you're not part of the elite. And so, therefore, we lost all of our possessions. My parents had to make do with whatever they could earn, and the Russian army came in and
SPEAKER_04: basically retook complete power.
SPEAKER_02: So your family eventually decides to get out, to leave Hungary for good, but it was really hard for Hungarians to get out of the country at the time. So what did you do? How did you guys leave? So my father lined up a guide on the Austrian border.
SPEAKER_04: Austria was the only country that was a non-communist country with a border. We took a train out to the west. I don't remember exactly which station we got off, but my guess it was about 10 to 15 miles from the border. And then my dad hired this gentleman, I remember had these big boots to get through the mud. And then he had a horse with a wagon, and he took us, my guess is maybe a couple of kilometers from the border, and we start walking.
SPEAKER_04: And as we kept walking toward the border, it kept snowing harder and harder. And I remember this guide became more like agitated. He became more and more concerned because there were minefields on both sides of the barbed wire. And we kept going for maybe another half hour or so. And I could already see the opening in the barbed wire fence because other people must have gotten out there. And this gentleman was just increasingly worried. He just made a decision kind of at the last moment. He said, look, this is now, we're risking our lives. One of us is going to get blown up. So my parents were very scared that something might happen, and we turned back. So you had to go back to Budapest, basically?
SPEAKER_04: Yes, yes, yes. At that time, we tried to figure out a way to get out.
SPEAKER_02: And I think the way your family eventually did get out is essentially you got an exit visa to Sweden, but I mean, it was complicated because I think at the time, the Hungarian government wouldn't allow entire families to leave the country together, right? So your family, you and your brother and your parents, I guess you got passports under separate names?
SPEAKER_04: Yes, we kind of went through separate. In those days, there was no TSA type screening. We went through and I remember my mother told me when we got dressed in the morning, she says, wear three layers of shirts because we're only going to have one bag for each of us. And she said, look, your name is Istvan Kucera, which is my mother's maiden name. And she explained, look, that's who I are. And we're going to act like we don't even know each other when we're at the airport.
SPEAKER_02: That must have been so nerve wracking for your parents. I can't imagine how scared and how nervous. I can't imagine.
SPEAKER_04: But actually, I was looking forward to flying. They were worried about being detained. And I was like, all excited to fly in this Douglas DC-6 and fly that four engine propeller plane anywhere.
SPEAKER_02: How did the Hungarian authorities not catch you? I'm just, were they just incompetent?
SPEAKER_04: They were incompetent and probably half drunk. And they were more interested in the soccer game that was going to take place later that day. And they just, you know, I mean, we were lucky. God was watching over us. I mean, the Hungarians would never have allowed an entire family to leave.
SPEAKER_02: Do you remember being at the airport just ignoring your dad and your brother? Like not pretending like you didn't know them?
SPEAKER_04: On the way to the airport, my mom kept telling me, do not acknowledge your brother. Do not acknowledge your dad. Just totally ignore them. Yeah. And when they get in line, don't even get close to them. Like they're a bunch of strangers. I'm just like, because you guys could have been, I mean, your parents could have been
SPEAKER_04: arrested. Yeah. And maybe, you know, it could have been 10 years in prison or work camp or whatever. But look, this is the quest for freedom that millions of people experienced coming out of Eastern Europe. Yeah. And I wish more young people today in America and in Europe would understand that. The socialism, communism, Marxism was not a friendly, you know, desirable place to grow up as a child. So that was really a turning moment when that plane took off and headed north toward Denmark. We knew we made it. And so that was really a very emotional experience for me. Yeah. As a 12 and a half year old.
SPEAKER_02: I can't even imagine it. So you stay in Stockholm in Sweden for a few months. And then I guess around 1958, your family's eventually able to make its way to the US because I guess your dad had a sister in New York. And so you landed there?
SPEAKER_04: Yes. But when we landed at that time, it was called Idlewild Airport, which is now John F. Kennedy Airport. And they were friendly, the officials stamped your paperwork, everything else. And my aunt was waiting for us. She had a nice Buick car, which I'd never seen before. I think it was like a 1957 Buick. She drove us into Manhattan. And then once we get into Manhattan, I see all kinds of people that look completely different than where I grew up. There was all kinds of interesting kaleidoscope of people that I'd never seen before as a 12 year old. So it was kind of a culture shock. I didn't speak the language. I knew about 10 words. So it was kind of a shock for a child.
SPEAKER_02: So all right, so your family kind of settles in Manhattan where I guess you initially lived on your mom's salary. She was working as a seamstress from what I understand. And I guess you assimilated pretty fast into American culture, right? You went to a Catholic school. And did you do well there? Yes. Yes. And from what I understand, you already arrived to the US with this fascination with airplanes, which a lot of kids have at 10, 11, 12 years old. But yours was a little bit more intense. I read that you used to go to LaGuardia, like take the subway out there and just watch the planes take off and land and sometimes even like get into the control tower.
SPEAKER_04: Yes. In the afternoon, I would work at my aunt's office. And then I would tell my parents that I'm going to the library to study. And instead of going to the library or going to my aunt's office, I would take the subway out to Queens and the station was, I don't know, about a mile away from LaGuardia. And at that time, there was no security. And I would talk to the ticket agents. I talked to the station managers. I'd go to the American Airlines hangar, which was just left of the terminal. A couple of times, I talked my way into the control tower saying that I was doing a term paper for school, for science class. And so that's what I would do. And I had a little notebook where I would write in what airline was flying, what kind of plane and where I was going, almost like a little memo of airport activity. And I would be out there for like two or three hours. Then I would go back home and I would never tell anyone I went to the airport. And I was totally obsessed with the different airlines and airplanes. And then I would go to the library and dig into it some more, like if I saw a certain kind of airplane, I would go to the library and try to get more information on it. So this became almost like a obsession or a passionate obsession, let's call it. So when I started going to school in America, there was this void in my life because I wasn't into baseball or basketball or American football, whereas a lot of my friends were doing that. So the aviation almost filled that vacuum.
