technical refurbishment value, helicopters often maintain stable values through their life cycle. Finally, helicopters provide a decent
‘bite-size’ investment volume as a function of due diligence and oversight resources re- quired. Lower value transactions are gen- erally viewed with less interest, unless they can be ‘scaled up’ efficiently. There are substantial economies of scale created with a larger leasing portfolio, which can be fi- nanced more efficiently (cheaply) than in- dividual helicopters.
THE CHALLENGES The creditworthiness, or underlying
credit quality, of many potential helicopter lessees is relatively weak compared with the airline or shipping market. A few major helicopter operators, who have credit rat- ings comparable to mid-to-high tier airlines, dominate the helicopter operating market. However, the remainder of helicopter op- erators are considered to have a lower / weaker creditworthiness, which creates challenges for investors, such as a higher risk of non-payment / default. This risk should, in theory, be covered by a higher premium. But growing competition in the helicopter lease space may translate into in- adequate coverage of this premium. Secondly, there is a fairly fundamental
mismatch between the typical helicopter operator contracts, which tend to be short- term (2-5 years renewable), and the long- term funds (on average 10-15 years) typically required for a profitable and sus- tainable leasing business. A key difference with aircraft fixed-wing
leasing is the nature of the underlying asset and the value fluctuation of helicopters. A large commercial jet has a relatively stable fixed-line value decline from new to 20-25 years old (at which point it flattens out at scrap value). Helicopters are entirely dif- ferent, with a much larger component of value intrinsic in the past usage / future po- tential of the individual parts fitted to the helicopter. As a result, a poorly maintained helicopter or overused machine could rap- idly lose its value, even for a helicopter as young as five years old. This would never be the case with a commercial jet. From the operator’s perspective, operat-
ing leasing can end up looking relatively inflexible if their operating contracts are cancelled prematurely, or if the market changes for one reason or another. Termi- nating an operating lease before expiry can involve extremely high cancellation fees, whereas owners of their own helicopters can generally offload their machines to other markets. Another challenge is the small number
of helicopter lessors and relative immatu- rity of helicopter operating leasing, which reduces liquidity. Although this brings ob- vious opportunities if structured correctly, the risk is the market may not reach a crit- ical mass and may not be widely accepted by the general operator base. By compari- son, the fixed-wing leasing sector is a very mature industry, with approximately 40% of the world’s commercial aircraft fleet cur- rently under operating lease. There are well over 100 firms specializing in this form of investment and the market is very liquid. Finally, the interchangeability of roles
performed by helicopters, often involves hefty engineering and logistics challenges to equip and reconfigure machines. Con- version costs can be a substantial percent- age of the value of the underlying asset, and such costs are much higher than what is ex- perienced in the commercial aircraft indus- try.
IN CONCLUSION Investors in the helicopter-leasing sector
need an appreciation of the inherent tech- nical value in helicopters and their future potential market. This requirement is far more critical than, for example, what an
equivalent investor needs in the large com- mercial jet market. Despite the multiple roles a helicopter
can perform during its operating life, the market is far more fragmented than first meets the eye. A critical requirement for in- vestors is that they partner with a highly skilled team of helicopter experts and port- folio servicers with a truly global commer- cial reach. This will make a major difference as leased portfolios grow and age.
THE AUTHORS: Aubrey Point is Vice President- Commercial at Avinco and is currently responsible for their commercial activities in the helicopter market. Aubrey previously worked as Sales and Support Manager for Eurocopter. Gary Fitzgerald is Vice President-Commercial at Avinco and is currently responsible for the company’s commercial activities in the large commercial jet trading and leasing market. Gary previously worked for a leasing affiliate of Credit Agricole and Airbus.
ABOUT AVINCO: With a very substantial presence in the fixed-wing leasing sector, and as a leading player in the helicopter trading world, Avinco is well positioned to play an important role in the growing helicopter leasing environment. With approx. $480- million worth of leased fixed-wing aircraft under management, Avinco is projected to be amongst the top 50 large commercial aircraft asset managers by the end of 2013. This presence is being extended to the helicopter-leasing sector, where Avinco is partnering with various investors to structure leases and acquire helicopter portfolios.
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