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1. Major U.S. Airlines Struggle as Discounters Carve Up
Their Markets
There’s
little wonder why many lessors and lenders shun, if not fear, doing business
in commercial aviation these days. The challenges for the major airlines
in the United States remain daunting as the discount carriers compete in
80 percent of their domestic markets. The U.S. carriers are not alone in
adapting to evolving markets. In other parts of the world, discounters boldly
compete with the majors in ever-broadening locations. The trends create new
opportunities and risks for those who finance and lease commercial aircraft
to the airlines worldwide.
Decline of U.S. Major Carriers
Six
major airlines have survived deregulation: American Airlines, Continental
Airlines, Delta Air Lines, Northwest Airlines, United Airlines and US Airways.
They have been forced to lower fares to compete with discount carriers in
their markets. Even as the economy gains strength, competition with discounters
prevents the majors from raising prices much, if at all. Calling this phenomenon
a “terrifying prospect” for the majors, Fortune Magazine said in
a recent article about airline competition:
While discounters have
been nibbling away at the big guys for years, now the industry is at a
crucial point. For the first time ever, the pricing pressure exerted by
the discounters--which now have close to a quarter of the domestic air
travel market--has become so severe that the majors can’t raise prices
significantly during a boom. On top of that add higher oil prices; a
burgeoning threat from small regional carriers, some of which may take
on their old major airline partners; and growing resistance in
Washington to solving the industry’s problems through bailouts.
The conclusion?
Domestically, the majors are on a permanent path to decline.
See:
Airlines - Why the Big Boys Won’t Come Back, by Shawn Tully, Fortune
Magazine at pages 101-102 (June 14, 2004).
The
negative impact of the discounters and current high fuel prices has become
increasingly obvious. This year the major airlines will probably book at
least $5 billion in losses and show a whopping negative $3.2 billion in
equity. For example, Delta Air Lines alone reported a loss of $1.96 billion
for the second quarter, dimming Delta’s outlook for better earnings. By
contrast, Southwest Airlines, JetBlue Airways and AirTran Airways earned
a total of $45 million in the first quarter and posted strong revenue gains.
See: Delta Posts Wide Loss for 2nd Quarter,
The Wall Street Journal
(S.W. Ed.), July 20, 2004; Section A:3, Col. 1.
To keep pressure on the majors and to grow their operations,
JetBlue, AirTran, Southwest, Frontier Airlines and Independence Air have
orders for nearly 500 jets to be delivered over the next five years. This
order for new aircraft is significant when compared to the 357 aircraft
that constitute the existing fleet of one of the surviving majors, Continental
Airlines.
*Opportunity Point:
The delivery of
these jets and likely need for financing or leasing them creates a bright
spot for lenders and lessors of commercial jets. However, playing
in this market is not for the faint of heart. The analysis of these opportunities
extends beyond the scope of this article, but these potential transactions
at least offer sophisticated players a way to build deal volume while perhaps
offsetting some losses associated with the troubled aspects of their airline
portfolios. At the
Farnborough Aircraft Show,
Airbus and Boeing both signed large orders for new aircraft, which should
also provide potential financing and leasing opportunities beyond those
offered by the discounters.
Boeing, Airbus square off at Farnborough, by Ken Vandruff,
Wichita Business Journal (online), July 19, 2004.
Further, over the next six months, aircraft values should generally
stabilize and lease rates should improve, according to
Aircraft Value News.
See: Semi-Annual Jet Aircraft Value Listing Reflects Period
of Stability,
Aircraft Value
News,
Vol. XIII No. 15 at page 1 (July 26, 2004).
Pillars of Strength Eroding Domestically
Until
recently, the major air carriers have successfully turned away challenges
from other airlines by using three aspects of their strength. They have
(1) controlled most of the landing slots at crowded airports, (2) maintained
“fortress” hubs where an airline maintains control of traffic in the spoke
and hub structure of flights, and (3) commanded almost all of the long-haul,
coast-to-coast routes and routes to and from mid-sized cities in their hub
regions.
