With the entrance of several new leasing companies in the last five years, the helicopter leasing and financing sector has turned into a multi-billion dollar global industry. Anthony Pecchi Photo
It’s hard to overstate just how dramatically the helicopter financing and leasing sector has changed over the last five years, evolving from a handful of small regional providers into a billion-dollar global industry. As more and more companies appear on the scene, offering an increasingly diverse range of leasing and financing options for customers across the scale of fleet and aircraft size, it’s perhaps understandable that some are beginning to wonder where this is trend is leading.
Operating giant Era Group has been involved in the leasing business since 2005 through Era Leasing, but the beginning of the current boom can be traced to the entrance of Milestone Aviation Group five years later. The company was soon joined by other large-scale players, such as Lease Corporation International (LCI), Macquarie Rotorcraft Leasing, and Waypoint Leasing. More recently, Lobo Leasing joined the ranks of the heavy hitters when it closed on a five-year, US$225-million load credit facility in December 2014.
While these companies are largely associated with the oil-and-gas segment and its heavy helicopters, there are a host of firms, both new and longstanding, offering financing for the light and medium helicopter classes, including Amur Helicopter Financial Services (HFS), Arrow Leasing, Eagle Copters, Element Financial Corp., Infinity Helicopter Leasing and Vector Aerospace Financial Services.
The Irish Coast Guard has added five Sikorsky S-92s to its fleet. Operated by CHC Helicopter, this S-92 is leased from Waypoint Leasing. Niall Duffy Photo
With so much change in such a short period of time, what will the industry look like in another five years? Will all the new entrants to the market survive?
In October last year, we gained a glimpse of what may be to come, as GE Capital Aviation Services (GECAS) reached an agreement to acquire Milestone for $1.775 billion. According to the heads of several helicopter leasing and financing companies, the move could represent the start of a long consolidation process where some players join forces to merge, others are gobbled up by larger companies — and others cease to exist.
Rising to a Boil
“All of a sudden, it’s everybody loves helicopters,” Milestone chairman and CEO Richard Santulli told Vertical during a recent interview. Santulli, the former CEO of NetJets, was among Milestone’s founders as it forged a new path into high-dollar financing for large helicopters in 2010. “There really wasn’t anybody acting as a global lessor to the helicopter sector,” he reflected. “We took advantage of that fact.”
Milestone’s fleet of around 170 helicopters is valued at over $2.8 billion, with an order book that stands at more than $3 billion. The fleet includes (or will include) the AgustaWestland AW139, AW169 and AW189 family, the Airbus Helicopters EC225 and EC175, and the Sikorsky S-92 and S-76D. In November 2014, Milestone worked with Bristow Helicopters to close seven of 12 leases for the U.K. search-and-rescue (SAR) contract with the Maritime and Coastguard Agency. The trend of governments outsourcing helicopter support is likely to spread, according to Santulli. “We think that’s a model that probably will be used in many other countries over the next 10 years,” he said.
Infinity Helicopter Leasing sees an underserved market in the tier below heavy helicopters, for onshore oil-and- gas, utility, and, in this case, helicopter emergency medical services operations. Skip Robinson Photo
Waypoint Leasing CEO Ed Washecka has been involved with helicopter leasing since 2005, previously overseeing operations at Era Leasing. Waypoint has raised more than $1.2 billion in capital to fund a number of fleet purchases, and its fleet now stands at more than 100 helicopters (these include EC225s, AW139s and S-92s, with further purchase orders for aircraft including EC175s and EC145s, as well as AW169s and AW189s).
From Washecka’s perspective, the growth in leasing has been driven by a realization from the larger operators that they don’t need to order all their own aircraft, and can instead use a leasing company to satisfy a portion of their fleet requirements. Other factors include higher asset values with newer variants, higher production rates than five-to-10 years ago, and lenders that are more comfortable with the asset class itself, he added.
With the uptick in new entrants, the bottom line for operators is more financial flexibility, Washecka said. “Not having to put that capital down for an aircraft deposit means you can put it down to establish a new base or acquire another company, and it just allows the operator to grow more efficiently with their capital,” he explained.
