Waypoint Leasing: New Horizons
Waypoint, the world’s largest independent helicopter lessor, recently celebrated its five-year anniversary, having weathered one of the worst downturns in the history of the helicopter market and come out the other side with an air of cautious optimism.
Waypoint is part of the new-wave of helicopter lessors that started with Milestone Aviation which was founded in 2010, with LCI and Waypoint following shortly after. Now many more smaller lessors have joined the market. Today, around 10% of helicopters in operation are leased and Waypoint expects this percentage to keep on growing.
As the helicopter market consolidates its recovery, new opportunities are arising. With governments promising to increase the number of offshore windfarms in a push towards a clean-energy future, air-taxi services taking off and the imminent recovery of the oil and gas market the future is looking brighter.
Waypoint’s co-founder Allan Rowe and its newly appointed CEO Hooman Yazahri are poised to take advantage of these opportunities and grow the relationship with the company’s customer base over the next five years.
We sat down with both Mr Rowe and Mr Yazhari to talk about the challenges faced over the past five years and just what to expect over the next five.
HI: Can you give us a quick breakdown of the past five years?
Allan: If I think back over the past five years — and even before, back to the founding of Waypoint — the initial vision was to create a group of former operators with technical expertise as well as one with fixed-wing leasing experience to help serve the market.
We were able to bring expertise from both sides, the technical and the leasing businesses. This continues to be the vision we have for the company and it is our ability to focus on the operator and the customer, to understand the problems and challenges they face so as to be able to provide a full range of financing solutions. This is what I think sets Waypoint apart, and it is what we are proud of.
The market has been very challenging, but parts are still very stable and growing. The EMS, SAR, utility, parapublic, firefighting sectors are all stable. We have new missions such as offshore wind and harbor pilot transfer that we are going into. Oil and gas has always been a challenge, not just for lessors but for all lenders and service providers. That’s not to say there is no stabilisation, but it is something that continues to challenge our customers and it continues to be incumbent on everyone in the market to find solutions that work.
We’ve now hit the five-year mark and have gone from a two-man operation to a 45-man operation with over $1.6 billion in assets and more than 150 helicopters throughout the world. And have opened offices in Cape Town, Brisbane, Hong Kong, Singapore and elsewhere to be closer to our customers.
Hooman: There is a wealth of opportunities that we in the helicopter-leasing market are opening-up towards. The displacement of the helicopter industry over the last two years has created challenges and opportunities. I think that, whether it’s an up or down market, the right team will be able to create value and offer both product and service that the rest of the market needs. Our team is focused on behaving in a way that will allow Waypoint to be as useful and helpful to our customers as possible, whilst creating value for our shareholders and stakeholders.
There is so much more potential that I think will become more apparent over time’ This is an industry in its youth. And. as we are the largest independent player in the industry, we have an opportunity to form the industry and form our own destiny in this young market. It is exciting and the next five years will continue to bring us rapid change, continued diversification and continued growth.
Five years from now, the industry will be unrecognisable to what it is today.
HI: How will it be different?
Hooman: if you look at our customers today, most had never been a leasing customer five years ago. In five years, the industry has created a 10% penetration. I think that as people continue to learn about the value that leasing adds, it allows operators to sync their asset commitment with their revenue commitment and allows them to effectively deploy their precious assets, reduce residual value and keep the fleet up to date.
As more people learn that this is a service available to them, more and more will take it up. Whilst the fixed-wing leasing world is a very different world and it is around 40 years older than the helicopter equivalent, it represents around 50% of the commercial fleet. It is hard to tell how far it will penetrate into the helicopter market, but I certainly see us getting closer to the fixed-wing figure than where we are today.
Allan: That’s right, if you look at the helicopter as an asset class and you compare it to leasing penetration among other assets, it is still very low, but it has grown over the past five years and the next generation lessors have been established. It will grow.
If you look at the leasing of other assets such as containers, it is even higher than the 50% mark. One thing the oil and gas downturn has demonstrated is the value that leasing brings for an operator. We expect there always to be a balance between owned and leased assets, but leasing creates operational flexibility and the ability to access a aircraft for a particular contract and match it to the lease term. It also gives balance-sheet flexibility.
We are coming up to a refresh cycle. Users prefer or require newer aircraft, so it is a natural refresh new aircraft and helicopters while replacing the older ones. The older ones are moving on to other markets. We are also seeing industries and geographies that are untapped, specifically the Chinese market which is showing a lot of potential. As yet, helicopters in the general aviation industry have not seen traction there due to tight regulations, which have been eased over the years. But we see the market growing. We also see wind energy and EMS as emerging markets for leasing opportunities.
