In the first of a series of interviews with lessees,
Ross Paterson, Director of Finance at Stagecoach, tells Brendan
Malkin about his global transport company’s approach to
leasing
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How do you go about choosing which lessors to use for
your bus division?
It is relationship driven. We have relationships with a number
of asset finance providers and wider banking providers. Beyond that
it is driven by pricing, and there is a link between these
relationships and wider financing relationship between Stagecoach
and banks. For instance, if people in a banking group are providing
bank finance to us, then that strengthens the leasing
relationship.
Do you often change which lessors you use for your bus
division?
People can drop in and out depending on whether there is a
change in appetite. The pool we use does change from time to time.
We try to push each of them to give a reasonable line of credit. We
don’t want 100 lessors giving us credit. Ideally they would provide
between £30m and £50m a year. If someone can offer only £4m to £5m
we probably wouldn’t work with them.
Do you often review your leasing partners for your bus
division?
We deal with six or seven providers. Each year we will discuss
with those six or seven our anticipated requirements on capital
expenditure, and get them to confirm price and how much credit they
can provide, and then select them on that basis.
Which lessors do you most use for your bus
division?
Main ones are Lloyds TSB, HSBC, Barclays, Handelsbanken Finans,
and Alliance & Leicester. They are similar in terms of amount
of financing and pricing.
What’s the average annual leasing spend for your bus
division?
Around £50m-£70m a year.
How often are your buses replaced?
They have a life of around seven years. Each year we replace
around 14 per cent of the total fleet.
What’s the average annual leasing spend for your trains
division?
At present we are not bringing in new rolling stock. South West
Trains [the franchise owned by Stagecoach] spend about £100m a year
on operating leases.
What lease finance arrangement do you use for your bus
division?
Most are on hire purchase. We find we get good pricing on HP,
and there is a reasonable second hand market for buses. Some buses
are on operating lease, and we used to do more of this when we had
a London operation. We may look at operating leases when we are
using a particular type of bus or service.
How do you run your rolling stock lease
business?
Almost all our trains are leased, except for two or three we
bought for next to nothing. We use all of the three rolling stock
operators (roscos) [Porterbrook, Angel Trains and HSBC Rail],
partly for historical reasons. There are not an awful lot of spare
trains around so we tend to get what we can from the roscos. We
don’t have a fundamental objection to using a third party [a
rolling stock funder other than a rosco]. Our experience of the
roscos is that their rates for their newer trains have been fairly
competitive. Some of their older trains are in use beyond their
original life and roscos are still doing well out of them. We
always bid for trains on operating leases for terms that match the
length of the franchise.
Do you ever accept lease deals with creative tax breaks
built in?
Occasionally people come to us with tax driven leasing
structures which we will look at. It happens more with our bus
rather than trains business.
Do you use leasing in your North American businesses in
the same way as you do in the UK?
In North America we lease some real estate and some buses.
However, we typically tend to buy buses out there and finance them
out of group banking facilities. This is because historically
Stagecoach is a UK business and we can get quite good pricing on
leasing in the UK. The US business, however, is smaller and in
terms of pricing is not quite as good as it is in the UK. We
haven’t looked at this business recently. We have not had reason to
look at it as it works reasonably under banking facilities and
bilateral facilities.
Are there any legislative, tax or legal developments
which are likely to impact on your leasing business?
There is nothing current in the way of legislation that will
affect us particularly. However, the Office of Fair Trading’s
review of the roscos could have longer term implications.
Stagecoach timeline
1980: Stagecoach founded by Brian Souter and
his sister, Ann Gloag, in Perth, Scotland. Goes on to acquire a
number of former National Bus Company businesses during the
1980s.
1993: Floats on the London Stock
Exchange
1995: Stagecoach wins the South West Trains
rail franchise.
1996: Acquires the train leasing company,
Porterbrook, and buys a 49 per cent stake in Virgin Rail Group.
1998: Buys bus operations and ferries in New
Zealand and Citybus in Hong Kong.
1999: In its biggest deal to date, Stagecoach
acquires Coach USA, the then largest bus and coach company in North
America.
2006: Sells its London bus operations to focus
on the regional bus market.
June 2007: Stagecoach wins seven year East
Midlands rail franchise
July 2007: The group becomes Britain’s biggest
tram operator.
