Aviation entrepreneur Alok Anand explores what makes leasing businesses tick. In this episode of Flightpath with Alok, we hear from Hank Gibson, president of Regional One, a purchaser, lessor, and seller of aircraft, aircraft parts, engines, and engine parts, worldwide. Hank has been with Regional One since 2012 and has been prominent in the industry for over 30 years, holding multiple executive management positions in global sales and marketing, business development, and strategic planning. Hank has a background in finance having worked for financial services companies in New York and holds a BS in Finance from Florida Southern College, as well as a plethora of postgraduate management education programs. Hank speaks with Alok about why he left Wall Street for the world of aviation, he shares some of the successes and insights he has picked up through the course of his varied and interesting career and why those just starting out on their career paths may benefit from giving aviation a look.
Transcript:
Hank: There's an old saying on Wall Street, you can't fight the tape, right? And this goes back to the old analogy of a ticker tape. Details matter. One of the things that I've learned, having the opportunity to live in Singapore is that there is life and opportunity outside of the US. There's a distinct difference between, typically between the i-stat appraiser, and appraisers that are looking at aircraft versus parts. There's this saying, you know, do something you love and you'll never work a day in your life. And I have that luxury, right? I love aviation. It's a challenge for all of us to get young people to understand that there's more to aviation than being a pilot or an engineer.
Alok: Welcome to the Flightpath with me, Alok. I am gonna start with a small story, you know, to introduce Hank, and I know Hank, you're gonna laugh on this, but this is a story I always remember when we first met, 2013, in India. And this is, you know, it's not every day we go through our career, our life, we get inspired, but something which happened, that eventful day for me, we were in Alliance share offices in India. Alliance was owned by Air India, at that time. Now Air India is sold, they have been in news for, good and bad reasons lately, and Alliance is still owned by the Government of India. I'm sure Hank remembers Air India very well. And, what I saw that day, we were trying to negotiate lease of some airplanes. And two gentlemen who had come in all the way from Miami. It was my actually very first time being in their presence, meeting them, being in the same room, and seeing a lease negotiation happening. It went on for the whole day. And you know, I thought sometimes maybe it's difficult deal, it won't work through, it won't happen. But I saw firsthand what a good negotiation is, a good salesmanship it, and how to get deals across. For me, as being an aviation entrepreneur, it was a great learning experience. And if I have to just capture it in one line, my favorite line from that day, which I will say is that if the door is closed, open the window and if the window is closed, make a hole in the wall. And if that is closed, come through the ceiling. And it gives me great pleasure to, you know, welcome, for this very first episode of the Flight Path with Mr. Alok, my dear friend, Mr. Hank Gibson, the president of Regional One who was there with me that day. Hank, I'm sure you remember this story well. Welcome to the show.
Hank: Yes, of course. Thank you, Alok. Appreciate that memory and certainly, that is a, you know, the start of our long personal and professional relationship. So I remember that story vividly um, always enjoy going to India, but I certainly remember that negotiation and meeting you like yesterday. Yea, it was fun.
Alok: I still laugh about it, man. It was fun. If you can maybe tell me a little bit about your early career. I know that you were in Wall Street earlier, then you moved on to Volvo Air Services and then now you are in Regional One for last many years. If you can tell us a little bit, you know, about your career, a bit about your career growth, where you started, what was your early days like and what got you into aviation from Wall Street? You know, that is, I think a very interesting bit.
Hank: Yeah. Thank you, Alok. Yeah, it's an interesting story and you know, I've had the opportunity to meet a lot of young people as we started an initiative at Regional one called Regional One University, and trying to get young people to keep an open mind. A lot of young people think they wanna be a doctor or a lawyer or do certain things, and in some cases that holds true. But I think I'm living proof of keeping an open mind and letting, you know, life's journey take you down a path of opportunity. My dream as a college student was to work on Wall Street. And when I graduated with a degree in finance, I did, in fact, go to work on Wall Street for a number of years and I enjoyed the enthusiasm of the trading and every day the bell rings and there's a new opportunity and, you know, the bell closes at the end of the day and it's just an exhilarating experience. And I think the collaboration of people, technology, and data, really resonated with me, for different reasons. I made the decision to, what I thought was temporarily leave Wall Street. I opened a restaurant in New York and then was getting married and was trying to decide exactly what I would do next. And I've had a desire to potentially attend law school. So I started negotiating contracts for a company in New York, which led to an introduction to an aviation company that happened to be moving from New York to Florida. So my wife and I, you know, closed up our brand new house. We had just gotten married, built a new house in New York, made what we thought was a temporary journey to Boca Raton, Florida. Within a couple of months, I ended up in Singapore. One of our competitors for the aviation company that I was doing some work with poached our entire office. So at a very early age, I had the opportunity to move from the US to Singapore, which was meant to be a temporary relocation. Ended up being five years. And I really just loved the culture, the people. Living in Asia changed my life in so many ways and gave me an opportunity to get exposed to aviation, outside of the contract and legal capacity. Ultimately made my way back to Boca Raton, and took a senior position within Volvo. And then, you know, kind of led my path to, ultimately to Regional One. So it's about collaboration and interestingly, you know, I talk a lot with our board about my background on Wall Street and taking that lessons of collaboration and data and understanding the need for people to interact in, in the way that we manage our business. So there's a lot of dynamics and I use a lot of analogies to the Wall Street trading to drive our team and get them to understand exactly how our business works, the combination of parts versus leasing versus trading. So the background has given me a great foundation to establish and grow Regional One under those parameters.
