Sealing the Deal
Difficult times require creative solutions, so it's no surprise that GSE manufacturers and operators alike sometimes turn to intermediaries for more flexible, and one-stop, GSE solutions, writers Richard Rowe
By Michelle Garetson/p>
By Richard Rowe
In the aftermath of September 11, there can have been few GSE manufacturers that did not see equipment orders deferred, rewritten, or cancelled altogether. For many, financing on some transactions simply fell apart. Now, more than six months on, the talk may be of cautious recovery in the industry, but as long as operators list cost cutting as a major priority, buyers and sellers of equipment will continue to require creative thinking.
Of course, the GSE business has long involved more than just a simple interface between manufacturer and operator. A raft of companies, particularly in North America, has sprung up to facilitate deals between buyers and sellers. Although none will have wished for the terrible circumstances, the current market situation is tailor-made for such intermediaries to prove their mettle.
CONNECTING THE SUPPLY CHAIN
One such company, Fortbrand Services, the New York-based GSE service provider populated almost entirely, or so it seems, by ex-Hudson General management, is determined to stand up and be counted during these trying times. The company's portfolio of equipment services covers various ownership options (direct, leasing, and rental) financing, consulting, appraisals and trade-ins.
Intermediaries such as Fortbrand see themselves as a friend to both sides, working the connections at either end of the supply chain. Airlines and ground handlers know that the company understands their time pressures, while manufacturers appreciate its role as an additional marketing arm.
"Our role is to provide a service to both manufacturer and end user," explains Alan Stearn, Executive Vice President. "The secret lies in not only knowing about relevant equipment, but also knowing the value of that equipment."
Operators may want a quick fix on a particular item or they may wish to consolidate their overall GSE procurement through a single supplier. Knowing that there are few manufacturers that can actually offer the full gamut of GSE from a single source, working with a well-connected intermediary is the next best thing.
As Stearn explains, Fortbrand has really stepped up to the plate over the last couple of years. It has forged relationships with associate companies — including GSE parts giant, Sage Parts — pressed on with its own marketing efforts, and gathered together the kind of technically proficient team that would not look out of place working for a major airline or GSE manufacturer. All are preparations that look set to prepare the company better than most for the current situation.
SEALING THE DEAL WITH EXPERIENCE
Contacts, connections, and most importantly, sheer experience, are the key ingredients, believes Stearn. This rich seam of experience is epitomized by the company's Rich Boily, whose resume includes 30 years running Pan Am's GSE shop at JFK. Boily purchased all GSE for the airline — a role that included preparation of capital budgets and evaluating new products. He was also heavily involved in specifying equipment and parts inventory for the maiden flights of the B-747 and Pan Am Shuttle.
"Someone like Rich knows all the manufacturers, and was instrumental in helping us grow on the sales side," explains Stearn, himself no stranger to negotiating contracts and transactions with airlines, airport operators and government agencies.
On the finance side, Stearn's career includes public and private debt placements, as well as multi-bank credit facilities and other financing transactions. In what is another string to its financing bow, Fortbrand has an equity stake in The Navigator Group, a
company formed initially to perform general equipment leasing and financing. (see "Capital Idea," GSE Today, June/July 2001).
"We know the values and are interested in taking equity positions with the equipment, so it's not just a financing situation that the buying institution is getting involved in," says Stearn. "Between the Navigator Group and our own banking relationships, we can make any size transaction work, if properly structured."
Working its niche between cost-conscious operators and uncertain manufacturers, Fortbrand has to rely on its industry intuition. Risks are carefully calculated. "Obviously, things have slowed down regarding new opportunities and this is clear throughout the industry," says Stearn, "On the other hand, we have got contracts from manufacturers who had sales lined up but saw traditional financial sources pull out."
One example last year involved an FBO — an increasingly important market for Fortbrand —- whose station in New Hampshire saw the financing it had lined up crumble away. "They called us, sent us the financials, which looked good, and we did the deal," says Stearn. "The next day they were back on track. This really helps the manufacturers from losing the sale."
More recently, Fortbrand helped finance a new FBO at Stewart International Airport in upper New York State. "Over the years, we have played an active role in start up operations where we put equipment in. Again, the reason is that if it doesn't work out [for the operator] we are comfortable taking the equipment back."
Stearn makes the process sound straightforward, but Fortbrand has taken the best part of 20 years to get to where it is now. The brainchild of ground support veteran Henry Foster, Fortbrand started life in 1983. Foster had begun his career in the 1960s when he founded a similar company and sold it to Hudson General who turned it into more of a ground services company (before themselves being taken over by Germany's GlobeGround). Years later, Foster returned to his GSE roots and looked to Stearn, then President at Hudson General, to become his partner. Stearn agreed to join Foster and brought with him a formidable contacts book full of excellent financial and transaction connections.
