Helicopter Leasing: “It’s not subprime yet but it won’t take much of a shock to make it one”
Simon Sparkes of Nova Systems has written a provocative piece titled “Offshore Helicopter Leasing – an Existential Risk?” on HeliHub. He arguing that leasing companies will struggle to cope with low oil prices. It is definitely worth reading in full here.
Sparkes writes: “How are the lessors going to cope with aircraft returns and is there going to be an emerging market for aircraft storage and upkeep maintenance? (Something which is apparently already under consideration by one company.) One thing you can be sure of though is that as long as the oil price stays where it is pressure is going to mount on the lessors. It’s not subprime yet but it won’t take much of a shock to make it one.”
The oil price is clearly not good news for many operators and lessors but it is too early to talk about a crisis.
First, helicopter leasing is not just about oil and gas. The oil and gas market clearly affects other markets – and helicopter values – but helicopters are used for many different missions. All of the lessors have targeted other sectors including search and rescue and emergency medical services.
Second the management teams and investors behind every one of the lessors – from Amur to Waypoint – understood that the helicopter market is cyclical. Commercial aircraft leasing companies have shown that leasing companies can be profitable in an extremely cynical market.
None of the leasing companies that have launched had business plans that predicted 25 years of strong markets with no downturns or oil at $100 a barrel. Leasing is a long term business and helicopters have long economic lives.
If you are being picky (and some lessors that have read the article are) there are a few errors. Not all of the lessors have issued asset-backed debt (Milestone has also paid its back); Macquarie is not a young company (it has been active in jet leasing for 10 years and aircraft finance for many years before that): and GE, Milestone’s new owner has been leasing commercial aircraft for 30 years.
The age of the company is also less important than the people leading it. Waypoint’s management team, for example, have many years in both helicopters and commercial aircraft leasing.
The article also says that Ireland offered a low tax regime to lessors as it exited its crisis. I would argue that Ireland became a leasing hub because of GPA (and the companies that followed it) and the US job creation act in 2004.
Downturns may be harder for leasing companies but it is also when they most demonstrate the benefits of leasing most. Operating leases help operators manage capital and get flexibility. Rather than seeing any lessor collapse, the next few years will cement the place of lessors in the industry.
If you disagree with my thesis, please let me know at [email protected]
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