Time on Wing Podcast
Time on Wing Podcast
Charles Graham - Chairman, ASL Airlines, K2 Aviation, FlySafair
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Charles Graham shares his extensive journey through the aviation industry, from early interests inspired by air shows to leading major airline and leasing companies. Discover insights into the evolution of aviation networks, aircraft leasing, and strategic challenges faced by industry leaders. We discuss the evolution of aircraft leasing, the challenges of aircraft conversions, and the future of freighter capacity amidst market cycles and technological advancements.
So like we we don't need like fifty white-belief traders, but we do need some with my ASL hand on the most realistic solution for us is very likely to to come from the This is the Time Mun Wing Podcast.
Courtney MillerWelcome back. I'm Courtney Middler with Facebook Coach Analytics. With me is Garrick Day Shimon of collateral verifications. Garrick, who are we talking to today?
Gueric DechavanneWe actually have Charles Graham on the podcast today. He's also executive chairman for K2 Aviation. Uh he's a board member of LyS F Air, um, and also board member of Kamala Aviation. Uh he's been uh the CEO for Global Aviation uh DHL. He was the founding chairman of Aerologic, he's also the CEO of AWOS, uh he's been the CEO of uh for the aircraft finance group for Morgan Stanley, uh he was the group CFO and Joint Managing Director of TNT, uh he's got a law degree from the University of Glasgow, and he's a fellow with the Royal Aeronautical Society. So a lot of great experience, right? Both on finance, airlines, cargo, you name it. So it's gonna be really fun to talk to him today. So, Charles, this is your time and wait. So, before we get on with our guests, which you guys are gonna absolutely love. We obviously, you know, first of all, we want to thank all of our listeners for listening to us and making the show what it is today. And we certainly welcome any of you to whenever you see us at conferences, just please say hello, and uh, we'd love to hear that you guys are are listening and and fans of the show. You know, as you all know, we do run businesses and uh stuff from my end at collateral verifications. Um, you know, on the appraisal side, obviously if you have any needs when it comes to aircraft engine landing gear, you name it, right? Just please feel free to reach out. You know, I'm very approachable, I'm happy to chat about any kind of projects, and we'd love to work with you on uh variety of things. We do have some publications out there as well. I do turbine aircraft guide, turbo prop value guide, uh, I've got the aircraft rating tool. So there's various publications that we put together that can kind of help you on your day-to-day. Great reference points. Um, so definitely, you know, kind of reach out to us and we'd love to chat and and kind of start that relationship with you.
Courtney MillerOkay, back to the show.
Gueric DechavanneCharles, uh, want to you know thank you again for for deciding to join us on the Towerman Podcast. It's always great to have you know people that have been doing some interesting things in the industry. Um, and as we kind of ask all of our guests, right, we always love to know how you got started in aviation, where the passion came from. There's always some great stories, which could be I have wanted nothing to do with aviation, all the way to you know, my dad was a pilot, or uh, you know, I used to go to the airport, or right. So there's all these things, but we'd love to hear from you how you got started and then kind of go through kind of your career because you've done quite a few things. Um, so we'd love to hear about it. So I'll let you take it away.
SPEAKER_05Okay. Uh my dad wasn't a pilot, uh, he was an educator, but uh um I guess as a as a kid I always had some sort of interest in uh aviation or aircraft in some way, whether it was like watching Thunderbirds on TV or attending air shows with uh with the red arrows uh flying. I lived near Presswork Airport, so we were treated to uh uh yeah, lots of air shows and things. And I I even joined the Air Cadets, which is a uh yeah, I was a kind of junior group of the RAF when I was a teenager, so I got some exposure then to gliding and uh flying simulators and uh shooting and all those things. Um but yeah, my my AV, my interest in aircraft didn't uh kind of carry on into my career path at that time. I mean, I went went to university, studied law, uh didn't practice as a lawyer, went went straight into business. And after uh after two or three years of uh uh kind of management training and and various things, I joined this company called TNT, which uh I I don't know if you're aware of TNT, you know, but back in those days it was an Australian-owned transport company. And I'm I'm talking back about 19, it would have been 19 uh something, yeah. So a long time ago. A few years ago. When I joined uh TNT um in general management, it was just a trucking company based, uh, well, the headquarters were in Australia, but I joined in the UK where they had a trucking enterprise. And you know, over the next few years, I I was CFO of the UK company, but over the next few years we used the UK as a base to expand the business. And we started buying trucking companies all over Europe, and uh we admired FedEx very much. And along with Supita Revels, who was my boss at the time, actually went to Memphis and met with Fred Smith and uh you know uh studied the the FedEx business model, and you know, we figured that the way to grow TNT in Europe was to create an overnight network. Uh and at that time, well not an overnight network, but an express network, put it that way. And we started off buying trucking companies and just merging together with trucking companies and creating a Hub and Spoke network with trucks, which provided uh you know a guaranteed uh two or three day service uh in the UK, which uh uh uh had never been done before. I mean there were lots of trucking companies, but but none provided a guaranteed service. And we repeated that. We we bought trucking companies all over Europe then, uh and did the same thing with Europe, uh, all with trucks, uh all providing two to three day service. And then, you know, it was Sir Peter's Brainchild and inspired by uh Fred Smith. Uh, you know, he was ambitious enough to decide to start the first European air network uh to provide overnight connectivity between uh various destinations in in Europe. So that really became my first serious involvement in the business of aviation. Uh uh we uh back in those days uh we we decided to use the BAE 146. Question the wisdom of that, but it it was uh four-engine aircraft, but it had the uh had the virtue of being uh what was called the quiet trader. So uh it was able to avoid curfews in most of the European airports and take off at the times we needed. Yeah, it was uh it was called the Quiet Trader, it was an extremely silent operation, also short runways, so uh it did suit the needs, and suited the needs, especially of a startup uh air operation, because uh yeah, we didn't have the volumes. In fact, yeah, we I remember Supeter bullying the country managers into creating uh you know volume forecasts to support this this new venture. Uh I remember we we sat in a hotel somewhere in Europe in Amsterdam or something, and we got all the country managers in and they were all truckers. You know, they'd never they'd never experienced aviation before. And Supeter had ordered, I think, 40 146s at the time. So he he it decided to go big on this.
Courtney MillerOh, these were new airplanes? Yeah, sorry? These were new airplanes? Yeah, yeah, yeah.
SPEAKER_05They bought the entire production of uh 146 freighters from from British aerospace. Wow. So it was a big play. And I remember we we got all these country managers into a hotel room, and Sir Peter was up on the stage and I was with him. But yeah, he'd go to the first country manager, like Finland or something, and say, Well, we're gonna create this new opportunity which provides overnight air service, you know, anywhere in Europe. How much volume do you think you can create? And the Finland, you know, the Finnish country manager said, Oh, I don't think uh I don't think there's much demand, you know. Maybe we can get you know, you know, 10 kilos a day or something like that. And he said, Okay, you're fired. And that kind of set the tone for going around the room and getting escalating commitments to volume. But uh anyway, sounds like an AI forecast.
Courtney MillerExactly.
