February 2005
Volume 03, Issue
9
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February 2005 |
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Volume 03, Issue
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The Loan Arranger rides again BCC acts upon its new mission: help Boeing corral more business BY WALTER POLT
In meeting these new objectives, 2004 was a banner year for Boeing Capital, said Walt Skowronski, who became president of BCC in late 2003. First BCC realigned its portfolio. In May 2004, BCC sold its $2 billion Commercial Financial Services business—which provided financing for commercial assets such as business aircraft, marine vessels and construction equipment—so it could concentrate on supporting only Boeing products. Its $10 billion portfolio includes about 500 aircraft. Next BCC consolidated: It relocated all of its major Long Beach, Calif., infrastructure activities (such as its Tax, Treasury and Legal functions) to its Renton, Wash., headquarters, reducing costs and generating greater overall operating efficiency. In working more closely with Boeing business units, Boeing Capital supports both Boeing Commercial Airplanes and Integrated Defense Systems, but its primary customer is Commercial Airplanes, which it serves through its Aircraft Financial Services (AFS) group. "AFS success is measured by how we support BCA," said Scott Scherer, AFS vice president and general manager. In 2004, BCC provided comprehensive financing support for Commercial Airplanes' deliveries, and campaigns, and placed or sold 56 portfolio aircraft, reducing the net asset value of inventory aircraft by 84 percent. RESOURCEFUL FINANCING SOLUTIONS
The events of 9/11 illustrated the need for major structural changes to the then-most-often-used form of aircraft financing, Skowronski said. In these transactions, investors are tiered into senior and junior segments, with the junior investors accepting greater risk for theoretically greater returns, he said. Unfortunately, if an airline were to default, the junior investors were more likely to incur a loss. That did indeed happen after the 9/11 attacks, and it adversely impacted investment values. Skowronski said the BCC team's stock-in- trade is structuring (and restructuring) complex financial transactions. "We've worked very hard to put together some interesting proposals that have both helped the company win key business and helped our customers through some turbulent periods," he said. A major element of the BCC strategy for supporting the Boeing business landscape is to use other people's money—to have the financial markets and their investors supply the funds—as opposed to BCC funding the loan or lease. While this third-party financing allows other lenders to share the risk of the loans—and lessen the loans required for Boeing's portfolio—it also shares with them the related returns and potential for upside gains. This helps ensure that a wide array of investors will be there for Boeing when it needs them. The need for customer financing solutions and support is growing at both Commercial Airplanes and IDS. And to meet those needs, Skowronski said, BCC is ready with a presence in multiple U.S. locations and in London, Hong Kong and Moscow. Boeing Capital also actively seeks out new alternative financing solutions. Skowronski said the BCC team currently is working with two major Wall Street banks "to create a new concept that would provide a dedicated pool of funding for the 7E7 aircraft." Instead of having to buy a 7E7 outright, an airline will be able to go to this group of lenders to strike a deal. With such a plan in place, more airlines will be able to acquire the 7E7, while the financing risk would be spread among a larger group of investors. All the while, BCC is concerned about aircraft financing internationally. It continues its work to remove obstacles in worldwide financing, through strong support for the Cape Town Treaty. The intent of this accord is to lower risk for lenders to overseas customers who may get into duress situations such as bankruptcy. If so, the lenders can repossess their aircraft if needed. This makes loans cheaper and easier to get, which increases sales—and reduces the difficulties developing countries face buying airplanes. SCANNING ALL HORIZONS With the Boeing Capital refocusing, BCC put in place a new Risk Management organization. Risk management essentially is the same caution you use when you're feeling enthusiastic about going in with a friend on a new venture: The more eager you are—especially in a shaky market—the more you need to stop and make sure you're doing a smart thing. "We're embedding risk management much more formally into all the processes and operations of BCC," Skowronski said, "We've created new systems to better define, manage and mitigate risk." Skowronski said that while BCC is focusing on supporting the Boeing business units, attracting third-party financing and managing risk, it hasn't lost its focus on maintaining financial responsibility and delivering solid financial results. In 2004, he said, BCC's overall financial performance was outstanding, with delivered earnings well in excess of its commitments, risk substantially reduced, a strong cash position coupled with a strong balance sheet, and premier bond ratings. Skowronski said he is looking forward to even more challenges in 2005. "We have to make it easier and less expensive to finance Boeing products to enable the business units to win significant new business and grow," he said. "Our role in supporting the Boeing businesses is getting more difficult and complex. We have to be more proactive with customers in building relationships and offering financial advice, more creative and innovative in developing financing options, and more aggressive in delivering the capital markets that will expand Boeing Capital's ability to support the business units." And just as the Lone Ranger came back and continued to take on new challenges, a recharged BCC is galloping forward supporting Boeing, attracting lending allies, guarding against risks, and running a financially responsible organization.
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After being ambushed, the legendary
Lone Ranger, a crime fighter, didn't
just recover; he came back—more capable and focused on a mission. So did Boeing
Capital Corporation: In late 2003, with its business still affected by the Sept.
11, 2001, terrorist attacks, BCC reshaped itself and took on a new mission as
a sort
of "loan arranger" for Boeing businesses.
Its new focus was to support Boeing's business units by developing customer financial
solutions to help capture new business. At the same time, BCC focused on using
third-party financing, reducing portfolio
exposures and performing well financially.