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Notable Canadian innovations this year include a breakthrough airline financing deal and pricing models that save clients more than a third in legal costs.
Blake, Cassels & Graydon, a standout in the finance category, helped structure Canada’s first enhanced equipment trust certificate (EETC), a type of airline financing that allows non-US airlines to access US capital markets to finance fleet expansion.
Blakes worked with Morgan Stanley and Credit Suisse to help Air Canada, the country’s largest airline, structure $714.5m of financing to buy five Boeing 777-300ER aircraft.
The EETC private offering was considered one of the most innovative deals in aviation financing history for its ability to obtain financing at the best rates available to big US carriers, without having to pay a so-called “local law” premium.
“The EETC really is an ingenious structure and has long been the best way for US airlines to raise financing,” says Blakes partner Donald Gray, who specialises in aircraft financing.
Non-US carriers can access this market at US rates thanks to the Cape Town Convention (CTC), an international treaty designed to reduce the risk of loss by creditors in aircraft transactions. Canada ratified the CTC in 2013.
“The Air Canada deal was the first time the treaty was really tested,” says Mr Gray. “It was a big test for Air Canada and a big test for the treaty – and both passed with flying colours.”
This transaction opens the door for similar financings around the world, changing the way airlines plan for fleet renewals. It has also inspired other countries to ratify and implement the CTC.
Conduit Law, a standout in the Business of Law category, abandoned the traditional pricing model, saving clients up to 40 per cent in legal fees.
Peter Carayiannis launched Conduit in 2012 by creating a fixed-fee billing model to address the pressure on companies’ legal spending.
Instead of hourly billing, Conduit offers packages to clients – ranging from small businesses to multinationals – based on three categories – embedded counsel, gap counsel and targeted counsel.
With embedded counsel, the lawyers are deployed to work with internal staff. Gap counsel is a lawyer-on-demand service to help fill holes within an in-house legal team, while targeted lawyers come in for short-term projects.
One big banking client is on the embedded package and uses a hybrid of fixed and variable fees. The bank estimates it will save about 30-40 per cent on legal fees in 2014, compared with using a traditional external law firm.
Mr Carayiannis says eliminating the billable hour model gives clients more cost certainty and allows Conduit to focus on service.
McCarthy Tétrault narrowly missed out on the top spot in the Business of Law category for the overhaul of its legal services to cut costs and save clients money, including abandoning the notion that all work must be done in-house.
The long-established Canadian law firm developed its MTOptimize system in 2012, telling clients the goal was to reduce what they spend while providing them with the same services.
To do that, the firm applied the Lean Six Sigma process, a methodology that relies on collaborative efforts to remove wasteful spending. That also meant not trying to do all the work in-house.
Matthew Peters, a partner at McCarthy Tétrault says: “The key driver was to find ways to deliver more value to clients in a tangible way. It acknowledges that we can’t be the best at everything, so we should partner with other service providers to deliver an integrated solution.”
The firm has collaborated with colleagues from Cognition, a Canadian firm with a different work model, contracted work out to Exigent, a legal process outsourcing (LPO) firm, and come up with alternative fee arrangements.
McCarthy Tétrault cites a litigation matter that required research on expert testimony in other cases. To have its own research team do the work would have cost about C$26,000. It offered the clients LPO services instead, which saw the work done for only C$4,800.
In another case, McCarthy Tétrault used the LPO firm’s resources to save a large real estate portfolio client 20-30 per cent in fees.
The firm is also rethinking its overall staffing. Instead of the traditional model, where partners and associates do the work, McCarthy Tétrault now hires staff lawyers where relevant. That means staff devoted to the client’s work, and lower costs.
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