Not
surprisingly, the discount airlines are now attacking those strongholds
with increasing frequency. For example, Southwest and Frontier Airlines
have both landed in the Philadelphia market, a long-time stronghold of US
Airways. Upstart Independence Air has invaded United’s hub in San Francisco
and Virgin Group Ltd. will probably commence operations there next year.
See: United Hubs Under Attack By Discounters,
The Wall Street Journal
(S.W. Ed.), June 15, 2004, Section D:1, Col. 5.
Discounters
also have made inroads to flying long-haul routes. For example, JetBlue
challenges United and American with increasing flights from John F. Kennedy
Airport in New York to the west coast. Additionally, airports in Washington
and New York have opened slots to the new guys, enabling Frontier, Spirit,
Jet Blue and AirTran to establish a presence in previous strongholds of
the majors. See: United Hubs Under Attack By
Discounters, The Wall Street Journal
(S.W. Ed.), June 15, 2004; Section D:1, Col. 5; Airlines Why the
Big Boys Won’t Come Back, by Shawn Tully, Fortune Magazine at
pages 102 (June 14, 2004).
Majors Down But Not Out
Does
this bleak picture mean the major airlines can throw in the towel? While
the majors face enormous obstacles, some of them will adapt or transform
themselves to compete effectively. But the majors face turbulence in the
days ahead. US Airways is the shakiest, closely followed by Delta, which
has told the Securities and Exchange Commission that it may soon file
for bankruptcy. United has failed in its bid to obtain federal loan guarantees;
so, it now must undertake painful cost-cutting and other cost reduction
steps to emerge from bankruptcy and survive. By contrast, American, Continental
and Northwest remain relatively strong.
One
bright spot for the majors relates to their lucrative international routes.
That market offers viable growth potential. In May, international revenue
rose 9.5 percent per seat mile industry-wide while domestic revenue per
seat mile dropped 2.1 percent.
*Term to Know:
A seat mile is equivalent
to one seat in a commercial airliner flown one mile.
To
illustrate, American Airlines uses its strong international business, representing
31 percent of its schedule, to offset weak returns in domestic markets,
representing 69 percent of its business. Because discounters continue to
hammer away at American’s higher domestic fares, American will upgrade international
service and change its flight mix to feed those international flights at
its hubs. American won’t shy away from domestic markets, though, as $14
billion of its revenue, representing 70 percent of it total, comes from
domestic flights. See: American expands its
world, The Dallas Morning News,
July 25, 2004, Section D:1, Col. 2.
The
major air carriers will continue to serve routes between medium-sized cities.
They will also maintain business through their frequent-flier programs.
However, the increasing importance of Internet sales and discounted fares
may even erode loyalty incentives over time. In short, as one analyst put
it: “The network carriers have far fewer places to hide.” See: See:
American expands its world,
The Dallas Morning News,
July 25, 2004, Section D:4, Col. 2.
International Legacy Carriers in a Different Boat
The majors in the European
Union do battle with the discounters too.
Ryanair, Europe’s largest
discount carrier, and Britain’s easyJet plc, along with other lesser known
upstart airlines, challenge the big airlines. The European majors include
British Airways, Spain’s Iberia [Iberia Líneas Aéreas De España, S.A.] and
Ireland’s Aer Lingus. The majors fight back with lower fares forcing Ryanair
and other discounters to reduce fares even more. Ryanair has driven its
pricing down so much that it has little fat left to remove. Ryanair’s culture
and approach create a lean operation. Taking a more innovative approach,
Ryanair increases revenue by (1) selecting airports that offer it the best
deals for operating there, (2) charging passengers for in-flight food and
excess baggage weight fees, and (3) retaining the entire ticket price, including
taxes, if passengers don’t show up for a flight. However, as a consequence
of competition, Ryanair and easyJet have each issued profit warnings recently.
See: Big Worry for No-Frills Ryanair: Has It
Gone as Low as It Can Go?, The Wall
Street Journal
(S.W. Ed.), July 1, 2004, Section A:1, Col. 4.
In Asia, the story of
AirAsia
demonstrates how the low-fare model draws fans around the world despite
the resistance from major air carriers and protective governmental entities.
