I knew that ORIX had created a major business in the leasing of ships—container cargo ships, oil tankers, and so on—and, as Nishitani had mentioned, the company began financing airplanes to U.S. airlines in 1982. But it never actively pursued that business in America. Instead, it started a new firm, ORIX Aviation Systems, in Dublin. I was interested to find out why.

There aren’t a lot of direct flights from Dallas to Dublin, so I flew back to New York for one night and then on to Ireland late the following day. Flights from New York generally arrive in Dublin early in the morning, too early to check into my hotel after a long flight.

Fortunately, David Power, the CEO of ORIX Aviation, either because he had psychic powers or because he had been in this same situation himself, had sent me a message to take a cab to the Hibernian Society, where I would be taken care of until our lunch meeting. Full of Irish cheer, the driver of the cab I took explained, “It’s the oldest gentleman’s club in Ireland. If your friend’s a member, he’s sure doin’ right by you.”

After a thoroughly refreshing shower and a quick nap, I made my way to the dining room to meet my host, who was deep in conversation with an attractive blonde woman when I arrived. I noted that David Power was in his forties, though he could have passed for a few years younger, not overly tall and probably fond of the local cuisine. He wore thin, wire-frame glasses under a mop of tangled brown hair, and his face seemed to resolve to a smile as its default setting. David introduced his companion, Marie-Louise Kelly, as a colleague. I inquired about the meaning of her title. As director of funding and acquisitions, she explained matter-of-factly, “I help with obtaining funds to support the company’s operations.” Barely off the plane and I was already asking stupid questions and getting obvious answers. Not to worry, I thought, my brain would surely be arriving on the next flight.

Finally, introductions and food orders out of the way, I asked David about his business.

First of all, what exactly does ORIX Aviation do?

“Simply put, we own and manage a fleet of about 150 commercial aircraft and spare engines around the world. Some of these assets we own outright, some we manage as a portfolio of leases for others, and some we manage as joint ventures in an asset management capacity.”

Then, the question I was dying to ask.

Does that mean that airlines don’t actually own the planes they fly?

“Well, of course they own some of them. But airlines have lots of reasons not to make the enormous capital investments necessary to buy today’s aircraft. A wide-body jet runs at least $100 million, often two to three times that. Buying a fleet of those ties up a lot of capital very quickly. Not to mention that if you order a plane today you might get delivery four or five years from now. What if you need to expand your fleet in the next six months? And we haven’t even mentioned the tax benefits involved in leasing.”

I assume we’re talking about smaller and medium-size airlines with limited access to capital?

“No, we’re talking about United Airlines and British Airways and Lufthansa, and KLM and Quantas and Southwest, Air Canada, SAS, Emirates . . . I could go on.”

Okay, I’m beginning to see that this is a much bigger business than I had imagined.

“Yes, it’s quite big, and it’s getting bigger quickly,” he said. “In 1970, the combined total of all the world’s airline fleets was considerably less than 4,000 aircraft. By 1990, it was over 9,000; by 2000, it had topped 15,000, and now it’s around 20,000. But what is more interesting—” with a glimmer in his eye “—is that until the 1980s, hardly any of those aircraft were leased. By 1990, the leased ratio had jumped to roughly 15 percent, by 2000, it was 25 percent, and today, it’s close to 40 percent. We have good reason to believe that within the next five to six years, roughly 50 percent of all the commercial aircraft in the world will be leased. Are you beginning to get the picture?”

I paused to think about that. Okay, right now 4 of every 10 planes in the world’s airline fleets are under lease, and by the end of this decade it will be 5 out of 10, and the total number of aircraft in that world fleet is growing rapidly.  Yes, I was starting to get the picture. This was a very good business for ORIX to be in.

Is OAS one of the top five companies in this sector?

“If you’re ranking in terms of assets, no, certainly not. We’re reasonably big, but we don’t have 500 aircraft on our books, or anything like that. That’s not how we do business. But in terms of recognition and reputation, we’re a heavyweight. Our reputation in the market is huge, much bigger than our asset weighting would indicate. Of course, there are much larger companies, but the airlines and other clients rank us among the top 10. And if you start looking at various metrics of quality, such as ability to manage risk long-term, well, then I’d say we’re number one in a couple of areas. I think that’s one of the things you’ll find out about ORIX Group companies: They all understand that you don’t have to be the biggest to be the best.

“Let me give you an example. Years ago, when we were much smaller, we competed in a public tender to provide advisory services to the Export Credits Guarantee Department, which is practically a ministry of the British Government. We were competing against British Aerospace, which had 164,000 staff to our 22, and needless to say, far more clout in the marketplace. But the tender was to advise the ECGD on their distressed aircraft portfolio, and that’s a business we know very well. We won that tender, clearly not because we’re big, but because we’re exceptionally good at what we do.