SPEAKER_02: And this was obviously the pre-Jet Age, right? These are propeller planes and some of them beautiful planes, Constellations and Corvairs. As a kid, looking at going to LaGuardia and watching those planes take off and land, did you dream of being a pilot? Yes.
SPEAKER_04: Yes. In fact, I had a girlfriend, her name was Erica. And sometimes I would dream that I'm flying a DC-7. And she's waiting for me at the airport somewhere up in New England. And I'm actually this pilot of this DC-7. And I would taxi in in front of the terminal with the window open, the cockpit window open and my arm hanging out. And this young lady would be waiting for me. This is the kind of stuff I would dream about, which is totally oddball and different. But it was all part of this fascination about aviation.
SPEAKER_02: So today, if you're sort of a 15-year-old kid, really obsessed with airplanes and go to the airport and check it out, it would be cool, but you might be a little bit odd because most kids that age wouldn't do that. But maybe at this time in the mid 60s, like air travel was still so new. It was so... More glamorous.
SPEAKER_04: It was very glamorous.
SPEAKER_02: Yeah. And so your obsession, like when your parents are like, oh, you know, Steve is, he's really into air. He goes to the airport and just like writes down serial numbers. People weren't like, oh, that's a little odd. They would be like, oh, cool. I mean, how would they react?
SPEAKER_04: My dad sort of felt, look, he needs to pursue whatever his passion is. And my mother said, why can't you be like a normal person and become a doctor or an engineer? And that made no sense to me at all. And my dad said, let him be a rebel. He's going to be OK. And of course, I didn't tell my parents everything I was doing vis-a-vis aviation because they felt that was taken away from my academics. All right.
SPEAKER_02: So your family eventually moved to California, to LA. I think your brother attended UCLA there. So when you, I mean, you continued this in high school, like you would go to LAX or you'd go to Santa Monica Airport?
SPEAKER_04: I'd go to Santa Monica, Burbank. I'd go to LAX all the time. I'd collect all the timetables. In those days, you know, we have no electronic access to schedules. So I would go to all the terminals at LAX, collect all the timetables. I would go to the maintenance area where there was Continental Airlines and Flying Tiger on the west end of LAX. And I would talk my way in there, again, saying I'm doing a term paper, I'm doing something for school. And I just basically pushed my way in. So I was still in high school and there was a small airline based in San Francisco called Pacific Airlines. They were flying these 40-seat small planes. So I became obsessed with this airline because I, in my 16-year-old mind, I thought I could run this airline better than the guys that were running it.
SPEAKER_04: So I analyzed their schedule, so I'm blue in the face. And they had about 20 airplanes and I said with 15 airplanes, I could put together a better schedule than what their schedule was. So I actually put together almost like a spreadsheet of a new schedule saying, you know, this flight leaves San Diego at 705. It flies to LAX. Then it goes here, Bakersfield or Fresno. I put the schedule together. The turnaround times were shorter. And I sent it to this president of the airline called Harry White in San Francisco at the airport. And I said, look, I'm an airline consultant. I didn't tell him how old I was. I'm a 16-year-old airline consultant.
SPEAKER_02: Yeah.
SPEAKER_04: And here's the schedule I think is optimized. And I think the airline would be much better operating this type of a schedule than what you have now, the status quo. And he wrote me back a very nice letter saying we don't need consultants. Thank you, but we're not really interested in pursuing this. Okay. So it was a real slam because I thought I put all this work in dozens of hours and this guy thinks I'm an idiot. So about three or four months later, I'm at LAX collecting schedules.
SPEAKER_02: And these are paper schedules. Paper schedules. Like you would just go and pick them up like a brochure.
SPEAKER_04: They were like maybe four inches by eight inches. Okay. And you'd fold them out. Anyway, I go to LAX three or four months later. I don't know exactly when. I pick up their schedule. I didn't pay any attention to it. I get home. Didn't do anything. That weekend, I look at this stupid schedule and you won't believe it. Eighty percent of the schedule is what I sent them. To Pacific Airlines. Yes. At least four out of the five. And I mean it was like arrive in Redding, California at 8.13 in the morning and depart at 8.28. That's not something any crazy person would know. It was an exact copy. Not a hundred percent, but at least 80 percent of my schedule was adopted by the airline. So that to me was a turning experience even though there was no monetary benefit. I realized that maybe I could add some value to this industry. That I thought aviation was a growth industry. I felt that aviation with the jet age. In October 1958, Pan Am had its first flight on a 707 from New York to London. And then about half a year later, the Douglas DC-8 took the skies with, I think it was Delta, United, National with the first three airlines. Just about this time that I'm translating my passion to some kind of an inquisition into the knowledge of airlines, that's when the jet age began.
SPEAKER_02: I have to say, just as an aside, your memory for details is quite remarkable. I've interviewed thousands and thousands of people and you have a very, very good memory of these details. It's amazing. Yeah, my wife says I'm crazy that I remember the serial numbers of airplanes we bought
SPEAKER_04: in 1977. And I say to her, well, each plane is like a child to me. So I remember them very distinctly.
SPEAKER_02: You followed your brother to UCLA for college. And I think, I mean, you were there, like, you had a very different experience. But you were at UCLA, like around the same time as like Jim Morrison and the guys from the Doors, like, who had a completely different experience and took something different out of it. But you were very single minded, like you were there to get your degree and figure out what you were going to do in airlines. Yes.
SPEAKER_04: Remember I told you a story about Pacific Airlines and the schedule? Yeah, sure. I had a similar sort of vision about an airline in Ireland called Aer Lingus. And it wasn't about their schedule. It was the hodgepodge fleet that they had of different airplanes.
SPEAKER_04: And I thought I could come up with a streamlined fleet. And I wrote to them and sent them telegrams and stuff like that. Writing to them saying, hey, I think you have too many different kinds of airplanes, aircraft?
SPEAKER_02: Yes, yes. It's the government owned airline. And this information was not easily, like there's no internet, like you would have to go to the library to find out what planes Aer Lingus flew?