SPEAKER_05Exactly. So he he he committed to the he had the vision, he committed to the uh equipment. Uh he brought in a guy called Neil Hansford, who you may have come across in your uh interviews. Neil uh is an Australian and he'd been involved with Anset uh Australia, so Peter uh knew him well through that. Brought in Neil Hansford uh into Europe and you know what Neil achieved in those early days was quite amazing. You know, he he set up had to set up AOCs from scratch uh in multiple jurisdictions, had to introduce a new aircraft type. Uh we had to uh at the same time, you know, introduce you know ramp handling and all those things that go with an aviation operation that this business had never dealt with. So yeah, that that was a kind of trial by fire for me. I mean, I was CFO, so wasn't involved so much in the operational side, but it was it was a huge strategic move for the company and led to TNT becoming ultimately uh one of the four global integrators at the time. You know, there was FedEx and UPS were well established. Uh DHL was a bit like TNT, it was it was uh it was growing. And uh yeah, from that base, you know, after we created that European Air Network, TNT expanded into 200 countries in the world using a variety of uh on lift and commercial lift and ultimately got purchased by FedEx, as you you you're probably aware. So yeah, that was my that was my first uh kind of serious involvement in aviation. Um but uh I I guess the transformation to being seen as an aviation executive myself came after that. Uh when I uh when I left TNT uh after it was purchased by a consortium of post offices, um I uh joined this uh fledgling aircraft leasing company called Ansect Worldwide Aviation Services, which is AWAS for short. And uh it it had been founded by Serpeter Abels uh and Rupert Murdoch as a joint venture. Uh and pretty much like my TNT story, Sir Peter and Rupert, driven by Serpita, had a division to go out and buy a bunch of aircraft from uh Airbus and Boeing, uh and and had the idea of leasing them out, uh, following the models of GPA and uh ILFC and GCAS, who were basically ILFC and GCAS were the only companies operating at that time when I joined AWAS in 1996. And you know at that time, as I said, Anset Worldwide was it was a joint venture between uh uh TNT and News Corporation. Uh but it it it had an order book, but it didn't have any people. Uh it had uh it had a team of people who were subcontracted from either TNT Finance Department or from uh ANSET the airline on the technical side or from News Corp on on some strategic work. But there was no there was no actual team in place, so but that's when that's when again the the real love of aviation. I mean when we build a team, uh we started with the people who'd been subcontracted and then built more and more and more. And uh we built Anset Worldwide into uh yeah, one of the world's top three leasing companies at that time. Uh that was from 1996 to uh uh 1999. And then we sold the business uh to Morgan Stanley, uh you know the New York Bank. And they had already started uh an aircraft leasing business of their own called Morgan Stanley Aircraft Finance, and they they'd started by buying a portfolio from ILFC. Uh but they uh they decided to buy AWAS and put AWAS and Morgan Stanley Aircraft Finance together. And I was fortunate enough to be chosen as the CEO of the new combined venture and stayed with with that combined group for you know six years. So overall I had nine years building AWAS from nothing to uh ultimately it's it's sale to terra firma and then DAE. So uh yeah, that was that was a wonderful experience. And I guess that that's what transformed me into what would be seen as the aviation executive because everything I've done since has been focused on aviation rather than transport itself.
Courtney MillerAnd that's what happens every time, isn't it? Yeah, yeah. It happens every time. Yeah. Get hooked.
SPEAKER_05So sorry, long answer, but uh no, I didn't I didn't start by I didn't have a father as a pilot, uh didn't didn't dream of working in aviation, but uh uh got into it through the I guess through the uh vision of one man, which was Super Abels, who who started both TNT Air Network and uh Unscent World Lloyd, and unfortunately uh passed away uh even before I joined Uncent World Lloyd, but uh yeah, that's that's how I got into the business.
Gueric DechavanneYeah, wow. And so um how did you make the transition from kind of going into the finance leasing side and then you went kind of back to operations, right?
SPEAKER_05Yeah, there'll be a common theme running through this discussion, I suspect, which is people. You know, I think I think that yeah, you think the industry is all about aircraft, but it's actually all about people, and I'm sure I'm sure you've heard that from uh uh many of the folks you've talked to on this uh on this podcast. But uh I went back to the operational side by joining TNT, uh DHL. And the way I guess the reason that happened is you know my my uh my CEO at uh TNT for at least some of the years had been a guy called John Mallon, um who I worked with as joint managing director through those growth years of of TNT, like when we went from 15 countries to 200 countries. And uh he left TNT uh at the same time as I did. I went to NSEP Worldwide and he went to DHL uh uh and became CEO of DHL Express. Um so after I left uh ANSEP Worldwide a number of years later, DHL or Joyce Post at the time had been on a spending spree that you know they they they'd gone from being a courier company to buying Danzas and you know uh you know many, many big transport companies and putting them all together. So John was CEO of DHL, I'm talking back in 2006 uh now uh and uh he found that through this acquisition period they'd acquired uh you know lots of businesses and they ended up with 14 airlines in the DHL group. Oh there was no central management from an aviation perspective, these airlines sat in either country operations or regional operations. And I had seen you know from my days at Unset Worldwide, I'd I'd seen the impacts of that. So you'd find DHL subsidiary companies competing to lease an individual aircraft, you know, and bumping the price up, you know. So that that's the sort of thing that was happening. And John uh yeah, John called me up after I'd sold uh uh AWAS to terra firma and uh said, you know, have you hung have you hung your boots up, Charlie, or are you are you ready for another challenge? And he uh asked me to join DHL and join him on the board as uh as CEO of global aviation and put together you know to put together a strategy for aviation and uh and a team to run it. Uh and that's that's what I did for a number of years. Um, the regional teams, but but most importantly, we uh you know we centralized some things that needed centralizing, not for the sake of it, but purchasing, for example, dealing with leasing companies. You wouldn't have each of the subsidiary airlines you know doing their own lease negotiations anymore and competing against each other. So we s we we we tackled those easy things right away, but the the biggest challenge was to create a a cohesive strategy for global aviation for THL. They had very successful regional airline operations, so uh you know the leading airline operation or network in Africa, they had the leading uh airline network in you know certain countries in Asia, they had uh European air transport in Europe providing an overnight network like TNT had. But they had no uh intercontinental lift. So uh intercontinental movements were pretty much uh used by buying uh or carried by buying bulk space agreements on major carriers like Northwest or Lufthansa or whatever to provide that connectivity. But in turn that meant the uh DHL's uh intercontinental or long-haul service offering couldn't compete with FedEx or UPS on a time basis because we were reliant on commercial airline schedules rather than having our own uh you know late night pickup, early morning delivery type mentality. So, I mean that was my biggest challenge at DHL was uh was creating that uh intercontinental uh lift and we did that uh on the Trans-Pacific by uh creating a joint venture with Atlas, uh which was Polar Air Cargo. Uh and we operated that with 747s across the across the uh Pacific for some time. Uh for transatlantic we uh we had our own European airline uh uh European transport, which had the flying rights to the USA, so for that uh operation we were able to just acquire a number of 767 aircraft from Boeing and start our own transatlantic operation. The biggest challenge and actually the biggest opportunity was between Europe and Asia Pacific, um where we were at quite a service disadvantage against FedEx and UPS. And the only way to solve that was by creating our own, you know, our own dedicated network. And the the team designed our an aviation network that uh I mean it it it more than doubled the number of city pairs that we could serve uh you know on a uh a second day, second morning basis. Uh actually gave us a network that was competitive with or even uh more rapid than FedEx or UPS at the time. The challenge was how are we how we were going to operate this network? And you know, we we decided that the best aircraft for the job was a 777 freighter, you know, brand new equipment from Boeing, which were available. Uh but a pricey set of uh uh you know, pricey set of assets, these were these were brand new, not converted aircraft, these are brand new aircraft. Um yes, fuel efficient, and yes, more cheap to operate than MD 11s or 747s, etc. But uh but yeah, capital-wise expensive. And we we had the uh I think creative idea of creating a joint venture between uh DHL and uh Luftanza found a new airline called Aerologic. Uh it was uh 50-50 owned, uh uh based in Leipzig, uh which we made our new uh global hub. Uh so kind of far further east than some of our competition. And uh the beauty of this joint venture was twofold. One uh it gave us uh the ability to ramp up operations very quickly because we were able to draw on some of Luftanza's experience in that regard. But most importantly, uh it helped us uh offset the uh the cost of the uh the high capital cost of the aircraft we'd use. And that was because DHL needed the network only five nights a week. I mean no one needs an overnight service on a Saturday into a Sunday, yeah. So so the the whole FedEx, DHL, UPS, they all operate five, you know, five night a week networks. And we were able to through this joint venture create a uh uh a regular network for those five days and have Lufthansa operate the hell out of those aircraft in the other two days on general cargo operations. So we were getting incredible utilization out of these assets which which made it you know cost effective for for both bodies. We started that uh that aerologic uh venture with uh 11. Uh well with a uh plan for eleven aircraft. We ordered eleven aircraft and fed them in gradually. And the last time I checked, we're up to 28 aircraft with with that twenty-eight seven sevens operating on uh between Europe and Asia Pacific.