Stearn is the first to admit that a major breakthrough came with Fortbrand's relationship with Finnish winter service equipment manufacturer, Vammas. Fortbrand was instrumental in bringing the Finn's revolutionary PSB 5500H high-speed plow, broom and jet blower to the North American market — a huge piece of equipment that can clear runways at high speeds and provide great cost savings into the bargain.
In doing so, Fortbrand opened the eyes of an overseas company to new ways of doing business, and exposed North American airports to their first experience of an extraordinary piece of foreign snow removal technology. "The overall business had been growing nicely," says Stearn, "but then we came across the Vammas situation around 1997. That has given us a whole new aspect of business."
"Leasing was not a familiar concept to them [Vammas]," says Stearn. "Users were able to get what they wanted and then exercise purchase options on it."
Stearn was careful to address the question of aftermarket support — a thorn in the side of previous attempts by European companies attempting to break into North America. "We emphasized the need to have a good spare parts operation and technical support, and that's where we came in."
Fortbrand's resident engineer, Carl Lange, was fully trained on all aspects of the operation and maintenance of the PSB 5500H at the Vammas factory in Finland and has since served as Fortbrand's head of training and technical support for the unit since its introduction into North America. This training and technical know-how, coupled with the equipment being so specialized, has even seen some airports engage Fortbrand to provide contract maintenance for the Vammas equipment.
Stearn believes that this is a strong selling point and not just in terms of the Vammas equipment. "We have a very good track record for our aftermarket support," he argues. "If you ask around, many will say that it's actually better than many of the major manufacturers."
Working with Vammas opens different doors and offers different marketing challenges. "It's a different customer altogether," adds Stearn. "It's the airport operator itself rather than the airlines and ramp handlers that are really GSE customers,
Stearn believes that the market for the big Vammas equipment in North America is probably between 30 to 40 airports. This equates to around 150 to 200 machines. More than 30 units of the large Vammas equipment are currently in use at six airports across North America, while Fortbrand is actively working with half a dozen other airports. This number jumped to closer to 40 as — went to press when the Port Authority took on another six units for use at JFK.
Fortbrand and Vammas are now working on introducing other, smaller products. A runway edge light cleaner is being tested by a handful of potential customers, while a smaller PSB 4500 unit — already used by the Swedish Civil Aviation Authority — is being looked at by a major airport for its high-speed taxiways. Finally, next winter is likely to see the debut of a Vammas friction-testing unit.
"The way our business has developed has been opportunistic and things that have been presented to us," says Stearn, hinting at embryonic talks with a security equipment company by way of example. "We know the value of equipment, so we are willing to make investments and to take some proven risks."
Together with LH Consulting, Fortbrand recently developed computer software to analyse airport flight schedules and the price of delays to help demonstrate the cost benefit of cleaning runways with the Vammas units.
"We could calculate savings for any time frame," explains Stearn. "As an adjunct to that, we also asked what the cost was for an airport's own equipment and operators and then made a comparison." The savings skyrocketed using the Vammas equipment even though the initial investment was greater. "We put in all the data on our 30 to 40 potential customers and it looked very good," adds Stearn with a smile.
FOCUS ON THE FUTURE
Despite such positive developments and Fortbrand's ability to find finance where none was previously available, Stearn acknowledges that the company has suffered its own share of deferred orders. "Airports looking for new equipment or placing reorders have also been caught up in the deferral of capital expenditure," he comments. Meanwhile, ground service providers continue to cancel orders, with some leasing equipment on a short-term basis or for a particular customer or season.
Knowing that the slump can't last forever, Fortbrand's focus is on adding to the team — new representatives have already generated additional business on the west coast and in Florida — and continuing its "transaction oriented" approach.
In recent times, the military has proven a reliable, and growing, source of alternative business. Having already worked with German manufacturer Mulag on modified belt loaders for the US Navy, more units of the same product were recently shipped to a Navy base in Japan. Military equipment rentals are also up.
Like everyone else, Fortbrand Services is looking forward to the industry getting back on its feet. In the meantime, the company recognizes well the importance of the Vammas connection. "After all," Stearn comments wryly, "it's always going to snow."RESOURCES Fortbrand Services Inc.
www.fortbrand.com MULAG Fahrzeugwerk
www.mulag.de Patria Vammas
About the author: Richard Rowe is a Contributing Editor to GSE Today and is based in Edinburgh, Scotland.