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Major acquisitions are transforming transportation leasing giants into megalessors. What does it mean for the rest of us?
Stoke the boiler on a train 47,000 railcars long.
Rev up the engines on a fleet of some 200,000 automobiles, vans and trucks.
When USL Capital was dismantled, these huge groups of transportation assets were up for grabs. A Ford Motor Co. Financial Services Group unit once known as US Leasing, the San Francisco-based company had long been a giant in the industry. But the breakup and sale of USL Capital, rather than creating new competitors, continues to drive the consolidation of this major sector of the industry.
For the acquirers, getting bigger should bring economies of scale and perhaps improved returns. "This was a once-in-a-lifetime opportunity," says Jack Thomas, president of First Union Rail Corp. and a 33-year industry veteran, on buying USL Capital Rail Services.
But what about the rest of the transportation lessors? One top executive of a diversified transportation leasing company says he was sad to see the end of USL Capital. "Years ago," he recalls, "U.S. Leasing was leasing."
There's no time to mourn. Transportation equipment leasing is booming, according to the latest edition of the annual ELA Survey of Industry Activity and Business Operations (see sidebar on page 27). Respondents to the industry's most comprehensive data-gathering effort reported that assets on wheels, wings, or water represented 42.4 percent of new operating lease business, up from 32.6 percent in 1994, and the highest level in at least five years. Their share in direct financing lease activity and leveraged leasing also surged, for a combined share of 31.2 percent, versus 26.9 percent the prior year.
Transportation assets have attracted major investment in recent years, bidding up prices on new and used equipment and driving down margins. In the broadest terms, as transportation equipment leasing continues to ride an expanding U.S. economy with low inflation, the trends toward con solidation and commoditization among lessors have continued beyond where many in the business expected it to lead. Capital is still abundant, and orders for new equipment keep coming in. For all but the largest lessors, the hunt for profitable niches has grown even more intense.
Banking on Rail
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