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Back to basics: a lesson from the US?

There are clear signs that big ticket leasing in the US is undergoing a revival or, more precisely, is reinventing itself. Some might even say that it is returning to its roots. Allan Foad investigates

Gone are the jumbo deals with ticket sizes in the hundreds of millions of dollars and gone are cross-border, leveraged leases. In their place are deals with domestic customers for between $5 million and $40 million written by lessors that understand their asset types or their geographic markets. And the divide between middle and big ticket is becoming confused. This is the view of Susan Hodges writing in the November/December edition of ELT, a magazine that serves the US asset finance market.   Proof of the recovery can be seen in the statistics. In 2004, new business volumes in big ticket leasing were 16 per cent down at $5.8 billion but, in 2005, they increased by $1 billion. I cannot be certain but I do not think that the business volumes of the major commercial aircraft lessors are included in these figures.   Rather like Stuart Rose at Marks & Spencer, practitioners are loath to claim that they are out of the woods. They see this improvement as being driven by increased capital expenditure in the US due to under-investment in the past and a pressing need to embrace new technologies. 2006’s results are looking equally as good but they realise that business levels will turn down again at some point in the future.   Transportation assets continue to dominate the field of play, accounting for more than half of all new business written. Investment in corporate aircraft is up by 39 per cent to nearly $2 billion with heavy demand reported for Gulfstreams, Falcons, Hawks and Challengers.

But the major growth story is in rail. Expenditure on rail assets has rocketed from $364 million to $1.3 billion. US freight cars are ideal for lessors that are prepared to take asset risk as they can have a 40-year life, are not threatened by technological change, and there is no other way to shift commodities across vast distances. Moreover, there is demand from a broad range of customers in a multi-layered market. For the first time in many years, rail car manufacturers are experiencing a backlog of orders. “The new kid on the block for lessors that like niche markets is energy assets.”   The new kid on the block for lessors that like niche markets, however, is energy assets. This was not a statistical category in 2004 but accounted for nearly 2 per cent of new business in 2005 and demand is growing rapidly. The oil majors urgently need to find new reserves and demand for exploration equipment is booming. More and more coal is being mined which calls for new investment in kit such as continuous mining machines, automated roof supports and high-capacity conveyors, and the technology to clean coal before it is burned is developing rapidly so that demand for this equipment is also strong. But the really interesting story is in renewable energy.  Wind has become the second largest new source of power in the US after natural gas.

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