Gueric DechavanneSo it's been what what year was that when you guys started that?
SPEAKER_05We started the airline in uh 2010. Okay. And here we are 16 years later, it's grown from from nothing uh to 28 or or possibly even 30 aircraft. It continues to expand. Yeah, yeah. It's been a highly resilient uh business model and a key key piece of DHL strategy. So yes, uh I moved from aircraft leasing uh back into the operational side, but uh and I'm within an integrator, but this time really focused on aviation as opposed to you know the the you know the wider aspects of the company.
SPEAKER_01Yeah. What year did you join DHL? I joined DHL in 2006-7. Ah, okay. I joined DHL in 2007 in the US.
Courtney MillerOkay. So I was in I was in the thriving metropolis of Wilmington, Ohio.
SPEAKER_05I don't know.
Courtney MillerI was on the network planning team. I was there once. Hope it wasn't in the window. Because the wind can really whip across there. But yeah, so I was on the network planning team. Okay. Um until they until they shut it down. Uh until they shut Wilmington down and move back to C VG. Um and I I remember the first day sitting in the office and hearing this rumble, like feeling it in the seat of our pants. What was that? They said, oh, that's the Detroit DC 863. Are you kidding? Like that's amazing. 727s, DC9s, DC eights. It was it was the time of my life.
SPEAKER_05How long did you stay for at uh DHO for?
Courtney MillerUh it's about it was about two years because we shut down Wilmington. That was my big job during the last six months was to wind that down. Okay. Um, so we did a lot of well, I my big my big job, believe it or not, was um, this is kind of funny, but it was it was the biggest thing we did all year was Valentine's Day flowers and Mother's Day flowers, right? Pre-positioning those, um, getting getting all that moved. But um I left in uh kind of when they closed the office at the beginning of 2009. So I started very early, 2007, and and then we wound everything down and I went to Bombardier in 2009.
SPEAKER_05So you might have come across John Mullen at that time, I I guess.
Courtney MillerUh I well, yes, I know the the name, but I didn't um I didn't interact directly. I'm trying to remember some of the names. Um the gentleman on the fleet side who stayed was Vince Pucci. Oh yeah. Um who I he was my carpool buddy, one of the coolest guys. Um just just one of just a great a great mentor. And I'm trying to remember. Um uh Rex Botel was was the the leader of the group. He ended up going to Sun Country. Yeah, and there are there were a bunch of Ians, that's all I remember. Ian Cameron or Ian, I don't know. A bunch of Ians.
SPEAKER_05Yeah, I think Ian Clans of the time. You might you might know him. What was the name? Sorry. Ian Clough.
Courtney MillerOh, okay. Well, that was one of them. But uh, but so so my uh experiences opposite of yours, where I'm an aviation guy who discovered trucks at well at DHL and just how much more efficient and cost effective they are. Not to mention square boxes fit really well in square trailers.
SPEAKER_05Yeah. The only trouble is they can't fly across oceans, you know.
Courtney MillerUh there is that. Although when you're sitting in the middle of uh in the middle of Ohio, um that wasn't that wasn't our big concern. But yeah, we had the Luftanza MD11, I think it was Luftanza that flew the East Midlands. Um yeah, DC 873s that uh that were flying. I mean, whatever. Anyway, sorry, I could geek out on that all day long because yeah.
SPEAKER_05Um those were the those were the old days of DHL. It's changed changed quite a bit now.
Gueric DechavanneOh yeah. Yeah, it's crazy. The reason why I asked before in terms of when you were there is because I was looking at like on the on the value side, kind of where where values were because you mentioned like the difference between looking at like an MD11 for and moving to like a 777. And and yeah, I mean it's a pretty big difference right by that that point where M MD11s were probably in like the $30, $40 million range, going to a $150 plus million dollar airplane. That's a big jump. There's a big jump. You gotta justify that cost, right? Yeah, so yeah, that's kind of crazy.
SPEAKER_05Yeah, but you're utilizing discussions with the board, Gerg, as you can imagine.
Gueric DechavanneYeah, oh yeah, that's right. Yeah, we have a great idea. That's right. That's right. We're gonna go with less airplanes that are gonna cost five times as much. Perfect. Yeah. Yeah, that's that's that's that's incredible. Wow. And so so then from from DHL, right, then did you because then uh after that, right, it looks like you kind of moved into like the Kahala, the right?
SPEAKER_05So was it more after that I decided that I'd kind of had enough of big corporations or or or at least the uh yeah, the the daily grind of big corporations, so I uh focused more on um actually two things. One I'd focused, I had some music interests at the time, music businesses, so I I yeah focused a bit more on that. Uh but on the aviation side I uh I did much more advisory work, you know, working with PE firms on you know potential investments, uh working with uh working on potential M ⁇ A work, etc. etc. Anyway, that's how Brad uh came across me. Uh yeah it wasn't so long after I left DHL, you know, a year, a year or two. Uh Brad had started Brad Smith, sorry, we're talking about uh Brad Smith of uh at that time uh Kahala Capital and Kahala Aviation, and he had kind of ventured into aircraft leasing in a in a small way uh you know for a few years. But back in 20, I think it was 2012 or 2013, he and his colleagues uh in Kahala Aviation had come across a new investor, uh, which is called uh BDCA or the Business Development Corporation of America. And you know, Brad had done this deal where uh BDCA wanted to get into aviation and use Kahala as the you know the vehicle to uh to do that, uh to acquire aircraft and manage them on on behalf of the investor. And Brad introduced well first of all, uh Brad met me. Uh he actually met one of his colleagues in Kahala was a guy called Michael Howard. He was the CFO. And uh prior to that, Michael had been the CFO at AWAS, so he he knew me from those days. Okay, uh which goes back to my theme of people, you know, yeah, oh yeah uh introductions. Anyway, I I met Brad, uh he introduced me to BDCA, and uh long story short, I joined the board of Kahala Aviation back in 2013 um as the kind of independent director uh and in charge of the investment committee from from BDCA, so like looking after the BDCA's interests in what Kahala were doing. So rather rather than being confrontational about it, I I just joined forces with Brad and we you know we worked a lot of things together and uh yeah we we we we built Kahala quite successfully over a number of years, uh up till let's say 20 actually up till COVID. Yeah that was really up till the COVID years. And I think a couple of things happened during that COVID time. Number one, the the the market uh the potential trading market that Kahala had previously addressed dried up, you know, there were there were no uh ABS transactions, there were no aircraft being traded, etc. And at the same time, Brad and his team uh had had decided they were all reaching you know retirement age. And yeah, basically they they moved uh yeah around the 2020s to start to liquidate whatever portfolio they had at that time and basically sell off but not trade back in. Um which which was a smart it was smart timing. So that by 2023 Kahala had uh pretty much nothing left in his balance sheet rather than some consignment stock from aircraft that had uh you know broken up for for spare parts. I mean pretty much everything else had been traded out, uh they'd been highly successful. And uh Brad, this will be familiar to you, Gert. Brad embarked upon his first retirement instead of fighting up for this. And uh yeah, decided he didn't want to carry on. Um and uh two of his other partners uh you know had had made the same uh decision, uh rather more concretely than Brad. Uh Michael, the CFO, was was younger and keen to carry on. And you know, over the course of 23-24 uh I worked with Michael and the investor to start saying, well, you know, we've we've built this franchise, we've built this uh uh history of trading successfully and this reputation in the marketplace. It would be a hell of a shame to just throw it away because Brad and Mark and Mike have have stepped away. Right. So I I said I would step in as uh as an owner, part owner of the business, a partner in the business, uh, along with Michael, and we recruited uh three other partners to kind of fill the gaps that uh were left behind when uh uh Brad's original team retired. So we we brought in uh Sebastian Lurier from uh he was CEO of Creststone, uh aircraft leasing at the time, yeah. And he'd been in charge of United uh uh United Airlines for their engine program and so on. So you know, aviation guy uh through it through on the technical side. We brought in uh another partner, uh Carl Ryan, who uh had