Alok: Yeah, I've, I've seen it firsthand in my dealings with you, the emphasis on analytics and how data can help. And we'll talk a little bit about what Regional One does, obviously, and how you bring in value into the how the business is a little different than what we have seen traditional leasing companies do, you know? But, you know, there is another aspect, which I want to highlight on with your permission, which is, here's the thing, you know, you and I speak, on calls every now and then, and a lot of times we have had these early morning calls with you, early morning for you, 3.30, 4 o'clock. And for those of you know, the people who are listening maybe who don't know when I've had those calls with Hank and I've asked you, Hank, what are you doing? And he's actually in the kitchen sometimes packing lunch or packing breakfast for his kids. Or maybe, I think I'm talking about a few years back, you remember that you were in the kitchen, preparing food and I was like, wow, this is like, I mean, from where I come from, you, I, and, I try and do that now, but I, I must admit part of it is because I've seen, or I've firsthand had the, you know, experience of when I, you are one of those people whom I'm inspired, inspired from, you know. And, and you know, it'll be great to know what, what role family, plays in your life because I'm sure it, it is a central role there and it would be great to know your thoughts on that, you know?
Hank: Yeah. It's interesting, Alok, you know, you, you go through life and one of the things that I've learned, having the opportunity to live in Singapore is that there is life and opportunity outside of the US right? And there's different cultures, and different time zones . So when I was in Singapore, and this was, you know, kind of pre this type of video call or podcasts, you know, it was a much more, you know, cell phones were just coming out. This was in the late eighties, early nineties. So it was a slightly different environment. But you know, I realized, I didn't have a lot of experience in aviation at the time, and I had to make that up by building relationships and really learning. I mean, the way for me to learn and piece that puzzle together was get on the phone and just talk and listen. Listen to what customers had to say, listen to what the industry was doing. So it's really been a foundation of my style, right, which is just getting on the. And making sure that I am courteous to other people's time zone and hours and cultures. So, you know, again, that resonated back and transitioned back to when I moved back to the US I get up very early and start working the phones in Asia. A lot of my contacts in relationships that I've developed, start my working my way back to Europe. So by the time, most typical, you know, US East Coast people are starting their work. I'm well into my day. So I look at it as a competitive advantage. What's happened, you know, in the last few years is technology has been able to allow me to have that work-life balance, you know, and we're not in a nine-to-five type of environment. There's certainly some positions in the company. that can do that. And I recognize that the, you know, the sacrifices that I've made in terms of, you know, working those hours, is probably in some cases not for everyone. But I think that there is an ability in this modern world to create that balance, where you have the discipline of being able to fit family in. Because for me, I, you know, honestly, I don't have much of a social life outside of, you know, my responsibilities of work and my family. So I have three very great kids, to your point earlier, they're outta the house now, so I don't get the luxury of making them breakfast literally every morning. So when I wasn't travelling and was not on the road, that was a responsibility that I enjoyed having the pleasure of making my children breakfast every morning. And that was kind of our family time. And, you know, I'm blessed with three great kids, a great wife, and a great family, and it certainly gives me good balance to the sacrifices that I've made to build Regional One and build a career.
Alok: Awesome. You call it a luxury, you know, I must say that that's true. And, I wonder too, in our line of work if there is something called a work-life balance. But you're right, technology has enabled it to a large extent and possibly it has been accelerated, since the pandemic hit, people adapted. Some of the meetings we sometimes do in person maybe could have been video calls. That's what you realize now.
