17 April 2000
The changing face of the transport and travel industry is opening up new avenues of business for external law firms with a wealth of expertise and the ability to keep pace. Tamzin Hindmarch reports.
As the travel industry steps up a gear and starts moving into new world markets, the opportunities for law firms are growing. In the past year National Express, for example, has undergone massive expansion and is now just as familiar a sight on the highways of Australia as it is on the M1.
To help large complex ventures such as this get off the ground, many companies are calling on the expertise and reputation of City players. Last year, shipping group P&O chose Freshfields and Norton Rose to advise on its plan to spin off its fast-growing cruise business.
The move could create the world's third largest cruise company, after Carnival and Royal Caribbean, with stock market listings in London and New York. Freshfields is advising on corporate issues surrounding the split while Norton Rose is working on the financing aspects of the deal.
Both firms got involved with the latest deal on the back of previous transactions. Norton Rose advised it on the £285m sale of the company's construction arm Bovis to Lend Lease in October last year. Freshfields acted for P&O on the sale of the Earl's Court and Olympia exhibition venues for £183m in the same month.
Fellow City player Herbert Smith has also been working on some of the sector's biggest deals.
It was appointed during Eurotunnel's project stage in 1987 together with French firm Francis LeFebvre and Freshfields, which was taken on to deal with disputes and litigation during the tunnel's early stages.
Although City giant Freshfields is no longer retained by the company, Herbert Smith continues to advise it in the UK and France, mainly for corporate finance and banking.
Bird & Bird is used for telecoms and two French firms, Boivin & Associates and Breitenstein Meillassoux Hauser are used for public law and competition and deregulation respectively.
Philip Dewast, head of legal at Eurotunnel, did not rely on directories when it came to selecting these firms.
He says cost and competence are the crucial criteria, though he insists cashflow problems at Eurotunnel in the past have not affected legal spend. "There has always been a pressure to reduce cost, but that has not been the essential driver during the selection process," he says.
To deal with commercial, contract, debt recovery and litigation he uses local Maidstone firm Brachers.
Dewast says: "Its geographical location means it can work closer with us and can be immediately available. It is also very cheap compared to the City firms and the cost impact was essential in making a choice - and it is very good."
Not all those within the sector necessarily retain specific panels, with some travel companies feeling panels are too formal. In these cases, lawyers are chosen on an ad-hoc basis and selection is through repeat business or word of mouth.
And not all sector companies have internal lawyers. Stagecoach, for example, does not have an in-house team. Derek Scott, company secretary at Stagecoach, uses only external lawyers although he does not believe in always using the same firms through retaining a rigid panel.
Although the company regularly uses Simpson Thacher & Bartlett in the US, Scotland's Shepperd & Wedderburn and Herbert Smith, Scott is always open to suggestions.
"It is a combination of people who we have worked with before and to whom we give repeat business, but we look for opportunities to work with other people too.
"We tend to have a few ideas of our own. Accountants can recommend good firms just as firms can recommend good accountants, but usually we find the same names appearing on the lists," he says.
Not all transport companies believe in outsourcing all legal work. British Airways, for example, has been taking an increasing amount of high-value work in-house, only turning to external firms for specialist knowledge or to deal with e-commerce issues as and when they arise.
Its team comprises two employment lawyers, a competition lawyer and an aircraft financing lawyer, as well as a team to handle general legal matters.
The team is involved in the airline's pursuit of anti-trust immunity between the UK and US with the proposed alliance with American Airlines, but it also deals with everyday matters such as pricing, liability and franchising.
Railtrack's in-house team is unique within the sector because of its involvement with public inquiries concerning rail disasters such as the Southall and Paddington train crashes.
Simon Osborne, company secretary and solicitor at Railtrack, says: "I was actually in the dentist's chair when I first heard [about the crash at Paddington].
"I came straight in to work to see the operations director. After that the work was constant, I think myself and a senior colleague worked non-stop for three weeks."