As one writer put it: “AirAsia’s rapid takeoff shows how far the low-cost-carrier
model has spread, transforming markets around the world and offering more-affordable
fares to business and leisure passengers.”
See:
Upstart Shakes Up The Clubby World of Asian Flying,
The Wall Street Journal
(S.W. Ed.), July 20, 2004, Section A:1, Col. 1.
Despite difficult interactions with government officials
and competition from
Malaysian Airlines,
AirAsia has begun to build a substantial enterprise based on its low-cost
model. Boasting a four-cent cost per seat mile, which is about half of Ryanair’s
cost per seat mile, AirAsia seems to have the lowest cost in the world per
seat mile. With those costs, AsiaAir offers fares that have attracted an
immediate and favorable public response from people who had never or rarely
flown before, alarming Malaysia Airlines officials.
Opportunity and Risk for Lessors and Lenders
Credit troubles of commercial airlines have plagued lessors
and lenders for several years. Many players have no interest in increasing
their aviation investments or taking more risk than they must in any aspect
of commercial aviation. However, the trends seem quite clear. The discount
airlines may offer a substantial part of acceptable deal volume for the
foreseeable future.
*Trends:
Here is a summary of the trends, which addresses only a few of the important
elements for lessors and lenders. Each of you should analyze your markets
and tolerance for risk in assessing these factors:
-
The discount
air-carrier model is here to stay and it is spreading throughout the world.
-
That model
will draw out new consumers who will use discount airlines for business
and pleasure.
-
Discount
and regional air carriers will probably be among the largest buyers of new
aircraft for the next five years domestically while international buyers
may be more diverse.
-
Selected
major air carriers should continue to have niche markets in the United
States and potentially lucrative international markets.
-
Major U.S. carriers will either transform
their business models to compete more effectively with the discounters
or reduce operations to confined markets. As Shawn Tully from Fortune said: “The
smart money, then, says that we will see a combination of mergers, liquidations
and, finally, a group of fewer carriers concentrating in niche markets.
An industry insider predicts that only three majors will be flying in
five years.
The
evolution toward low-cost model of airline operations seems to be the mantra
worldwide for airlines of the future. For lessors and lenders, opportunity
and risk will likely follow.
2. Cape Town Convention Gains Approvals in U.S. Senate
On July 21, the U.S. Senate
gave its positive Advice and Consent of the
Cape Town Convention on International Interests in Mobile Equipment and the related Aircraft Protocol. The
U.S. will be the fifth country to ratify the Convention once the instruments are deposited
with UNIDROIT in Rome. The Convention “enters into force” following
the third ratification. The Aircraft Protocol requires eight ratifications
for entry into force.
On the
same day the Senate approved without amendment the "Cape Town Treaty Implementation
Act of 2004"
(H.R. 4226),
which previously passed the House. This legislation was introduced
to ensure a smooth transition to the international registration of aircraft,
engines and helicopters under the Aircraft Protocol of the Cape Town Convention.
The legislation makes minor technical amendments to the Federal Aviation
Act to permit the Federal Aviation Administration (FAA) Oklahoma City registry
to act as the entry point for registrations with the International Registry
under the Convention. The legislation requires the FAA to issue rules
implementing the law by December 31, 2004.
*Tip:
EXIM-Bank has supported the ratification of these measures because it believes
that the Convention will enhance clarity and certainty for lenders to finance
aircraft worldwide. Exim-Bank has supported the ratification by providing
discounts in certain of its charges when the parties use the new registry.
As a result, EXIM should be interested in transactions that use the new
Cape Town system. See:
Exim-Bank Promotes Ratification of Cape Town Convention,
Business Leasing News (March 2003)
I would
like to thank my colleague, Greg Walden,
a former Chief Counsel of the FAA, for editing this article.
3. Is a TRAC Lease a True Lease?
TRAC
leasing sometimes perplexes even the most knowledgeable leasing professionals,
especially when lessors or courts try to determine is whether a TRAC lease
is a true lease. A TRAC lease, as described in
Leasing 101 below, generally refers to leases of
certain vehicles where the lease contains a terminal rental adjustment clause
(TRAC).