SPEAKER_04: Yes, yes. And get their schedule and then do the research and then send them telegrams without revealing how old I am or anything else. Saying what in the telegrams? Well, I set up a company when I was 19. Okay. And it was called Airlines Systems Research Consultants. How do you like that? ASRC. Great name. Airline Systems Research Consultants. Okay. And I had letterhead made up and everything else. And I took out one of those offices, which is like a PO box on Sunset Boulevard in Los Angeles. And so this looked like a legitimate consulting firm. So Aer Lingus, I sent them an outline of what I was thinking and they said, oh, this is actually very interesting. Wait, what were you thinking?
SPEAKER_02: That they should have fewer aircraft types? Yes.
SPEAKER_04: Okay. Yeah, they had Fokker F-27s. They had three DC-4 Carvairs that were converted to be able to fly cars across the Irish Channel. It was a hodgepodge fleet of airplanes, which I thought was crazy and they were losing a lot of money. So I sent them an outline. They said, okay, this sounds really creative. And they sent me a ticket and it said, come over.
SPEAKER_02: Wait, based on this telegram, they sent, because they're thinking, oh, this is a smart consultant from the United States. Yeah. Let's, and he's just cold proposing this idea. Let's bring him in. Yeah, exactly.
SPEAKER_04: Okay. Amazing. So I flew to Dublin.
SPEAKER_02: They send you a flight, they send you a ticket to go to Dublin to... Round trip. Okay. And was there a contractor... On first class. Okay. And they would pay you a consulting fee to work with them for some time, basically. Yeah.
SPEAKER_04: But it was not defined. It wasn't defined what the consulting fee would be. Okay.
SPEAKER_02: And you were, and by the way, you were how old?
SPEAKER_02: 20. Okay.
SPEAKER_04: All right. So I show up in Dublin.
SPEAKER_02: They didn't know this, but yeah.
SPEAKER_04: I show up in Dublin. They're in shock.
SPEAKER_02: Because you're not barely shaving.
SPEAKER_04: Yes. I went to lunch with them for like two hours. Okay. And they were pretty, I would have to say they were pretty impressed. Because you knew about their business?
SPEAKER_04: Well, one of them said, you know more about our airline than we do. So I really did my homework. I felt if I didn't do my homework and knew my stuff, this would be a bust. Yeah. So they immediately hired me that afternoon and said, we'll pay you $4,000. That was a lot of money then.
SPEAKER_02: This is like 1965, 66.
SPEAKER_04: Yeah, 66. They said, you can come as often as you want, either from New York or Chicago. We'll give you a ticket. I mean, because the plane was only half full anyway, so it was no big deal. And you work on this fleet plan. We send you $4,000. Next day, they wrote me a check, a check in US dollars. They said, when you go home, you can cash the check. So I worked on their fleet plan and they pretty much followed it.
SPEAKER_02: And the plan was basically you were going to say to them, this is what you need to buy and this is what your fleet needs to look like over the next five years. That was your basically all you had, not all, but that's what you were going to do. That was the essence of it.
SPEAKER_02: Yeah. So all right. So you have this consulting business and you got this first gig with Aer Lingus and now you get a second gig with Air New Zealand. How does, what is that gig? What's the story?
SPEAKER_04: So here's what happened. I got a letter from Air New Zealand saying that they plan to sell a Lockheed Electra, which is a four engine turbo prop, and they want to sell that aircraft because they wanted to order an additional DC-8 from Douglas. So they said, if you're interested in this Electra, please let us know. Because you let them know that you are a buyer looking for a plane.
SPEAKER_04: Yes. Yes. Or a broker, an agent. A broker. Okay. Gotcha. And I got a letter from Alaska called Revolution Airways. So what I arranged is that I got free tickets again for him, the airline owner in Alaska and myself, to go down to Auckland, New Zealand to inspect this plane and potentially buy it. So we get to New Zealand. I've never been there before. These guys have a heart attack when they see me because I was like 21. Okay. 21. Okay. The gentleman from Alaska.
SPEAKER_02: Did you have a mustache?
SPEAKER_04: Yes. You did?
SPEAKER_02: Okay.
SPEAKER_04: So you looked a little older. My girlfriend at the time wanted me to have a mustache.
SPEAKER_02: Yeah.
SPEAKER_04: Okay. So anyway, we get to Auckland. The guy from Alaska, Bob Reeve, falls in love with the plane. It's clean. It looks like new. He says, I'm interested, but I also need a spare engine and a spare propeller and some other stuff. So they said fine. $1,050,000 for the whole lock, stock and barrel.
SPEAKER_02: Yep. So was that a good deal at the time? I mean, it seems like...
SPEAKER_04: I think it was a good deal for a quality airplane. Got it. Okay. I still have models of the plane before and after. Anyway, Air New Zealand and I make a deal. They're going to pay a 5% commission. To you. So you're like a real estate broker. Yeah. 5%. Pretty good. Now, this is January of 1968. Yeah. Okay. 50 grand. Today, I don't know what's half a million dollars. I don't know what it is. I was still in college. I was like a junior.
SPEAKER_02: Wow. $50,000 you would get off that in 1968. Yeah.
SPEAKER_04: From making one trip and a few telegrams. That's...
SPEAKER_02: And as you say, it would be like half a million dollars today. Yeah.
SPEAKER_04: You know how much the hotel cost was in New Zealand? I think it was like $12. That's crazy.
SPEAKER_02: So you... I mean, you were going to make more money from that one deal than your parents had ever seen in a lifetime.
SPEAKER_04: Yes. Yes. Okay. And then a few months later, a company called Hughes Air West was trying to sell a 727. And I found an airline in Brazil called Cruzeiro.
SPEAKER_04: And on that deal, I made $45,000. Wow. And I never even went to Brazil. They came up to California. So anyway, I thought I was smarter than I really was because I was dumb.
SPEAKER_02: And now you had 95,000 bucks. Yeah.
