GA Telesis is Uniquely Positioned to Provide Helicopter Leasing and Parts Solutions
Even before the COVID-19 pandemic and the resulting plunge in oil prices, the helicopter industry has been in relative turmoil since mid-2014 with limited signs of improvement on the horizon. The three major drivers for that turmoil were:
- the sharp drop in oil prices which began in mid-2014 and a resulting reduction in Oil & Gas companies’ demand for helicopters to transport their crews;
- a high-profile fatal accident in mid-2016 involving one of the most prevalently used helicopter types to support the Oil & Gas industry resulting in the further decline in helicopter values; and
- the dramatic decrease in the revenues of the larger helicopter operators and lessors which exposed their high balance sheet leverage resulting in multiple bankruptcies in 2018 and 2019 (PHI, Waypoint Leasing, Bristow).
Helicopters are typically long-lived assets with up to 40 years of economic useful life. Part of the reason that they are long-lived is that, similar to an aircraft engine, they have a lot of life-limited components. This requires both the operator and owner of a helicopter to possess a significant amount of technical knowledge. In addition, operators, who typically fly a helicopter under a specific contract/mission (Oil & Gas, Corporate/VIP, Utility, EMS), want a lease with similar terms to their underlying contract which tends to be relatively short (1-5 years). The technical nature of helicopters, financial dependence of operators on a specific contract/mission, and relatively short lease terms present challenges to the helicopter leasing industry.
However, perhaps the biggest challenge today to the helicopter leasing industry is the relative illiquidity of helicopters versus commercial aircraft, for example. This relative illiquidity makes price discovery difficult. Due to the supply and demand imbalance in many helicopter types, the typical helicopter can take more than one year to sell in the current environment with some of the medium and heavy segment types, especially those focused on Oil & Gas, having almost no demand at all. This also makes future residual value assumptions, which are a key aspect of the economics of any operating lease, very difficult to determine.
These issues have resulted in the limited availability of helicopter financing and no new significant helicopter lessor entering the market since 2013. Today, less than 15% of turbine-powered helicopters are leased and the top four lessors (Milestone Aviation, Macquarie Rotorcraft, LCI Helicopters, Nova Capital) own approximately 650 helicopters with a fleet value of around USD 8 billion. In contrast, approximately 45% of commercial aircraft are leased and the top four lessors own approximately 4,500 aircraft with a fleet value of around USD 130 billion.
What this means is that helicopter leasing is still relatively new and small in scale compared to commercial aircraft leasing, allowing room for new opportunistic investors. GA Telesis sees this as an opportunity.
Today, three of the four largest helicopter lessors focus on the medium, medium-heavy and heavy helicopters. For the reasons stated above, these segments have been more affected by the industry turmoil than the light helicopter segment resulting in lower demand, lower liquidity, and declining values for these types. This has kept competition among the lessors to win contracts for Oil & Gas, EMS, and Search & Rescue (SAR) that often require these types of helicopters very high. In contrast, the competition for lease contracts that require light helicopters, which are more liquid due to their higher production rates and more standard configuration, are often less competitive. This facilitates some pricing power to operators, thus preserving underlying collateral values.
What this means is that the more limited competition, in the light single and light twin segments specifically, presents an opportunity for GA Telesis’ recently established helicopter leasing entity, GA Telesis Rotorcraft (GATOR). To that end, GATOR acquired its first portfolio of light helicopters earlier this year.
GA Telesis, one of the world’s largest commercial aerospace companies, has the resources and existing ecosystem to provide helicopter leasing and parts solutions for an industry in need of strong financial partners. With a long history of providing aircraft, engine, and parts solutions for the commercial aircraft industry, GA Telesis has the opportunity to apply that knowledge to the helicopter industry. In keeping with the disciplined approach GA Telesis has transacted in the past, GATOR will focus only on the most liquid helicopter segment (light helicopters) and the most liquid types within that segment (Airbus or Bell manufactured). We will also focus on leasing to operators with reliable underlying contracts in Corporate/VIP, EMS, Logistics, Para public, and Utility.
The bottom line is that GA Telesis sees an opportunity to selectively apply our ecosystem to the helicopter industry and invest in attractive opportunities that involve the more liquid helicopter types.