Last
month, I led a panel in a web seminar (webinar)
sponsored by the Equipment Leasing Association (ELA)
titled: “True
Leases Under Attack: Structuring a True Lease in the Face of New Challenges."
This webinar gathered record-breaking
attendance of over 700 people on line. TRAC leasing peaked the interest
of many people who participated in the seminar.
In the discussions, the
panel clarified terminology of true leases, using a “cheat sheet” of
terms, and discussed how you can meet today’s challenges to true leases
as disguised financing arrangements. We also discussed how Financial
Accounting Standards No. 13 interacts with true tax leasing concepts and
provided guidance for structuring, pricing, negotiating and closing
lease transactions in the current market.
*Tip:
You may obtain the handouts by contacting the
ELA.
Participants
asked questions about whether the courts consider a TRAC lease to be a true
lease and the level or percentage at which a TRAC payment will qualify as
a true lease. In response to these questions, the ELA posted a short summary
of the statutes in the 48 states (and the District of Columbia) that have
adopted TRAC lease laws. The statutes generally provide that the existence
of a terminal rental adjustment clause does not preclude a transaction from
being treated as a true lease. For example,
Section
168A.17, Subd. 1a. of the Minnesota Statutes 2003, states in
part: “In no event shall the lease agreement be deemed to create a conditional
sale or security interest merely because it permits or requests the amount
of rental payments to be adjusted upward or downward by reference to the
amount realized by the lessor upon sale or disposition of the vehicle.”
The
trend and weight of judicial authority usually supports the characterization
of TRAC leases as true leases.
See: In re Owen, 221 B.R. 56, 63-64 (Bankr. N.D.N.Y. 1998) (court
upholds the “true lease” character of TRAC vehicle leases in lessee’s Chapter
11 bankruptcy proceedings); In re Architectural Millwork, 226 B.R.
551 (Bankr. W.D. Va. 1998) (court sanctions true lease where the TRAC payment
by a lessee approximates fair market value and the parties don’t expect
a build up of equity for a lessee). However, courts remain divided on this
issue. See: the surveys of cases and authorities on TRAC vehicle leasing
in Leases, 58 Business Lawyer 1567, 1569 & nn.26-28
(2003) and Leases, 54 Business Lawyer 1855, 1858 &
nn.21-28 (1999). These statutes do not alone satisfy the courts, but they
create greater certainty and predictability that a TRAC lease will stand
up as a true lease under the applicable state law.
The courts do
not generally identify a set percentage of the “balloon” or TRAC payment
amount that disqualifies a lease as a true lease. Rather, the courts tend
to focus on evidence of whether the parties expect the lessee to recognize
much equity, if any, in the vehicle subject to a TRAC lease.
Further, courts look for clear evidence that the lessee’s only economically
sensible course is to exercise the option to purchase the vehicle.
See: In
re Dunn Brothers, Incorporated,
16 B.R. 42, 45 (Bankr. W.D.Va.1981) (describing
the economic realities test for determining if TRAC payment is nominal
by questioning whether the option to purchase is set at such an
attractive price that the only sensible course for the lessee is to take
it). The courts also look for an option price that is nominal. For example,
one court said: "The more nominal the purchase option ... the more likely
is the conclusion that the lease was really one intended to accomplish the
transfer of a title interest." See: In re Aspen Impressions, Inc.,
94 B.R. 861, 865 (Bankr. E.D. Pa.1989).
*Tip:
The analysis of TRAC leases extends far beyond the discussion here. Given
the propensity these days of bankruptcy courts and lessees to question true
lease status, you would be well served as a lessee or lessor to consult
knowledgeable counsel on structuring your transactions.
4. BLN Case & Comment:
Lenders Affected When Purchaser Cuts Corners On Environmental Diligence
– XDP, Inc.
v. Watumull Properties Corp.
A large
real estate firm’s reliance, as a land purchaser, on a stale environmental
study recently put it in hot water under federal environmental law. This
improper reliance on the study also positioned the purchaser’s lenders for
liability exposure too. The firm not only used an old study prepared for
someone else, it also allowed an inexperienced employee to check the contaminated
property and disregarded cautions from a state agency. In short, it cut
too many corners on environmental diligence and landed in court.