been uh a senior guy in marketing at Azora and had worked with Rich Wiley and various uh eminent people over the years and had an entrepreneurial uh streak in him. So we brought him in, and we brought in another finance guy uh called Dylan Mack, who uh had huge experience in uh in modeling and uh had had actually been responsible for building the pricing models for almost every aircraft leasing company in Dublin. So we've got quite experienced on that. So we we relaunched Kahala as K2. So K2 is is is basically the reincarnation of the original Kahala without Brad and his colleagues. Um we started that in 20 uh uh 2024 uh with the same investor, uh so yeah who in the meantime had uh changed or had been purchased by another uh financial institution called uh Benefit Street Partners, which is part of Franklin Templeton. So you know Benefit Street Partners has you know assets under management of 93 million. Their parent, Franklin Templeton, is assets under management of 1.4 trillion. Yeah. And uh they decided, yeah, this this was a good idea to continue. Why why let this kahala thing go? Because it had uh had made very attractive returns for them over the last decade. Uh so they they backed us to to go ahead. And so far, you know, we've we've purchased uh 13 aircraft since we started at the end of 2024. By the end of 2026, uh we will have a fleet of 27 aircraft. Um and our focus isn't to keep growing. We're basically aircraft leasing and trading companies, so we'll you know we will continue to uh trade in and out of assets. Uh but yeah, I think uh I think we've been we've been quite successful. The focus is on uh uh midlife uh predominantly narrow body assets, so 737800s, uh A320 COs. Um we have purchased a couple of A330s uh on an opportunist opportunistic basis too. So we're not we're kind of type agnostic, but uh looking for looking for high returns and uh you know obviously controllable risk, so that's why we go for the most ubiquitous types possible. And just to wrap up the story, uh so Kahala, I was on the board of Kahala from 2013, actually partnering Kahala from 2024. But in the meantime, in 2018, I had uh worked with another private equity company, uh Star Capital, uh, on the acquisition of uh an airline group called ASL, which you're you're probably familiar with. Um I was quite familiar with it, which is how Star came across me, because ASL was predominantly operating in the cargo industry, um uh providing you know uh uh network services to uh you know companies like DHL and FedEx and UPS. And indeed, when TNT was purchased by FedEx back in 2016, 2017, I think, um FedEx hadn't been allowed to buy the uh uh the European airline of TNT, that one I talked about at the very beginning of this conversation, TNT Airways. And ASL had in the meantime purchased that and turned it into ASL Belgium, uh and in turn provided a network service to FedEx. So uh when I had the opportunity to work with Starr on the acquisition of uh ASL, it was like uh a beautiful full circle for me because I you know part of part of the business was was my old T T Air Network, which was which was uh really nice. So uh Star made me appointed me as exec executive chairman of uh of ASL, and I've worked with the team at ASL uh growing the business uh over the last uh eight years now, uh in in parallel to what I'm doing at uh K2. So two two focuses. And again, it's really nice for me because uh one one focuses on aircraft leasing and trading, uh that's the K2 side, and the other is focused, it's a leasing company, but it's it's wet leasing and it's operational and you know providing network services to another industry I love, which is the express integrators. So yeah. Uh yeah, very very fortunate.
Courtney MillerI want to go back to talk about boxes because boxes are way easier to deal with than those pesky passengers.
SPEAKER_05I appreciate that, yeah. So uh okay, so ASL um just just on that front, I have I also have some experience in passenger operations because another uh airline that formed part of the ASL portfolio uh up until very recently was Fly Sapphire, uh which is the largest uh uh actually the largest domestic passenger airline in in South Africa. It wasn't uh fully owned by ASL, but ASL was an investor in uh in Safair, and I was on the board of Safair for uh actually, well, I guess from 2016 up till up till very recently. So I mean that that's a that's a magic airline. If you ever get a chance to go down there, you know, make make sure you fly it. It's uh I I love that airline and uh yeah that deals with a lot of people. It's for 40 aircraft now, and uh highly successful uh low-cost carrier operating in the African continent. Yeah.
SPEAKER_01Didn't realize the ASL had totally agree. Parcels are they don't talk back No, but they catch on fire. That's the problem.
Courtney MillerWe and we had that, I'm sure you were there. We had the 767 200 in San Francisco, they had a fire right behind the cockpit and it just kind of on the ground uh and just kind of burned a hole right to the roof. Uh and I don't remember what what caused it. Um but yeah, so there's that. Uh but so ASL, I I guess I never knew the connection with TNT. I didn't I didn't realize that that fleet had had come over. So I assume that ASL had effectively like a long-term ACMI lease agreement, uh ACMI agreement with FedEx, but did FedEx ultimately take much of that flying back, or is ASL still flying proportionally kind of what TNT used to?
SPEAKER_05Um it's a bit of a complex question, but uh uh ASO I mean with regard to FedEx, uh ASO is is the the major operator of uh the 737 network that uh that FedEx uses in Europe. Um so basically narrow body flying uh uh including the old TNT network, which is obviously now a FedEx network. Um anything that was uh uh 757 or above, up to including the 747s that TNT had operated uh previously, uh no longer fly for FedEx. Uh so uh just to explain the ASL operation, we have uh on the cargo side, so ignoring Fly Safe Air Fermant, it has uh predominantly I guess six six main AOCs, uh three in Europe, one is uh in Belgium, which was the former TET Airways, uh one in Ireland, and one in uh France operating out of CTG. And then outside of Europe, we have our own AOC in Australia, serving the Australasia region, and we have a joint venture AOC in India and a joint venture AOC in Thailand. So we are uh we pretty much cover the globe except North America with our uh regional operations. And then in addition to those uh those regional operations, we have a global uh freight operation based out of Belgium, part of ASL Belgium, operating 747s. And they they do fly globally, uh, you know, uh and they fly not well partly on subcontract to uh the integrators, but we also sell our own cargo on those on those uh aircraft. I do our own our own uh global uh offering. So in Europe uh we fly and we fly a lot for FedEx, we fly everything Amazon flies in Europe is uh is is with us. Um we do a lot of uh feeder routes for DHL. We do some white body flying for DHL uh in Asia and Europe. Um we fly for Amazon in India. Um we fly for customers like FedEx in Australia. So so our uh we we have a a nice solid kind of blue chip uh customer base. Um and uh we uh we tend to not just provide I mean it's not like a typical ACMI operation where you know the the ACMI operator finds you know one aircraft and manages to to lease it for a year to uh one airline for a particular route. We tend to fly network services, so yeah um of course the routes get adjusted from time to time and the number of aircraft go up and down, but uh it it's a network uh a network provision as opposed to kind of ad hoc ACMI typically.
Courtney MillerYeah, I think probably the and correct me if I'm wrong, because uh a lot of my time has also been spent in the US regional airline space. And we call those CPAs, so like capacity purchase agreements, which I guess are technically ACMI-ish, but they're long-term, they're more kind of built the networks built around them as opposed to them just slotting in for the PHNL US used to have those with uh yeah, A Star at the time, yeah.
SPEAKER_05Airborne and A Star and all those uh all those companies. Yeah.
Courtney MillerUm yeah, I've got a uh here, this will take you back a little bit. I stole this uh from an empty office on my last day. So the old airborne express and and what you um what's what's really unique about this, I don't know if you can tell there's no cargo door, right? Because we use the old C containers. The C containers are the telephone booths up top and then the full LD8s and in the belly, but um yeah, well, I mean, look, beauty's in the eye of the beholder, especially when it especially when it comes to Wilmington, Ohio. Um but I'll tell you, I learned a ton about crop rotation driving through the cornfields to get between Cincinnati and and Wilmington. Um but yeah, uh so yeah, so no, you're right. They because DHL couldn't have the foreign ownership, you had ACMI agreements with Airborne, which is now ATSG and A Star, which you probably knew Joe Heedy back then.
