For Airlines Strapped by Coronavirus, the Repo Man Is the Latest Challenge

By Benjamin Katz 

Soon after Virgin Australia filed for bankruptcy last month, Phil Seymour's phone started buzzing. Three leasing companies and two banks wanted to know if he had staff in Australia.

Mr. Seymour runs IBA Group Ltd., an aviation data and advisory business. His company also repossesses jets when airlines go bust.

Business for that line of work is poised to take off as the economic repercussions of the coronavirus pandemic wreak havoc on global travel. Most of the world's biggest airlines have grounded upward of 80% of flights. Airlines are furloughing or laying off tens of thousands of staff, hoarding cash and negotiating with governments for bailouts.

The pandemic hit as the aviation industry was in the midst of a historic yearslong spending spree. In 2018, commercial banks funded a record $50 billion of new aircraft purchases, according to data from plane maker Boeing Co. A lot of that buying was by specialized leasing companies, which rent aircraft to carriers.

When airlines go bankrupt or miss payments on planes, aircraft financiers and lessors want their jets back. They call companies like Mr. Seymour's to do the repossessing.

It is a niche industry, with mostly small players, or those offering the service as part of a wider aviation-consultancy remit. Like the airline business itself, it can be boom or bust. In 2016, a banner year for airlines, only 11 carriers, with 56 planes, went bankrupt, according to data compiled by IBA.

The past few years have been harder for airlines after many budget carriers pushed too aggressively for growth. In 2018 and 2019, there were 30 and 27 bankruptcies, respectively.

This year, there already are 19. Those airlines operated 480 aircraft, the largest bankrupt fleet since IBA started compiling data.

Creditors can use grounded planes as bargaining chips to get paid. After Virgin Australia's bankruptcy, staff at Perth Airport moved in heavy machinery to block its aircraft from taking off. The airport removed those obstacles after receiving written assurance from the airline's administrators over what it says is 20 million Australian dollars (about $13 million) in outstanding fees due it from the airline.

Administrators in the Virgin Australia bankruptcy are still working with creditors to decide on next steps. Richard Branson's Virgin Group, which owns just over 10% of the airline, has said it wants to remain an investor in a reinvigorated airline. Other investors have balked at putting in more cash and the Australian government has refused to offer a bailout.

Virgin Australia directed calls to its administrator, Deloitte Australia, which didn't return requests for comment.

Mr. Seymour's company is fielding calls from current and former Virgin Australia employees offering to help with the efforts. Insiders' knowledge of a company's books and operations can be handy when it comes to winding down or restructuring a failing carrier, and individuals can get paid for sharing their expertise.

After Virgin Australia's bankruptcy, Mr. Seymour said he woke up to three emails from airline employees willing to help. "That was within hours of the airline going under," he said.

The aircraft repossession trade is being hampered by the same sort of challenges facing other industries. Travel restrictions in many places make it difficult, if not impossible, for a repo team to collect an aircraft. The resale market for planes has also collapsed, making it less urgent to sweep in and repossess a jet to sell or lease elsewhere.

"People are coming to terms with how big the effect is," said Mike Skinner, chief executive of Aircraft Management Services, a U.K.-based repossession and resale firm. "We will be busier, and will have to work harder, because there will be less people interested in buying" repossessed planes.

Mr. Seymour's IBA is briefing clients -- -- mainly banks -- on the process and costs of seizing and remarketing an aircraft. For example, repossessing an Airbus SE A330 wide-body jet can cost a lessor between $2.8 million and $6.2 million, including loss of rental income, and assuming a successful replacement with another airline within six months. IBA's bill can include expenses such as a $250,000 fee for finding a new carrier to take the aircraft.

The price range depends on whether the repossession is friendly or hostile. In a hostile scenario, when an airline doesn't assist with the process, it can take half a year just to retrieve the millions of pages of maintenance records and log books required to resell the aircraft.

Still, the process has become a lot more organized in recent decades, industry veterans say. Mr. Seymour, who said he has repossessed more than 100 jets over his career, described one of IBA's first missions in the former Yugoslavia in the late 1980s. The team, including two pilots, paid an airport worker to drive them onto an airfield in Belgrade as they huddled in the back seat of the car. After dodging security officials, they managed to get inside the aircraft, a DC-10, and fly it back to Paris.

Nowadays, IBA recommends to clients a more standardized approach. Tracking sites like Flightradar24 have made finding an aircraft a lot easier, but IBA often still pulls information collected by plane spotters and aviation enthusiasts, who post photographs of jets on social media and aviation chat rooms. In one instance, an operator had painted over the delinquent aircraft's tail number to make the jet harder to identify.

Regular visits to the facility where the aircraft is kept are highly recommended, even if under a vague pretense, to create a rapport with key staff and to gain useful insights into the operation, Mr. Seymour said. He also strongly suggests round-the-clock security to prevent local small businesses that are still owed fees from poaching parts from the aircraft.

Airline suppliers and other creditors are getting savvier about using stranded planes to get paid. When Monarch Airlines, a British leisure carrier, went bust in 2017, a catering company that was owed more than $80,000 used a van to block access to one of its aircraft at London Gatwick Airport.

IBA paid up to get the jet released.

Write to Benjamin Katz at [e-mail]

(END) Dow Jones Newswires

May 16, 2020 08:14 ET (12:14 GMT)

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