SPEAKER_04: And I said, I'm going to take half of that money and start an airline, which is the stupidest thing I ever did. Plus, I bought a Mercedes 280 SL, which is a two-seat convertible Mercedes, really jazzy.
SPEAKER_02: So you're like a player now. You're like, hey, I'm rich. I'm a player. I'm 22. I'm going to buy myself... And what did you... By the way, I'm just curious, what did your parents think? I mean, they must have known. They're like, our son has almost $100,000. I mean, that's crazy money.
SPEAKER_04: Yeah. It was part-time, part-time. But I was a full-time lifeguard in the summer for the county of Los Angeles. And I loved that job down in Manhattan Beach, Redondo Beach. And I would make probably about $1,200 a month for three months, which I thought was pretty cool. And I had a convertible Mercedes. People must have been like, wow, how does this lifeguard have a convertible Mercedes?
SPEAKER_04: I was an oddball. I'm sorry. I mean, it's unbelievable.
SPEAKER_02: You have $95,000 from doing... And you're a student at UCLA. Yes. I mean, I'm trying to think, like today, if you were just a solo person and you wanted to be a consultant for airlines, it would be almost impossible to get those gigs because they're corporate. But back then, what, you could just write to some name that was publicly listed and say, hey, I'm a consultant. Do you want to hire me? And it was like that.
SPEAKER_04: Yeah. And now it's KYC. They would have to do a background check. They look on Wikipedia. They would check you out.
SPEAKER_02: Requests for proposals. You'd have to go through a nine month process. They want references.
SPEAKER_04: Today would be a bureaucratic nightmare. It couldn't be done today. Yeah.
SPEAKER_02: All right. So you're now flush with $95,000 in cash and you decide around this time to start your own airline. Yeah, exactly.
SPEAKER_04: That was the dumbest idea I ever had.
SPEAKER_02: Then we come back in just a moment, how Steve loses a good chunk of that $95,000, but in the process, figures out a way to make much, much more. Stay with us. I'm Guy Raz and you're listening to How I Built This.
SPEAKER_03: I've talked to hundreds of founders on how I built this, and I've heard time and time
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SPEAKER_03: Hey, welcome back to how I built this.
SPEAKER_02: I'm Guy Raz. So it's around 1969. Steve is in his early 20s and has about $95,000 in the bank from his consulting business. And with some of that money, plus help from a few friends and family, he raises a little over 200,000 to start his own airline. And he calls it Astro Air. It's great name, modern future Astro Air. And the logo was like almost like a science fiction logo, like a like, like an a neutron,
SPEAKER_02: like an atomic.
SPEAKER_04: My girlfriend at the time came up with the name. She was an art major. She says I like that name Astro Air. So anyway, we had to apply to the California Public Utilities Commission, PUC. We had to go through hearings. We had to deal with the FAA. There's a lot of bureaucracy, which I hated. But here we are and we get licensed to be an airline and we were going to fly to an airport that's very close to Vanderburg Air Force Base. Sure.
SPEAKER_02: In California.
SPEAKER_04: Yeah. We charged $15 to go from LAX to a city called Lompoc.
SPEAKER_02: And the idea was you were going to service you were going to basically serve these military folks. You were going to be a cheap way to get around for them.
SPEAKER_04: Yeah. And contractors and also serve Santa Maria, California, Lompoc, which is about halfway up the coast.
SPEAKER_02: And you had a what one plane that you.
SPEAKER_04: Yeah, we had one plane. It was a Karsta jetliner, which was a stretched de Havilland dove. OK, with turboprop engines. How many people could see 15?
SPEAKER_02: OK. So if it was full, if your plane was full. We made a little money.
SPEAKER_04: If it was three quarters full, we'd lose money.
SPEAKER_02: Three quarters full, you would lose money.
SPEAKER_04: Yeah. If we had 12 passengers, the breakeven was probably about 13 passengers.
SPEAKER_02: And you leased this plane. You did not buy. You couldn't buy it. It would be rented.
SPEAKER_04: And it was $4,500 a month for the lease. The rent. OK. And it was leased from a company in Phoenix, Arizona called Apache Airlines. And I met the guy who is the president. And he said, look, I can do it one less plane because, you know, business is a little slow. So I'll lease you this plane for $4,500 a month. And this was a turning point in my life because whether five passengers showed up for our flight or 10 or 12, this guy got $4,500 a month, no matter what.
SPEAKER_02: If all your seats were full, he got $4,500 a month. If one of your seats were filled, he got $45. It didn't matter.
SPEAKER_04: Yeah. Or if the weather was bad and we had to cancel. We had to cancel flights. Couldn't land. Yeah. You know, if the airport up there was fogged in, he still got this $4,500. And that was a turning point mentally in my life where I decided running an airline is a miserable thing. It involves people, regulations, fuel, airports, reservations. It was just a nightmare to run an airline.
SPEAKER_04: It's 24-7 and everything goes wrong. And I said, the guy that was making money off this project is the guy in Arizona. Not you. Not me. I was losing money and he's making money. You're losing money on every flight unless it's totally packed.
SPEAKER_02: Yeah.
SPEAKER_04: We're almost say 90% full.
SPEAKER_02: Because your fixed costs were higher than your...
SPEAKER_04: Exactly. Insurance, rentals, airport charges... The pilots, the personnel. Pilots. The chief pilot was $750 a month and the other pilots were $600 a month. So anyway, we finally decided this thing is losing money. I found a buyer for the airline out of Las Vegas. So I decided then and there, I'm not ever going to have an airline again.
SPEAKER_04: I'll work with airlines, but I don't want to be an operator on the airline.
SPEAKER_02: So you basically lost most of that 95 grand that you'd earned.
SPEAKER_04: Yes. I would say I lost about half of everything I've earned up to that time on the airline venture. But I also had a lot of people, relatives and friends of my parents and other acquaintances that invested in the airline. Some $1,000, some $5,000. And I made a pledge to pay them back. So over the next several years, starting in 1969, 70, 71, when I was about 23, 24, 25 years old, I paid everybody back.
