It’s been graphically described as a tunnel painted on a brick wall that the user doesn’t see until it’s too late. The trade press has consistently hammered it, and the company responsible has been excoriated and unfairly compared to the US company OPM. That fraudulent leasing organisation went bust over a decade ago and several employees now languish in gaol. It of course is Flexlease, the contract that liberates the user from worrying about the particular machine becoming obsolete well before the lease term is up, but at the same time binds the user tightly to the lessor for the full term.
Poisoned gobstopper
But regardless of the horror stories, Flexlease has made Atlantic Computers number 41 in the Datamation 100 table of information technology companies, and both are still around to ruffle the feathers of the more fastidious or less successful members of the computer industry. In September 1988, British & Commonwealth Holdings acquired Atlantic Computers at an optimistic UKP416m. However, when results for the six months June were revealed, analysts fully expected a rash of For Sale signs, and Atlantic was seen as a likely candidate. Since then, the company’s future has been made even less certain by the ambiguous remarks of British & Commonwealth’s chairman, John Gunn. He has referred to Atlantic as a poisoned gobstopper, but in virtually the same breath, has insisted that he will make Atlantic work. But with B&C’s turnover down 36.5% to UKP359.5m, and profits nosediving 40.7% to UKP20.7m, Gunn has accepted the logic of disposals. Of the eight divisions that form British & Commonwealth, he chose to rid himself of Gartmore, the fund management business. It’s still up for grabs, and with a pre-tax profit last year of UKP400,000, expected to reach UKP3.5m in 1989 according to Smith New Court, it’s an attractive proposition to those interested in UK fund management. However, even if Gunn does pursue a policy of shedding, either to reduce debt or restructure the conglomerate, making British & Commonwealth appear the sparkling success it was once thought to be remains an uphill task. Cynical manipulation of the market has recently manifested in false rumours that Gunn had been arrested by the Fraud Squad. Consequently, British & Commonwealth’s shares fell 16 pence to 92 pence and experienced a further fall to 82 pence. They now stand at around 101 pence, 141 pence down on the 1989 high of 242. So, given the uncertainty surrounding British & Commonwealth, where goes Atlantic? It contributed UKP347m to group turnover, but operating profits were only UKP6.7m. This is drastically down on 1988 figures when it reported net profit at UKP31.4m on turnover of UKP630.7m. Sam Kingston, UK marketing director, and one of a new breed at Atlantic, insists that the controversial Flexlease will continue to form the backbone of business.
By Janice McGinn
It currently accounts for 95% of Atlantic’s leases, and while the company is prepared to offer straightforward operating leases, Kingston says that Flexlease will constitute at least 90% of business in the immediate future. It’s a chicken and egg situation. The company makes Flexlease and Flexlease makes the company. Kingston argues that traditional leases are less appropriate than Flexlease at a time of technological change and the rapid introduction of new products. He says that DEC equipment has become increasingly important to Atlantic because of the rate of product introduction and upgrades, and he now has a 16-man team working solely on DEC accounts. Kingston’s argument that Flexlease is particularly suitable for those most eager for new technology may be perfectly sound. But given Atlantic’s history, how is he going to convince users that the company is not going to lure them into a false sense of security, only to exact a high cost at a later date? That indemnity leases can leave the user trussed and bound has been well documented in the past. But are users still ignorant of the dangers of low rental leases with upgrade and termination clauses? Are Atlantic, Capital, and ICS
entirely to blame for the financial mess of some lessees? And is there such a thing as user responsibility? Kingston’s approach to Atlantic’s history is to say that different periods of business require different methods of management. What was appropriate for John Foulston and Steve Mason is not necessarily appropriate now. Users seem to have wised up, perhaps through bitter experience, and now realise that leasing is a financial and legal decision, not one to be left in the hands of data processing departments. Secondly, Atlantic has been recruiting staff from establishment companies such as Comdisco and Dataserv, and a senior employee with Hitachi Data Systems has also been approached (CI No 1,330). Regardless of tumbling profits, the underlying strength of Atlantic remains its portfolio, almost certainly the largest in Europe. Some Flexlease clients have swapped to operating leases, notably American Express, but it would be wrong to suggest that the majority of customers are unhappy with their leasing arrangements. If there is trouble ahead, it is most likely to come from one of two sources.
Old chestnut
The first is IBM, and it is most significant since it affects the whole leasing community. Big Blue persists in making leasing a dirty business. That hoary old chestnut of IBM going after account control, achieved at the expense of short term profitability, is hitting Atlantic as hard as any other company. Yet, if IBM is being predatory, Atlantic is probably the one company that can’t complain too loudly about aggressive business methods. The second source of Atlantic’s trouble may well be the residual values it’s been writing into its leases. There have been suggestions that the US operation will be in financial difficulties within the next few years, largely because of ill-calculated residuals. That suggestion has also been levelled at Atlantic in the UK. Kingston denies it and says that residuals here are healthy enough not to give cause for concern, and although System/38 residuals have inevitably been affected by the AS/400, 3090s are still very good.