SPEAKER_05He's still with ATSG, yeah.
Courtney MillerRegarding ASL, I mean I didn't realize, Garrick. I don't know if you've looked at them lately. Um it's more the Ireland stuff that I've paid attention to, but yeah, there's five triple seven uh uh excuse me, seven four seven four hundreds uh out of Belgium. And you said that's that's managed by ASL, so they're selling space on those aircraft. And I did not realize that. Also, might I add, uh looking for my great resource here called uh Wikipedia, um there is both passenger and freighter uh BIE 146s operating in Australia. So there you go, full circle.
SPEAKER_05That's true. In fact, uh I I visited the Australian hangar a couple of years ago, and I I was kind of gulp smacked to find a TNT painted one four six sitting in a hangar, being used for spare parts, but uh wow. But it really painted. So this must be the original one four six operations have been wound down since we uh made the acquisition of uh a couple. Pioneer which we bought to create our Australian business. But the yes, the the workhorse VA 146 is still still operating in Australia. And for the same reason, uh Corney, it's a quiet trader, and it's the only aircra the only aircraft that's allowed to operate out of uh Sydney Airport outside of uh passenger curfew hours.
Courtney MillerWow uh even yeah, even turboprops, or do they allow props to do that?
SPEAKER_05Oh turboprops might be okay, I'm not sure, but it's it's certainly the only jet aircraft that that's allowed. But the the life the life of the 146 I confess is probably going to be short-lived. I mean in Sydney they're opening the the new uh airport of Western Sydney, and freight operations will will gravitate towards that, which is a different uh a different requirement. So the the 146 will eventually, I'm sad to say, die, die a death, I think.
Courtney MillerBut simply because the curfew will no longer be a limiting factor.
SPEAKER_05Yeah, and and they're expensive to operate. I mean it's it's a four-engined aircraft. Uh they're 40 years old now. Um 47.
Courtney MillerYeah, so it can't be that bad.
SPEAKER_05But yeah, it's the work the workhorse of the ASL uh family is the 737 800 freighter. ASL's the the largest operator of the of that type in the world. Uh we've got 70 of them. So that's eventually what's going to be operating in Australia too. We've got a first uh I think first two already there, another four on the way there right now.
Courtney MillerSo and I noticed um so still quite a few classics of 300s and 400s.
SPEAKER_05I think we've got about ten four hundreds left in the fleet. And they are they're all they're all being uh replaced by seven, three, seven, eight hundreds on a progressive basis. I mean you know when I started the whole fleet was seven, three, seven, four hundreds. I think we had forty in operation, so uh thirty of those have already been replaced with eight hundreds, and the remaining ten, I think uh I think uh one or two might be owned and the other one's leased. So as the leases uh you know come to the come to the their natural ends, we'll be replacing them with with 800. So the intention is uh on the narrowbody side is is to be entirely focused on the 737 800, which has been a very capable workhorse for us.
Courtney MillerYeah, it is. Uh yeah, that airplane's kind of the narrow body. I mean, the 321 does its thing, but the 800 is just the natural freighter, right? Uh convert those things like crazy. What uh very interested in understanding what uh triggers the transition from a 400 to an 800? Is this simply just taking advantage of lower fuel burn? Are you running up just against economic end of life for the aircraft? Is it the extra capacity?
SPEAKER_05It's easy to answer, Corey. There's a number of things. Obviously, the the capital side of the aircraft uh cost goes up, but it's still uh still an imperative for a number of reasons. Uh one is uh reliability. I mean our our whole business uh depends on on-time performance. Sure. We're very proud we offer all our customers 98% on-time reliability. Uh we actually even achieve 98% on-time with our uh domestic operation flying in South Africa with passengers. So we've got a razor sharp focus on operational quality and uh dispatch reliability. And the 737400 can't match the the 800 uh uh on that front uh because of age, basically. Uh secondly, there's capacity, the 737800 does uh I mean it's a higher capital cost but does provide uh extra uh cargo positions. And then thirdly, from the environmental perspective, it's it's uh you know 15 to 20 percent more efficient to operate. Uh obviously that's beneficial from the environmental point of view, but also operational costs. I mean, if if you if you you you get operational savings that offset some of the uh some of the capital costs. So yeah, we we we made a determined decision four or five years ago to replace the entire 400 fleet, and we're nearly at the end of that program.
Gueric DechavanneYeah. So uh quick question on the on the 73s, right? Because that uh especially on the 800s, because you've you've gone through, I would assume so if I'm correctly, right? We went into COVID, everybody went into converting 800s because it was they could get more for the airplane than if you were trying to, you know, uh basically place it as a passenger. So you had this glut of conversions that happened, tons of airplanes hitting the market. Yep, all of a sudden the domestic market starts to go soft on the cargo side, values start to go down, and so which I'm sure was probably a great opportunity for you guys to be like, hey, we can pick up some airplanes, lease some airplanes at great rates, and then all of a sudden we go full-on swing into narrowbody shortage, uh, and now all of a sudden you're dealing with airplanes that are probably too expensive to convert uh you know, from your side or even from anybody else that so now you're kind of going in the other direction. So from your side, how do you guys look at that to be able to know where you're gonna be able to get the capacity that you need as you grow or as you replace more airplanes? So that's gonna be a challenge, right?
SPEAKER_05To to come up with the right absolutely spot on, Garrick. It's uh it's uh been a big challenge for us since since the market turned. Uh we had I mean our fleet of 737800 is made up of owned aircraft and and leased aircraft. Um I told you it was a conscious decision to replace the the entire 400 fleet. Um so going back five or six years, we we actually made a commitment with Boeing themselves to uh uh to ultimately for 40 uh 40 conversions. I think we'd done about 30 um prior to the uh the COVID period. Um and we had an on-ramp price uh on-ramp cost, if you like, that worked for us. Uh when you take it into account the you know the cost of buying the feedstock and the cost of the conversion of Boeing. Um when we when we reach the current market conditions, you're right, it it's almost impossible to find feedstock uh that will give us the on-ramp price that our customers need. I mean, ultimately we're driven by you know what do our customers need? Uh we don't we don't just fly for the f fly for the fun of it.
SPEAKER_04Right, right.
SPEAKER_05So uh we've worked very closely with Boeing uh during this period, Garrick. Uh you know, we've been a you know very solid uh customer for Boeing on the on on the Frederick conversion side, as you can imagine. And we you know we've got a very constructive way of working with him where we we've had to slide some of our uh conversion slots out to the right um to enable us to uh pause the program uh of our own conversions for a little while until feedstock returns to you know at you know a viable price, which it will. I mean, yeah, yeah, right. And so another feature you must have is is this industry cyclical? You know, yes, absolutely stays the same forever. So yeah, we've delayed that program a bit, and in order to meet uh uh our capacity needs to, you know, the continued growth needs of the business, we've been leasing in uh some 737800s uh you know at we're at the at the most attractive rates we can you know we can achieve rather than locking in uh an ownership position uh to an asset that that's just never gonna be not gonna be viable uh uh on a cost basis for the long term. So yeah, we've we've we've we've managed to program uh fairly successfully. We've continued to grow the 737800 fleet. It's extremely challenging now to find uh future stock at the right prices. But uh I uh we'll get there again.
Gueric DechavanneAnd engines, of course. Yeah, I know. Well the engine is the biggest problem, right? I mean airframes are crazy as well, but you know, it's it's yeah, it's amazing to me. But I think what's what's most fascinating to me is the fact that you're you know having to pause the conversion program not because you don't need airplanes, but because you can't find airplanes to convert at the right price, even though you still need capacity to continue to grow. Exactly. Like that's just yeah, that to me is amazing.