SPEAKER_02: So when that all sort of fell apart, you must have felt really terrible. I mean, these are family, friends and other people who had invested money in this venture.
SPEAKER_04: Yes. So there was two sides to it. There's a sense of failure and a recognition that at that age, a person is somewhat naive. But at the same time, I thought it was a very valuable lesson about running a business. And I did have an appreciation that I went through this experience early in life rather than later. Right.
SPEAKER_02: Okay. So this was, so 1969, you begin to wind down Astro Air. Yes. You're 23. And you had seen who was making the money. The person, the people making the money when you were running Astro Air wasn't your airline. It was Apache Airlines, the leasing company that was leasing you this airplane because they had to be paid whether you landed or not, whether you had a full plane or not, whether the weather halted your flights or not. They got their money. Exactly. Exactly. And that experience sort of planted a seed in your mind like, that's where the money is. I've got to sell the air. I've got to, I've got to service. I've got to sell the pickaxes and shovels, not try to dig for the gold.
SPEAKER_04: Exactly. But the key to that was it required capital on a much larger scale. Yeah. Both equity and debt capital. And so I felt that for a few years, I need to continue amassing capital through the various transactions that I was doing before. Right. And in fact, I increased the intensity of that activity.
SPEAKER_02: You went back to helping airlines find planes to buy and essentially taking a broker's fee.
SPEAKER_04: Exactly. And also helping them with their route planning. Consulting.
SPEAKER_02: Yes. And so you do a bunch of these deals and over time you start to accumulate some cash for the business that you really want to build, which is your own leasing company. You want to be the guy leasing planes. You want to do what Lockheed did. Right.
SPEAKER_04: So maybe I'll give you an example. And one of them was Aeromexico, which was the government airline in Mexico, and they needed a DC-8. I found an airplane in Miami that was owned by National Airlines. And I talked Bud Maytag, who was president, into selling that plane to us with four brand new engines for about $2.2 million. I didn't have $2.2 million, but I figured I'd put up around $150,000 equity and then get a bank loan. Aeromexico didn't want to buy it. They wanted to lease it.
SPEAKER_04: I went to a lot of banks. They all said, no, thank you. We don't want to finance a plane that's going to be registered in Mexico. So I went around, went around, went around until I found one bank in California called United California Bank that said, yes, sir. If you get a government agency guarantee, then we will give you a $1.7 million term loan. So I went down to Mexico City and I asked Aeromexico to arrange a meeting with a government agency that had credibility. And they made an appointment for me at 10 o'clock at night. I remember Mexico City with the head of that agency. They were armed guards and so on. There was a conference room with two bottles of tequila on it, nothing else.
SPEAKER_04: The end result is by midnight, I convinced this gentleman that signing this, co-signing the lease and guaranteeing the lease payments of another government-owned entity was not a risk. And I said this would bring in thousands of tourists and will help the Mexican economy and blah, blah, blah. So he, after five glasses of tequila, he asked his secretary to bring out his big seal and the wax and the ribbon and he just put that they'll unconditionally guarantee the lease. Bingo. I went back to LA. The bank said, okay, this is exactly what we wanted. And on September 20th, 1973, I bought a Douglas DC-8 for $2.2 million from National Airlines and leased it to Aeromexico, which today is one of our best clients in Latin America.
SPEAKER_02: All right. So in 1973, you have the seed money to start your company, what became International Lease Finance Corporation. You actually went into business with two friends of the family, Leslie and Louis Gonda. And these guys were Hungarian. He was a Hungarian businessman. He was a father and son. And I guess they became co-investors and partners?
SPEAKER_04: Yes. Yes. Yeah. And you were? And I was the president. Got it. We were not in a position at that time to buy any new aircraft. We didn't have the resources. You had one plane that you could buy.
SPEAKER_02: Yeah, we had one plane. Yeah. And it was a 727. No, a McDonnell Douglas DC-8.
SPEAKER_04: Forgive me, DC-8. Yeah. Yeah. It looks almost like a Boeing 707.
SPEAKER_02: Right. Okay. So you had that one plane. And when you started the company with the Gondas, what was your thought? I mean, did you think this was going to be a relatively small to medium-sized business where you might have five, 10 aircraft that you were- Exactly.
SPEAKER_04: That's what you thought? Our ambition was maybe we could have eight to 10, maybe 12 planes.
SPEAKER_04: And we'd make a nice living off of it. And I could still continue to do some of the other stuff, brokering, consulting. Yeah. We had no idea that within a few years we would develop into the largest aircraft leasing company. We had none of these- Ambitions. I think we had ambition, but we underestimated the potential of the market.
SPEAKER_02: I think so basically it sounds like for the first couple of years, you were working with Aeromexico, right? You had that plane. And then, I mean, how soon after that were you able to buy the second plane? You had cashflow coming in- By November. By November. Yeah.
SPEAKER_04: A month and a half later, it was another interesting coincidence. So I may have mentioned to you that there were these airlines in the Western US that merged together and became Air West. And then Howard Hughes bought that company, became Hughes Air West, and they had around 20 some of these 40 seat turbo prop, what was called Fairchild F-27s. And they were transitioning to more jets and phasing out these turbo prop Fairchild aircraft. And so we made a deal to buy 10 of these planes. We didn't have $3 million or 2.8 million.
SPEAKER_02: 10 of these planes, yeah. So you didn't have the cash. Yeah.
SPEAKER_04: We made a deal with Hughes Air West to buy 10 of them. Okay. Like one a month. So how did you do that with no cash?
SPEAKER_04: Well, we gave them a $10,000 per plane deposit. Okay. So while you're going through that routine, you can currently run a marketing campaign and try to locate potential customers. We give them a $100,000 deposit. And then North Canada Air was willing to lease three of them for like $7,500 a month each. Right.