Hank: A hundred percent. A hundred percent. And you know when, when the pandemic first hit and teams and Zoom started getting tracks, and not that I was resistant to it, but I was a creature of habit. So I, you know, intuitively would just pick up the phone and, and talk to people. Or I would dial into a video conference and just be on audio. And, once I got comfortable with it, like this call where I can see you, it's, it's, it's not the same as being face-to-face and not, you know, the same of being in each other's presence. But it's pretty effective. Right. And we've had a difficulty in getting other people to embrace it and, you know, this is kind of a new initiative for me at Regional One. We've just shifted our trading floor further north of Miami and consolidating a couple of offices. But I think whether you're in Nashville, Tennessee, or Bangalore, getting on a video call is not the same, but it's, it's, it's pretty good, right? And we're trying to get people to break the habit that I had to break, which was not just rely on audio, but get on the phone and see people's body language and their facial expressions and emotions, in a way that you can't on an audio call.
Alok: Yeah. Yeah. Okay. What I'm gonna do is, I'm gonna move on a little bit to talk about Regional One here, and obviously you're the best person to tell us about what Regional One does and what is the business. But just to open as an intro for that Regional One is an aircraft lessor. They deal in regional jets. They're also a very active parts trader, and they provide end-to-end solutions to their customers worldwide on that. But Hank, it'd be great to know from you a little bit more. Because I have a few follow-up questions as you can imagine on that, you know?
Hank: Yeah, no, you did a great job introducing Regional One, but I'll add a little more colour. We are, you know, typically focused on the 50, 70, 90 seat turboprop and regional jet market. We literally kind of fly under the radar. I often, you know, think about questions we get from analysts on earnings calls or from our board about competitors. And you know, when you look at the top, typical financier lessors, we're not in that market. We're not making a small spread over the cost of capital, looking at seven or 10 year leases, you know, our tax plays and that sort of thing. You know, thinking about my background, we are asset managers, we're portfolio managers. So we certainly have a large lease portfolio. We've got over 60 aircraft in our portfolio, and another 50 on the receiving line of commitments that we've made over the next couple of years. A very large engine portfolio as well. So in many ways, we appear to be a typical lessor. But in fact, we are more of an asset manager. You know, I meet with my team every Wednesday. We go through our entire fleet. It's very dynamic. You know, we're trading, buying, selling, moving engines, extending the life of assets, , really managing the interface with our customers and the maximization of value in our portfolio while at the same time trying to avoid expensive shop visits or expensive maintenance visit. So we have three primary revenue sources, parts leasing, and trading. Over the course of a typical cycle, you know, whether that's a, you know, a month, a quarter, or a year, there is some choppiness to it, but interestingly it, and generally becomes a third, a third, or third. So obviously if we have, you know, a reduction in parts required for a certain product line to tear down, we'll accelerate the teardown of an aircraft and put that in the parts revenue to keep that kind of balance of how we're generat generating revenue and managing our portfolio in that way. So again, you know, we talked recently about the I STAT conference coming up. There'll be a lot of typical banks and less orgs there. And then there'll be Regional One, you know, flying under the radar, looking for opportunities to buy and looking for opportunities to maximize our portfolio. But we're a little, little unique to a typical lessor.
Alok: I remember you telling me that sometimes you said, look, we buy airplanes, or we buy assets and we don't even take delivery and we trade them and we make returns from them. That's our business. And that, you know, it'll be great to draw an analogy that sounds like stock trading, to a certain extent. Right. So I just wonder if that is the business model as such, or is that something which you brought in, into the business as a value from your background?
Hank: Yeah, it's, again, it's an interesting observation, right? And I, to kind of go back to some of the analogies to Wall Street, there's an old saying on Wall Street, you can't fight the tape, right? And this goes back to the old analogy of a ticker tape, right? The trend of what's happening in the market, you can't fight it, right? If there's more buyers than sellers, prices are going up. If there's more sellers than buyers, prices are going down. Like no individual or no market maker can really buck that trend, right? Generally speaking, you can't fight the tape. So I use that analogy when we buy assets, right, and I'll use the most recent one. We've made a commitment to buy 57 ERJ 140s from American Airlines. And we're taking roughly three to five aircraft a month over the next, um, several quarters. So as the market indicates what it will bear, whether we part it out for parts, whether we flip it and turn around and sell it, or whether we put it in our lease portfolio, that's a reaction to what the market will bear. We're not gonna fight that tape. I'm not gonna say, listen, I do job business case, I wanna lease all these aircraft and I'm committed to, the only way I can make money is to lease these aircraft. We buy generally in the money, meaning that we feel like every asset that we buy, I can make money even parting it out. So we're never buying assets that have some goodwill or some premium to it's age. You know, we're in that kind of 10, 12, 15-year range, where we try and maintain the discipline of being in the money to give me that flexibility of monetizing it in multiple ways. I don't want to be, you know, again, a typical leasing company where we're committed to only generate lease revenue in order to depreciate an asset over a period of time in order to make money. So much different profile in how we manage our portfolio than most lessors.