“Right after that we decided that other people should be able to see just how good we are. We invited Standard & Poor’s to examine our firm top to bottom and issue an independent report. Since that time, they have continued to audit us twice a year. Of course, they’re not experts on aircraft leasing; they look at us as if we were a bank. They look at our assets, our use of capital, our risk profile, returns and so on. The very first time they examined us we were ranked Average, as they really didn’t have another firm in their files to compare us to. The second time we were ranked Above Average, and from the third time on, we’ve been ranked Strong. We’re still the only S&P-ranked aircraft lessor in the world.”

Why is that so important?

“Largely because we do co-investment projects, and it makes things much easier when a potential investor can check you out via S&P. We have several U.S.-based investors who rely in part on those S&P rankings to indicate the relative safety of an investment partner.”

Very good. Now, on to my next question.

ORIX is based in Japan. It has lots of corporate clients in Japan who buy and lease aircraft. Why not run that business out of Tokyo. Why Ireland?

“Ah, now that’s an excellent question.” His face seemed to light up. I had unknowingly hit a favorite topic for this CEO-cum-ambassador for the Emerald Isles. “Why Ireland? The answer is very simple: because Ireland has the longest history in this field, the largest pool of experts in every aspect of aircraft leasing, an ideal geographic location, and an unbeatable tax situation. . . . People also say we make good beer.” I looked up from my notes. Both he and Marie-Louise were smiling. Why don’t I meet more CEOs with a good sense of humor?

David set about explaining not just the background to his own company, but to the industry as a whole. That was good because I knew less than nothing about the industry, and the history is actually quite relevant to understanding the business today. Here’s what I learned during the rest of my lunch and on the car ride to OAS’s headquarters:

In the 1970s, the whole concept of aircraft leasing was virtually unknown. Then along came an enterprising fellow named Tony Ryan (who much later founded budget airline RyanAir), at the time an executive with Ireland’s national carrier, Aer Lingus. Ryan had picked up some specialized skills in creating complex financial structures that allowed the airline to lease out some of the excess aircraft in its fleet, together with full crews, maintenance, insurance coverage, and so on. Although there weren’t many buyers for these “wet lease” packages, it didn’t take too many customers to produce a reasonable return. Ryan saw a business opportunity in the making, and so, in 1975, he persuaded Aer Lingus and a U.K.-based investment firm called Guinness Peat Group to bankroll a new company to specialize in aircraft leasing, Guinness Peat Aviation (GPA). It took a few years to get off the ground, but by the mid-eighties GPA had become the world’s largest commercial aircraft lessor. Although at first that seemed like being king of a rather small hill, the hill grew quickly. Just a few years later, GPA was showing an annual turnover of $2 billion—in what had been assumed to be a small, insignificant niche in the financial industry. All over the world, people took notice. Companies like General Electric, Air Canada, and Long-Term Credit Bank of Japan became investors in GPA (which was still privately held). It grew rapidly and, in 1990, the firm placed orders for a whopping 700 new aircraft, a mammoth fleet worth $17 billion. That also got some serious attention. Whatever was happening in aircraft leasing, GPA was calling the tune for the entire world, which meant that Ireland was the center of the action.

Unfortunately, the Gulf War led to a disastrous downturn in the industry—just as GPA was preparing to take its stock public. They went ahead with the IPO, anyway, sure that the markets would see that this was just a cyclical downturn in an otherwise healthy business. The markets were not so obliging, and the IPO was a monumental failure. GPA fell into severe financial distress and had to sell off both its equity and its planes. As GE was one of its major shareholders, a subsidiary firm called GE Capital Aviation Services stepped in to manage the bulk of the GPA fleet. Over the next few years, hundreds of aircraft were sold off. Thus, GPA not only created the leasing business, but in its demise, also seeded some of its successors, the large aircraft lessors who dominate the business today. Much more significant, and the real answer to my second question to David, is that during the two-decade rise and fall of GPA, hundreds of smart young men and women in Ireland came to look at aircraft leasing in much the way that their counterparts in America were starting to look at investment banking—not just as a business, but as the business, the one you want to fight to get into, the big meal ticket. Just as Harvard students were dreaming of going to work for Goldman Sachs, Trinity College Dublin students were dreaming of working for one of GPA’s successors.

“In most countries people have never heard about this business,” David explained. “But in Ireland it was on TV all the time, even 20 years ago. Kids heard about aircraft leasing constantly and, as you can imagine, GPA was a huge story. James Meyler, our chief commercial officer, whom you’ll meet shortly, is a smart young fellow, and he was thinking about a future in aircraft leasing even back in high school. In other words, for Irish kids, it’s normal to consider this business as a great personal opportunity. It’s a highly desirable field—tough to get into, but very rewarding if you succeed.”