The helicopter models being offered amongst the plethora of leasing companies is diverse to suit almost any mission. Mike Reyno Photo
Tony Bergeron, Element Financial Corp.’s president of aviation finance, said the key drivers in the helicopter leasing sector’s growth were flexibility, lower risk, tax implications and the ability to match the length of a lease with the timeframe of a contract. The company has a fleet of around 105 helicopters, along with a number of financing agreements involving fixed-wing aircraft. In 2013, Element dramatically increased its helicopter market share in a single move, acquiring a portfolio of 57 helicopters valued at $243 million from GE Capital. Bergeron said increased worldwide demand for oil-and-gas helicopter support and emergency response (air medical, police and fire) were the reasons Element wanted to get into the rotorcraft space.
An Established Presence
From the perspective of Eagle Copters Ltd., the current boom has been interesting to watch, according to David “Spyke” Whiting, vice president of sales and marketing. “From zero to a billion is outstanding,” he said. “How do you do that?”
With roots tracing back to 1975, Calgary, Alta.-based Eagle Copters has a fleet of more than 70 helicopters on lease, with around eight to 10 in transition at any one time. Leasing is one of many services the company provides, focusing on intermediate, medium and light helicopters. “We’re in a different space than the bigger guys, [and] we project it to remain healthy,” Whiting said.
Era Group is another long-established presence in the leasing sector, through Era Leasing. Paul White, Era Group’s senior vice president, commercial, said demand from the oil-and-gas sector should remain positive over the long term, despite the current climate of falling oil prices. “When you look at the big projects, from Shell, BP, Anadarko, Exxon and the other companies in our customer base — they’re not planning on the price of oil today, they’re forecasting for work that is 10 to 15 years down the pipeline.”
Arrow Leasing is focused on providing lease financing options for Canadian companies operating light and light-twin helicopters. Maxime Perron Caissy Photo
This was echoed by GECAS president and CEO Norman C.T. Liu. “[A helicopter is] not a ‘nice-to-have,’ it’s a must-have when you’ve got millions invested in platforms and skilled offshore workers that need to be transported around,” he said. This mission-critical nature and the helicopter’s residual value will help ensure the leasing and financing industry avoids a downturn like the one the business aviation sector experienced during the Great Recession in 2008/2009, said Liu.
Alison Mason, chief financial officer for Amur Finance Company, the parent company of Amur HFS, noted that there were some key differences between the helicopter leasing market and the business aviation sector that should protect it from a similar fate. She said there are a lot more orders than will ever be delivered in the fixed-wing world, while on the helicopter side, “it’s totally different. They’re much more disciplined with their production.”
Infinity Helicopter Leasing, which was launched in January 2014, is part of Hawke Aerospace — along with utility operator Aviation Services Unlimited (ASU) and air medical company Keystone Med-Flight. Paul Rayhill, Infinity’s chief marketing officer (as well as president of both ASU and Keystone Med-Flight), said the company saw an underserved market in the tier below heavy helicopters, for onshore oil-and-gas, utility, and emergency medical services operations. “Nobody wanted to really fund it,” he said. “Everybody’s looking for the offshore home runs with the S-92s, the AW189s, the EC225s and EC175s.”
Rayhill said Infinity’s approach was to get an aircraft to address an operator’s specific need at a given time, rather than purchasing them on spec. “We find that’s a more efficient, effective strategy to deploy our capital.”
While there are a number of leasing companies focused on the larger helicopter types, Eagle Copters has focused its lease offering on light- to medium-lift helicopters, like this Eagle Single, which is a single-engine derivative of the Bell 212. Grant Boyter Photo
Era operates with a very different model. With a fleet of approximately 160 helicopters and assets worth around $1 billion, Era points to its ability to provide maintenance, repairs, training and other services to support an operator as differentiators from pure leasing companies.
“If you’re going to weigh us against a financing-only model from a lease company, we’re probably not going to compete on factory new aircraft,” said White. “Our strength primarily stems from our operating business and our ability to offer pre-owned aircraft.
“Going out and getting the helicopter is the easy part. Era’s ability to provide full service operating support for the remaining pieces . . . is where we set ourselves apart and deliver true partnerships.”
Formed in January 2014, Amur HFS is also taking a different approach from the major financing companies, according to Mason. Instead of focusing solely on new aircraft and purchasing them directly from original equipment manufacturers to distribute through the market, she said Amur establishes “strategic partnerships” with fleet operators — providing the ability to dispose of aging and parked aircraft; helping extend the life of an existing helicopter through spares; setting up sale-leaseback arrangements; and supplying maintenance and support.
The company owns a fleet of around 40 helicopters, including Bell 206 L4s, 407s and 412s, a Sikorsky S-76C++ and S-76D, and an Airbus Helicopters EC135.
