WLN: Jim, you have been around this industry for awhile. My business partner Sudhir Amembal refers to you as a sage, so before I get into questions about you and Republic, let me ask you: Will our industry survive and succeed as it has in the past?

Possehl: The short answer is, yes I think that it will, but it’s probably a little more complicated. I do think the industry has done a spectacular job of adjusting to the marketplace and needs of our customers, our lessees, in creative way. As a result, I think in many ways the risk-benefit ratio is in favor of the lessee not the lessor. I think that’s one of the reasons there’s been significant turnover in lessors over the course of the last 30 years. But I think with the change in accounting that will come with the market turmoil that we’re currently going through, the funding changes that will come as a result of that, and the redemption in capital that the banks have—all of this will have an impact in the next year or two. Certainly, three or four years out, I think things will become more normalized. But, as it has been in the past, any lessor that doesn’t adapt will have a tough time making it in the marketplace; those lessors who will adapt to the needs of the marketplace and their shareholders, but most importantly, to their customers and add value to the equation on behalf of those customers will survive and prosper. The need for equipment leasing is certainly no less today than it has been in the past, so I think there will be opportunities that are certainly equal to what we’ve had in the past and maybe even broader.

WLN: How has the subprime mess and the liquidity crisis affected the industry?

Possehl: I think we’re all kind of guessing. Certainly there’s a tightening in the marketplace. You’ve seen large companies in our industry, CIT for example, an organization that had an investment grade bond rating and have seen their bond ratings deteriorate, their borrowing costs go up. Those are very significant events, obviously. The banks, many of them will merge, some very large institutions have already merged and I’m sure that the list is not complete. We will have more of this in the future than we have in the past, in the recent past, and that will change the competitive landscape. I think, in general, there will be greater consolidation. As far as borrowing costs, I don’t see anything that indicates that they will decrease. I do think that there is reasonable potential good news of having spreads between costs and market expand a little bit, those were contracted. I think the loss reserves and actual loss experience will probably be higher in the next 24 months than it’s been in the past; that’s probably concerning news, but this too shall pass. Exactly how deep the problems will be, I don’t think any of us know. I do agree with people who are saying that the basic economy is still in reasonable shape. As long as the current crisis doesn’t cause unemployment to increase too extensively, I think we’ll get through this with some significant scars and a different view of the world going forward, but I don’t expect an incredibly deep recession.

WLN: What do you think there is for the equipment leasing industry to learn from the current crisis that we’re in?

Possehl: Crises do occur, and if you prepare for them, you’re in much better shape than if you had not prepared. The more highly leveraged lessors in general will have a more difficult time reacting positively to the opportunities that come about here. Certainly, when you look at what happened with the regulation from the FCC with the investment banks where their leverage was allowed to go from a capital ratio of eight to a capital ratio of three, so your leverage went from 12 to 36; I mean to me that’s nonsensical. I think the FCC was in error allowing this to occur. The companies who were in management were in grave error of allowing it to take place. The rating agencies were incredibly wrong in allowing the companies to increase their leverage to that extent and virtually keep their bond ratings the same. Those are common sense things that are pretty tough to justify. The biggest thing is, these things happen, and any organization that isn’t set to live through these crises will last as long as you’re lucky enough to miss one. For the 37 years Republic has been around, we’ve gone through these and to say that we don’t have some scars is to ignore reality. But I believe with Republic, when we get to the other side of the cycle, we will have taken advantage of far more significant opportunities than the cost that we’ve incurred as a result of the crisis. That’s the game plan. I hope that in three years we look back and that’s reality.

WLN: How do you view the international growth of our industry?

Possehl: I think there are a couple of ways to look at this. One is U.S. lessors’ expansion overseas. I think this has taken place, but at a substantially less impactful way than just lessors starting denovo in other countries vs. having their market share grow. My view of the international markets is that it’s very expensive to get started, there is an education that will clearly come along with getting started and the business will not be as profitable as you would like it to be for a few years. But, if you fail to make that investment or you fail to commit yourself to this, in a decade you will be behind a very serious power curve and many investors in the world won’t be available for you. So while it is expensive and it is educational, in my view, you have to do it. Republic’s assets in aviation are all outside of the U.S. at this point, and that was a planned event. There might be a way that we can be forced into putting assets in the U.S., but our view is the business model of airlines for the U.S. is fundamentally broken. You need to get away from that model if you want to succeed. It’s not to say that every airline is going to go broke, but when you look at the opportunities internationally and you compare them with the U.S., they are normally very easy decisions; the risks and rewards are better outside the U.S. than they are in the U.S.

WLN: When did you get into the leasing industry, and when you look over the years, what significant changes have you witnessed since you began?

Possehl: The changes have been fundamental and significant. My leasing career began April 1, 1969 with U.S. Leasing. I was with U.S. Leasing for a very short period of time, four months, when the two gentlemen who hired me invited me to join them and be a junior partner in a little company that we started. It was a lease brokerage company, international leasing financing. It was Jim Larson and Jim Dickson. A year and a half after, I started Republic on July 1, 1971. I have seen investment tax credit come and go three times. I’ve spent twenty-two years since it has been there. The industry has adapted to very significant money market crunches and to economic crises again and again and again. The industry has adapted to fundamental changes in how we account for leases. FASB 13 came into play in 1976 and the accounting regulations for both lessors and lessees was almost nonexistent prior to FASB 13. Hundreds of amendments to FASB 13 have changed the industry; interest rates swings that go from three percent to 22 percent. This industry is filled with individuals in organizations that have had to change and change in significant ways for the last 40 years. My confidence level is very high that we still have that gene as part of our DNA and the industry will again adapt as we go through other changes.