SPEAKER_02: I mean, this speaks to the idea, and I've heard this from people before, which is you can actually invest in things and buy lots of things without any money if you can figure out how to do the deal. And very wealthy people buy properties and make huge investments without money because they will figure out a way to do a leasing deal or something like this. I mean, essentially, you didn't have the money to buy the planes. But I had a piece of the action, so to speak. Yeah. Right. Wow. All right. So as you're building this business up, something happens, which I have to imagine had a massive impact on your business, which was the Airline Deregulation Act in 1978, which I guess the result of that was it did increase competition and it did lower costs. It deregulated the airline industry. How did that affect your business? Well, it had a major effect.
SPEAKER_04: So in 1977, a year before deregulation, we bought our first brand new plane, brand new 737 from Boeing, and we leased it to a British airline called Britannia Airways, which was the largest charter airline in Europe. So we already reached a level of activity where we could buy a $7.5 million brand new plane.
SPEAKER_04: It accelerated the fleet modernization of airlines in the late 70s, early 80s. And that really gave our company a tremendous amount of tailwind.
SPEAKER_04: And just as a side note, we were very, very prudent with our money. I mean, when we started International East Finance, I remember our salary was $600 a month and maybe three or four years later, it was still like $1,000 a month. So we were not very extravagant. And also, it's a very volatile industry. You have several years of positive growth and profitability. Then you have oil price runaways or high interest rates or a recession.
SPEAKER_04: And the airline industry is very vulnerable to those changes. And so you could have multiple years where airlines are suffering and losing money. So you have to endure and survive this rollercoaster.
SPEAKER_02: So were you guys financially healthy during this period? Were you profitable or not profitable? Oh, no, we were profitable.
SPEAKER_04: But we could scale up using delimiter partnerships. And Leslie Gonda was extremely supportive of this company. And he brought in some of his friends to invest $50,000 or $100,000 in a deal. International East Finance Corp would be the general partner, and we would also invest money. But the limited partners would invest most of the equity. And then we would get a management fee. So in other words, for every million dollars of equity we had, we really had five or six million of equity because we leveraged it with these limited partnerships. Right.
SPEAKER_02: Because you basically could get these partners who had cash who could finance these planes. Yeah.
SPEAKER_04: Right. And they all made money. No one ever lost a penny. They all made money. They all did very well. Now then we had a number of companies like EF Hutton and other Solomon Brothers came to us from Wall Street saying, why don't you guys go public? You've got a great future, blah, blah, blah, blah. So we gave that a try in 1982. But the markets were very sluggish. Yeah. That was a recession year. Yeah. Yeah. And so we decided this is not a good time to go public. But the following year, I suggested to our team that we focus more on the smaller investors
SPEAKER_04: rather than the big institutions. We did lots of roadshows to probably like 40 different cities, and we raised $26 million in an IPO on NASDAQ.
SPEAKER_02: And that presumably supercharged your ability to grow, to buy more planes. Yes. And so basically, in 1983, you become a public company and you become the CEO of a publicly traded company. Yes. You had eight people when you went public. So did you need, by the way, did you need many more people? I mean, given that now you had more money to buy more planes, did you have to... Yes.
SPEAKER_04: Yeah, we needed more people. In fact, the underwriters were teasing us that we should hire a couple of part-time like college kids or something so we could say that we had more than 10 employees and then let them go the day after the IPO. But we didn't do that. But it was kind of oddball to have a public company with eight employees, including the three founders.
SPEAKER_02: So tell me about, I mean, we're going to come to 1990 when you were acquired or the company was sold, but in that period between 1983 and 1990, when you went private again, was it just, again, just growing, growing, growing every year, like buying five, 10 new aircraft a year? I mean, give me a sense of what that period was like. I think the major change, which had never been done before, was that in 19, what we
SPEAKER_04: did after going public is we would buy new and used aircraft when we could match them up to an airline. But then I realized that we could get much better leverage and discounts and basically more weight if we could buy aircraft in bulk. And that was really a landmark gutsy decision because it was the first time that Boeing would sell quantities of aircraft to an aircraft lessor who couldn't even identify where these planes are going to go. But we had a lot of confidence that we would place the aircraft. And then we did a deal with Boeing and ordered 130 brand new planes, speculatively. People thought I'd lost my mind, including 747-400, which was the largest plane in the airline industry. So you, obviously, as you were growing, you caught the attention of, I mean, you were
SPEAKER_02: a public company, but you caught the attention of some suitors, including AIG, the huge insurance group. And they made an offer to you to sort of buy you out. I guess it was a stock merger, essentially, where you could get it. And it was a huge offer. It was like a $1.3 billion offer.
SPEAKER_04: For a company that went public for $26 million less than seven years before that. So it was 50 times greater.
SPEAKER_02: So your investors were going to get a huge return. Yes, I think 68% of the company was still owned by the insiders.
SPEAKER_04: The Gondas and myself and my family. And the public had, I think, 32%. So they did really well. We decided that we would each take one and a half million cash, the three of us, and the rest we would exchange our shares for AIG stock.
SPEAKER_02: Wow. And so then at that point, you become, I mean, AIG becomes your boss, right? But essentially, you continue to run ILFC. I mean, you were, I mean, did it substantially change how you ran it? I mean, did you have oversight from AIG?
SPEAKER_04: The benefit was that I think there were only one of half a dozen companies in the world that were AAA rated, credit rating. So immediately, ILFC's credit ratings, which were separate, AIG never guaranteed one penny of our debt. Our credit quality immediately went up.
SPEAKER_02: Which meant you could get massive loans to buy more planes.
SPEAKER_04: And we could get it cheaper than our competition. Right. AIG was doing extremely well in the 1990s. And I was like the third largest shareholder of AIG. So by the time AIG stock peaked, it was in 2000, our holdings in AIG stock were considerable. Yeah.
SPEAKER_02: It was about five times more than when they acquired the company.
SPEAKER_02: Wow. When we come back in just a moment, a perfect marriage of timing and opportunity turns into a perfect storm when the 2008 financial crisis hits. Stay with us. I'm Guy Raz and you're listening to How I Built This.