Alok: Right, right, right. So the return cycles are shorter, obviously, in that case compared
Hank: Exactly.
Alok: to a typical lessor, so, right,
Hank: Exactly. And we're, you know, we're trying to return, you know, get a return on capital quickly. Now we do have a portion of our portfolio that we've developed over the last few years where we've brought in financial partners that wanna be in the longer term investment space, and use the expertise of Regional One in order to do that. So we've developed a compliment to our typical asset base where we'll put in somewhere between five and 20% of equity with a larger investor in a newer asset on longer-term leases, and we'll manage that for a fee and then ultimately manage the asset at the end of that life cycle. So that's a complimentary vision as that Regional One has developed over the last couple of years.
Alok: As a business has evolved, Regional One, you have been there for almost a decade now with Regional One, right? Or maybe longer I think. Right? And you know, one of the things we talk about sometimes and , is about how things have changed or how it's not in terms of just people but the industry, right? And there is this pandemic which happened and that made a big shift to the whole industry. But maybe we'll come to that in a few in a few minutes. But before that, you know, generally what, on a trend basis, what have you seen in terms of how the business has evolved from where you, where Regional One was and or the industry rather, you know, not necessarily just about Regional One, but from an industry perspective as an industry participant, what do you see? How things have evolved or changed? and then maybe a little bit insights from you on where do you see this heading? You know the whole trend in the market on the trading side, part side, because it ties into a lot of other areas as, as you know.
Hank: Yeah, it's, it's an interesting question, Alok, right? Like obviously there's been an evolution like there always is a maturity of certain businesses. With that comes competition, right? You get on the radar. One of the reasons why we don't, as you know, do a lot of press releases, right, is we just bring attention to ourselves in things that we're doing. So we generally try to, but whether it's, you know, portfolio management, you know, records management, data technology, all of these tools continue to evolve. I think where some people get lost is their inability to adjust to that technology. And I'm a big believer in data. I think at the end of the day, everything that happens in terms of demand, can be boiled down to a data point. And if you're understand the data and accumulate, accumulate enough data, , you can start using that, you know, outside of the, just the general trading and the, you know, buy, sell of parts, for example.
Alok: Can I stop you there? Sorry. Sorry to interrupt you. It'll be great. You know, if you can illustrate that with an example to us. There are two, two threads here. You did mention in the very beginning when we started speaking about for example, the technology we are using now to talk, and you said people resist. So there is a change management angle there, obviously, but , that, and you know, then the other pieces where you're talking about how you feel that data can be better utilized or data can drive. This is, we hear that all the time in, in God, we trust everyone else brings data. I think that is what, you're trying to say. But, I would, I would love to, you know, get a, a little illustration from you, an example, a real life example of how you told us about the trading of the assets. That'd be great to know how, how you feel the data has added value.
Hank: Yeah. I think in, in this industry, Alok, I think if you look at, you know, the barriers of entry to get into the parts business, for example, is, is really minimal, right? It's a, it's a self-regulated industry regarding the distribution of surplus spares. So, you know, we have large competitors, you know, that are public companies all the way down to one or two-man businesses, you know, littered around South Florida, they're all just kind of making a market in parts. And a lot of that is based on an individual that has personal knowledge of experience relative to a certain product line. So as businesses grow, and we went through this at Volvo, you have a series of individuals all with their Excel spreadsheets, all specialists in a certain product line. And as a company and as the president of Regional One, I never wanted to be victimized by having an individual or a specific person that's either managing our data, owning that data, or that's the only person getting the benefit of that data. So in order to scale this business and in order to take out some of, you know, potential misinterpretation of data points, we developed a proprietary system, at Regional One, and this methodology was a foundation of what I ultimately started at Volvo, but the advancement of technology has been able to bring it to life both dynamically and in the way that the data is managed, where any data we get-whether it's supply, demand data, pricing data, meantime between removal, repair cost- we're literally pouring that into our system-Nava- and allowing it to give us guidelines and give salespeople guidelines because, if the phone rings and a salesperson picks it up, and they go into Quantum, which is our E R P system, they have to make a series of decisions very quickly. When was the last time I sold it? Did I quote it but not sell it? How many do I have in stock? So they have to go through that waterfall of 20 questions. And what we learned is through that process is there was a lot of inconsistencies from individual to individual of what they might come to a conclusion of what that price should be sold. And what we've tried to do is use data to be able to allow that to happen a little bit more, consistently. And not be vulnerable to an Excel spreadsheet or an individual's ownership of that. And surprisingly enough, even though data has come a long way, there's people that look at me like I'm crazy, right? No. Everyone manages it. You know, in Excel or everyone has a product line person that they have to rely on or depend on. And for me, in order to grow the business, and in order to get the best benefit of that data, it has to be kind of an open system for all of our people to use.