Courtney MillerYeah, but there's another perspective here that I just this this really strikes me as pointing because uh one, I agree with you, but I think uh our intrepid passenger aircraft fleet managers that listen to this forecast, I think hear you say that that, yeah, look, it'll it'll come back, you have a feedstock again, and and Bob's your uncle. And they're smiling and nodding, listening to this. But what I don't think they maybe fully appreciate is why is that feedstock not available now and what makes it available in the future. And the reality is because it's not as much in demand on the passenger side as it is today. And there's this, I'm thinking more on the I mean, midlife space, Garrick, we've talked about this with the narrow body shortage forever and just how that's inflated values. Um, and I wholly agree with you in that look, things will come back. This market is cyclical, but from a passenger aircraft uh asset manager or or an owner, if you're nodding to that cyclicality, which you should be, that also means that you're at the peak of the market right now.
SPEAKER_05No, but I I think I think the demand uh the I'm talking about the passenger side now with my aircraft leasing hat on more. I think the demand is still there. I think the demand hasn't been fulfilled by the manufacturers being able, manufacturers of engines and airframes being able to fulfill that demand. So there's a whole backlog of aircraft that were expected to have been delivered uh now and over the next three years that won't be delivered until the next decade. And that's that's in in my mind the biggest single thing that's causing the the desire by airlines to hang on to midlife equipment. It's not that they don't want the new equipment, it's not that uh the demand is not there, and it's not it's it it's that they have no choice but to hang on to the existing equipment because they need it to carry on existing passenger routes, and that's that's what's driving up uh uh the the pricing on the middle mid midlife asset side, and in turn from the ESL perspective, causing it to be difficult for us to get the feedstock we want. But that yeah, that backlog is reversing already. Uh it's not I mean there's a lot of discussion in the aircraft leasing industry, you know, how how long will the current uh trend continue? In my view, you know, it it's three to five years, so we've got another uh three to five years before the market completely normalizes and the uh and the 737s and older generation aircraft lose their current halo uh market conditions. Um, no, it won't. It it'll it'll it'll gradually ease between now and then. It's not like suddenly in three years' time it's gonna fall off a cliff. It's it's it's gonna progressively change. Yeah.
Courtney MillerThe the brightest halo of that cohort that you just mentioned sits on top of the 737-800. That is that because of the max rounding, COVID, Boeing's production rate on the max is lower, right? So there's just not as many being being put in the market, but the 700 for sure, we're seeing it, the 319, the 320s. Um, it but again, and I just want to preface all this because I know we'll end up talking about this a lot in Copenhagen too, Garrett. That doesn't mean the market is collapsing from the passenger side by any stretch. Like not at all. But we are starting to see that normalization. If you were in well, the 320, the poor 321 P2F um is just so much different, right? That that market is so much different than than the 800.
SPEAKER_05Um and I think it's it's uh I mean it this the 321 uh freighter conversion. I mean, it has on paper has a lot of attraction because it's a it's an ideal 757 replacement, etc.
Courtney MillerBut yeah, there are operational issues associated with the cut metal, and then it you're like, oh wow, that's there, okay.
SPEAKER_05Yeah, let's say this let's say operational challenges rather than issues. I mean, I don't I don't want to denigrate.
Courtney MillerYeah, whatever. I mean, look, it's good. I think the HL operates a fair handful. Is that right? A handful, yeah, yeah. Um, but i I mean, so I mean, we've been talking about this quite a bit about um midlife aircraft, especially on the 738s. The idea, who was it? Um I hadn't had an airline say, look, you know, 30's the new 24, which means if if we were looking at punting these airplanes at 24 years, we'll put another shop visit into them. And now we're looking at, you know, a 30-year-old asset, you know, on the on the 800 side as being something that we're making the decisions that we were making at 24. From that perspective, and I guess more from ASL's perspective, what's the sweet spot? What's that perfect candidate, the perfect vintage of aircraft kind of realm that you're looking at to convert?
SPEAKER_05Well, it's probably no surprise. We prefer the younger uh the younger 737800s for conversion. Um less problems with them, um, you know, less problems in the conversion process itself. Uh and uh probably a longer life of the asset. I mean, when you convert it, the airframe has the same life, but uh in theory, but um we definitely we we monitor reliability by age of of the aircraft assets with a lot of information from our FlyStaff Air Association. I mean they they fly 40, 73, 7800s of varying vintages, and we can measure you know to the cent the variances in operating costs by by year of manufacture, and it's proven 100% of us that the younger aircraft have a lower operating cost and greater reliability. So from the ASO freight of conversion point of view, we're always I mean the sweet spot is the younger uh the younger 737 800s that are uh coming onto the market, those are the ones we really, really like.
Courtney MillerIs the reliability higher be simply just because it's younger and has fewer cycles, or were there uh improvements along the production line that made them more reliable over time? Maybe a combination of both.
SPEAKER_05I I don't know what I think I I mean I'm not a technical guy per se, but I think it's a combination of both, Courtney. Okay, fair enough.
Gueric DechavanneYeah, interesting. So the um I think what's what's really interesting is so knowing if you're if you're advising uh ASL, right, and then you also have the ability from the leasing company as well, right? The K2 Aviation, right? Do you wearing these different hats, are you able to kind of plan around that to kind of go, okay, so as as K2 Aviation, we can invest in certain assets knowing that when they come off lease at a certain point in time, ASL may have an interest in those airplanes? And is you know, do you do you look at that any you know, in terms of trying to have some level of strategy for for investing, or is it purely just kind of not really what makes sense?
SPEAKER_05I I would say we don't exchange actual uh actual information and planning in that in that way, uh Garrick. But yeah, what we do share is I mean the the the the teams at both companies are are friendly, uh especially on the technical side. Sebastian spends a lot of time, Sebastian from K2 spends a lot of time with uh Fergus from ESL. And yeah, and that's beneficial. I mean the sharing sharing data, sharing knowledge, uh uh just gives you you know one more data point on when you when you're making strategic decisions on on assets. Um have we you know we we have done some business together. I mean K2 is the proud owner of two ASL aircraft and leases them to ASL. It is the proud owner of two Sapphire aircraft and leases them to Sapphire. Um so I guess my chairmanship of both gives us you know gives us some insights not into actual data but gives us more confidence when when we're uh making investment decisions. Yeah. So keyword it's I think I think there's there have been some there have been some benefits of the companies working closely together in in certain circumstances. Yeah.
Courtney MillerYeah, just use the term vertically integrated. Doesn't have to be true, but you you have something. So the investors will love that. You just say, look, we're vertically integrated, we've got a place to put these airplanes. Cost of capital.
SPEAKER_05Genuinely getting more virtual uh vertically integrated in is in ASL. We're uh we started our own ASL maintenance group uh a few years ago, so now another division called ASL Maintenance uh is carrying out the vast majority of our maintenance in Europe on the on the 737 fleet in uh in both uh Paris and uh Brussels or uh Liège. Um yeah that and and we and we have you know within ASL also quite a sophisticated leasing capability, so you know we're we're able to uh both lease in and lease out aircraft. Uh so yeah, it's ASL's a beautiful company. I'm biased. I love it.
Gueric DechavanneYeah, yeah, yeah.
Courtney MillerSince your time, so you started TNT to you've always you even through AWAS, I mean they were there was a lot of freighter activity at AWAS as well. I you've you've always touched boxes to some degree. Is that am I missing something? No, you're right.
SPEAKER_05I mean when I joined AWAS uh and we and we started growing that business, we we we grew it both as a dry lessor and a wet lessor. And I remember one of our first customers was DHL in Bahrain. We flew we flew the 757s for DHL in Bahrain, and I'm talking way back 90 maybe 97 or something, so yeah, long time ago. But then carry on, and a AWAS was the first company ever to pioneer 757 conversions. We uh we contracted with precision and put a number of our uh uh 757s, which we owned and operated as leased passenger aircraft. We you know we managed a precision conversion process and then leased those aircraft out, and that that was all part of AWAS's history. We did the same with A300s, we took eight passenger A300s that we had in AWAS and again sold them to to Fred. We actually did a deal directly with Fred. He bought the aircraft, we converted them, and you know, they became FedEx raiders. And even Kahala, you know, with Brad, and you know, back to the pre-K2 days, I think Kahala was the first uh aircraft leasing company to speculatively convert 737 aircraft to classics. Uh weren't the first to do a conversion, but the first to do a conversion without a customer just to take a punt on it and say yeah, yeah, we think this is a a useful uh economic decision to you know extend the life of the asset and and make improved returns. And Kyla did that very successfully. I think they I think they did like 10 737 conversions of classics, uh you know, back between I don't I don't know the exact years, but between 2013 and and 2023. So yeah, uh I've uh Yeah, the the worlds of uh freighter aircraft and aircraft leasing have always kind of crossed over for me, which which is nice.