The
purchased land, thought to be clean, was contaminated with chlorinated solvents.
One typical defense purchasers assert is that they innocently purchased
contaminated property.
42 U.S.C. § 9601(35)(B).
In XDP,
Inc. v. Watumull Properties Corp.
2004 WL 1103023 (D.Or.), May 14, 2004;
Law Reporter
at pdf p. 197 (June 2004),
the court refused to
recognize this defense and denied summary dismissal of claims against
the purchaser of the contaminated Oregon property.
*Warning:
The XDP case may be double trouble for lenders and
purchasers. First, if lenders play shell games with companies used to
manage foreclosed or distressed assets, they may be liable for
environmental cleanups of foreclosed properties without regard to the “corporate veil” designed to protect shareholders
from personal liability. Second, common short cuts on environmental due
diligence – reliance on outdated reports prepared for others, use of inexperienced
employees, and failure to read materials from regulators -- can result in
lender liability for costly cleanups.
ISSUE:
Whether a purchaser under these circumstances can claim an innocent purchaser
defense under the federal Superfund law. Superfund is formally
known as the Comprehensive Environmental Response, Compensation and Liability
Act
(CERCLA).
42 U.S.C. § 9601 et seq.
FACTS:
The case arose from certain contaminated Oregon industrial property.
Over a dozen owners and/or operators conducted industrial operations since
1960. In 1996, Watumull purchased property, which had been developed
around 1979. The operation on the adjacent land used chlorinated solvents,
including trichloroethylene (TCE). The Watumull property housed light
industrial operations and commercial office space. Watumull is a multi-state
real estate investment company. Its prior practice was to hire a licensed
professional consultant to prepare environmental reports unless a current
report prepared for another party was available. Watumull ordinarily
used a standard purchase contract, which contained the clause:
To the best knowledge of the Seller, after due and diligent
inquiry Seller has not participated in or approved nor has there occurred
any production, disposal or storage on the Property of any hazardous waste
or any toxic substance nor does any waste or substance exist on the Property
or the migration of such waste or substance from or to the adjoining Property.
The
Seller deleted the phrase “due and diligent inquiry,” and presented an eight-month
old environmental report about the property. Watumull accepted the
change and the report as sufficient. Watumull hired no consultant
to update it nor sought a letter from the original consultant allowing reliance
upon the old report. An inexperienced Watumull employee inspected
the property. A year passed between signing the contract and the closing.
Prior
to signing the contract, Watumull was given a 1989 letter from the Oregon
Department of Environmental Quality (DEQ) to the prior owner, stating in
part:
Contamination by TCE and other hazardous substances has been
documented at other sites in the vicinity of the [Property] in the aquifer
which underlies the facility. Groundwater sampling at the site may
be warranted at some future date.
Watumull failed to follow
up. Before the contract, DEQ had further investigated the TCE problem
and, the court said, “DEQ’s records indicated that it was ‘highly probable’
that the ground water beneath the Watumull property was contaminated with
TCE.” There were monitoring wells and boreholes installed on the Property,
and repeated groundwater samples were taken showing contamination.
OUTCOME:
Watumull failed to qualify as an innocent purchaser under CERCLA and similar
state law provisions. This result will continue until a trial resolves disputed facts
about compliance with the
ASTM standard, including whether reliance on the stale
report and perfunctory inspection were reasonable and “consistent with good
commercial and customary practice,” as required under CERCLA.
*Comment:
This ruling is significant because it provides detailed guidance on how
to help evaluate the purchase or lease of contaminated property and
protect against big liabilities that may accrue from bad acquisitions.
Consider the following points:
-
Depart from company
safeguards at your peril; big firms are held to high standards.
The court emphasized that Watumull is a multi-state real
estate firm with its own form property purchase contract; it viewed
Watumull as a sophisticated purchaser. The court questioned the
deletion in Watumull’s contract, which excused the seller from “due and
diligent inquiry.” The court also unfavorably noted that “Watumull
departed from its customary practice of hiring an environmental
professional to prepare an updated report.”