Alok: That was, that was great, you know, what you've just shared on this because. As I was saying earlier, technology, there's a second threat for me, which is, for me, it is very close to my heart as you know. But, you know, interestingly enough as the leader, of the group, of the company, you know, what has been your biggest challenge when deploying technology? I don't want to hazard the guess, but, I think one of the challenges, possibly, maybe not the top one, but maybe none of the challenges always change management as which you alluded to earlier, how to get people to use it, whatever technology you're using, but how to get people to get on board because people are set in their habits. It's human nature, you know, to continue to work with what you're comfortable with. And, so how, how have you handled that? How have you, apart from just saying do it else, and I know that doesn't work always. So how have you managed to overcome that challenge? Or you, how are you still overcoming it? Maybe.
Hank: Yeah, it, it, I think that's an important characterization, right? Because I think it is a perpetual process. Change management is difficult. You know, I think back, you know, the customer management system, the CMS that they use, or Salesforce right in this industry is very difficult. Volvo always spent a lot of money implementing an SAP system that ultimately failed because salespeople felt threatened by giving up information regarding their customers. And in the aftermarket and in the space that we're in, right, we don't manufacture anything. It's, so everything that we do, every part is very unique. The trace, the paperwork, the history, the operating environment. And the relationships that salespeople have, that's their lifeline to their career, right? So, at Volvo, we actually failed in getting people to use it, and as a leader, you're often challenged, you know, the outcome of forcing a rainmaker to use a C M S system at the risk of him leaving the company, right? So at the end of the day you say, what have I won, you know, I've lost one of my great performers, one of my great producers, because I had a policy that we insisted on people using this technology. You know, if I look at Regional one, you know, the data management has been difficult because a lot of people want to retain that knowledge in their head about certain part numbers or, you know, they've been doing this for 20 years in Excel and they don't understand why, you know, you can't just continue to do Excel. And, it is a very difficult challenge. And for me, in my position as we've continued to grow the business, it is very challenging. Um, you know, and when we recruit people from other lessors, particularly, you know, more traditional, lessors, they often find it very awkward at Regional One because we, we do things differently. We move very quickly, you know, we don't have, you know, meetings a week or two weeks from now, we're, we're making decisions live. And it's not a comfortable environment for a lot of people, but, change management is difficult and the only way I can really characterize it is, it's important for me to stay engaged with the team and that collaboration on the trading floor, which is why it's important that everyone's together so they can understand the dynamics of that's something that's very difficult to do in a remote environment.
Alok: Fair enough. I think you have, you have told us as much as you can, so, you know, and you mentioned that business is different than a traditional lessor. Yes, it is definitely for you, it is different, and I think one of the, what Regional One does is they buy airplanes. There is an airplane, which is having a three-year lease remaining, and it's old enough to be a candidate for a part out, a disassembly of the aircraft, and then harvesting the parts right? And how is that typically different? And if you have to classify that or benchmark it against a typical leasing arrangement, you know, you remember, you when, when you guys purchase, or even now when you do, you buy airplanes, which are already on lease from traditional lessers to airlines and, how they would've managed it typically, and then how you manage it in comparison, you know?
Hank: Yeah. So you go back to the Alliance transaction that introduced us, Alok. You know, that was a classic arbitrage of negotiating. So we bought the four different aircraft from four different lessors that had aircraft unleashed to Alliance. And in each case, we negotiated compensation in lieu of redelivery, right? Because again, there's a benefit to both parties in this case, right? For Alliance to go through a very long and expensive redelivery process on those aircraft, to meet the redelivery conditions for us, it's more advantageous for us to accept compensation in lieu of those delivery conditions. And that does a couple of things, obviously gives us cash quickly. But it also gives us the flexibility of taking that aircraft to a maintenance facility and being able to put it into a maintenance profile that would meet our next customer's needs. So we would look at it in, in fact, in many cases, the Alliance aircraft, we took compensation, ferry the aircraft to a maintenance facility, put minimal maintenance into it, where we would take, you know, a fair amount of risk with a new operator or in a jurisdiction that created a lot of risk. It wouldn't make sense for us to buy a 10 million dollar regional jet, turn around and put that into a very risky jurisdiction. So by taking that redelivery compensation, we take it well below the kind of in-the-money threshold of being able to say, okay, here, if I can't find a lessee, then I can go ahead and part it out, take the engines, put the engines in a lease portfolio, lease the engines for a couple of years, and monetize the assets in a different way. So that's generally the arbitrage that we're, we're playing on each of the decisions that we're making to buy assets for our portfolio.
