How low oil prices will hit helicopter values

AgustaWestland AW189 landing on oil platform

With oil at almost $50 a barrel, the mood in the helicopter market has dampened. (And oil prices will no doubt be one of the dominating themes at our Helicopter Investor conference in London next week).

One of the strengths of helicopters as an investment is that OEMs cannot suddenly stimulate demand (if you give a utility company a free helicopter they are not going to build a powerline.) This means that it is a rational market less prone to boom and bust. But if you are desperately trying to sell an aircraft during a downturn, this does not feel like an advantage.

In the business jet market there is an often repeated (although never statistically proven) theory that when 10% of the entire fleet is for sale you have a balanced market, where buyers and seller are in equilibrium. One experienced appraiser feels that with helicopters it could be closer to 5%. He argues that it does not take a lot of overcapacity for values to be hit.

Of course, it is important not to be too pessimistic. Helicopters serve a range of missions and with less focus on oil there will be an opportunity for EMS, SAR and other operators to get more attention.

Oil rigs are long-term projects. Gregory Hayes, president and CEO of Sikorsky parent United Technologies, estimates that more than 80% of oil and gas helicopters support production and not exploration. “So you’re talking on the margin, yeah, there maybe a few aircraft that will be little bit more difficult to sell,” said Hayes. “But Mick [Maurer, CEO of Sikorsky] and team I think are on top of it down there.”

Several veteran financiers and operators believe there is almost no correlation between oil prices and helicopter values. They are probably right. Low oil prices may be a cloud on the market, but clouds rarely affect anything.