The year 2009 brings with it many challenges for the equipment leasing industry. For most (or possibly all) of us who have been active in the U.S. leasing market for many years, never before has there been such uncertainty as to what lies ahead. We enter the new year with many questions and few answers. We are certainly sailing into uncharted waters and like the sailors of many years ago, some in the equipment leasing industry may have reason to wonder whether we are about to sail off the edge of the earth.

The health of the U.S. equipment leasing and financing industry in 2009 will be influenced principally by factors over which individual leasing companies will have little or no control. The weakness in consumer spending has caused businesses to reduce their capital expenditures in expectation of declines in sales volume in 2009. Studies published by the Equipment Leasing and Finance Association (ELFA) indicate that in recent years about 55% of public and private investment in equipment and software in the U.S. utilizes leasing or financing. With overall capital expenditures likely to decline, I believe that it is reasonable to expect that equipment leasing and financing volume will be down in 2009.

An early warning of what lies ahead for us may have been revealed in the recently released November 2008 ELFA MLFI-25 index report, which showed that new business volume for the ELFA members that are included in this index declined 33% in November 2008 when compared both to the same month in 2007 and to October 2008. Company-specific factors influence the index, but nevertheless this major reduction provides cause for concern, and I would not be surprised if overall equipment leasing and financing volume in the U.S. declines by at least l0% in 2009. Of course, not all equipment markets will be impacted equally. Historically, leasing and financing volume in the medical and governmental sectors has held up relatively well in periods of economic weakness. Business aircraft will likely be one of the weaker leasing and financing sectors in 2009.

Although reduced capital expenditures will be the major reason for the decline in U.S. leasing and financing volume in 2009, the disruption in the capital markets will also have an impact. I expect that the equipment lease securitization market will not be a viable alternative for most leasing companies in 2009. Furthermore, I expect that banks will continue to be very selective in their lending to leasing companies while tightening credit criteria and reducing advance rates. Availability of funding will be a particular challenge for independent leasing companies, which may lead some independent leasing companies to sell part of their portfolio to free up credit lines or to consider the sale of the business to a party that has greater access to capital markets.

With the U.S. economy in a recession and lease delinquency rates rising, leasing companies will continue to tighten their credit standards. This will limit the ability of less credit worthy companies to access the leasing and financing they need in order to obtain needed equipment.

Some lessors have gotten out of certain markets, either because these markets have not met their profitability criteria or because of their parent company’s desire to reduce assets in the equipment leasing and financing sector. Such market exits will create opportunities for other leasing companies to enter markets that may become less competitive. With capital scarce, I expect many leasing companies to be seek higher spreads on their business, as availability of leasing and financing becomes more important to some equipment users than pricing.

The new President and Congress will place a high priority on economic stimulus measures, but I do not expect tax legislation to include an investment tax credit such as is currently being proposed by the ELFA. I doubt that any tax legislation will do much to stimulate leasing volume in 2009. The government will also be urging banks to loosen up their commercial lending in order to help stimulate the economy, but loans to equipment leasing companies will likely not be a high priority for most banks.

Lest you think I am overly pessimistic, I still have great faith in the resiliency of the U.S. economy and its ability to survive its current trip through uncharted waters. I do not expect all of our problems to be solved in 2009, but I do expect a much brighter outlook a year from now. Just as Christopher Columbus did not sail off the edge of the earth, I expect that we also will be able to eventually reach a new world of opportunity.