As you would expect, Ireland soon found itself with a large pool of smart, dedicated, and experienced professionals, both men and women, who could create and manage the extremely sophisticated financial structures necessary for buying, selling, and leasing planes costing hundreds of millions of dollars. Hence, Ireland had an almost unique talent base that attracted other firms who wanted to get into the business.

“There are some major aircraft lessors based elsewhere—in L.A., in Amsterdam, and so on—but I’d be hard put to think of one of them that doesn’t have a major office here in Ireland. There are over 40 aviation leasing companies based here, which is roughly 90 percent of the entire industry. In addition, the Irish government actively supports the industry; this is a very friendly regulatory environment, and, of course, there’s the favorable tax situation, which is really icing on the cake. So this has become the de facto global center for the business.

“More than anything, though, I think it’s the talent pool. The whole aircraft leasing business only needs a few hundred people, but if you want to compete in that business, you’re going to need the very best people you can get your hands on. There’s no place on earth that comes close to Ireland in that respect, so it’s safe to say the business will be centered here for a long time to come.”

Why wasn’t there much of a leasing business before Guinness Peat? It seems like they practically invented aircraft leasing, and it’s their legacy that put Ireland on the map.

“In many ways that’s true. If you look back prior to GPA, the whole concept of aircraft leasing was a legal gray area. Think about it this way: When it comes to fixed assets, everyone is comfortable with the traditional real estate model. You can see the asset; it isn’t going anywhere. You want a loan to buy it? No problem, here’s your mortgage. The financing side of the deal is comfortable because there’s plenty of security: You may run away, but the property won’t. And you, as the lessee, or tenant, feel comfortable because you know the banking laws and real estate laws in your area. Any lawyer can help you if there’s ever a problem. But aircraft are a different kind of asset; they move around all the time. The asset is in a different country every day, flying from one legal jurisdiction to another constantly. What happens if there’s a problem while the asset is in transit somewhere? Whose laws apply? What laws apply? It was a morass of unknowns.

“Then GPA developed a syndicated loan facility with its banks, which by the way is something that I worked on when I was a young lawyer ages ago. My team got legal opinions in every country in the world so that if there were ever a serious problem, the lessor, even though domiciled in another country, would have the right to repossess the aircraft. I worked on that project for quite some time, and it was a very big deal, let me tell you. Thanks to that legal structure, a small Irish company was then able to borrow billions of dollars on the security of movable assets that crossed multiple borders and legal jurisdictions every day. That completely exploded the myth that movable assets, specifically aircraft, could not provide investors the same kind of security as real property. In fact, a whole raft of international treaties developed specifically as a result of cross-border ship leases and aircraft leases. That was also a major step forward in international law. U.S. airlines began securitizing whole fleets of aircraft.”

Corporate Culture

The OAS offices are in a small building just a short drive from downtown Dublin. One end of the building features panoramic views of the Irish Sea. I looked out over the water and tried to remember my geography. Dublin sits on the east coast of Ireland, roughly across the water from Liverpool in England. I shook hands with some of his team: Marie-Louise, whom I had met at lunch, together with two friendly looking but businesslike gentlemen, James Meyler, and Brian Goulding. I followed David and the others around the hall to a brightly lit conference room.

Looking around the room, I could see that one wall was covered with framed photos of guests, either on their own or being greeted by David, and all the sideboards and conference table were decorated with scale models of commercial aircraft mounted on stands so they seemed to be in flight. I asked David about his own background. After all, he’d said lots of smart young people in Ireland wanted to get into aircraft leasing. I wondered if that had been his dream, too?

“No, no,” he smiled. “I had my eye set on the law. I went to University College, Dublin, where I studied commerce—economics, math, accounting, law, and so on. I worked hard, took the law exam, and went to work for a top law firm. That’s what I wanted to be, a lawyer.”

Then what is an Irish lawyer doing managing a Japanese-owned aircraft finance firm?

“Actually, my law firm sent me to work for a time at an aircraft leasing company that was one of their clients. I came to understand that business pretty well. One thing led to another, and sometime later I was hired away to manage the legal department at another new aircraft leasing firm. Eventually, I was asked to join ORIX Aviation as general counsel.”

Excellent. That explains why you took the job in 1992. But you’re a bright guy, you know people, you had contacts all over the industry; you could have gone back into law or on into one of the established aircraft leasing operations. Didn’t you ever think of leaving?

“Why would I?” David looked seriously puzzled. “ORIX hired me when I was 27, made me general counsel and gave me a seat on the board. I was promoted a couple of times in the next few years, and then named CEO before I turned 40. They didn’t give me much time to look anywhere else. . . . ” I noticed that everyone, including David, was laughing at this point.