*Technical Point:
For companies big or small, the
ASTM Standard is the minimum benchmark. The
court reviewed and applied its provisions, paying particular attention to
departures from that standard. The parties assumed its applicability
for this 1995-96 transaction. For a current transaction, courts are
likely to require far closer adherence to the ASTM standard than was true
in XDP, as the standard has now been in place in some form for over
a decade.
-
Don’t rely on reports without the consultant’s permission.
Watumull relied on a report prepared exclusively for the seller’s lender,
and never obtained a letter from the consultant allowing it to rely on the
report. The court said this weighed against summary judgment.
-
Don’t use stale reports; read the “freshness” code.
The ASTM standard says that reports are good for 180 days, and should be
updated afterwards if they are to be used. The report was eight months
old when provided and twenty months old when the transaction closed.
Even though the contamination probably occurred before the first report
was written, the court criticized the failure to update it. Had a
consultant visited the site to update the report, either prior to
contract signing or before closing, the onsite monitoring wells might have been noted, prompting
questions revealing the contamination. (The report’s failure to note
these features, if they were visible, suggests a serious deficiency in the
report.)
-
Send a seasoned inspector.
Watumull sent an employee
inexperienced in environmental matters to walk the property around the time
it signed the purchase contract. He either missed the monitoring wells,
or failed to understand that the unexplained presence of monitoring wells
is a red flag, which should trigger further inquiry.
-
Act on the data you receive.
To a seasoned environmental
inspector, a government letter stating that contamination is nearby and
groundwater sampling may be needed should have triggered many questions
before any contract was signed. Under the ASTM standard, groundwater
sampling is not ordinarily required unless “recognized environmental conditions”
are found. In this case, the state agency’s letter about adjacent
contamination and the potential existence of groundwater contamination would
lead most reputable consultants to recommend such sampling. Watumull
ignored what should have been a red flag at the time of purchase, and certainly
would be today.
This case sends a message
to lenders and purchasers in all types of financings to use a high level
of environmental diligence in acquiring property for use in projects or
other commercial development. The purchaser’s disregard of environmental
protocols in this case cost all parties a long detour off the deal track
and into the courtroom.
I would like to
thank
Russell
V. Randle, one of Patton Boggs’ environmental partners,
for contributing this article.
5. Leasing 101:
What is a “TRAC
Lease”?
A “TRAC Lease” is a lease that contains a special
provision called a “terminal rental adjustment clause,” giving it the name
“TRAC lease.” It applies to motor vehicles used more than 50 percent
of the time in the trade or business of the lessee. Sometimes called an
“open-end lease,” a TRAC lease requires the lessee to make an unknown (open-ended)
payment to the lessor at the end of the lease term to make up any shortfall
due to the lessor should the lessor not receive payment in full of its investment
plus its return on the investment. The transaction looks like a balloon
loan because the lessor transfers all residual value risk to the lessee.
The lessor realizes residual value either when the lessee exercises an option
to purchase the asset at the end of the lease or when the lessor sells the
asset to a third party. In either case, if the disposition of the
vehicle results in excess proceeds, the lessee generally receives the excess,
and if the disposition results in a shortfall, then lessee must pay the
shortfall to its lessor.
Despite its loan characteristics, the TRAC lease is treated
as a true tax lease under
Section
7701(h)
of the Internal Revenue Code of 1986, as amended. The states have gotten
into the act too, as described in the article above, titled:
Is a TRAC Lease a True Lease?
Virtually
all states have said that a TRAC lease will not be treated as a security
interest or financing merely because it has a TRAC provision in the lease. For
more, see ELA’s link on
TRAC Lease Statutes.
6. BLN Briefs: Venture Capital Impact; New Maritime
Security Code; Business Jet Deliveries and Orders Increase
Venture Capital Impacts Economy. GlobalSight,
a privately held economic, forecasting and financial information company,
published Venture Impact 2004.
The report states that venture capital
contribution to U.S. jobs, economic growth, and technological progress has
climbed steadily over the last three years. In 2003,
venture capital
backed companies employed more than 10
million American workers
and generated $1.8 trillion in sales. According to the most recent
Money Tree™ Survey Report, venture capital investing hit a two-year high in the second quarter of 2004
with $5.6 billion invested. Venture capitalists have developed a refined
sense of optimism based on economic developments and honed their investment
strategies with a realistic mix of early and later stage companies. See:
Kit Menkin’s
“Leasing
News Archive” for a detailed
venture
capital press release.
