Schindler Elevators & Maintenance Margin Pressure

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Schindler recently changed their org structure. I don't know if you saw a few quarters ago where they streamlined it. The old CEO is back, and I think he's added a new role of COO, to whom pretty much everyone is reporting. Then, the CFO and the COO report to him. How do you look at that versus how Otis used to be organized?

I think they proved that maybe that's not the best way, and as I understand it, with the context within the company now, they're going to go back to the way it was. But Otis was very structured. For example, if I were bidding on a $500,000 job at Otis, several people would sign off on that bid, whereas at Schindler, I kind of controlled all that myself. I had margin levels to hit, but the bidding process and everything were done at the local level.

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Why do you think it didn’t work?

I think the company's overall direction changed a bit. They got to focus on this commodity business, and they sold a lot of new product, a lot. We had some record years, year over year, of new equipment sales, but that's not where the money is. The money is in the maintenance. So they lost their way on that side and weren't retaining that business they were installing. I think that had a big impact, and every company does well on the new installation; for the last several years, all four majors have done very well. But the key is to keep that in your portfolio after you install it.

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Why is Otis the largest?

I think a lot of legacy work, and I would say that their products are adaptive. What I mean by that is when you have a 40-story building and say six of the elevators need to have 12 rear openings along with the front openings, Otis's equipment can adapt to that where it's a major engineering nightmare for the other three companies, so it drives their cost up. The larger the job, the more significant advantage Otis has. It's probably the reverse when you get into airports or shopping centers because Schindler's escalator product is the best globally, and they're more competitive in the escalator business. Escalators and moving walks, when you get into that type of business, like airports and transit, you find Schindler in the number one position.

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