Credit freeze hits helicopter market
Many people might find it hard to feel sympathy for bankers. Especially after 2008. But as the credit crunch shows, no industry can survive without debt. The helicopter industry is about to discover this.
Lenders, many of whom have already been through the CHC Chapter 11, are now concerned about Waypoint Leasing. The largest independent (and third-party financed) helicopter leasing has breached loan covenants and is now in talks with financiers. This is no great surprise.
Waypoint, like other lessors, has been hit hard because its customers have been hit hard. CHC was Waypoint’s biggest customer but others have also been returning aircraft at the end of leases.
Some 26 institutions provided finance to Waypoint and many of them say they are now effectively closed for new helicopter deals. For some this is because they have lost faith in the asset class (often due to a combination of CHC, the grounding of EC225s, Waypoint and other borrowers) for others because any restructuring of leases will take time.
US offshore helicopter company PHI is partly a victim of this. In June this the helicopter operator planned a $500 million unsecured bond to refinance debt. It now appears to be struggling to close a much more expensive asset-backed deal.
Waypoint has a portfolio of more than 150 helicopters, financed through a range of facilities (with many banks active on several loans). This makes reaching agreement with disparate lenders hard.
The one thing you can be certain of, is that restructuring Waypoint is going to take a significant amount of time. CHC’s Chapter 11 showed that helicopters are not commodities. Moving a helicopter, from operations in Nigeria to the Gulf of Mexico or from oil and gas to emergency missions, is complicated and often expensive.
The portfolio is also complicated. Waypoint acquired a number of portfolios with old-fashioned return conditions, and many helicopters leased to CHC did not have maintenance reserves. Simply analysing it is difficult.
The fundamentals for the helicopter market are actually a lot better than a year ago. A barrel of Brent Crude is worth $75 so oil companies are returning to profit and preparing to invest in new aircraft. There is still an oversupply of aircraft, and headaches with the EC225, but demand for S92s has increased. Mid-size helicopters are holding up relatively well.
But without debt not a lot can happen. Bristow and Era Helicopters have both talked about buying up competitors (PHI could be a possible target), but this will require credit. It is getting harder to find any bank willing to finance new deliveries. This will eventually force end-users to reconsider contracts or structurally change the whole industry. But for now, the market’s access to credit is frozen.