News & Views

In this episode of Asian Skycast, Jaspal Jandu, CEO of LCI, discusses the Asia-Pacific market, investor interest, ESG, eVTOLs, and more. Please click here or scroll to the end of this page to listen to the episode. You can read a transcript of the discussion below. 

Introduction: [00:00:00] Hi. You’re listening to Asian Skycast. The show that brings you the most updated aviation industry insight.

Alud Davies: [00:00:06] Good morning and welcome to another Asian Skycast. My name is Alud Davies. I’m the media and communications director here at Asian Sky Group and Asian Sky Media. I’m delighted today to be joined by Jaspal Jandu, who is the CEO of LCI. Jaspal, thanks very much for joining us. How are you?

Jaspal Jandu: [00:00:23] I’m very well. We find each other in very interesting times, Alud: the run up to Christmas; lots going on in the world politically and economically. So, yes, very well, thank you for asking and a very interesting time.

Alud Davies: [00:00:38] Absolutely. And we were just talking before we started. And obviously, I’m British and you’re in the UK as well and a little bit of a worrying situation going on there with unfortunately, COVID.

Jaspal Jandu: [00:00:50] Indeed, this is something ultimately I think long term we’re just going to have to live with, so it’s really managing the situation rather than arresting it. We’ll talk about how it may or may not have impacted our aviation space in just a moment, Alud, but personally, we’re all well. We’re getting a lot of boosters into people’s arms and making the vaccines, masks and certain precautionary measures the best thing for public health. So, let’s see how we go there, Alud.

Alud Davies: [00:01:19] Absolutely. We were saying earlier on there are a lot of restrictions in place in various different parts of the world. I was just wondering, turning specifically to sort of towards Asia-Pacific and the leasing market out here, do you think that there are many opportunities in here out this way? 

Jaspal Jandu: [00:01:38] Yes, I do, actually. Let’s just take a step back first. I think if you’re talking helicopter markets in particular, the markets have been remarkably resilient actually, I would say globally, certainly when compared to other sectors such as fixed wing, regional jets and so on. We’ve seen growth across the board – Asia more so. There’s been a very interesting dynamic in the market across Asia and the rest of the world: which is you had a near-term impact of COVID (so certainly things like signing contracts and getting on aeroplanes were slightly disrupted for a while), but at some point in certain sectors like EMS, for example, utilisation actually increased as we were tried to solve our way around this pandemic. Thereafter, clearly the world and certain sectors like oil and gas, we were trying to find our feet as to where we were going. After that, our utilisation across our fleet, across the board, is up, including offshore, and you’ve seen that mirroring, to some extent, commodity price increases. So, I’d say right now we’re actually using our equipment harder than we were pre-pandemic. So, Alud, the overall trend is actually very positive.

Alud Davies: [00:02:58] And I saw it and sorry to put you on the spot right now, but I saw a statistic, I think, from the early part of last year suggesting that a good proportion, maybe more than half of your fleet, was actually operating in the Asia-Pacific region anyway.

Jaspal Jandu: [00:03:13] That’s right. We’ve tempered that slightly: as a longer-term trend, we’ve always aimed for at least 20 to 30 percent in Asia, as we have for certain other metrics like young liquid twin engine helicopters. So, we’ve tempered the 50 percent a little bit, but Asia is still a huge market for us, and it shows huge opportunities across the board and, Alud, we can talk about certain sectors or countries as we carry on talking. 

Alud Davies: [00:03:40] Yeah, absolutely. I think specifically talking about sectors, and you touched upon it earlier on, I think the EMS is quite quite a big sector for you anyway, isn’t it?

Jaspal Jandu: [00:03:50] Yes, indeed. So, you’ve seen a very interesting dynamic with EMS, possibly, again, mirroring the rest of the world, which has gone to this sort of public/private model or even a completely private model altogether. Places like Australia, for example, New Zealand, even parts of China are now developing an EMS network. Of course, the helicopter is part of an overall network of doctors and bases and helipads and regulations, etc., etc., so we are just one part of a large mission-critical infrastructure. But certainly, when you’ve got things like COVID pandemics, people staying at home, accidents happening, the ability to carry patients on a helicopter, on a specially equipped helicopter to that; for example, you’d have certain floors, stretchers and defibrillators on board and, for the newer equipment, for example, you’d even have telemetry between the helicopter and the hospital to forward notify them of what’s going on. Now that is, even in today’s world (and I guess we’ll touch upon eVTOL later on Alud), is irreplaceable. So, you’ve actually seen the requirement for EMS provision increase around Asia as a whole. 

And then number two, at some point you will get developing economies like India, for example, Malaysia, Singapore, developing their own advanced EMS networks. So, the actual prospects for the market are also very positive in Asia. Yes, so I completely concur – the EMS market has held up very well for us.

Alud Davies: [00:05:31] And another sector that’s been particularly gathering headlines over recent years, the oil and gas sector, which I think was suffering for a while. Have you seen much rebound in that market?

