1993 financial guide to equipment leasing - includes leasing resource directory - A Railway Age special section

Railway Age, June, 1993 by Anthony D. Kruglinski, Michael Downey Rice

Walt's best advice is this: "A lessor's past reputation as regards terms and conditions and success in actually closing a transaction with minimal problems can be a huge subjective consideration when the competition between leasing proposals is close." Here we think he means, "Be careful. Try not to dirty your cage, you will have to live in it."

Locomotive building is up

Good news again for finance lessors in the market for a few good locomotive leases. The nation's two original equipment manufacturers are grinding new units out at near record rates for the plant and equipment lines that they consider to be "up."

EMD will produce approximately 160 units--up from last year, and GE's Erie, Pa., plant is reportedly on the verge of turning out as many as 400 new locomotives by year-end 1993.

While we' ve been unable to smoke out the GE estimate for 1994, our sources tell us that EMD is expecting to produce 325 to 350 units next year and may currently have over 200 units on its order books for 1994. If this is so, as many as 100 of the units will likely be the new a.c. units.

While there have apparently been no volume orders from other railroads following BN's lead with this new technology, EMD seems to feel it will be just a matter of time before other heavy-haul users switch to a.c. technology for some of their needs.

Where is GE's entrant in the a.c. contest? We're told that demonstrators are still a year or so off. Of note, however, is that GE is apparently seeking a quick kill in the marketplace by adapting a.c. passenger locomotive technology from Europe.

Operating lessors vary in roles

One of the most important skills to develop as you cast about for answers to your equipment leasing needs is the ability to determine just what type of lessor is best suited to meet those needs. For instance, if you're looking for someone to lease you cars for as long as possible with an effective purchase option at the end of the lease term, you probably won't find what you want in the operating leasing community. An operating lessor seeks periodic opportunities to re-lease the equipment at, hopefully, greater returns over a long equipment life, as well as, of course, ultimate control of the equipment. What you really want is a long-term finance lease.

On the other hand, if you're looking for a finance lessor to assume a huge residual risk at the end of a relatively short lease term--wrong again. Here you're on the operating lessor's turf. It's a matter of finding out just which market is the best for you. We stress the word "you" because it may be your credit or the size of your company that puts you outside the realm of what otherwise should be a finance lease opportunity, and into the operating lease marketplace.

What is a method of determining who is the best operating lessor to serve your needs? While they will generally deny it, most operating lessors have developed "signatures" that tend to broadcast those areas in which the lessor is most effective or competitive. For instance, while GATX and Helm Financial are in the business of placing locomotives on operating leases, both can serve large, medium, and smaller railroads. The owned fleets differ somewhat, and for this reason either may be your best bet depending upon your needs.