*Comment:
These reports on venture capital are significant for equipment leasing and
financing because venture-backed companies often lease or finance their
equipment and other property to preserve cash for working capital and equity.
Consider JetBlue, a prominent venture-backed company, which may use substantial
amounts of leasing or financing as part of its business plan.
New Maritime Security Code Protects Ports. A new,
comprehensive security regime for international shipping called the International
Ship and Port Facility Security Code (Code) became effective July 1, 2004.
Adopted by the
International Maritime Organization
(IMO),
the measures strengthen maritime security as well as help prevent and suppress
acts of terrorism against shipping. The measures include security standards
for ships, new surveillance and higher fences to protect ships. The Code
fundamentally provides a standardized, consistent framework for evaluating
risk and enabling governments to offset the risk with changes in port facilities.
*Tip:
The Code may not bind your borrowers, lessees or charterers, but you should
consider the impact on maritime and port facility transactions and incorporate
the new standards in your lease or loan documents to the extent applicable
to your transactions.
Business Jet Deliveries and Orders Increase.
A sustained
recovery may occur this year as early second quarter reports from aircraft
manufacturers show increased deliveries. General Dynamics recently called
the first three weeks of the third quarter “super heated,” with sales orders
of its subsidiary, Gulfstream Aerospace Corporation, showing renewed vibrancy
“like we’ve never had before.” The
General Aviation
Manufacturer’s Association publishes
quarterly delivery statistics on GAMA’s web site.
*Comment:
Though manufacturers seem to be taking flight after a long slump, most of
the significant leasing and financing business in general aviation still
seems to be grounded. The natural lag time from order time to financing
means that the lenders and lessors probably won’t see significant positive
impact of the new orders for six months to a year. However, the used aircraft
market seems to have heated up somewhat since the start of 2004 and the
general aviation market shows signs of muted resurgence.
7. Training Offered; Upcoming Speech; New Publications
Training - Substance the Easy Way!
To
help improve your business operations, deal processing and risk management,
I offer private training seminars tailored to your specific needs at your
designated location. My interactive and informative training includes topics
I cover in BLN. I customize the format and content for your specific training
needs - no canned programs.
After one of my private training sessions, here’s what one
of the company’s senior managers said:
“David, thanks again for
an excellent presentation. You helped us tackle a complex, but important
topic. Your expertise is first rate and you are an excellent teacher to
boot -- that’s a rare combination.”
Feel
free to call me at (214) 758-1545 to discuss the possibilities.
Upcoming Speech at ELA Annual Convention
On Tuesday,
October 26, 2004, I will lead a panel at the
43rd Annual Equipment
Leasing Association Convention,
titled "Back to the Future: True Lease Opportunities and Structuring."
The panel is scheduled for 10:30am - Noon and is repeated from 2:00 p.m.
- 4:00 p.m. October 26th. The Conference will be held from
October 24 – 26 at the Marriott Desert Springs Resort and Spa in Palm Desert,
California. For more information and registration, click on
ELA Convention.
New
Publications by David G. Mayer
Look
for the following feature articles to appear later in the month of August
2004:
8. About Patton Boggs LLP and My Law
Practice
As you may be aware, I am
a part of the Patton Boggs LLP Business Transactions Group in our Dallas
office. Patton Boggs LLP is a law firm of about 400 lawyers located globally
in multiple locations. The firm has extensive capabilities in over 50 areas
of legal practice that include leasing, secured transactions, personal property
financing, securitizations, syndications, power project and mezzanine financing,
bankruptcy, real estate, public policy, litigation, intellectual property
and technology law, and much more.
The
leasing and secured transactions practices regularly involve the buying,
selling, financing and leasing of real and personal property of all kinds,
including business aircraft, energy, facility, production, power plant,
technology and health care assets. We also structure, negotiate and close
secured transactions of all kinds, tax-exempt, state and federal leasing
arrangements and corporate and portfolio acquisitions, among a full range
of financing and acquisition transactions. Despite the improving economy,
we continue to assist our clients with troubled deals and bankruptcies,
including repossessions, lift stay actions, true lease contests, deficiency
litigation, workouts and forbearance arrangements.
