Helicopter leasing: Olivier Piot on finding success in a down market
At the turn of the millennia, the helicopter leasing market did not exist. But across the aisle, commercial aircraft leasing was booming, with almost half of all commercial aircraft flying being owned by and/or managed by lessors. A select few forward thinkers were considering: could the same work for helicopters? One of the few was Olivier Piot.
Whilst helicopters were being leased at the time, it was on a very small scale. Local lessors were dealing with local operators with one or two helicopters. Piot launched the Paris-based lessor Nova Capital in 2002, before any of the major players came to shape the leasing market we know today.
Since then, Piot has slowly but surely grown a reliable, low-risk fleet, that led Nova Capital to new heights last year while others faltered. Nova Capital grew the value of its leased fleet by $75m year-on-year in 2019, increasing the total book value of its aircraft from $275m to $350m – overtaking Lobo Leasing to become the fourth largest helicopter lessor in the world.
Unsurprisingly, Piot has a uniquely positive outlook now. An outlook that is the culmination of almost two decades of slow and steady growth, choosing low-risk contracts and abiding by three golden rules.
These rules, Piot explains, are: “Stick to safe, onshore, public-backed contracts; No speculative order deals; and for 100% of our debt financing to being on non or limited recourse basis [Where creditors have limited claims in the event of a default].”
This safety-first strategy has allowed Nova to prosper when its contemporaries have not.
Helicopter Investor asked Piot how he got his start in leasing, what Nova Capital is doing differently, and how it has found success in a down market.
Helicopter Investor: How did you get your start in the market?
Olivier Piot: I started Nova Capital from scratch in 2002, 18 years ago. At the time, I was heading the structured asset finance department at a French bank, handling a lot of commercial aircraft transactions, niche turboprop, and some helicopter deals. Before this, I worked as a lawyer in Paris for a US law firm handling asset finance deals.
At the time, no company was doing helicopter leasing exclusively, there wasn’t a market there to break into. Operators could only buy helicopters with cash or mortgage debt. After seeing the success of leasing in commercial aviation, I thought the same could be applied to helicopters, taking advantage of a resilient residual value asset-class.
The idea was to play it safe. Sticking to public backed, long term contracts and backto-back leases with reliable customers. We avoided contracts in the oil and gas space that could be subject to termination more frequently. We secured public service contracts which allowed us to raise good funding at the time.
We played by three golden rules: Stick to safe, onshore, public-backed contracts; No speculative order deals; and for 100% of our debt financing to being on non or limited recourse basis [Where creditors have limited claims in the event of a default]. We have abided by those rules ever since.
HI: How unique is your approach?
OP: Our business model was quite unique. We got a head start over other players later entering the market. At that time other lessors wanted to grow and were raising a lot of debt against their balance sheets to expand quickly.
Our slower paced, onshore, public-backed growth plan turned out to be a good choice. It was a unique model that has allowed us to focus on growth, new contracts and adding more aircraft without having to massively reconfigure – a problem that many lessors in the oil and gas business have to deal with.
Also, with our limited recourse financing back-to-back to our lease contracts duration, we haven’t had to deal with rolling over debt in a time where many lenders did not want to put money back into the market.
HI: Do you think there was a trend in helicopter leasing to grow too quickly?
OP: Helicopter leasing is – and will remain – a niche market within the global aviation industry. The goal of a lessor should be to answer demand, not to make sure that you increase the number of helicopters in the market. You need to maintain the balance of growth and meeting demand.
Did the market grow too quickly? I guess the answer is very different depending sectors. Oil and gas suffer from a tremendous overcapacity, while segments such as EMS [Emergency Medical Services], utility, or governmental support operations have strong potential for more leased assets.
The positive aspect of this is that the leasing penetration rate has grown every year. A decade ago, less than 1% of the world’s fleet of civil helicopters were leased, now it is around 14%. But a lot of this is in the core EMS and oil and gas space.
While I don’t think helicopters will ever reach the same penetration rate as commercial aircraft, there is still room for growth and if I had to be optimistic a few years ago, I would have seen this figure growing to 30% in the next five years. But it is certainly a difficult time for most lessors, so the growth could be quite slower than that.
HI: Has being in the market for 18 years given you an advantage?
OP: The biggest advantage our 18-year stint has bought us is that we have seen, and know how to deal with, the entire life cycles of helicopters and lease contracts.
We have seen leases conclude or extend two or three times for certain aircraft and are well versed on how to handle the situation and find new homes for the aircraft.
The market can be tough, especially with the oversupply of helicopters right now, but over the past two years the lessor community has succeeded in transitioning a significant number of aircraft across markets to other, less crowded segments. This is something that investors and operators need right now.
HI: What do you think you have done differently?
OP: We have adopted an opportunistic strategy where we were buying new helicopters when we found good opportunities rather than just growing for the sake of it.
We stuck to our limited recourse asset backed deals and we only raise money on an ongoing basis. A lot of money was raised by the lessor community at the same time [2010-2015] and payment deadlines kept being pushed back or rolled over.
Also, when we buy an asset, and put it on its first lease, we are already thinking about what the helicopter could be used for on its next leasing period and the one after. This is why we focus on the onshore industry, where the transition costs are lower and easier to manage. Reconfiguring an oil and gas helicopter is a far harder task.
HI: Any closing thoughts?
OP: I think the helicopter is a wonderful asset. I am convinced it will attract again banks and investors, especially on the onshore segment. We have already seen some indications of this over 2019 with a limited number of new players investing in the asset class, and some lenders coming back.
I suspect that a significant proportion of the older aircraft in use at the moment will slowly have to be phased out, especially in oil and gas sector. There is not enough work for every asset in this temporary – but significant – period of oversupply.
There are still opportunities for these older aircraft in the pre-owned market, such as for example for firefighting operations. The need for firefighting helicopters is unfortunately expanding due to climatic changes, state-owned assets are under strict budget constraints, and transitioning an aircraft to be suitable for firefighting usage is relatively painless.
We, as the lessor community, made some mistakes in the past, but we have played a key role in transitioning aircraft through the worst of the downturn over the past two years and I don’t see many in the wider helicopter community realising this.