St. Louis SportsOnline
I was reading the Chicago Tribune this morning and came across an interesting article about United Airlines, Disney, Whirlpool, CIT Group Inc. and Philip Morris (Altria). It seems that the once giant United Airlines leases most of its aircraft (450 out of 550) from companies such as those mentioned above. These companies buy aircraft, a Boeing 757 for example, for $50 million and over the course of an 18-year lease get back $108 million.
Not too bad an investment!
It seems however, there is a problem. And I sense a connection to our local sports teams!
UA, as is true of the other major carriers, has seen a dramatic decrease in air travelers since September 11, 2001. Although their on-time performance has improved dramatically, the anytime attendance of passengers has waned. UA has decreased the frequency and number of flights to their normal destinations in an effort to reduce costs and become economically viable.
UA has also parked a number of their airplanes in the California and/or Arizona deserts. These are the same planes that it leases from some of these companies. Disney and Philip Morris don't want their property to sit idle, especially if UA is not complying with the terms of the lease. But who do they think they can offer the planes to?
Their (Disney, Whirlpool, CIT, Philip Morris) problem is that airplanes were purchased with the intention that a good investment would result. Without monthly lease payments (and few potential opportunities to lease to other carriers), their investments have turned negative.
Now this is when I realized that the article was VERY INTERESTING. I noticed a whiff of a connection to professional sports.. With the assistance and some rapid Internet discussion with the St. Louis Sports Editor, the connection to sports began to crystallize and I was able to see more clearly how this applied to our hometown "boys of summer."
In a nutshell, the relationship provided by the Editor can be summarized as follows:
The Cardinals owners want to build a new stadium, but for whatever reasons that you choose to accept, want most of the cost to be borne by others. And as reported in the St. Louis Post-Dispatch on November 16, 2002, "Cards need investors who can put up more than $275 million."
Outside investors (Pitney-Bowes) would be asked (persuaded) by the Cardinals ownership to finance a new stadium with the prospect of a long-term investment return over the life (30 years) of the lease. The purchase of luxury boxes by companies or wealthy individuals would strongly suggest to Pitney-Bowes that there would be long-term interest in the stadium (team) and that their investment would be based upon something more tangible than a Mark Lamping handshake and promise.
And don't forget about the City of St. Louis, St. Louis County, and the State of Missouri. They also have been asked to make an investment in a new stadium. It is very easy to ask (demand) others to use their money for someone elses wants. What is more difficult is predicting the future.
What would happen if interest in baseball decreased in St. Louis? What would happen if the Cardinals decided to leave prior to the end of their lease agreement? What would happen if interest rates dramatically increased?
These three questions and more like them are important in business and public policy decisions. Businesses and governments (??) don't simply give their money away without good reason or with the best prediction that there will be a suitable return. Careful examination of the assumptions underlying business investment is what distinguishes successful organizations.
So the next time you examine your stock portfolio, think about the assumptions.
And the next time you fly, think about the "boys of summer!"