Jaspal Jandu: [00:05:44] Yes, we have. There are lots of nuances in offshore and we could probably spend an entire podcast just speaking about that. 

Clearly, initially, as I said, we were finding our feet in the space, but thereafter offshore exploration and production has continued to increase as we’ve seen it in our statistics. 

You’ve also seen a very interesting trend with the deepwater production because, over time, the efficiencies of deepwater have pushed the break-even costs to around $44 US Dollars per barrel. Now, clearly with a rising oil price, it makes it ever more attractive to go and find and explore those wells.

And number three, I think this is a really interesting nuance to bring to your listeners’ attention; namely, there’s a difference between oil and gas which is often not noted. Clearly as the world tries to decarbonise, and the bogeyman right now is clearly coal for example, you will find more gas and liquefied natural gas trying to bridge that gap. Now, ultimately, even that is a stopgap, but it’s a step in the right direction. So, you have seen trends like LNG production around Australia, for example, which is then shipped up to northern Asia in lieu of coal burning, again which is a step in the right direction. 

So, the offshore markets for various nuances, including, by the way, in Malaysia and Thailand, are actually requiring more and more equipment; and the equipment itself is again mirroring what’s happening in North America and Europe, which a demand for the latest safest equipment. So, you’re seeing certain age restrictions, for example, in certain tenders and in certain countries, you’re seeing requests for things like TCASII, for example. So clearly, the safety aspect of moving people out to rigs and back is paramount. 

This replacement cycle, added to the organic demand, means that we should see actually a pretty good future for offshore energy services in Asia, Alud, so, yeah, lots of nuances there.

Alud Davies: [00:08:05] Talking about the replacement cycle, I read something earlier you were talking about, I think at the Helicopter Investor event, suggesting that over the course of the next 5 to 10 years, that replacement cycle could kick in quite big.

Jaspal Jandu: [00:08:20] Yeah, it’s a great question, Alud. It’s very interesting if you look at the Airbus helicopter forecasts from where we are now, over the next 10 years, you’re looking at around seven to eight thousand helicopters – that’s the total gross demand.  And of that, the balance has shifted: it’s now actually more 60/40 replacement demand versus organic demand. Whereas if you looked at the forecast or the historic trends from 2000 to present, it’s actually been 60/40 the other way; i.e. it’s new demand that’s taken precedence. 

So, what’s happening now, in one respect, it’s just a function of mathematics, which is: we’ve had an oil price move from 2014 onwards, and for many reasons, as you well know, Alud, complex reasons, we delayed various replacement cycles – it was just easier to use your existing equipment and use it longer and harder. But at some point, that bow wave has to break: either a government says, I don’t particularly want the old helicopters or the operator or the oil company says, listen, I want the youngest helicopters, or we, as investors and financiers, say we are gravitating towards younger helicopters. So yes, I think it’s an absolute case that you may see a renaissance, as I call it, in the replacement cycle over the next two to four years.

Alud Davies: [00:09:45] Absolutely. And so you mentioned investors there. I think it’s fair to say that over the course of the last few years, helicopters have become an increasingly attractive asset for investors. Can you tell me, do you have a sense of how that’s really happened and kind of what role LCI has played in the evolution?

Jaspal Jandu: [00:10:05] Yes, good question. There’s multiple parts to that, Alud. Maybe we just take a broader step before we get into helicopters. I don’t know if you’ve seen your charts recently, but the spectre of inflation is possibly back with us, and the modern tool for taming inflation are interest rates, so you may see those move in tandem together. In addition, as Asia, in particular, is a net saver, clearly, there’s a demand for overseas hard US dollar assets; again, I speak generally across the board. 

In terms of helicopters, there’s an even more powerful story; which is if you look at the deals we’ve been doing; so new, young, as I said, liquid aircraft on lease to good contracts with, for example, full power-by-the-hour coverage provided by the manufacturer, you can actually see a story developing for an Asian investor who says: “listen, I would like to get into hard assets; what is very long lived, what’s a good set of cash flows for me, and what has an ultimate residual value story?” So, if you wrap that with all the things that you and I know very well, like unpressurised hulls, continuous support from the manufacturer and so on, you’re actually seeing an investor base in Asia in particular, but certainly in parts of Western Europe, too, thinking that, look, if structured correctly, these are actually very, very good, robust deals and we’re seeing that across the board.

What’s been very interesting is how that’s true across the demographic of capital, across the demographic. So, whether it’s pension money, whether it’s life assurance money, whether it’s private funds, whether it’s banks, whether it’s private equity, whether it’s family offices, I mean, we have many, many relationships and many, many networks across the board on the investment side; and on the commercial funding side, because of course we are in that market, you’re actually seeing banks, you’re actually seeing some private debt. Very interestingly, you’re also seeing things like infrastructure funds coming to the helicopter party, because helicopters are just one part of a much broader chain, a really broad chain, so it’s very hard to just look at helicopters as its own vertical. 

