With large players still active in the market, and several large-scale contracts in the offing, helicopter finance remains healthy, reports Antonio Fabrizio
“Flat” was the way Stuart Harrison, a partner at aviation consultancy group The International Aviation Group (IAG), described the commercial helicopter market. He qualified this by saying that there are “more people trying to sell what they have got, rather than actually wanting to buy or rent a helicopter”.
Despite this, incredibly, residual values in this market appear to be sticking. According to Matthew Harvey, head of asset finance at law firm Denton Wilde Sapte, values remain high because the level of maintenance is very high – and reassuringly so considering that a helicopter is made of around 10,000 moving parts when flying and in need of constant maintenance.
“Because they hold their value, people are prepared to take residual positions, look at longer periods of financing and so forth,” Harvey added.
“As long as people do what they are meant to be doing, these are assets that should come back in good condition.”
Paul Sykes, a leasing manager at CHC Helicopter Corporation – a top-two, world’s largest helicopter operator alongside Bristow Group – added some of the models purchased in the 1970s are still selling for more than 100 percent of their value.
In the current market, he added, new models with six or seven years down the line still get 95 percent back.
Demand for helicopters also remains high in certain sectors, particularly in the energy arena as they are integral to the job of flying personnel in the oil and gas industries on and offshore.
“Unlike the commercial aircraft market, helicopters are not susceptible to cycles or to consumer-driven demand, and what that leads to is really strong asset valuation over their life,” Sykes said.
Demand for personal use helicopters has slipped, however, not unnaturally given the shortage of freed-up cash among the rich and famous at present.
There are still plenty of risks associated with the helicopter finance sector, however. Repossessions are on the rise, and the risk of bad debt is growing.
Harrison said: “I wouldn’t want to be in the helicopter finance market, unless I had from the client solid guarantees, deposits and payments underwritten by the top 20 banks, because irrespective of their balance sheets, you want to know that your costs are covered.”
Meanwhile, there are some large finance contracts in the offing right now, particularly in the rescue sector. A key one is the provision of helicopters for the UK Maritime and Coastguard Agency (MCA). Having already acquired new helicopters two years ago, the MCA is now looking for more for civil or military use.
In the tendering process for this plan, two consortia, Air Knight (made up of the manufacturer Lockheed Martin, the funder VT Group and British International Helicopters) and Satyria (CHC, Thales and RBS) have reached the final stage and a preferred bidder is expected to be announced before Christmas.
Sykes said that CHC uses a variety of financiers all over the world, predominantly in oil-producing countries. They include Nordic, Canadian and European banks.
He said: “We are a company that needs to move aircraft around, so we rely on having very strong relationships with our lessors, to be able to service our requirements globally.”
That means operating in some “more challenging” jurisdictions than the European market, including remote regions in Africa or Latin America in which oil can be found.
But after a number of years spent working with financiers and also “educating” them on these assets, according to Sykes, things have now become easier, because “there are more and more experts in the field coming into the finance arena, and more and more people with an appetite for companies like CHC”.
Funders for these MCA helicopters will probably use a mix of asset and project finance as they will be funding a fleet of helicopters, rather than single assets. The smaller, one-off finance market remains healthy with Lombard, Close Aviation, Bank of America Erste Bank, GE Capital and Lloyds Banking Group still active players.
Abbey, part of the Santander Group, inherited a small helicopter leasing portfolio from Alliance & Leicester last year, and is currently focused on existing customers.
Another feature of the downturn has been the increase of so called hourly contracts – where clients basically buy a package with a minimum of 25 hours to use helicopters – as well as part-ownership.
The likes of Lombard, however, continue to provide high volumes of loans for the helicopter sector. It offers a variety of different financing structures for helicopters, from straightforward operating leases – typically on a 10 year-term and a minimum value of £100,000 – to complex project finance structures for public sector use.
Simon Welling, head of Lombard Aviation Finance, claimed the lessor is “well placed and more than capable of delivering a full proposition all of the way from simple debt products, through to structured club facility operating leases”.
He added that the company takes “residual values, but only for operating leases for corporate entities”.