And then I looked around the room. His team looked just like the dozen or so people I’d seen in the offices we’d just passed: They all seemed young, even those who were not quite so young any more. The whole team radiated a feeling of youth and energy and intense focus on their work. Friendly and easygoing—the guys preferred jeans and dress shirts to suits—but they all had the Look. If you’ve ever visited successful high-tech companies in Silicon Valley or top-rated fund managers in New York or Hong Kong or London, you know the Look.

“In this industry, everyone changes jobs. They all move around from company to company because the biggest asset is talent. And, as a matter of fact, several people have quit OAS on my watch. But they all come back.”

David cast a long look over at one of his staff. I’d just been introduced to James Meyler, the chief commercial officer whom David had mentioned earlier because he’d wanted to get into this business since high school. James kept his eyes lowered during this discussion, but he raised his hand in a half-hearted mea culpa. I must have looked surprised because he looked up at me with a big smile and said yes, he’d joined the company in 2003, quit in 2007, then come back in 2009.

Why?

“Once you see how other firms are run—the pressure, the egos, and everything—this place is remarkably sane. There’s a corporate culture here that you just don’t find elsewhere.”

Now we’re getting somewhere, I thought. I turned to David again.

Where does that corporate culture come from? Did you invent it? Was it inherited from the previous CEO?

I paused to collect my thoughts and started over. I remembered that David had been on board since the early days of the company.

Was OAS a typical “overseas Japanese outpost”–type of company when it started?

“No, not exactly, but yes, there were Japanese managers here at the outset. And they had a certain approach to doing business that was hardwired into their DNA. I think we all picked up some of that.”

Such as?

“They all had a good grasp of two apparently contradictory things: risk and growth through opportunity. Most of the Japanese I’ve met at other firms see those two as opposites: risk is the enemy of stable growth. The ORIX guys are different. They’re more . . . for want of a better word, entrepreneurial. They understand that growth is the name of the game, and that growth means seizing good opportunities when and where you find them. Risk is unavoidable. But the ORIX people understand that the key to real growth year after year is to come to terms with risk, to understand it inside-out and plan your strategy accordingly.”

So you picked up the DNA from the ORIX team that helped establish this company?

“We acquired some, and we created some of our own. We have adapted the Tokyo DNA, localized it, if you will, in a way to maximize our success and at the same time satisfy our parent firm. For example, we’ve been refining the risk models here in ways they never thought of in Tokyo. Now we’re teaching the headquarters a thing or two about risk modeling. I like to think that’s part of the return on their investment in a bunch of young Irish lads.” He was smiling broadly and I noticed he wasn’t alone; his team was also grinning.

How much control is there from Tokyo? Does the head office tell you who to hire or who to promote?

“Not at all.  That’s my job.  And as you can tell, I like to seek out the smartest young people I can find. We train them and give them experience and help them grow into professionals who know their jobs as well or better than anyone in this industry. If you ask me what I’m most proud of in this place, I’d say without hesitation that I’m proud of this team.” He looked around the room and smiled. “To succeed in this business, we need to be sharp, creative, well informed, and right . . . at least most of the time.” Once again, he laughed and I saw the team nodding in agreement.

I told David I was curious to know how and why ORIX got started in this business.

“Well, now, that’s very interesting. As you probably know, ORIX was already involved in leasing—not just machinery and equipment but ships and aircraft. In fact, ORIX was the top leasing company in Japan. Nowadays the big banks, the trading houses, everybody’s involved with leasing, but back then it was a much smaller market, and ORIX was the industry leader, particularly in finance leases and leveraged leases. They also developed the first operating lease there. The details of different types of leases are not important. What is important is that ORIX already had a wealth of experience and knowhow in this business. They had been doing leases for domestic airlines—I think they arranged the first leases for Japan Air Lines, the national flag carrier—but they could also see that this was a business with huge growth potential. I’m talking about the 1980s, when Guinness Peat was still proving to people that aircraft leasing was really a viable business. ORIX saw that passenger demand was going to rise long-term and that demand for aircraft would rise accordingly. The bottom line was that more people were going to have the means to fly and more airlines were going to appear to service that demand, and none of that would change anytime soon.

“So ORIX wanted to get into the international market in a big way. Obviously, the people in Tokyo realized that they had already acquired a certain amount of expertise. But they also recognized that there was a fundamental difference between aircraft finance leasing and aircraft operating leasing.¹ The leadership of ORIX understood that those two types of leases led to fundamentally different approaches to the business, and understanding that put them way ahead of other Japanese firms that were trying to compete in that area. ORIX management realized that they needed to build expertise in the operating lease business overseas, and preferably in an area with English as a native language because technical records for airlines worldwide must be kept in English, and really the whole business is done in English, which narrows down the number of candidate countries considerably.