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SPEAKER_02: Hey, welcome back to How I Built This. I'm Guy Raz. So during the 1990s, Airlease Corporation is in pretty great shape. Its new parent company AIG is doing well. And because Steve Hazi is now a major shareholder in AIG, he is also doing well. So well, in fact, that he gets approached to make a major philanthropic donation. A couple of gentlemen called my assistant in Century City, California, said we'd like
SPEAKER_04: to have an appointment with Mr. Hazi. We wanted to talk to him about an aviation museum. To take a big plot of land at the Dulles Airport to eventually build a new museum that would open in 2003, which would be the 100th anniversary of the first flight of the Wright Brothers. So I listened to this and I said, oh, that's really nice, blah, blah, blah. And I said, well, what is this thing going to cost? They said it's going to cost anywhere from $120 to $130 million. And that was their estimate.
SPEAKER_04: So I said, okay, in five minutes, I just thought about it. I said, okay, I'm in for 60. Okay. So these two older gentlemen thought that what I meant is I would contribute $60,000. That's kind of what they expected.
SPEAKER_04: And I said, no, no, no, not 60,000, 60 million. And they just about had a heart attack. This took about five minutes. I said, if I don't do it, nobody else is going to do it. Somebody's got to jumpstart this project. So they were in shock. And then later on, a few months later, they said to me, well, the regents and the government and the Smithsonian board, they want to name this museum after your family. I said, well, that's not the reason I'm doing this. The reason I'm doing this is I want other young people in the US and visitors to be captured by the thrill of flying and aviation and space. And then they said that the budget had gone up to $130 million. So I said, okay, we'll go to $65 million. And then the project was go full steam, three shifts a day. And I just felt for what America has done for me and my family, this was the least I could do to give back something to America that had value to millions of people and children.
SPEAKER_02: Yeah, it's just an incredible museum. And so that really was kind of your first public, I mean, the first time you were sort of public, right? Because you were relatively quiet, private, and still are to this day, but still... We're low profile. We're trying to be low profile.
SPEAKER_02: Yeah. And do you, I mean, by 2007, ILFC has, I think something like 820 plus Boeings and airbuses. That was by far more than any airline in the world. I read that you owned more than Air France, Lufthansa, and British Airways combined. And so things are going well. It's, you know, ILFC is a great company, it's a strong company, but you're about to hit a massive dark cloud. Very dark, yeah. A dark cloud may be an understatement. I mean, a disaster. And AIG is right in the middle of that disaster because the financial crisis hits. And AIG is the insurer of all of these banks.
SPEAKER_04: And guarantees and instruments and subprime mortgages that were then packaged into various derivatives that were bought by all kinds of investors.
SPEAKER_02: And when you found out about this, because I have to assume that you didn't really know, I mean, that's not your business insurance. You were in, you were running the airline division, essentially, of AIG. I guess AIG was insuring these loans that seemed secure, but that had a massive impact on your ability to run your business. Yes.
SPEAKER_04: So here's what happened. AIG was a very, very capable insurance company. But they went off tangent with this guaranteeing other people's obligations. And they really had no business guaranteeing subprime loans. And so when everything started to crumble around September, October of 2008, AIG would have become insolvent immediately had everybody called in the guarantees. And that's precisely why the U.S. government did an emergency rescue of AIG by injecting $185 billion, which was more than the whole automotive industry, the whole high-tech industry received. No other company got as much financial bailout as AIG. And of course, Congress and the government came down really hard. How could you have allowed yourself to be in this situation to begin with? And here we are, the company just made a billion dollar profit. And we're now right in the middle of this thunderstorm. You're talking about your company, ILC.
SPEAKER_04: Yeah.
SPEAKER_02: Which was essentially, you're sort of a subsidiary, right, of AIG?
SPEAKER_04: Yes. We had our separate debt book. Right. And so they owned our equity. We owned AIG equity.
SPEAKER_02: And they owned all your airplanes, which was collateral.
SPEAKER_04: Yeah. And that basically AIG turned out to be a huge disappointment that almost caused the collapse of the global financial system. There's nothing I could do to... You were part of a toxic brand.
SPEAKER_02: Yes. Yes. And all of the money you were making was now going to pay back the government's bailout. Exactly.
SPEAKER_04: And we became paralyzed. We couldn't buy, we couldn't sell, we couldn't finance. We had our existing book of business. Airlines continued to pay rent. We had an ongoing business, but it was like in a cage, like an animal that's in a cage.
SPEAKER_02: And Steve, I have to assume that your personal wealth took an enormous hit because you had enormous shares in AIG stock. Yes. I mean, their stock price plummeted probably 70, 80%, maybe more. I don't know. Yeah.
SPEAKER_04: I think it was more than that. Yeah. It was a great tragedy. And the company would have gone under had it not been for the US government. So you decide basically, I'm done, I'm out of here.
SPEAKER_02: And you resigned. Well, I retired. Retired. Forgive me. You retired. Yes. Forgive me.
SPEAKER_04: You retired in 2009. Yes. We had a family council gathering with my wife and our children. And we said, okay, we can either continue this status quo, or we put this chapter behind us and start fresh. Yeah. And the unanimous decision was made to start fresh.
SPEAKER_04: So on February 3rd or something of 2010, I submitted my retirement papers. And that was it. They were in shock. But I said, look, we've had our fun. I tried. Yeah. And this is not what I want to spend the next 10 years working for the government.
SPEAKER_02: Yeah. So you stepped down from ILFC, this company that you founded. But you knew you must have known that you were going to start a new company pretty soon after, right? I mean, already in your mind, you probably knew that you were going to do that. Yeah.
SPEAKER_04: The next day, we filed the incorporation of Air Lease in Delaware. Air Lease Corporation. So you basically said, I'm done running ILFC.
SPEAKER_02: I'm going to start my own company again, doing essentially the same thing. Yeah.