So, Alud, the investor base, is actually, I’d say, very, very strong right now, particularly in Asia. 

Alud Davies: [00:12:35] And then going back to the investor base for just a moment is that what’s really driven the partnership with with Sumitomo Mitsui?

Jaspal Jandu: [00:12:47] Yes, indeed. I’ll let them speak for themselves on a separate podcast with you, Alud, but we’re good friends. I’ve known people at that group and the broader Sumitomo Group for many, many years.  

There are some very, very interesting kind of broad churches here. At one level, they are much more than a financial partners: they are also industrial partners; they are also strategic partners – it’s not just providing liquidity to the market that they seek. 

And then number two is the JV that we have developed to acquire helicopters together actually is a broad church in itself – so you’ve actually got a double positive here. We spent a lot of time on this, and I’m very, very proud of our team for spending so much time on it. 

So, in a classic operating lease, for example, you would provide a piece of equipment for x years, and then you would have returned conditions and off you go. But in today’s world, we’re getting a little bit more sophisticated, Alud, with things like finance leasing, or PDP finance, or VAT financing, sister ships, extension options; I mean, today’s financial product can be quite sophisticated. 

Therefore, it’s a really, really nice partnership because we are bringing a very good, robust and well-regarded – I would like to think – platform, people and systems and access to origination on deals, and Sumitomo Mitsui Finance and Leasing are bringing their own certain expertise and USP.  

So, Alud it’s been a fantastic partnership so far. We started in 2020 with 19 helicopters, just over $200 million USD, and within a year we increased that by 50 percent. And I’m sure the next time we speak, Alud, I will be pleased to announce that we’ll do that yet again. So, Alud, past, present and future is actually very good for that joint venture.

Alud Davies: [00:14:49] And does that rosy future include asset management opportunities?

Jaspal Jandu: [00:14:56] It does. If you look at what we’ve done on our side, we’ve spent a lot of time and a lot of investment sharpening up our processes in order to manage both, by the way, capital and assets; management is quite a broad term in itself. And I’ll give you one or two examples here.  

Number one, we have a completely bespoke, internally developed computer system that allows us to manage any number of assets. It’s perfectly scalable because we’ve done the hard work already. Let’s say you’re ‘Alud Davies Investor I’, for example: you could see your portfolio on your iPad if you wanted to; you could measure its performance; you could see where the helicopters are; you could see where the next inspections are; you could look at pictures of your helicopters. Now that capability is quite unique, and we spend a lot of time on that, and I’d like to think that, yes, we can increase the efficiencies by looking for similar business across Asia. So, Alud, to your direct question: yes, we’re very interested in the asset management and investment management space, I agree.

Alud Davies: [00:16:12] Absolutely. And acquisitions of different companies as well, so I we’re in December now, aren’t we? I think right at the beginning of the month, you announced the acquisition of most of the portfolio of Nova Capital. Which was the twin and the fixed wing part of the business as well. How do you see that fitting into LCI’s portfolio?

Jaspal Jandu: [00:16:35] Indeed. I heard it described as a marriage the other day, so I’m not sure whether I should comment on that in particular! 

It’s very complementary. Olivier Piothas done a fantastic job over the last decade, at least, building an onshore, predominantly EMS portfolio, and now marks a perfectly natural segue way and time for us to look at, for example, the twin engine markets and some light utility markets, and for Olivier to concentrate on single engine and other areas. So, it’s an actual perfect match. 

In terms of profile, the fleet is predominantly EMS. There is a little bit of search and rescue in there, and we are finding it extremely complementary to our own portfolio. 

As you well know, Alud, when the whole leasing – let’s call it the ‘next generation leasing cycle’ which I think it was referred to back in 2011/12/13 – when it all started, we kind of zigged to when everybody zagged, and we did that quite deliberately. We went into, for example, EMS, we looked at search and rescue, we slightly shied away from super heavy helicopters and Gulf of Mexico, etc, etc.. (we’ve subsequently broadened our fleet to include many of those types), and so in terms of fit with something like Nova, it has actually paid dividends because we are of a very similar DNA. So it’s complementary, Alud on many, many fronts; including people, assets and investment strategy.

Alud Davies: [00:18:17] I was intrigued to see that the fleet includes 14 fixed wing aircraft. Are they are they smaller fixed wing aircraft?

Jaspal Jandu: [00:18:24] Yes, indeed they are. They are King Air’s and they’re performing EMS missions around Scandinavia. So, you’re actually finding this more and more, which is that we think of fixed wing as large commercial aircraft (and by the way, we should definitely touch upon that because we are still very much active in that space), but there is actually a market for smaller aircraft; utility aircraft, EMS aircraft. In fact, you’ll actually find some helicopter operators owning and operating fixed wing aircraft – they’re not just the helicopter operators. So yes, it’s an interesting market and one that is slightly away from the beaten track of large commercial aircraft.  So, yes, very good for us.

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