Courtney MillerHow have you seen this is the question I really wanted to ask over that period of time, what would you consider to be the biggest evolutions? What is so much different over the course of of your career that you've seen kind of on that freighter side, whether it be from the asset management side, from just how the freight the air freight business works, what's what's different?
SPEAKER_05Um on the aircraft leasing side first, rather than freighter specifically, I think the biggest difference is I mean a huge difference is just the uh the amount of equity and liquidity that That has flown into the market. I mean when I when I was with AWAS back in ninety the mid nineties, uh I think aircraft leasing had like a uh you know fourteen or fifteen percent share of uh of the world's aircraft fleets. Uh in total, I mean, I don't mean AWAS, I mean the the the industry. And uh and I said already we we were uh one of three or four aircraft leasing companies, and you flash forward to today, you know, there's over two hundred aircraft leasing companies, and you know uh aircraft leasing represents maybe sixty percent of the world's uh fleet. So I mean that's a you know tremendous uh shift. Even aircraft trading, you know, through the aircraft leasing and trading community, three billion of aircraft traded, three billion value of aircraft traded every month now. I mean it it's so the sheer growth of the aircraft leasing industry has been a you know tremendous shift for the whole aviation industry, you know, for for airlines and for for aircraft lessors. Um and not not just in new equipment. I mean uh you know, Cahalo, you know, back in the early days of Cahalo, you know, when we would be bidding on midlife assets, you know, you might come across one or two competing bids and you'd know the guys and you'd be able to have a chat in the bar afterwards, that sort of thing. But now, yeah, the the the amount of capital is deployed in this uh in this sector is just gigantic. And new players entering all the time, consolidation. So the whole aircraft leasing world I would say is one of the biggest changes in aviation full stop. You know, it it's it's it's and it's not it's not going backwards. I mean that's that's a permanent transformation in the capital base of of aviation. Um also sticking with the the the non-cargo side for a second, I mean the the advent of a low-cost carrier, uh you know, as typified by you know, in my case, uh Flysaff Air, but Ryanair, I mean I I I have the hugest respect for Ryanair. I mean, you I may not like flying on them, but the the attention they have to you know cost efficiency and uh measurement and uh uh yeah just economic discipline is is second to none. And you know, I just like I said TNT learned from FedEx, uh from looking at uh Ryanair too. But the the whole advent of the low-cost carrier, and I mean low-cost carrier, not low price carrier, lots of those around who pretend to be LCCs but they don't have low-cost structure. Uh you know, you you you have to be able to uh match your price with low cost to survive. On the freight side, um I mean I think yeah, the biggest change probably is just the scale of the uh of the aircraft. I mean the one of the bigger challenges for ASL on the on the long haul side is you know how are we gonna replace the 747s? And uh whether it's uh triple sevens or A350s, you know, there's uh if you go for new equipment again, you're faced with this challenge of a huge step up in capital costs. Uh if you go for conversions, I mean that's you know, I'm sure converted triple sevens will will form a key part of our strategy, but but you know, they're you know whilst they're making progress and whilst they're beginning to fly, it's gonna be a long time before you're able to get access to uh you know white body capacity. And that's and that that has been a big change in in the integrator world and the air cargo world. I mean there's there's there's much more demand for networked white-body aircraft than than there ever was before. And that's that's that constant need for uh speed and reliability and you know not not just transporting volumes to compete with shipping, but uh to provide that connectivity that that is uh vital to many industries.
Courtney MillerYou said compete with shipping, and that piqued my interest because during the last four years, I guess, we've seen uh not spill but challenges on the maritime shipping side that have driven booms in in air freight and air cargo that so I mean well COVID i was one, right? I mean, aside from just the impact of COVID, remember we used to have uh what was it? You'd have like all the ships sitting outside Long Beach, and then like, oh, we worked through them, and then they were all sitting outside like Shanghai all at once. They were all just kind of going back and forth, and so so air cargo saw this boom, and then you had the Red Sea, you know, and you know, now the you know, the Baba Mandeb and uh the Persian Gulf, of course, and just getting uh getting ships placed. So the idea that it's a that a that maritime's a competitor has kind of become this boon, um, that that is short-lived, right? The air air cargo fills fills the gaps. Um, but on the freighter, on the on the wide body side, it's the feedstock. We have this conversation a lot. The 7-6 is a great converted freighter. We're running out we ran out. Uh the A330 does its thing, um, but we're really short feedstock. The 777300, uh, Garrick, what's that running these days to convert? I mean, because you can do the floor and everything in that, right?
Gueric DechavanneWhat yeah, it's just like, isn't it like a 40 plus million dollar conversion?
Courtney MillerThat's an expensive hole in the side of an airplane, right?
Gueric DechavanneI mean, well, plus you're you're the fee stock is so expensive these days, right? I mean two engines alone, and and you're you know, you add the airframe on there and then you're over a hundred million dollars, right? To convert, it's it's it gets to be very expensive, yeah, yeah, yeah. And that's that that's the interesting piece to it, is that the um I do think that there are gaps that are being created uh because of the strong demand on the passenger side where the freighters like where yeah, where is that capacity going to be coming from, right? Because I mean you've got the the so the 737800, right, which there's definitely a lot of airplanes, so I think that filled a certain gap, but the the 400s are slowly retiring. They'll be gone probably in the next five years, right? Most of the fleet will be probably retired because it's gonna be too hard to find engines or anything like that. Um the A321 has been A321 has been struggling because of some of the issues to convert those, and right, so that's not a you know, and then same thing with the feed stock is also expensive. Um, but the 757 fleet, that's gonna also retire same issues of trying to find availability on the engine side, right? The 767. So, like, where where is that capacity coming from? And it's that's that's gonna create this whole vacuum of like, well, there is none, right? There is, you know, you I guess you gotta make what you have continue to work as long as you can, but it's it's really hard.
SPEAKER_05It's a challenge. I mean, case in point, I mean, ASL just this week purchased two 747s that it's had on lease for a while. And that's the reason for that is we we see them as part of our long-term plan. We don't we don't have a replacement for those two aircraft, so we might as well own them, you know. Uh but but you're right, it it is a challenge. I mean, that that's why companies like Atlas have got an ordered A350s. I mean, time will tell whether it's uh the right decision or not, but uh but it's a bold move and driven by you know their view, which which is perfectly valid, that you know there's there's no choice. You you you you have to find this capacity somewhere.
Gueric DechavanneYeah, well, and because the 777 freighter, right, that production ends next year, uh unless it gets extended for the US only, which doesn't really work for anybody else. Um and then the 777-8 freighter that's slated for 2029, maybe, so which is probably gonna go into 2030, right? So you have to wait for that. Uh and yeah, then you're dealing with the risk of a DA350, that's a new airplane, how well would that work? But what else is there? And there isn't on the on the wide body side, there just isn't anything else out there, right? Which makes you wonder does at what point does Boeing kind of look at 787 as a freighter, right? Do they do they look at kind of existing feedstock and try to convert? Or does it make sense to have a new 787 freighter to fill a certain space? Uh does Airbus do the same thing with the A330s, right? To try the A330 Neo Freighter, you know, try the A330 factory freighter again, but hopefully learning from the lessons and not doing the same thing, right? So like there's there's a lot of potentials out there, but there it takes a while to get those up and running.
