|
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.
PLEASE FORWARD
THIS E-MAIL TO OTHERS. You may, for this purpose,
disregard Patton Boggs' distribution restriction at the bottom of
this email.
All the best,
David
David G. Mayer
Founder and Publisher
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 2004
NOTE: You may receive BLN from other
people and that often occurs. To SUBSCRIBE, change your address or to change
your e-mail format, simply click
here. To UNSUBSCRIBE, click
here. To correspond with BLN, send your message to bln@pattonboggs.com.
Thanks.
The "For Dummies"
part of my book, Business Leasing for
Dummies (BLFD)®, is a registered trademark of Wiley Publishing,
Inc.
|
Disclaimer:
BLN information is not intended to constitute, and is not a
substitute for, legal or other advice. Comments, tips,
warnings, predictions, etc. in BLN provide general insights
only. You should consult appropriate counsel or other
advisers, taking into account your relevant circumstances and
issues. The Disclaimer linked here also shall be
deemed to apply to Business Leasing News in any e-mail format.
BLN does not endorse or validate information contained in any
link or research material used in BLN. You should
independently evaluate such information or material. Readers
are urged to print information under linked pages as they are
subject to change over time. Comments made in BLN do not
represent the views of Patton Boggs LLP, but rather those of
David G.
Mayer. | |