Alok: That's because you have this huge warehousing ability, you know, to keep. And, I think the network of vendors and maintenance providers to do that, right? That, yeah. That, that is a unique advantage. And a typical lesser, I assume, would not do that. They would, they would be just happy to sell the aircraft as they did in this case, as you said, the four lessers sold these airplanes to you, or they would look at just trading it to another lessor. The part-out is normally, though I do know that over the last few years, a lot of traditional lessors have started getting active in the part-out market now. What they're seeing is there is value to be realized on that front also, but it is still not to the scale, which I would assume Regional One does, you know. You guys are like kind of specialists in that extracting value of the aircraft.
Hank: Exactly. And, you know, we typically will buy assets that are, you have green time remaining on lease, you know, the arbitrage between, you know, taking redelivery comp, in lieu of redelivery conditions. You know, we've bought airframes from lessors, we've bought engines. So our model gives us the flexibility of buying a flyer, buying a lease return, buying green time months remaining if you've got a lessor that doesn't wanna be bothered with the process of taking an aircraft back on redelivery or the uncertainty of going through that process. So, you know, we've bought assets from lessors at the end of life, after they've been through redelivery. Just a number of ways that we can acquire assets to continue to feed the need for each of those three revenue sources.
Alok: So interestingly enough, the arbitrage you mentioned, which, which you, which is what the one of the things which works in your favor, or the way that you operate your business model, you know, that is tied very, I would say closely to how the asset is valued then. You know, I'm actually moving on to the green time piece one, which is something you and I have discussed, and I think it'll benefit if, are you okay to talk about that a bit? That what you have in your mind because I think it is important for the industry to hear, you know, what your thoughts are on, just to set up a little background on that. So airplanes are traditionally valued by appraisers. The appraiser community is largely part of the ISTAT, the International Society of Transport Aircraft Trading. International Society originated from US, it's a not-for-profit organization, and it trains kind of, I would not strictly say trains, but it provides guidance to industry professionals to become certified appraisers. And they have a certain defined criteria of how they want to value assets. , there are different definitions, and I know you feel very strongly about that, that that is not, first of all, not fulfilling the requirements, of aircraft investors and especially, it is not suitable for someone who is doing the business of acquiring green time aircraft and then parting them out to realize for the residual value, you know? So it'll be great to know what your theory is on this.
Hank: Yeah, that's a full question. We could probably do a separate podcast just on this piece. But I'll, I'll try and answer you. So to your point, right, this has been one of the areas where I've really tried to focus more recently and it kind of got accelerated with the covid initiative, right? Where I realized many years ago that there's a distinct difference between, typically between the ISTAT appraisers that are looking at aircraft versus parts. And there really wasn't this kind of middle-of-the-ground solution where you could understand the real dynamics of how green time is being managed particularly on a module-type engine. So if you look at the CF34-8, and more recently, the dash 10, these are module engines that, for us, gives us a lot of flexibility in terms of how we're managing our entire portfolio. So oftentimes, appraisers will take a value of an engine up to its first limitor. And then make some assumption of a residual based on the balance of that. We actually extend our process into the module level knowing that we can take each of the four or five modules and, and swap them across our portfolio. So what we've done when Covid hit, we've tried to mature this to the extent where we've created a modified value-in-use model that we're looking at some point to get hopefully endorsed or represented at ISTAT to get the industry to understand that kind of middle ground of how an asset really should be appraised because it even gets into the detail of the prior history of the asset, the environment that it operated in, the pedigree of the parts, the pedigree, and the standard of the repairs that were done. So for us, a residual on an engine or an airframe. Is much more complicated than what a typical appraisal will put on that particular value, you know, based on, you know, some generic introduction that they had with respect to that asset.
Alok: Let me pick up an example on that. Sorry to interrupt you there. Let me pick up an example. You know, so let's say an ATR 72 500 and it's, let us say 15, 20 years old. I would say typically it'll have a, from a, from a classical appraiser methodology, it'll have a value of around two, two and a half million depending on, I know the engines, the life remaining, the LLPs. But what you're saying is that Regional One would possibly be able to extract more value from that aircraft, and there should be a new methodology devised, which should address that extra value which can be extracted from the aircraft. Am I right? I'm just trying to simplify what you just said.
Hank: Yeah, yeah. I think you're on the right path, Alok. I think in this case, you know, using your example there, for us, the real value is dependent upon the history of that particular aircraft, right? Where it operated, what the pedigree of the service bulletins, all of the details that went into that aircraft. The last time it, had a shop visit, the extent of that shop visit, what kind of parts were used? Like the details matter right, to a very large extent. And what I have seen typically is that most appraisals that are done are more generic. It's more based on a, you know, a blue book value or an industry trend or some high level macro valuation metric. And you know, honestly, in some ways I wonder if the industry, really, you know, demands as much as I'd like it to, to get a proper appraisal done. Because typically these are used for purposes of financing and, and other reasons. And, you know, a more generic, appraisal may suit their needs more than I'd like. But I do think that details matter.