SPEAKER_05Absolutely. I mean, I think the the most realistic uh with my ASL hat on, the most realistic solution for us. And look, we don't we don't need like 50 white-body freighters, but we do need some. And uh it's very likely to come from the triple seven conversion programs. We're not quite sure which of the three yet. Uh we're watching each closely and we're working closely with our partners like DHL and FedEx, uh, gaining the intelligence that uh that they're gaining right now, too. I mean, obviously that that operational experience is shared with us. We we only fly for our customers, so uh that's well. I mean, yeah, and but you the questions you're asking are all I mean, they're the same questions we ask. And unfortunately, we we don't have uh we ask Boeing the same questions and uh they don't have answers either.
Courtney MillerSo because there is no answer, right? The the 350, the triple the 78F is not a replacement for a 74 400 converted freighter. The capital and volumes and everything are just completely different. And then I mean the the 74 factory freighter really has no has no replacement, those will be flying until uh until we invent teleportation, I would, I would imagine. Um, but it's that the capital right, so like the 757 has no replacement, but it's it's probably not gonna be the 800 because that's smaller. We don't, you know, we we tend to move up, so it kind of already was the 7-6. Um but now you know the 777 300 is is so expensive. We haven't really mentioned the 330 converted freighter, which I do like. Feedstock is still really expensive because they're they're good passenger airplanes right now. Um if just if that floor was just level, it's just that it's no floor.
SPEAKER_05We've launched two A33, three hundred converted freighters uh just in the last you know six months or so.
Courtney MillerOh wow, okay. I didn't realize that.
SPEAKER_05Fascinating. Yeah, we didn't convert them ourselves, we uh leased them from ATSG. Uh we worked with ATSG to source the aircraft and you know we committed to the aircraft before the conversion. But uh yeah, so those those are in operation. And again, you know they're uh they've been introduced to service, but uh yeah, we're facing the same problems as uh as much of the industry, you know, with with engine problems. So we have a we have an engine off wing right now, uh it's almost impossible to find a functional replacement planner. Yeah. It's really tricky.
Gueric DechavanneYeah, yeah, yeah. I'm trying to think. Have you ever experienced uh in your career anything like this when it comes to the engine side? I I feel like I mean in my you know since my time I haven't, right? I mean it's a and my time's only been I've been in the industry now for 25 years, but um that's a long time, Eric. You're old.
SPEAKER_05Yeah. This is a new first. We have many firsts. Yeah, this is a new first. Yeah.
Gueric DechavanneIt's it's to me, it's crazy. And and I think the what's um what I what I I guess what nobody's really paying attention to, and obviously that's it's really it's for much further out, right? But if you if you think about the challenges that um we're seeing today on the new product, right? So the Max uh you know Neos with the engines, the GTF or the Leap, or where you know they're not staying on Wing as long, they're much more expensive, right? Well, that will at some point translate to those airplanes will probably need to get converted at some point. And what does that do to those converted airplanes when now you're dealing with astronomical shop visit costs, engines that, you know, like I mean, obviously, hopefully that there'll be improvements in between now and then, right? But you gotta wonder like, what does that look like 10 years from now or 20 years from now when you're trying to convert these airplanes to start to replace the older stuff that you can't maintain anymore? Uh, you know, and that, you know, I don't nobody's looking at nobody's thinking about that, right? I mean, uh, it's not like we're we're sitting there trying to try to figure it out, but that could be a challenge as well in the future, right?
SPEAKER_05To to have to deal with well, there are I mean as I know there are some uh emerging retrofits to new engine technology that that's uh uh that's promised by the manufacturers to improve reliability and time on wing, et cetera. But uh that's all new, so we have to see whether those actually deliver what they promise.
Gueric DechavanneYeah, yeah, yeah. No, very true. And it's still, but to me, you know, as like OEMs are you know, it's it's definitely the amount of technology that they try to incorporate in engines and what they what their jobs are, it's not it's not an easy task, right? Um, but still the fact that you know the new products still will never last as long as what they're replacing to me is is astounding, right? It's like wow, yeah, you're so when you're dealing with that in the future with other stuff, it's like, well, you know you're starting from you know from behind already with products that you're hoping will last you know much longer, but they probably won't last as long as people anticipate, right? Just because of at some point it just gets to be too expensive. But uh yeah.
SPEAKER_05You you've been running for a few years, so yeah.
Gueric DechavanneAlthough I'm sure you know the next generation of airplanes is gonna be fabulous, right? It's gonna fix everything. Yeah, yeah, yeah.
Courtney MillerSo just because I like to mention our non-sponsor, they don't sponsor whatever, but uh, I'm looking at CH Aviation. Um love to talk about those guys, but the two 330s came from Saudi, is that right? CF6 powered. Yes. That uh I the hard part in all of this is trying to figure out which operating certificate to search for. You got so damn many of them. Um but yeah, uh, so yeah, I see I see those two airplanes X uh X Sa Saudia. That's uh interesting. I did not realize that. That's that's news to me.
SPEAKER_05It's a well-kept secret ASL. That's the thing, as as I uh as I speak to people around the world about ASL, everyone knows I mean everyone knows something about some part of ESL, but few people actually uh uh kind of piece it all together.
Gueric DechavanneYeah, but yeah, you do have definitely a lot of a lot you're you're everywhere, right? You're a lot of different places, so trying to pinpoint you know where where you are, what you do, is is can be a little bit challenging. But uh yeah, yeah, yeah.
SPEAKER_05Um the thing that binds it together is 98% on time.
Gueric DechavanneYeah, right. And that's that's through all the operations, right? So nice.
Courtney MillerDo you have a point or a a frame of reference or I mean not to not to speak ill of your competitors, but uh 98% on time, uh, how does that compare like in the freight industry? I assume that's very heavily weighted towards the express side um of those contracts, but uh just what's typical of a non-ASL operation? Like what kind of on-time project?
SPEAKER_05I would say you know, FedEx, UPS, DHL all all aim for 98, and you know, that's why we have to do 98 to be a credible partner with them. Um we s we strive to you know to beat our objectives and uh frequently do, so so that's good. But in the express industry, it's you know it's vital. Um in the you know, in the general cargo industry, I mean it depends on your business model. Uh you know, whether you hold up the plane to wait for that last pallet or uh whether you fly on time to be to be to be sure you meet your schedule. Um but we have that we kind of have that express mentality even in our own long-haul cargo business. And you know, we uh you know we we try to price accordingly. You know, we we we you you get what you pay for. And uh even in our passenger operations, I say we're you know very proud FlySafaire is the most on-time uh airline uh in Middle Eastern Africa every year by Cyrium's uh measurements. So it's it's just it it it it's become part of our ethos. It's just the way we we don't know how to operate any other way. Yeah.
Courtney MillerUm well and your routes too, right? Because TNT started both your routes as well as ASL's routes, which are now combined. Um yeah, the the original TNT Express overnight. So yeah, it's the the idea of operational efficiency is or appears to be core to ASL.
SPEAKER_05Yeah, absolutely. I mean, in fairness, it's it's always been part of their uh their ethos. I mean, I I've I admired ASL long before I became involved in it, so I can't take credit for it, but uh you can take credit for continuing it, perhaps.
Courtney MillerIt's not hard to do. Garrick and I do it all the time. You can take credit for other people's work, it's easy.
Gueric DechavanneYeah, absolutely. Well, Charles, look, and in trying to keep a uh a somewhat on time uh arrival, um, you know, you know you you had it uh set till about 2 30. So um so we'll we'll definitely kind of say thank you. Uh this has been absolutely great to have you on and kind of hear your story and and your background. It's it's always fascinating to talk to people like you. So we appreciate it. Uh hopefully you had fun kind of chatting with us, but uh we definitely you know thank you for taking the time and um you know we'll look forward to kind of catching you on the conferencing.
SPEAKER_05Yeah, let's uh let's do it with a beer in hand next time. Yes, so it's great to meet you.
Courtney MillerThat's a promise.
SPEAKER_05Uh pleasure chatting with you, and as you said, nice informal chat. So thanks for listening.
SPEAKER_02Calleroll. Castanarole, Castansarole, Castansaroll.