Please
feel free to call me at (214) 758-1545 or e-mail me at
dmayer@pattonboggs.com for information about
any of these areas or the many others available at Patton Boggs LLP, or
to discuss anything I have written in Business Leasing News. I welcome
the opportunity to build a relationship with you!
A Message
From the Founder,
David G.
Mayer
Customer-centricity
What
is it that you have, or should have, in common with Dell, Best Buy and Royal
Bank of Canada? Each organization has truly put its customers at the center
of its business. Have you? Devotion to what’s important about our customers
is not the trivial notion of “it’s great to have customers.” Rather, the
focus is the stuff that has driven the stock prices of these companies higher
over the years. It’s not just the demeanor we display for our customers.
Rather, it’s understanding, caring and responding to our customers, adapting
our ways to serve them before ourselves.
In a
recent article titled, 5 Rules for Finding the Next Dell, the author
called this special attention to our customers, “customer-centricity.”
Fortune Magazine at p. 104 (July 12, 2004). In stock market terms,
Fortune defined the word to mean that “shareholders as well as customers
win, because the customer-centric approach can juice a company’s stock with
a powerful double boost: rising earnings, plus a higher P/E multiple applied
to those earnings.” Technical speak aside, this term really describes the
genuine concern for customers as a “core philosophy” that enables us to
differentiate ourselves by understanding and meeting our customers’ needs
so well that they embrace what we offer and, in turn, drive our success.
The
article asks five questions about how to find the next Dell, but you can
turn these questions into general principles that explain customer-centricity
and create standards for attaining the results that Dell, Best Buy and Royal
Bank of Canada have achieved:
-
Identify
your customer’s needs first, then create complete experiences to meet them.
-
Differentiate
each of your customer groups so well as to know what they
need most and serve them individually.
-
Make
someone
accountable for your customer’s relationship with you, to own that responsibility,
and to measure results by appropriate metrics.
-
Create
a positive
spread over your invested capital by knowing how much you have invested
and earning a return over your investment by “creating and reinventing enduring
customer relationships.”
-
Learn
relentlessly
what your customers want and develop a process by which you deliver it to
them.
The
concept of customer-centricity applies to your financial services, leasing,
aviation, power or other business just as it applies to my practice of law.
We should each strive to serve the needs of our customers first, to show
them we value and serve them individually. By contrast, to provide a product
and let customers buy if they need it is product-centric. In a very competitive
business world where lots of money chases only a few good deals, product-centricity
may sometimes work, but customer-centricity will carry the day. As you try
to win your next deal or seek to improve your business relationships, set
yourself apart from your competitors by developing and implementing your
own special, customer-centric approach. It’s hard, but it’s worth your while.
Ask Dell, Best Buy and Royal Bank of Canada.
If I, or any
other lawyer here at Patton Boggs LLP, can help you with your legal or business
challenges, feel free to call me as we are here to serve you.
Have a great August of restful vacations and successes at work!
I extend
a special thank you to my editors at Patton Boggs LLP for their comments
on this edition, Atwood Jeter and Adrian McCoy and our primary web site
review partner, Jeff Turner. The technical team, consisting in part of George
Barber, Adrian McCoy and Winston Jackson, provides you the easy-to-use e-mail
navigation and artistic appearance of BLN. I would like to offer a belated
and current thank you to Claire Campbell, our Chief Librarian, who has cheerfully
assisted me by conducting research for the benefit of BLN readers.
All the
best,
David
David G.
Mayer
Founder
Business Leasing News
Patton Boggs LLP
2001 Ross Avenue
Suite 3000
Dallas, Texas 75201
(214) 758-1545 (phone)
(214) 758-1550 (fax)
E-Mail:
dmayer@pattonboggs.com
© David G. Mayer 2005
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The "For
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Business Leasing For Dummies (BLFD)®, is a registered
trademark of
Wiley Publishing, Inc.
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