“Looking back on it, this all sounds logical: Grow a business in Japan, expand the scope, take it overseas, set up new operations with a mix of old staff and new, and build a reputation as a global player. But I can assure you it was anything but simple for the managers in Tokyo at the time. For one thing, there must have been a lot of people in Tokyo saying, ‘We know leasing; we’ve done some operating leases; we can hire people who speak English, train them here, and run the whole business from our own offices.’

“But President Miyauchi wouldn’t have it. He understood the need to be international, not just look international. At first, some of the Tokyo brass wanted to run the business out of New York. Why? New York isn’t a center of aircraft leasing, but it’s a financial center, and at the time ORIX had its main U.S. office there. One of the senior ORIX managers felt quite strongly that the leasing business should be based in Manhattan. Again, you can see Miyauchi’s hand in the decision not to set up in New York. He understood the implications of what Guinness Peat had created in Ireland, the way the whole center of gravity in this business was shifting there, the tax advantages, the talent pool, and so on. The result is that ORIX decided to set up in Dublin.”

To get the business going, I learned, the company decided to buy some aircraft. And not just any aircraft, but the newest plane on the market, the Airbus A320. The A320 debuted in 1988, just when ORIX was planning to start up the leasing business. It was not a modification of any earlier design, but a “clean sheet” using state-of-the-art technologies. It was the first commercial fly-by-wire aircraft, which back then was a monumental revolution in design, the predecessor of everything in the air today. Essentially, the A320 would constantly monitor itself and feed that data to the cockpit, where a two-man crew viewed this stream of data on about a dozen monitors. The pilot would then control the aircraft through a sophisticated computer system, not a mechanical connection. For example, in every film you’ve ever seen about airplanes, the pilot at some point reaches for the large power throttles in the center console to increase or decrease engine thrust. The A320 had the same throttles, but they were electronically connected to digital engine controls, and it was those digital switches that actually operated the engines. Even the wheel in the pilot’s hand was nothing more than a sophisticated computer joystick.

The idea of fly-by-wire had been around for a while. However, not everyone thought it was ready for prime-time, and quite a few pilots were not comfortable with the idea of  “a computer flying the plane.”² To some, it seemed a long overdue improvement. To others, it was a mistake: technology getting ahead of itself.

The early days of the A320 seemed to prove the skeptics right. When the plane was introduced in 1988, it was given a public viewing at an air show in Habesheim, France. The flagship Air France A320 at the show crashed spectacularly, killing three passengers, and the cause was determined to be the pilot’s lack of familiarity with the new fly-by-wire system. Barely two years later, a similar accident in India resulted in dozens of casualties. In 1991, the Gulf War flared up and the whole aircraft leasing industry went into a nose-dive. This was precisely the time when ORIX decided to buy in. As David says, “It was a very gutsy move. It sent a signal to the market.”

So, the company bought some of these A320s and then the leasing business took off?

“Well, it did and it didn’t. As I mentioned, the period following the Gulf War—the period right after I joined the company—was a very rough time in our industry. That’s why I give ORIX credit for having the guts to get into the market when it did. It was a challenge at first, but ultimately we were able to place all the aircraft the company acquired.

“There was also a lot of deregulation in the industry during the 1990s. That led to several new start-up airlines appearing, which should have been a good thing. But with the troubles in the mid-nineties, it was a rough time to be starting an airline. Many of those new companies, including some of our clients, went under, which means we had to repossess the leased aircraft, something you really want to avoid if at all possible. Over a period of a few years, I repossessed a total of almost 40 planes. That’s a huge number. But if clients can’t make their payments for an extended period of time, you have no choice; you have to get the equipment back.”

Someone came into the room and handed David a small slip of paper. He nodded and began getting up, still talking to me as he headed toward the door.

“The problem is that each airline has its own internal schedules, maintenance programs, peculiarities in how they keep records and so on. If you take back a plane in midstream, you have all sorts of headaches to deal with. In any case, we did what we had to do. But it was a difficult time for everyone. . . . Sorry, I just have to take a call. I’ll be right back.” And he stepped out.

What Makes Us Special

I used this opportunity to talk to Brian Goulding, who hadn’t spoken yet. Brian was a bit older than the others, but looking very comfortable in casual blue jeans.

Brian, your card says “Senior Advisor.” What exactly do you do?

He replied in a firm but friendly voice: “I work on the funding side with James.” A nod toward James Meyler. “I’m an accountant by training. I took an MBA in Canada, then I worked at GPA for six years, then for a financial firm. And I have a very small leasing company of my own. I actually own an aircraft in China, which I lease out through ORIX. That’s how I ended up working here, in fact. Some years back I went to David to ask for advice on what to do with this plane I’d just bought, and he made me a compelling proposition as to why OAS should manage the aircraft for me. It made very good sense. Then he said, ‘Now, then, what can you do for us?’ Ultimately, he convinced me to come on board as an advisor.”