Alok: Yeah. I'm wanna press you a little bit on that. And, so let's say an ATR is valued at two, two and a half million. And given, let us say all the stars align, what value will Regional One extract out of it, be able to extract out of it? The best case scenario, let's say if you're comfortable sharing that, you know,
Hank: Yeah, it's, it's a difficult question, right? Because again, the details matter in terms of the pedigree of that specific asset, right? So generally what we have seen is that Regional One has been able to extract more value than typically would be represented in a more generic appraisal, right? Because again, we're getting down to the detail of each part number. And Nava, which is our database, gives us the ability to very quickly understand at the piece, part level exactly what we expect to happen with that particular asset. It's also complicated by the fact that we can actually use those parts for our portfolio, for our lease portfolio to build other aircraft. But generally speaking, what we're finding is that our analysis harvests more revenue and more value than what you would see in a typical appraisal.
Alok: Okay. Would you, don't gimme the number, but would you say it is you going to achieve one and a half times, twice? If, you know, forget about what the value is the number, but, in a comparison, in a scale on a percentage, what additional value can one expect? It's just interesting to know this because, you know, that then adds context to this whole green-time valuation debate. You know, that's why I'm just asking this.
Hank: Yeah, no, no. As tempting as it is, it's not possible for me to give you an answer because again, the details matter. But I think the, for us, the, the green time, you know, again, particularly for a module engine, because it makes it so much clearer where you have, you know, a typical valuator whether it's an appraiser or an asset management, you're just looking at it from, you know it's first limiter. And by the way, we never take a hundred percent of the valuation for any limiter. Like we'll take a factor of that to suggest that it's gonna be 80% or 90%. So if we take the first limiter on one of our CF 34s, and we'll take a value up to the first limiter of, you know, 90%, the second, third, fourth module, we may take 80%. And that factor that we use in our methodology is largely dependent upon the details of where that engine operated when its last shop visit was and the experience of knowing the likelihood of getting 80, 90, or a 100 percent from that particular module. So again, details matter. Take the ATR example, the prop blades, right, the life of the prop blades, the number of all alls they had, all of that is going to play a significant factor in what that two-and-a-half million dollar number would be in Regional One's view.
Alok: Will that apply to us something like a CRJ as well?
Hank: Everything. There's very few exceptions where the, you know, the details don't matter.
Alok: I have a few friends over there in Embry, and I'm sure they would be very interested to know this too. I know we have a few more minutes left, I know you're busy. I'm not gonna take too much time, but maybe a couple of more questions. One is, you know about the, not going into any of the cliches about the challenges we all had. And I'd use cliche with all respect that it has been heard so many times now, the pandemic, the problems we all had, and especially the aviation industry had in general. But if like for in my case, yesterday was when I was in a meeting with my board, one of the topics of discussion was the impact of the pandemic. You know, how, how we are seeing, in our case, customer behavior is evolving. And it is, in my opinion, a long-lasting change which will have an impact. So in your case, specifically like Regional One, have you noticed anything which is, which is a pivot from pre covid to post covid or pre-pandemic to post-pandemic, which you think is, is worth noting?
Hank: Yeah, as we discussed earlier, Alok, the irony of, I had a board meeting yesterday as well. And one of the points that I made to our board was, you know, there's a lot of talk in the industry and we've had a lot of talk at our prior board meetings about the impact of covid to the industry and to our customers, and that sort of thing. And what we talk less about is the covid impact to Regional One internally, right? And I think there is, this hadn't been a trend obviously for people to work from home, for safety reasons and the uncertainty as to what, the pandemic meant and what, you know, what would be the outcome. And it's been difficult and challenging to get people to understand that that was, from my perspective, in the environment at Regional One, that was a temporary measure, it's not sustainable, right? Like there are some industries and some jobs and some capacity there you can work from home. And certainly, at Regional One, we give our employees that flexibility of having that ability to work from home when they need to or when it makes sense. But at the end of the day, our business model is based on collaboration and information. And if you think about, you know, any stereotypical Wall Street trading environment, that's what, that's what regional one is, right? It's, it's the open outcry, it's understanding information, it's being able to make decisions very quickly. So for us, the biggest challenge that I've had is convincing our employees, that there is a difference in that collaboration. There is a difference in communication and being together. And it's not that I don't want people to work from home, it's just that if, if that is a requirement for whatever reason, it just doesn't work in our industry in the way that Regional One is, is structured.
Alok: So human resource challenge is the biggest shift you're seeing?