WLN: Your company has four distinct parts to it. Can you briefly touch on the aviation piece and discuss how the high cost of fuel has affected this end of your business?

Possehl: High fuel costs have clearly been a significant event for every airline in the world. Being headquartered in the U.S., those of us in the U.S. have a tendency to think that the whole world is like the U.S., and the whole world is not like the U.S. Some of this is good news, some of it is not good news. But on the good news side, the dollar has been devalued significantly over the last three years. Therefore, if you’re lucky enough to be an airline with Euro-denominated tickets, and your revenue and expenses are in Euros--the Euro has gone up by approximately a third over that period of time. So in effect, the cost of fuel is then mitigated by the currency fluctuation and has therefore had a substantially less impact to European airlines than it has had to U.S. airlines. Now that’s a very good thing. Rents are denominated in dollars, normally in the world, and again for those airlines that have a currency that has gone up in value versus the dollar, in effect, their rents have been lower as well. We have some concern as we go forward, as the dollar regains strength what will the credit requirements be. Certainly, in the last three or four years, they have been a positive event and, in some cases, a very positive event on behalf of the airlines. So, there is no question that fuel costs in the U.S. have replaced labor as the largest expense item on the income statement, that’s huge. In Europe, and countries outside of the U.S., it’s had a substantial runoff in costs but not nearly the extent that it has been in the U.S.

WLN: How has the acquisition of 42 North Structured Finance changed the nature and the scope of your business?

Possehl: We are very happy with the acquisition of 42 North. The professionals at 42 North are very experienced, quality people. They’re just great people. Republic has, for the last 25 years, had a presence in the structured finance business and some of the most profitable transactions that we’ve ever done have lived within that business unit of Republic. The acquisition of 42 North will do nothing but enhance our ability to complete transactions, and we are very confident that 42 North has the potential to be one of the best business units that we’ve ever had.

WLN: Within Republic today is leasing a very small part of your total portfolio?

Possehl: We have approximately $750 million of aircraft. I would love to tell you that that’s a small part of our portfolio, but if I did that, I’d be telling an untruth. Leasing is still a significant part of Republic from an asset standpoint. The other three business units have grown, and in some years they’ve certainly produced greater income to Republic than the leasing side. The only place that we touch leasing now, for any intensive purposes, is through aircraft, but aircraft has grown, we have a wonderful management team within the aircraft group and we are taking advantage of opportunities. From an asset standpoint, it’s still a very significant, certainly the largest asset concentration that we have. The other business units are more profitable on return on assets, but because aircraft deploys such a large percentage of our assets, it’s still a major part of who we are.

WLN: Talk about your commitment to community service.

Possehl: Our commitment to community service is based on giving back to the community. Whether it be leasing or the other industries we’re involved with, the other areas where Republic has a footprint, I believe that we get an absolute return on investments that we make and we have supported causes with hundreds of thousands of dollars a year. We anticipate continuing to do that. I think that it helps us retain and find great employees who have similar values to Republic. It certainly feels good to do it. One of our core values is to do the right thing. We believe that participating in community events and community causes is an important part of walking the walk of that value.

WLN: What do you see are the main challenges and the main opportunities ahead for both your company, and also for the industry as a whole?

Possehl: Well, certainly, Republic does not have any magic rock, I’d love to say I had one, we don’t. We push Republic’s resources, whether they be financial or human or experience, we are pushing every resource we have and we push them hard. We need to be careful, as every lessor does, it’s easy to make a mistake in this business, and they are costly. I believe that the basis, when you get in crises like this, there’s one universal truth and I think it’s pretty much for everybody and that’s back to basics. Credit is a basic tenant, if you do good transactions, life will be far better to you than if you don’t do good transactions. The ability to pay is the heart of doing good, solid transactions. So in times like this, credit is always important, credit quality is very, very important. If I have one thing that I’m proud of Republic, it’s that we’re certainly not without our scars and without having an education on what not to do, but our loss experience over the last 37 years, I don’t know this to be true but, it’s gotta be one of the best in this industry. I hope we can continue that.

Now adapting, there are going to be some funding changes, there will also be some funding opportunities. The world will change. I don’t think there is any way that the U.S. can maintain the position of being the capital markets’ head to the extent that we have in the past. I think there will be economic consequences outside of the U.S. that will start to become very large. Our industry will want to take advantage of this. The U.S. has a great future, but there are other parts of the world that are growing and they are growing more rapidly. That’s good news for the U.S. and if we approach it properly, there are more great opportunities for the U.S. The accounting change that is in the wind for leasing will cause many lessors significant challenges. But there will be a few of the great lessors who are set up to adjust to what the market gives them, and they will provide value to their customers. The companies that aren’t set up to do that, won’t prosper as much. The opportunities are different in the future than they have been in the past, but I’m very confident that they are no less large. There is certainly no fewer opportunities on a go-forward basis than there has been in the past for those companies that adapt. And if you’re incapable of adapting, your lifetime in this industry is a finite one. If you’re willing to adapt and have a culture of doing that, then I think that you have a bright future in this industry.

--Very well said, and very good conclusion to the interview.