HI Uplift: Helicopter values ‘likely to climb’ (maybe). But for how long?
Helicopter values are likely to climb this year but for how long remains unclear, according to three industry insiders consulted by Helicopter Investor.
“The whole of 2022 saw markets acting like a bear arising from hibernation,” says David Crick, MD, DavAir Group. “Current markets appear to be supporting a continuation, however somewhat dampened by monetary policy changes.”
Sara Dhariwal, senior aviation analyst and lead appraiser – Helicopter & AMM Markets, Ascend by Cirium tells us: “The second half of 2022 was the first time since the oil and gas downturn began that values for helicopters with large exposure to the sector improved. We are naturally hopeful that stability will lead to further improvement.”
Completing our snapshot of heli values is Alastair Fallon, director of the new aviation consultancy F4. Demand is likely to rise as further investment is made in offshore energy. “The limited existing supply of available helicopters will help hold value and instil keen competition on all sides,” he tells Helicopter Investor. “Fewer mature helicopters will become available on the used market and delivery of new, popular aircraft, such as the Leonardo Helicopter’s AW139, will take longer as the backlog with the OEM increases.”
Values will probably depreciate eventually but at a slower, less pronounced rate than previously. “Popular helicopters with recent adaptations plus lower ‘flight time and cycles since new’ will perform better and hold values better,” says Fallon.
Crick is equally cautious. The limited supply has created an upward trend of values, however the peak of the values rising would appear to have been reached in most helicopter markets, he says. “As monetary policy and interest rate increases start to bite, in the mainstream we will see a slight trend down but not like in some previous downturns where values fell off a cliff. The current market dynamics and reduced surplus inventory have ensured that the global fleet is generally in better shape to cope with any demand reduction compared with previous downturns.”
Dhariwal, at Ascend by Cirium, points out that while there are undoubtedly good signs of recovery in the offshore market, “seven years down the line, we are not returning to quite the same place as where we were”. There are different market dynamics, which on one hand provide stability, but on one hand provide a challenge for values.
A case in point in the medium category is the AW139, which due to its versatility has become the asset of choice for the offshore market since the downturn, she says. “It is subsequently the most natural asset for the market to continue to demand during the initial increase in capacity. However, there is likely a price point at which an investment case no longer makes financial sense. If that point is reached, alternatives could begin to be considered,” says Dhariwal.
For instance, there is a 25% storage rate in the S-76 C and D fleet, she adds. Plus, there is a competitive dynamic at the new end with the H160 coming to the market. “Both the availability of competitive assets on the used market and a newcomer, has the potential to challenge the AW139 and provide a ceiling for values.”
Crick says the major drivers for helicopter transactions and values are linked to mission requirements. When a fire season starts or a major infrastructure project gets underway, demand for firefighting or utility equipped helicopters rises. Emergency Medical Services (EMS) and Search and Rescue (SAR) helicopters appear to also be in demand. “As contracts enforce newer and better-equipped helicopters to be included, so the transaction cycle intensifies,” he tells us. “OGP [oil and gas production] helicopters are also becoming increasingly in demand in the past year which appears to be continuing. Whilst ever OEMs maintain some discipline with new deliveries, demand will continue to be buoyant.”
Fallon supplies some welcome numbers to illustrate market growth. The commercial helicopter market size was valued at a little over $6bn last year, with key forecasts predicting compound annual growth rate (CAGR) of 5.4% to continue throughout the 2020s, he says. With a visible sign of uplifting need for SAR and other critical services such as Helicopter Emergency Medical Services (HEMS), plus law enforcement, border patrol, firefighting and humanitarian aid, he says there is a genuine sense that growth will continue. “The trajectory is positive and the need will continue; new and replacement helicopters will include technological advancement and absorb the most up-to-date and latest safety requirements.”
Final thoughts for 2023? All our industry insiders highlighted the growing importance of Unmanned Airborne Machines (UAMs) or drones. Fallon, at F4, predicts that UAMs will replace some of the more mundane roles filled by the human intervention, such as checking hundreds of miles of rail from a matter of metres above, spraying crops in an agricultural environment or checking fences or observing stock. “The role of UAMs will also eventually fulfil taxi services for humans. Huge investments are being ploughed into these developments by many groups not least the well-known operators and lessors,” he says.
Crick, at DavAir Group also underlines the development of unmanned aerial vehicles (UAVs) and VTOLs impacting helicopter markets. “As they gain momentum and public acceptance, operators may see that they offer a viable alternative and support the medium accordingly.”
Dhariwal, at Ascend by Cirium believes the industry will focus on maximising industry efficiencies to enable continued operational productivity. The industry is likely to continue to explore new ways of working, including consolidation and partnerships, reviewing fleet mix and making use of new technology, says Dhariwal. “Some examples are the recent drone order announcements from traditional helicopter lessors, Lobo and LCI, and Airbus Helicopter’s announcement of the acquisition of ZF Luftfahrttechnik. And we’re not even a full month into the year yet.”
Meanwhile, register here for our free Town Hall online meeting – The Helicopter Leasing Market in 2023 – to be staged at 1500 GMT on Thursday, January 26th.
- David Crick, MD, DavAir Group
- Sara Dhariwal, Senior aviation analyst and lead appraiser – Helicopter & AMM Markets, Ascend by Cirium
- Alastair Fallon, Director, F4.
Crick says the major drivers for helicopter transactions and values are linked to critical mission requirements. When a fire season starts or a major infrastructure project gets underway, demand for firefighting or utility equipped helicopters rises.