Hank: Hundred percent, a hundred percent.
Alok: Yeah. That's, that's a universal problem, kind of. You're right.
Hank: Yeah. Honestly, for us, you know, COVID gave us an opportunity to acquire some great assets. You know, we had a situation where there was, you know, certain customers and airlines, that transitioned out of certain fleet types, consolidated their fleet types, which gave us the opportunity to buy. We did three various specific transactions during Covid, with the support of our board, and we did quite well on them being able to, you know, buy low, sell high, right? Again, that, you know, Wall Street analogy. So Covid in that way, we certainly had some challenges. You know, we had a number of customers that parked aircraft and didn't pay their lease payments. Like most lessors, we were patient and worked through it. You know, we didn't rush to foreclose and repossess aircraft. And in some ways, we're still working through the consequences of that piece. But the industry has recovered, you know, with the exception of the pilot shortage and maintenance backlogs and supply chain issues, right? The general flying public is returned to some normal stage now, and we just need to be prepared to take advantage of that. And for Regional One to thrive, we need a collaboration of people. We need people to understand the necessity to work together and create that collaborative environment. So that's been a challenge.
Alok: Right. Right. And if I can just ask one last question, someone let us say, someone starting their career now in the, and a lot of the next, or next to next generation I'm, I'm hoping we will be able to reach to them through this podcast the Flight Path. And, and I'm hoping that they will listen to it and they'll get inspired, obviously. But if you have one message to give to the, you know, the next generation coming in into this industry-aircraft leasing, financing, aviation, and I'm not talking about the class in the classic aviation sense of airlines, but this piece, you know, which we, we, you and I work in, what is one piece of advice you would like to give them, you know, so that they can, they can start on the right note and grow in their career.
Hank: Yeah, it's a great question, Alok. I, um, as I alluded to earlier, right, I, I have spent a lot of time just because of my background and never in a million years expecting that I would be in aviation. So when I meet young people and I've started Regional One university, we've started internship programs working with the local universities here, and it, it's, it's a bit of a challenge, right? Cuz they show up thinking they want to be a pilot or an engineer. There's a lot of, you know, they just don't understand that you could be, you know, a finance modeling person, you could be a, you know, a repair facilitator. There's so many aspects of our industry that they haven't been exposed to. And one of the messages that I try and give young people is to keep an open mind. And as I meet people and bring them into the organization, you know, I try and, you know, tell them a, you know, a funny anecdote here about, you know, keeping an open mind and you know, not to isolate yourself if you know you think you want to be something. And there's this saying, you know, do something you love and you'll never work a day in your life. And I have that luxury, right? I love aviation. But if I hadn't been exposed to it, you know, at the age of, you know, 25, I would've thought, okay, here what I love is working on Wall Street. So I would've spent the rest of my life working on Wall Street and, and probably enjoyed it. But what Wall Street couldn't give me was the ability to work internationally and meet people like yourself that have become, you know, not only important business partners, but you know, personal friends. So the ability to use aviation in that dynamic way internationally, it's a great industry and, you know it's a challenge for all of us to get young people to understand that there's more to aviation than being a pilot or an engineer.
Alok: Yeah. Yeah, that's, that's great piece of advice, I would say, and I wish I can find a way to amplify that, you know, for everyone. That's really great. And you're right. And I for one, I'm glad that you moved on from Wall Street and you got into aviation because you know, as the dots connect, we met. Otherwise, maybe that would've never happened because I can't imagine myself ever doing anything to do with Wall Street except maybe invest into some funds once in a while. So it's great. , for me, I'm, I'm very fortunate personally in that sense. I agree. And that we met, you know, Hank. Thank you very much. On that note, you know what I would like to say is you've given me a lot of time today. Thank you very much for making time, morning. I think it was morning 9:00 AM when we started in Miami. Great. Thank you very, very much again for your time. And it was great. It was just amazing too. Is there any message you have, anything else you want to say?
Hank: No, I just conclude it by saying thank you, Alok. I appreciate it. It's been enjoyable do this podcast. This is first for me.
Alok: Same here.
Hank: Look forward to hearing some of these subsequent issues and maybe someday we'll do it again. Look forward to it.
Alok: Yeah, yeah, yeah, a hundred percent. Same for me. And thank you very much for your patience and your time today. Really, before we just switch off, just like to leave a message for our listeners, you know that if they like what they heard please do, please don't forget to subscribe, through whichever channel you're listening to. If you're on YouTube, please subscribe. If you're watching us on YouTube, please subscribe to it. And, watch out for the for the future episodes where we are going to go to the industry and talk to more executives and industry leaders and, and learn from them. I just wish to thank everyone for that. Thank you very much.
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