HI: Waypoint opened a leasing platform in Tianjin 6 months ago, how has that progressed?
Allan: We have done several deals in China through our trade-zone entity in Tianjin which has put us in a very good position to capture growth. However, it takes a long time for certain operations to fall into place. As the industry evolves in China, we will be there to support that growth.
We have also seen lots of start-up activity there, even outside of the traditional oil and gas but also in the EMS services. The country has a lot of large urban areas but their infrastructures cannot really match the numbers, of people so there will always be a demand for helicopters there.
HI: Will diversification still be the name of the game going forward? Or do you have plans to consolidate in certain markets such as a more-stable oil and gas sector?
Allan: Diversification has always been something we have focused on since the beginning. Early in the first year of Waypoint we leased aircraft to firefighting and EMS missions. A lot of that stems from out previous lives as operators, especially at ERA. At the time ERA had a robust medical business and had a share in utilities etc. Both ERA and Waypoint valued this diversification, even when oil was $120 a barrel.
I think oil and gas will always be an important part of the helicopter industry, there is no getting away from that. As a lessor that needs to be servicing all aspects of the industry, we will continue to participate in this space going forward. However, given the recent downturn of the market and the health of other industries, we have just seen more growth in other segments of the market, meaning we have diversified in terms of customer base, assets and missions. Going forward we are absolutely going to continue to diversify across existing markets and, when the time comes, the emerging markets.
HI: Hooman, you said you hoped the market is going to move away from a short term focused strategy to a longer-term strategy. Any progress?
Hooman: The talks I have had with end users, operators, OEMs and to the extent I can other lessors. I have seen there is definitely an appetite to tweak the processes and the way the industry works to make it more efficient and profitable.
This is a great first step, everybody recognises our problems and how we can solve them and do things better. The next step is moving beyond from just merely evangelising these ideas to making headway and doing what’s needed. This is harder and requires everyone to agree and implement an action plan. This will take time, but in terms of people’s desire, enthusiasm and willingness to work together, we are in a good place. The industry does have a precedent for collaborating to promote safety, driving the industry to make some major steps in creating the best-possible safety standards. I think the same collaboration can be used to band together and refine all our business models and make them stronger. We are hopeful, but it is still early days.
HI: We talked about industry trends, what are we expecting from Waypoint over the next five years?
Hooman: It’s hard to predict. I think we will see less players in the helicopter leasing space in the next five years and those remaining companies will be larger. I think the lifecycle of financing for aircraft will better be better tailored to the length and type of work for which the aircraft is required to do.
I think that the way the end user will interact with lessors will develop. Overall, the relationships lessors have with their customers are lacking. For the most part, end users of the aircraft do not have a direct line of communication with the actual asset owner and we can help change that. We can all work together to find the right specifications, the right assets etc to figure out and develop each other’s understanding further.
Allan: I agree. The operating lessors that have entered the market over the past seven years have become an increasingly important part of the market, beyond merely just a source of capital. We can help mitigate risk and cost through standardisation of equipment especially.
HI: The future of offshore wind?
Allan: Whilst the market is emerging and there are opportunities there, it is still a niche market and will not require as many helicopters as oil and gas or SAR. What we have seen is that, whereas previously the offshore wind market was predominantly European centric, and the helicopter market servicing these were also European, we are experiencing international market growth.
The cost of power generation has gone down, so it has become a more-competitive way to produce electricity. We are seeing it growing and it is still in early-stages, but I would expect the helicopter market in general as well as lessors as a whole to support the wind market as it grows. We are looking to be part of the solution early on to help establish a market that could be far more substantial in the next 10 years. It is what we call a high-potential market for helicopters.
Hooman: Wind is something that no one will know what it will look like in 20 years. Will we have the kind of economy where all cars and buses are electric and one in which they are all charged using renewable energy? Well it all depends on government regulations and the public’s appetite to ween itself off from fossil fuels. Either way, as a helicopter company we are relevant to whatever the energy industry decides to do, whether it is continuing in the current oil and gas market or whether the wind market develops greatly. Either way, we will be there to support the growth. Wherever and whatever helicopters are being used for, we will be there.
Helicopters are being used in retail and transporting individuals at low-costs that just were not available a few years ago. You can use a charter company like Blade to charter a helicopter from Manhattan to the Hamptons for $700 dollars or so. You also see an emerging market of helicopter taxis with a lot of start-ups opening up in cities with a lot of helipads. These are small markets at present, but we want to service these markets and are speaking to these niche operators and figuring out how we can help them.
We want to ensure our assets are being used by these companies to help prove their thesis that helicopters can be used in these new emerging sectors.