HI Uplift: CMA finally approves Macquarie deal
The UK Competition and Markets Authority (CMA) has finally approved the acquisition of Macquarie Rotorcraft by SMFL LCI Helicopters. The acquisition, which was announced at VAI Verticon (formerly HAI HeliExpo) in March, has already closed. The process of merging the two companies can now begin.
It is clearly the right decision; as several new helicopter leasing companies have launched since the announcement. However, many disagreed when the UK CMA stopped the merger of CHC and Babcock’s offshore business.
Japan has a long history of investing in aircraft. If you have flown on a widebody aircraft operated by a European flag carrier, the odds are that you have flown on an aircraft financed by Japanese investors.
Japanese financial institutions first became involved in aircraft finance through Japanese tax leases in the 1980s. British Airways would not have been privatised without using Japanese leases to finance its fleet. ITC Aerospace has also used Japanese operating leases to finance helicopters.
Tax arrangers
Many of these tax arrangers – Orix, Nomura, Itochu and others – then moved into aircraft operating leasing. This includes SMFL and Sumitomo Mitsui Banking Corporation, which jointly own SMBC Aviation Capital; one of the world’s five largest commercial aircraft leasing companies.
Meanwhile, the industry greeted the decision with a collective sigh of relief. “P’hew. Thank heavens CMA didn’t muck this one up the way that they blew up CHC/Babcock deal,” was the frank reaction of Clark McGinn, founder of consultancy Uplifting Advice.
“I’ve always felt that in a high-capital, long-life asset the ideal competitive dynamic is two key global players with a third, smaller player in different markets or sectors. It now looks like we’re there in helicopter leasing.”
Not unexpected was the verdict of Sara Dhariwal, principal aviation analyst and lead appraiser, Helicopters & AAM, Cirium Ascend Consultancy. “The decision aligns with what most in the industry anticipated, so it’s not surprising,” she told us. “That said, the process has been lengthy and demanding for those closely involved, and I’m sure there’s a sense of relief that it’s now concluded.”
‘Extended scrutiny’
While the investigation added time and complexity, it hasn’t changed the fundamentals of the deal, notes Dhariwal. “For the industry, it suggests that extended scrutiny is something to factor in going forward.”
For Alistair Fallon, founder of the consultancy Fly Fast Further First, the CMA decision offers grounds to “have faith in the system and allow it to evolve matching market, sector and industry needs”.
It’s recognition from the CMA that while monopolies are frowned upon, the Macquarie acquisition should not be considered as such because the new business unit is a “main trunk with several branches operating with relative freedom”. Blocking the deal could have been interpreted as the authority “meddling with an industry running its own course through changing times”, Fallon tells us.
Dhariwal at Cirium highlighted that just over 60% of the total leased helicopter fleet will now be managed by two lessors. Reduced competition is largely seen as a positive for the market. “Greater consolidation offers stability at a time when recovery is still underway, allowing operators and lessors to prioritise efficiency, improve terms, and streamline processes,” she told us. “These factors can strengthen the industry and create a more sustainable environment for all stakeholders.”
‘Evil eye of the CMA’
Thankfully, a ‘Yes’ from the CMA dodges the damaging consequences of a ‘No’ verdict. If the CMA had ruled nay: “People would start to worry about being too big (globally or in a specific UK niche) and hence catching the evil eye of CMA,” says McGinn. “So, we might have seen Macquarie sold in bits and bobs creating a fragmented and potentially unruly universe of medium-sized lessors.”
While reluctant to speculate, Dhariwal does concede: “I think if the CMA had ruled against the deal, it would have signalled a much stricter stance on consolidation in the sector, raising questions about future growth strategies and the feasibility of achieving scale through mergers.”
More will become apparent when the CMA publishes its full ruling. But for now, after widespread relief at the authority’s positive decision subsides, the hard work of merging the two companies can begin in earnest.
Meanwhile, if you are visiting European Rotors in Cologne next week, don’t miss Helicopter Investor’s two Finance Forums on the afternoon of Tuesday, November 18th in Rheinsaal 5 in Congress Centre North. The first, at 15:15 focuses on the Helicopter Emergency Medical Services (HEMS). The second, at 16:00, probes the state of industry finances. More details here.
