HI Uplift: ‘Rising interest rates boost lease rates’
Rising interest rates are leading to “a necessary rise” in helicopter lease rates, according to two speakers at Helicopter Investor’s recent Town Hall online meeting.
“Interest rates are the primary factor to consider [when determining the business outlook for 2023],” Russell Christopher, MD, Thora Capital told the Helicopter Investor audience. “Rising interesting rates are leading to a necessary increase in lease rate factors across the board. We need to achieve 20 basis points, on average, ahead of where we were last year [on lease rates] just to keep in step with interest rates.”
Thora Capital had begun 2023 with “a robust pipeline” and expected to at least double the size of its portfolio this year.
Picking up the theme of rising interest rates, Mike Platt vice chairman, LCI explained the practical effect of rising interest rates. “Demand is there for helicopters”, he said. “The real issue for everybody is funding costs. If we look at the impact of interest rates for a typical AW139, if rates rise by 1%, we need another $8,000 a month in rent just to stay even.”
Lease rates are up, he acknowledged but added: “Are they up enough to reflect higher interest rates?”
For Platt, the way to mitigate rising interest rates, in addition to lease rate rises, is to ruthlessly seek out business efficiencies. “We have to be more efficient,” he said. “If we cannot make it all up [additional borrowing costs] on lease rates, we have to make it up on operating efficiencies.”
The other important objective was to avoid the potentially “enormous costs” associated with leasing helicopters to operators who fell into bankruptcy.
Meanwhile, you can watch the Town Hall – titled The Helicopter Leasing Market in 2023 – here. Also, helicopter leasing, plus a wealth of other industry topics, will take centre stage at our Helicopter Investor London 2023 conference on March 22nd an 23rd at the Royal Garden Hotel. Read the full agenda here and book your place here.
Platt confirmed LCI had purchased 60 new helicopters from OEMs in the past 10 years. He identified significant opportunities in leasing helicopters for the oil and gas sector, emergency medical services (EMS) and wind generation. “For the foreseeable future we will have a position in oil and gas – it’s an important market,” he said. “So, we will always have a proportion of our business there and we see growth between China coming out of Covid and sanctions in Russia [elsewhere in offshore market].”
The transition to cleaner energy will not happen overnight. While oil prices have dipped below their peak of last year, they are still well above breakeven point. Platt quoted Air & Sea Analytics research that predicted a further 134 platforms will be added to the backlog this year. “It’s a robust business and we will be selective in where we go,” he said. “A small part of our fleet is now in oil and gas and we will acquire additional oil and gas equipment but we will be selective and seek younger and newer [helicopters] and the latest technology.”
Demand for EMS helicopters would continue to grow, he predicted, singling out activity not just in Europe and the US but in other parts of the world too. Improving economies and the growth of middle class populations would lead the newly wealthy to want the same level of EMS response at home as they see in America, Europe and other places such as Australia. “We’ve dipped our toe in some places [emerging markets] – sometimes successfully, sometimes not.”
While growth is also expected in demand for helicopters to service wind generation, that is expected to be at a much lower rate than EMS. The wind sector is expected to generate perhaps 100 additional units between now and 2030, he said. “We like to be good corporate citizens and ESG [Environment, Social and Governance] conscious, so wind is always going to be important to us,” he said. “We see significant activity in the US, with our first offshore wind helicopter coming into the US in the near future.”
The Town Hall – The Helicopter Leasing Market in 2023 – was hosted by Aero Asset and moderated by its president Emmanuel Dupuy. Watch the one-hour online meeting here.
Meanwhile, helicopter leasing and a wealth of other industry topics will take centre stage at our Helicopter Investor London 2023 conference at the Royal Garden Hotel on March 22nd and 23rd. Read the full conference agenda here and book your place here.
Top and above: Offshore missions and EMS flights show promise this year, according to LCI.