HI Uplift: Lessors look forward to stability after tough times
Helicopter lessors are looking forward to business stability after a decade of turbulence, said speakers at Helicopter Investor’s Financial Forum. Plus, inflation could boost demand for leased helicopters.
“The past 10 years have been quite challenging – particularly the past seven years,” according to Sebastien Moulin, head of Europe & Americas, Milestone Aviation. “But we have seen a lot of changes and some M&A [merger and acquisition] activity and we’ve learnt a lot of lessons.
“There is a lot of maturity on the lessor side. We are all focusing on different segments and the lessees know where they need to go to get the services they need.” (Earlier this year, Milestone Aviation’s parent company, GE Capital Aviation Services, GECAS, was acquired by Dublin-based lessor AerCap Holdings).
While not recession-proof, the emergency medical services (EMS) parapublic segments remained stable during the pandemic, said Moulin. The oil and gas market has been challenging over the past seven years, but there’s been a strong recovery over the past 18 months, especially in 2022, he said.
Milestone had completed a record number of transactions, more than 110 transactions by early November, serving over 50 customers in 40 countries, with more than 330 aircraft in its fleet. But significant challenges continue to face the sector. “There are the increasing interest rates we all face, supply chain challenges and the lack of aircraft availability.”
Rising rates could offer an opportunity for both operators and lessors, said Olivier Piot, founder and CEO, Nova Capital. “With inflation and prices going up, it brings more value to an operator to have a balanced fleet in between ownership and leasing,” he said.
“Flexibility should be almost synonymous with the role of lessors in helicopter financing – mainly to provide a leasing solution to manage residual value. That’s the main difference between us and banks.”
Piot also acknowledged the tough times endured by the leasing sector but thought they had helped it develop greater resilience. Also, the market is less fragmented than previously, he said. In November Nova Capital marked the first anniversary of its partnership with LCI.
“We have begun to transition aircraft, redeploying them to new operations,” said Piot. “That can sometimes be painful if you discover constraints, you did not have in mind at first.” However, the market is enjoying greater stability with “a reasonable number of global players”.
Another lessor confirming greater stability was Tomoo Nakayama, chairman and director ITC-AeroLeasing. “The lessor market in our targeted area of operation, EMS [emergency medical services], and other areas like government contracts are very stable. And we are enjoying it [greater stability] very much,” Nakayama told the audience.
“Our [leasing] structure is five years up to 20 years, with residual value, as a purchase option. Operators are very happy to purchase the asset at the end of the lease,” he said. Signalling confidence in the market, ITC-AeroLeasing is planning to boost its helicopter fleet from about 60 units to 90 to 100 aircraft next year.
In addition to EMS and offshore and onshore logistical support for oil exploration and renewable energy, leased helicopters are deployed on a range of missions including search and rescue (SAR), firefighting, island shuttle services, police duties and VIP transport. Other missions include Electronic News Gathering (ENG) and logistic support for government military services. ITC-AeroLeasing has 13 mid-size helicopters and three jets dedicated to the ENG market. It has also leased five H225s to the US government for military services over many years.
But availability remains problematic. “It’s very difficult to find a 139 today,” said Moulin at Milestone. “We have almost 80 139s in our fleet, all of which are currently on lease with our customers.” (A Leonardo AW139 is pictured top). On the heavy segment, the company has done a lot of return to service, he added. Plus S92s for SAR missions have been in high demand.
“That has been a challenge, given the supply chain issues all the OEMs are facing. It’s really tough for our technical colleagues, with all the MRO [maintenance, repair and overhaul] facilities fully booked,” said Moulin.
Piot confirmed: “We are facing a lack of assets for specific models. It’s a different picture, depending on what kind of asset you are talking about.”
Nakayama, at ITC-AeroLeasing, added that as competition between operators has sharpened, leasing companies have become an even more important source for helicopter procurement. “Operators are requesting us to propose long-term leasing. That’s not only for new helicopters but also relatively young, good quality helicopters – of five to 10 years’ vintage – from the pre-owned market,” he said.
Moulin warned: “If you look at most of the operators – and it depends on the segment – on the oil and gas side, the liquidity and performance of the operator may not provide the options they would want in terms of acquiring or financing aircraft. Most available helicopters are currently with the lessors. Therefore, we are best placed to fulfil that demand.”
Meanwhile, an increase in leasing rates to reflect the full cost and risk of leasing deals found favour with all panel members. Piot, at Nova Capital, summed it up like this: “I’m not sure, over the past few years, lessors have received the rentals which reflect the real risk on the residual value of the asset. That’s about to change. There is significant competition for significant tenders coming up.”
Helicopter Investor’s Financial Forum – How helicopter leases can give operators flexibility – took place at European Rotors, Cologne, Germany on Wednesday, November 9th. Meanwhile, read our forum report about how operators face growing consolidation here. If you enjoyed this weekly newsletter, please consider registering via this link.
Pictured (R to L): Olivier Piot, Tomoo Nakayama and Sebastien Moulin.