The in-house team also provides an enormous variety of legal advice on a day-to-day basis. This ranges from dealing with local land owners on the upkeep of trackside fences to, most recently, the ongoing franchise replacement programme.
The team is a mix of former British Rail lawyers and a number who joined the company from private practice. Osborne says this mix of experience is extremely useful when buying external legal services.
Railtrack operates a range of national panels to look after the company's network of rail property. On its litigation panel, for example, is Hay & Kilner in Newcastle, Addleshaw Booth & Co in Manchester and Nabarro Nathanson in Sheffield.
But the firm makes sure the panels are kept under review. For example, it is going through a tendering process for a firm to handle its litigation work in Bristol.
Osborne says he maintains an overseeing position during selection processes. "My role as company secretary is fairly demanding so with my legal hat on I prefer to stay in helicopter mode above a seething cauldron of legal activity."
The effects of globalisation are changing the way in which many major companies operate. Increasingly they are using international panels to advise on points of law which vary from one country to the next.
And as travel and transport companies venture further into international markets, they are taking on more diverse panels to reflect this trend.
UK giant National Express has major transport operations in Australia, Arriva is pursuing its interests in Europe and Stagecoach is developing its US arm after buying out Coach USA.
Stagecoach's Scott says: "Historically we initially went to Commonwealth countries where they drive on the same side of the road, spoke English and had transport systems based on British models."
But this changed in 1996 when Stagecoach bought the largest bus company in Scandinavia. It used a Swedish firm with a UK office as well as a UK firm to avoid language difficulties.
Language problems aside, the pattern was repeated in the US when the group bought Coach USA in June last year.
Firms on both sides of the Atlantic - Herbert Smith, Simmons & Simmons and Simpson Thacher & Bartlett - were used to ensure an understanding of differences in US law and of the New York stock exchange.
While the dotcom effect takes root and rocks the stock exchange, nobody can be sure from one day to the next whether shares in traditional sectors such as transport will go up or down.
But whatever happens in the future, companies in these industries know that to outrun their new competitors they will have to move at a faster pace. And while they continue to grow, take over, dispose of and take on new activities, external law firms will continue to provide an integral service.
The big five UK operators
British Airport Authority (BAA)
Airport facility provision and management in the UK and overseas. Also involved in property investment and development. Employs 12,724 staff. Market capitalisation of £4.17bn.
International and domestic scheduled and charter air service provider (passengers, freight and mail) and ancillary services. Employs 63,779 staff. Market capitalisation of £3.54bn.
Peninsular & Oriental Steam Navigation Co (P&O)
Group spread across property, transport and service industries. Employs 68,333 staff. Market capitalisation of £4.23bn.
Provider of track access to train operators. Also carries out infrastructure maintenance and renewal as well as management of timetabling, train planning and signalling. Employs 19,821 staff. Market capitalisation of £3.94bn.
Provider of public transport services. Employs 31,913 staff. Market capitalisation of £1.15bn.
On the move
Sunderland Metro Extension
A £98m public private partnership track sharing deal. Simmons & Simmons and Newcastle firm Dickinson Dees advised on the project. The deal, which was the first of its kind in the UK, will allow lightweight metro trains to run on the national rail network.
London Underground PFI project
Linklaters & Alliance, Freshfields and Norton Rose acted for London Underground's £1.2bn PFI project which awarded a radio and transmission services contract for the Tube network to the CityLink Telecommunications consortium. Freshfields acted for long-term client London Underground while Linklaters advised the consortium and Norton Rose advised the banks funding it.
National Express purchase of Durham Transportation
Clifford Chance Rogers & Wells acted for the UK group on its £109m cash purchase of the US-based company.
Heathrow rail link project
Herbert Smith, Simmons & Simmons and Linklaters & Alliance advised British Airways, BAA and Railtrack on the group's £170m plan to build a link between Heathrow Airport and the south of England.
Arriva disposal to General Motors
Newcastle firm Dickinson Dees advised transport company Arriva on the £513m disposal of Arriva Automotive Solutions to General Motors subsidiary GMAC, which was advised by Allen & Overy.
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