And you’re comfortable here?

“Very much so. ORIX Aviation is a very interesting company. It’s not based on big personalities. In this industry there’s a lot of ego-driven business, but that’s not David’s style. The culture here is very different from other places, and I like that.”

So, what is it that makes ORIX so special? Everyone says the corporate culture. I get that. What else?

“ORIX Aviation is truly exceptional. This is the only heavyweight company in this entire industry that has not ordered billions of dollars of aircraft. All the others have ordered billions from Boeing and Airbus. That’s not to say that ORIX has never placed big orders or would never do so again, but today our business is not defined by having $10 billion of aircraft on order and then killing ourselves day after day trying to place that equipment. If you’ve got $10 billion of aircraft on order, you must place them, you must find clients. And that desperate need to place lots of expensive equipment sets all the leasing companies in direct competition with each other.

“We don’t play on that field, so our relationship with other aircraft leasing companies is a very positive one. We compete, but in a different way. For the most part, what we do is to buy their aircraft—a few at a time, and only when it suits our needs. They fly the big egos and make billion-dollar orders. We’re quite happy to buy an aircraft here and there, but only when we’re sure it’s right for us. That approach sets us apart; it’s a very different way to do the leasing business.”

“Another thing is the difference between handling new equipment and older equipment. It sounds the same, right? New cars, used cars; what’s the big deal? But with aircraft and engines, the dynamics of the industry are very, very different for new equipment and older equipment. It’s not an exaggeration to say they’re really two different businesses. For that reason, very few companies are willing to take on the challenges of both. ORIX does both. Brand-new equipment and end-of-life equipment. That, too, is very unusual.”

I turned to Marie-Louise Kelly. What did she think was special about OAS?

She smiled and answered one of my key unasked questions. “Lots of aircraft leasing firms are subsidiaries of larger financial groups, but I don’t think many of them have the collegial relationship with their parent that we do. Even considering the distance—our parent is on the other side of the planet, after all—and the vast gap in cultures and language, and what have you, still, we work together very well.”

You have access to capital from the parent?

“Yes, most of our funding comes from Tokyo. We usually buy narrow-bodied aircraft with our internal funds, that is, Tokyo funds, and then repay them, but narrow-body and wide-body aircraft require a totally different scale of investment, so for the latter we need nonrecourse loan structures and external financing. Not for every transaction, but for some.”

I actually remembered something about corporate finance and nonrecourse loans, which are simply debts that are heavily collateralized by real property, so I didn’t start sweating visibly.

So, cost of capital must be a major factor in the success of a business like this?

“It is. It’s very important. And that’s why having access to a smart, strategic parent like ORIX, who understands what we’re doing and how we’re managing their funds to maximize the return, makes all the difference.”

“I heard that,” said David, reentering the room. “It’s absolutely true.” Taking his seat, he continued. “We don’t buy big fleets of aircraft, but when we do see an unusual opportunity, we need to seize it. And that requires a parent with deep pockets. It also requires that the managements of both the parent and the subsidiary are on the same page in terms of long-term strategy, which we are. That’s another reason we’re lucky to be part of this Group.”

Bottom line: Is this really a good business for ORIX?

“Most definitely,” David said authoritatively. “And for various reasons. Perhaps most important, ORIX doesn’t want to keep doing exactly the same business and making the same predictable profits year after year. If they did, they could have kept doing finance leases in Tokyo forever. They want more. They want growth. Long-term growth that justifies their support for OAS. So now we’re producing growth through a three-tiered strategy. As I told you at lunch, we have three different kinds of operations: We manage operating leases sourced in Japan, which accounts for about 30 percent of our business; we manage our own assets, which is roughly another 30 percent; and we are doing more co-investment with outside investors, which is about another third. Remember when I talked about our S&P ranking and how helpful that is for North American investors who want to check us out quickly? That’s the co-investment business.

“As I’ve explained, our industry is heavily asset-oriented—companies like ours are assumed to own big fleets of aircraft, engines, and so on—and yet, a large part of our business is not asset-based but rather, management-based.  That is, it’s a fee business.  That gives us more value-added than if we were confined to being a supplier with a bunch of airplanes to lease, and it’s also a very good hedge against unforeseen changes in the markets. Suppose, for example, there were a change in Japanese laws that dramatically affected our operating lease clients in Japan. At first it might have a significant impact for us, but very soon we would shift our focus, increase co-investment, stabilize revenues, and we’d be growing just like before.”