New helicopter types, like the Sikorsky S-76D, have been ordered by a number of leasing companies to be put into offshore or corporate use. Rick Mann Photo
“Our focus is much more on mid-life aircraft, because we see that there’s not a lot of focus by other companies on that front,” she said.
Arrow Leasing, based in Quebec City, Que., leases helicopters to Canadian and U.S. operators. Launched in November 2014, it focuses on operating leases of two to five years. The company has a fleet of single-engine and light twin-engine helicopters. In 2015, it plans to expand its portfolio of light twin engines.
Five to six percent of the global helicopter fleet is under leasing agreements now, and Arrow Leasing President Pierre Lalancette said that number is projected to increase to 20 percent over the next 10 years. “We saw a great opportunity in the market after seeing the global expansion of the helicopter financing industry,” he said.
Milestone’s fleet of around 170 helicopters is valued at over $2.8 billion, with an order book that stands at more than $3 billion. In addition to other helicopter types, its lease fleet includes (or will include) the AgustaWestland AW139, AW169 and AW189. AgustaWestland Photo
A Packed Sector
Adding up what Milestone, Waypoint and LCI have accomplished, there’s about $3.5 billion worth of helicopters under operating leases, according to Lease Corporation International CEO Michael Platt. “And if you look at where that will be in five years, my guess is that it will probably triple that number,” he said.
But while Platt was confident about LCI’s prospects, he sounded a note of caution for the sector in general. “Part of the market is a little bit crowded right now. There is a bit of a bubble — some will succeed, others won’t; you’ll see companies either go away, or merge. I’m not sure there’s room for everybody,” he said.
Infinity’s Rayhill disagreed. “I don’t know about a bubble,” he said. “[But] any industry with a lot of interest, there’s bound to be some sort of fallout.” He advised a cautious approach to avoid the type of risks that led to the global recession of 2008/2009. “Things are being vetted to a higher level than they were in the past,” Rayhill observed. “There’s a lot of new entrants into this market, but there’s a lot of opportunity as well.”
Lalancette said differentiation was key in a packed sector. “There are a lot of new companies, and it’s definitely very competitive in certain markets,” he said. “The market will adjust and reward the right companies. . . . Obviously there are some short-term negatives because of resource markets and currency issues, but we think demand will remain strong for the right machines.”
A number of the larger helicopter leasing companies have found good fortunes within the offshore sector where they are leasing medium through to heavy helicopters. Ricardo Zerrenner Photo
White said Era has noticed the impact of the growing market. “When there is an increase in capital entering the segment like we’ve had over the last few years, it is not uncommon to see some reduction in pricing,” he said. “As a result, we’ve seen lease rates soften a bit.”
For operators, Lalancette said additional options provide “more opportunity to look for a better deal.” It’s also positive for the manufacturers. “Leasing companies are now an essential part of their sales and marketing strategies,” he said.
The increase in alternatives results in “a lot of very aggressive financing options,” added Bergeron. For example, instead of a 20 percent security deposit as in the past, an operator pays a deposit equal to roughly two or three months’ worth of payments, he said.
Milestone’s Santulli added that more competition on the financing side is “always good for people getting financing, so for the operators, it’s healthy,” resulting in lower lease rates. The opening up of lending “has been very helpful for not just the big guys, but all the helicopter operators around the world,” he said.
Era Group has been involved in leasing through its Era Leasing unit since 2005. The firm takes a different approach from pure leasing companies by providing maintenance, repairs, training and other fleet support services. It will be one of the first to introduce the AgustaWestland AW189 into service. AgustaWestland Photo
The View from the Top
Industry insiders wonder if the Milestone acquisition could signal a peak for an active period in the sector.
“Why would they get out now? Is it because they’re seeing the end of something? Or is it just time for them to get their money back?” asked one executive, who requested anonymity for the comment.
But Santulli insisted he’s not getting out, as the Milestone brand and existing staff will remain in place. He said the Milestone name “is very important to us. We’ve built a wonderful reputation and brand over the past four-and-a-half years.”
Others see the Milestone acquisition as a sign that the segment could experience further prosperity. “I think that people look at that and say: ‘GECAS has smart people. What do they see? They must know something.’ So I think you get people interested, and we’ll see where that goes,” said Platt.
The options available in the helicopter leasing and financing sector are vastly different than five years ago. While nobody knows for certain what the segment will look like five or 10 years into the future, one thing is clear: helicopter leasing and financing is an increasing part of everyday life for many operators, large and small.