OBAMA BUSINESS

Aircraft-leasing giant ILFC's future is up in the air

International Lease Finance, a unit of AIG, has lost two key executives and faces other obstacles that threaten its dominance.

It is a little-known behemoth in the commercial aviation industry, leasing aircraft to nearly every major airline in the world and owning more large passenger jets -- about 1,000 worth around $40 billion -- than anyone else.

But in just the last two months, International Lease Finance Corp., also known as ILFC, has seen not one but two top executives clean out their desks and walk out on the company.

Their sudden departure may be just the beginning of the Century City company's fall from its perch, aviation analysts said.

In addition to a leadership vacuum, the potential loss of customers, the inability to recruit talent and sharp declines in airline passenger traffic pose serious obstacles for the company in the coming years, they said.

"It seems they are at the mercy of forces that are no longer under its control," said aerospace analyst Richard Aboulafia of Teal Group Corp. "There's a chance that in the long term, it may never be the industry leader it has always been."

The first blow came Feb. 8 when Steven Udvar-Hazy, co-founder and the face of the company, left to start a rival business. The second hit came last week when his replacement and longtime associate, John Plueger, also decided to step down.

Their flight sent tremors through ILFC. The company had relied heavily on the two men not only for leadership but also for driving its sales growth. In particular, Udvar-Hazy was known as a tough-as-nails negotiator, Aboulafia said.

"This was a company made famous by its creator," he said. "Not only is he no longer there, but he's started a company that will compete head to head with ILFC."

According to reports, Udvar-Hazy, 64, has already launched a new aircraft-leasing business. Many analysts believe Plueger, 55, will join him in the venture.

Udvar-Hazy and Plueger couldn't be reached for comment.

For decades, the pair negotiated with aircraft makers and airlines for ILFC. That bond may ultimately tear business from ILFC, said Rick Phillips, managing director at Janes Capital Partners, an Irvine-based aerospace and defense investment bank.

Investors are more likely to work with Udvar-Hazy than ILFC, he said. "He's a proven moneymaker."

Udvar-Hazy co-founded ILFC in 1973 with two partners by putting up $50,000. He became a billionaire and one of the richest men in Los Angeles after he sold it in 1990 to American International Group Inc. Even though Udvar-Hazy sold the company, he was allowed to keep running it.

Then in 2008, AIG received commitments of up to $182.5 billion in bailout money from the federal government after its near collapse. The federal government not only began overseeing ILFC's day-to-day operations, it placed limits on what parent AIG could pay employees.

Because of the government bailout, AIG's 25 highest-paid employees are subject to salary caps imposed by the Treasury's pay czar, Kenneth R. Feinberg. Only five of these employees were allowed to receive more than $500,000 in cash salaries for 2010.

Plueger cited the pay restrictions as a reason for leaving the company.

Alan H. Lund, ILFC's chief financial officer of 28 years, has been named interim chief executive.

Although there is not likely to be a dearth of candidates, finding someone who can adequately replace Udvar-Hazy or Plueger is not likely, said Philip Baggaley, senior transportation credit analyst at Standard & Poor's in New York. Working for ILFC isn't as appealing as it used to be, he said.

"As a chief executive, you don't really have much control," Baggaley said. "There are compensation caps, and there's both a parent company and the government to deal with."

And filling the void comes at a time when the aviation industry is in one of its worst slumps.

The aviation industry is hurting, said Tom Captain, principal and vice chairman of Deloitte's aerospace and defense practice. He points to the 140 airlines that have declared bankruptcy over the last two years and the 8.2% decline in U.S. passenger traffic over the same period.

"It's a difficult market to navigate right now," Captain said. "Any company that's going to be successful needs solid leadership that knows the market inside and out."

George Hamlin, president of Hamlin Transportation Consulting in Fairfax, Va., said that without the right executive team, ILFC's "role as a principal air lessor may diminish."

"The people who demonstrated their worth in the past are gone," he said. "It will be interesting to see where they go from here."

william.hennigan @latimes.com