To reinforce his point, David pulled out some charts to show me what was happening in his industry. The first thing I noticed was that overall passenger numbers just keep growing. Current forecasts by independent sources project that air traffic will grow by about 5 percent annually for the next 20 years. No one in the stock market will give you that kind of assurance. No wonder OAS is attracting so much investment. New airlines are being created to service all this growth, especially in Asia. New airlines means new demand for planes. Meanwhile, existing fleets around the world are aging, which means several thousand planes will be retired and replaced over the next several years. And all airlines are under intense pressure to trim costs and operate more efficiently than ever before. Airlines see that it makes much more sense not to own all their planes and instead free up capital for renovations, route expansion, marketing, and so on. So the percentage of leased aircraft is rising sharply.

This is a recipe for solid, long-term growth, which is just what David and his team had been trying to explain to me since our first lunch. Their conclusion is that ORIX placed a bet 20 years ago on the future of the aircraft leasing business, and they did so at a time when several others were taking their chips off the table. ORIX bet that the global economy would grow, thus driving air traffic, which would in turn drive the aircraft leasing business. They also bet that a successful company should be based in Ireland, not Tokyo or New York, and that a smart, young, local team would produce outstanding results. It was a huge, many observers might say risky bet, but now ORIX’s management look like geniuses for being right about every step of that forecast.

Marie-Louise suggested that I might also understand things better if I looked into what ORIX’s rivals in Japan are doing, so I did some research later on and found that, sure enough, other financial companies are scurrying to catch up. Marubeni Corp., one of Japan’s big trading houses (sogo shosha), set up two separate joint ventures in Singapore (in 2010 and 2011) to do aviation leasing, then in 2013 they bought an equity stake in Aircastle Limited, a major U.S.-based aircraft lessor. On the banking side, Japan’s two largest financial groups have also made large-scale investments in aircraft leasing recently. In 2012, Mitsubishi UFJ Financial Group’s leasing arm bought Jackson Square Aviation for roughly $1.3 billion, and the Sumitomo Mitsui Financial Group dropped more than $7 billion to acquire RBS Aviation Capital, a Dublin-based firm ranked fourth worldwide in terms of total fleet value. In other words, some of the biggest, most conservative financial establishments in the world are looking at this industry and saying, “Long-term growth; attractive returns; we need to be there,” treading a path that ORIX opened up more than two decades ago.

Brian, the team advisor, tried his own hand at explaining the global picture: “There’s $100 billion of new aircraft delivered every year. Of that total, roughly one in five of the aircraft are purchased directly by a leasing company. About one of the remaining four that are delivered to airlines is actually a sale/leaseback. So, about 40 percent of the total $100 billion of new value created each year is accounted for by the leasing industry. Now, $40 billion annually may not be a big deal in something like the oil business, but in any other business, that’s considered serious growth. And that’s the growth in our industry every year. On top of that, all current projections say that this growth should continue for the next 15 to 20 years.”

The numbers and the growth forecasts were quite impressive, but I’ve seen other industries chart comfortable growth scenarios, only to see their forecasts crash and burn. Talk to anyone with a couple of decades of experience in the newspaper industry or the travel business, both ravaged by the growth of the Internet, or for that matter, the thousands of “new economy” companies around 2000 that bet everything on their vision of how Internet growth would unfold. Today, it’s as if a tsunami simply washed those companies from the face of the earth—along with tens of billions of dollars in investment capital. My point is that I don’t want to play devil’s advocate here, but David and his team were talking about betting large sums of money on potential future demand that, as we know, no one can predict with certainty. Guinness Peat Aviation created and ruled this business decades ago, and they were so confident of continuing growth that they ordered billions of dollars of new aircraft. Then the Gulf War erupted, the market softened, their IPO went south, and the company spiraled into insolvency. So, even the rosiest, most believable projections of future growth won’t protect you against sharp, unexpected downturns in the markets. Sic transit GPA should be inscribed over the doorways of every company in this business. I looked at David.

Isn’t the same true for ORIX Aviation?

“Of course, that’s a very good point. Even though we’re quite certain that passenger demand will continue to grow, and demand for new planes will continue to grow, we are also certain that it won’t grow in a straight line. There will be ups and downs, good years and bad. If there were a major war somewhere or some other global crisis, there could be a severe market downturn for a few years, just like the one that GPA ran into. The big difference is that we’re not making the same kind of bets as GPA did or many of our larger rivals are doing right now. We’re not committing to buy fleets of aircraft.” He laughed to himself and looked over at his team. “In fact, our buyers are probably the stingiest, choosiest buyers in the industry. We’re very, very careful before we buy anything. And as I just explained, our business is much better balanced than some others, with increasing emphasis on our fee-based operations.”

He paused a moment and looked out the window at the bright blue Irish sky.