SPEAKER_04: But maybe on a smaller scale. I didn't want to have 1,000 aircraft and $50 billion balance sheet. But we learned a lot in those 35 years and even in the years before International Lease Finance. So we said, OK, let's start it. At that point, I didn't really involve any of the other people at the company. I didn't want to.
SPEAKER_02: And you had no non-compete class. You were allowed to do this.
SPEAKER_04: Nor was I soliciting any employee or officer. So you were going to start with a completely new team. Completely new team. But we were across the street from ILFC in a new building. In Los Angeles. Yeah, in Century City. And so as word got out that Steve Hosie is starting a New York off-leasing company, my phone started ringing.
SPEAKER_04: And so most of the senior officers said that they've had it with AIG as well. And they wanted to come work with you.
SPEAKER_02: They wanted to come. But it does speak to the loyalty that you engendered and the people around you. I mean, I'm sure there were times where, you know, maybe you got mad at people or you've lost your temper. I don't know. Maybe not. But clearly you had and still have a lot of people who were loyal to you.
SPEAKER_04: Yes. Well, and it was also, I think, an opportunity to create a new enterprise and to create wealth. Because not only my family lost a lot on this, but every executive at ILFC that had AIG stock. Lost probably everything. Yeah. So they understood what was going on.
SPEAKER_02: You had, you were coming to the table with so much experience at this point and such a great track record that you were able to raise money quite quickly. And I mean, from big banks, like over a billion dollars, you were able to raise that.
SPEAKER_04: We raised about 1.2 billion. And I said, we will provide 100 million dollars of equity, cash equity, and then we'll raise another billion from outside investors, including banks and well-known private equity firms and international institutions. And that was oversubscribed. So we raised about 1.2 billion within a few weeks after the company was formed. We didn't have any airplanes, but we already had capital lined up.
SPEAKER_02: And obviously you knew how to source those planes. Within a year, you went, or a little over a year, you went public. And a year after the races, you raised like 800 million dollars. I think it was almost 900 million.
SPEAKER_04: We raised JP Morgan and Credit Suisse were the two underwriters.
SPEAKER_02: Did you see ILFC as your competitor now? Were you trying to, were you chasing them?
SPEAKER_04: A little bit. We look, the clientele that we had were generally airlines that also were leasing planes from ILFC. But I would say that once we left and started Airlease, most of the airlines went with us. They did either no or very little future business with ILFC, particularly since it was still under this government AIG umbrella. So I would say a large number of the customers that ILFC had migrated to Airlease on their own volition. Yeah, I have to assume that you recovered your losses, more than recovered them, certainly
SPEAKER_02: with your new business. And now you have, I mean, you're still running this business and you are not an old guy, but you're not 23 anymore. And I wonder, I mean, you have obviously enormous resources to do whatever you want and you've got a foundation. But I wonder, what do you think you're going to do? I mean, you can't possibly spend a fraction of the money that you've made in your lifetime. So what do you think you'll do with it?
SPEAKER_04: That's a good question. Look, the idea of retirement doesn't have a lot of appeal. I'm not a good golfer. I'm not a retiring type. So I plan to continue to work and hopefully add some value to the industry and creating this spark in young people about aviation and aerospace.
SPEAKER_02: Yeah. Steve, when you think about what you built and starting this business so young and where you are now, and you really are, I think, have read, I mean, people consider you to be the most influential person in aviation, full stop. How much of where you are today do you attribute to how hard you worked and your intelligence and how much do you think had to do with luck?
SPEAKER_04: I think you need all of those. I was fortunate that my father exposed me to aviation at such a young age and that I immediately connected myself to that. I think having come from a background where I grew up in a communist oppressed country, but then you have a certain amount of energy that propels you to achieve greater things and that comes from within. It's not something you can learn in school. So I'm very grateful for what America has enabled our family to achieve. And having this passion for aviation and the airline business, that's been the fuel that
SPEAKER_04: kept things going.
SPEAKER_02: That's Steve Udvar-Hazy, founder and executive chair of Airlease Corporation. By the way, do you ever get scared in an airplane when you're flying today? No. Never? Even massive severe turbulence or whatever? No, because I know how airplanes are designed and built.
SPEAKER_04: So I adapt really quickly and I can sleep easily anywhere. I'm like a horse. I can sleep standing up.
SPEAKER_02: Hey, thanks so much for listening to the show this week. Please make sure to click follow on your podcast app so you never miss a new episode. And as always, it's totally free. This episode was produced by Kerry Thompson with music composed by Rontine Arablui. It was edited by Neva Grant with research help from Sam Paulson. Our production staff also includes JC Howard, Casey Herman, Elaine Coates, John Isabella, Chris Messini, Carla Estevez, and Rommel Wood. Our engineers are Gilly Moon and Patrick Murray. I'm Guy Raz and you've been listening to How I Built This. Hey, Prime members. You can listen to How I Built This early and ad-free on Amazon Music. Download the Amazon Music app today or you can listen early and ad-free with Wondery Plus in Apple Podcasts. If you want to show your support for our show, be sure to get your How I Built This merch and gear at WonderyShop.com. Before you go, tell us about yourself by completing a short survey at Wondery.com slash survey. Hey, it's Guy here. And while we're on a little break, I want to tell you about a recent episode of How I Built This Lab that we released. It's about the company TerraCycle and how they're working to make recycling and waste reduction more accessible. The founder, Tom Zaki, originally launched TerraCycle as a worm poop fertilizer company. He did this from his college dorm room. Basically, the worms would eat trash and then they would turn it into plant fertilizer. Now, his company has since pivoted from that and they recycle everything from shampoo bottles and makeup containers to snack wrappers and even cigarette butts. And in the episode, you'll hear Tom talk about his new initiative to develop packaging that is actually reusable in hopes of phasing out single-use products entirely and making recycling and TerraCycle obsolete. You can hear this episode by following How I Built This and scrolling back a little bit to the episode, Making Garbage Useful with Tom Zaki of TerraCycle or by searching TerraCycle, that's T-E-R-R-A-C-Y-C-L-E, wherever you listen to podcasts.
