A Lessor’s Perspective – Helicopter Investor
25 September 2018
Lease Corporation International (LCI) has found a niche in the helicopter leasing market, focusing purely on medium-category helicopters – especially the Leonardo AW139s and AW169s – and spreading them far and wide across different operations, with only 30% of its fleet serving the oil and gas industry. These are a few of the reasons that help make LCI more optimistic than other lessors right now.
The lessor’s CEO Mike Platt introduced the Helicopter Investor 2018 conference last month, opened reinforcing the message that his company was in a good place. With no heavy helicopters in its fleet and not dealing much in the light market, LCI is benefitting from the market focusing increasingly on the medium helicopter class.
Building LCI’s fleet to more than 40 new aircraft was a slow and methodical process, but a process that has resulted in its having the youngest and most-liquid fleet of all the big-name helicopter lessors.
With LCI riding high off its capital market debut and its confidence in emerging markets such as offshore wind and the slow recovery of oil prices we met with LCI’s executive chairman Crispin Maunder at Heli-Expo to find out more on the reasons for positivity hopeful right now.
Helicopter Investor: In short, where is LCI standing right now?
Crispin: “Our focus is to try and balance the portfolio, ideally on long-term contracts. Almost 50% of our portfolio is on long-term EMS operations, primarily AW139s and AW169s. Then we are on SAR, offshore wind and harbour pilot operations. Oil and gas represents 25-30% of the portfolio – a smaller percentage than that of a lot of other lessors.”
Helicopter Investor: Tell us about the capital market debut – What helicopters will you be getting?
Crispin: “We recently tapped into the capital market for the first time and we are very proud of that. The $55+ million financing closed last month, and I see more happening in the future.
“It was the right time for us to get into capital financing. The capital market is available and is flexible, not secured against a particular asset, so it gives us more versatility. It is part of the typical development of any business, you start off with secure financing against a helicopter, then you move on to unsecured.
“Regarding the helicopters we are acquiring, it is an ongoing discussion with Leonardo as we have conversion rights. It will be a mix of AW139s, AW169s and AW189s. I would say more on the AW139 and AW169 and less on the AW189 but, as the market changes, we can change the order book. This will keep us going for the next 12-18 months.”
Helicopter Investor: Where will these helicopters be deployed?
Crispin: “I would say more of the helicopters will be going into offshore oil and gas as the market improves. Oil prices are beginning to stabilise around the $60 per barrel point which is where it becomes viable for most of the oil producers to start ordering. We are seeing more tenders coming up from oil and gas companies although they are still relatively slow. The oil companies are putting out tenders and cancelling or delaying a lot.
“If an operator does not have a helicopter, it will come to a lessor to get the helicopter for that tender. We are seeing deals getting underway then getting delayed. These tender delays have been going on for the past two years. That was certainly the case during the downturn of the market and post CHC bankruptcy, which saw a lot of contracts being terminated due to the oil price drop.”
Helicopter Investor: Why such a large focus on the AW139 and AW169?
Crispin: “When we looked at what was available, we looked at Airbus, Sikorsky, Bell and AgustaWestland. Coming from a fixed-wing background, the AW139 is the equivalent of the Airbus A320 and Boeing 737 – a very flexible and versatile helicopter.
“When we have AW139s coming down the production line, we can look at them as offshore, EMS, offshore wind, SAR, utility and even corporate etc, There‘s a whole variety of missions they can fulfil. They are very versatile machines and allow you to tap into a lot of markets.
“With the AgustaWestland family, you have the AW169 that can hold between 8-10 passengers, the AW139 that can take up to 15 passengers and the AW189 that can hold 17-18. This is a similar gap to that you see in the fixed-wing market.”
Helicopter Investor: How is the offshore wind market looking for you?
Crispin: “Offshore wind is looking good. The primary areas of interest are the North Sea, the UK side and the German/Dutch side and the Danish sectors. There is going to be developments on the east coast of the US – down through Massachusetts, Connecticut and that area. Wind companies are also looking towards Asia, to China and Taiwan specifically. The cost of generating wind power is coming down and turbines are getting bigger and bigger and demanding more-sophisticated support.
“Some of the wind-farm operators are still trying to make do with ships — Service Operation Vessel s(SOVs). It is an open question whether these will be suitable with the expansion. Currently, a lot of companies are using helicopters as a backup – but these are expensive backups.
“However, you have renewable energy companies like Ørsted that are using helicopters much more in transporting people to the turbines. It is central to their logistical operations.”
Helicopter Investor: What helicopters are you flying on offshore wind?
Crispin: “For us, it is classically the AW169 and H145. The H145 it is a good aircraft but we don’t have it in the inventory at the moment, but the AW169 has a benefit in that it offers single-engine performance and its hovering out of ground effect is high.
“This means you have about around two and a half minutes you can hover before you have to move away from the site with the AW169. It is about half this figure for the H145 – so you would have to hoist people quickly.
“Also, the AW169 has much more space in the cabin, which is preferable as engineers bring a lot of stuff with them. The H145 can hold the same number of people if you don’t bring anything extra, but if you are brining tool-kits the space is compromised – this can be a safety concern especially when hoisting.”
Helicopter Investor: How confident are you going into 2018?
Crispin: “I would look at it in three different areas in our markets, starting with the medium category. EMS is steady as always. Even through the market downturn EMS held up so we are comfortable there and even optimistic, we have seen quite a few tenders come up this year that we are getting involved in.
“We are still cautious about offshore oil and gas though we appear to have seen the bottom. Finally, looking at SAR, we have got through the initial optimism and enthusiasm lessors saw in that market. I think there will be a second phase of optimism, but we are waiting on governments to decide on how helicopters can help in an SAR context. This is what is happening in the UK anyway, the UK Coastguard search-and-rescue helicopter programme is coming up to the end of its first life, and now people are looking at it and asking if the programme is working and how much it is costing? We are all interested in what the answers are.”
Helicopter Investor: Are EMS operators standardising fleets?
Crispin: “I was with an EMS operator in Europe only a couple of weeks ago and it is looking to move out of its two-type fleet to standardise with one helicopter type.
“The MD helicopters the operator has they love, but they are getting expensive to maintain and service, so the operator is looking at what it should do now as far as its work is concerned. It rarely sees a two-type requirement so is evaluating that and trying to keep it to one type – a newer type.
“Certainly, standardisation makes a lot of sense, especially for the many operators who are having to deal with five or six units. With a fleet of 20 you can mix or match, but if you are in the five or six range and want a standard fleet at least at some level i.e. a mix of AW139 and AW169s. But you don’t really want to have a mix of Sikorsky and Airbus or Leonardo and Bell or something due the complications that come with it and the numbers of people that you have to deal with.
Helicopter Investor: Are these operators going to OEMs for servicing?
Crispin: “Some are going to local maintenance centres, but from our point of view we want to team up with the engine, airframe and avionics manufacturers and go for a power-by-the-hour maintenance scheme. It gives operator a peace of mind, they know what the costs will be. We want to have an operator to know what the costs will be. We are fairly unique in that we go and do our own deals with the OEMs which we then pass on to our lessees. “
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