“I’ll go a step further and say that ORIX Aviation will grow regardless of the economic environment.” He turned back toward me. It seemed as if he’d just had a revelation, and a pleasant one at that. “Of course, everyone likes a good market, including us, but I would say we can do even better in bad markets. Now why is that? In a difficult market there are more buying opportunities, some attractive and some not. In many cases, we have access to valuable information that I’m confident many other firms do not have. We’ve also specialized in buying things when other people are nervously pulling back, waiting for conditions to improve. We have a fantastic track record in evaluating and acquiring distressed assets. And we’ve done many co-investment projects. We’re getting better and better at that. So, to answer your question, yes, there will be fluctuations in the global economy and in this industry as well—although I still believe there’s at least 20 years of solid growth ahead for the industry as a whole. If there are unforeseen problems or a severe downturn in the market, frankly, that doesn’t worry me. We have designed this company to succeed in good times and bad. We’ve proved that before, and we’re getting better every year.”

I recalled Nishitani’s analogy of a computer playing chess, learning as much from losses as wins and building a “database on risk” that is a priceless asset for future success. Then I zoomed back to rethink my perspective.

As an outsider who is just coming to know the ORIX Group, it seems to me that Tokyo’s smartest move was getting into the aircraft leasing business early, despite their lack of experience and the poor market environment at the time, then deciding to manage that business overseas instead of from Tokyo, and then, choosing Ireland as the right place to locate the business. All of those were, in hindsight, brilliant strategic moves. But again, speaking as an outsider, and I mean this objectively (I have nothing to gain by flattering anybody here), I think the next biggest success was getting you on board and pushing you into the CEO’s seat early on. You have molded this company in certain ways, helped to create a tangible corporate culture, and guided the firm to steady growth through good times and bad. I assume you were tipped to become CEO from long ago?

“No, absolutely not.” he laughed, obviously embarrassed by my remarks. “There were people senior to me who were much more obvious candidates. I was not the front-runner in anybody’s book.”

So who made the final decision?

“Miyauchi.”

The better I got to know ORIX, the more the pieces of the puzzle began to fall into place. ORIX had experimented with aircraft financing in 1982 in the United States. Then, for whatever reason, it had decided to get into the aircraft leasing business in a big way. The company had half a dozen options to develop that business and rival internal forces pushing for Tokyo control, New York control, and so on. Miyauchi himself chose Dublin, and he sent some sharp Japanese execs to manage the start-up phase. Needless to say, they had a mandate to hire exceptional local talent. One of those hires was David Power. And when David began to show that he was more than a good general counsel, when he grew into the kind of manager who could steer such a complex business toward constant growth, and do it his own way—not just by asking for more money from his “parent” to buy more airplanes and try to be the biggest player on the block, GPA-style, but by strategically structuring the company so that it had multiple income streams and need not depend on a huge book of hard assets—Miyauchi catapulted him into the CEO slot. At that point, his young age was an asset, not a liability.

David, so articulate earlier on, now mumbled a bit, trying to downplay his importance to the firm’s growth, but his modesty only proved my point. He was clearly the right man for the job. But how many top executives would have seen that potential back when he was just a 30-something lawyer?

On a hunch, I asked David if he knew how old Miyauchi was when he became CEO of the parent company.

“Oh, about 44 or 45, I think.”

I see. So, just four years older than David was when he got his shot. And Miyauchi had to work his way up from the bottom through a much larger hierarchy. It was all starting to make sense, or at least appearing to, which was a big step forward.

Wherever I looked, I was beginning to see the Chairman’s footprints, proof that he had been there, made his comments or given some input, and moved on. Whatever else Miyauchi was, he was neither a hands-on micro-manager nor a disinterested laissez-faire type, but something in between. He liked to hire good people, people who had what he considered good business instincts, and promote the best of them quickly, then get out of their way and let them grow their companies. It would be an unusual style for an American CEO, but it was positively radical for a Japanese.

Once again, I thought to myself that this mysterious Mr. Miyauchi was made from a different mold. He must have encountered all sorts of resistance, both inside his own company and in the larger, extremely conservative world of Japanese big business. I was more determined than ever to meet him face to face.

My last question to David Power was about the ORIX Group. Where else in Europe did he think I should go to get a better grasp of how the Group had unfolded and where it was going?

His answer was simple and obvious: “Not Europe, Asia. The ORIX story is always ‘Go where the growth is,’ and that means Asia. Everyone knows the Asian region is now the largest economic force in the world—larger than the U.S. or Europe and still growing fast—so that’s where the ORIX story is. ORIX has been expanding there since almost right after it was founded. Go talk to people in Australia, in Singapore, and in China, then go to Tokyo. That way, you’ll see different aspects to the global story and have a good grasp of the big picture before you sit down with the president.”

It sounded like good advice.