News & Views

On 12^th November 2020, LCI’s Executive Chairman, Crispin Maunder took part in a Town Hall hosted by Helicopter Investor.

You can watch a recording of the event here or read a transcript of Crispin’s discussion with Alasdair below. Please note, this transcript has been edited slightly for clarity.

Alasdair Whyte:

Crispin Maunder Executive Chairman LCI needs no introduction so he won’t get one. Crispin, I’m sure everyone knows about LCI but do you want to explain briefly what attracted you to helicopters and how are you enjoying being a helicopter lessor?

Crispin Maunder:

That’s an interesting one. At LCI we actually just celebrated our 16^th birthday so I suppose you could say we’re the unruly teenager now, but actually very much like milestone and now Macquarie Rotorcraft, we stretch over both fixed wing and rotary, albeit that we actually exited our last fixed-wing investment at the beginning of this year. Part of a transaction that we did last year so we are now currently essentially purely helicopters. We’ve had an interesting ride, certainly in the helicopter market it didn’t turn out to be exactly what we anticipated. Back in 2011 when we started looking at this. The same thing goes for certainly waypoint and milestone as well, but we’ve come out the other end and certainly I think you know we as an industry have matured a hell of a lot and have compressed probably 10 or 15 years of fixed experience into a matter of three or four. So you know I think we’re much wiser and we’re much more sanguine about our views of the roto-craft industry but I think that puts us in good stead. I think we’ve learned a lot of lessons and we’ve learned them well.

Alasdair Whyte:

Okay at the start we had a Sebastian gave us a great guide and Brad’s mentioned what are the main helicopter types you’re focusing on now and what are your thoughts on the technology cycle?

Crispin Maunder:

First of all we set off with the idea that we were purely going to look at the medium size helicopters twin turbine medium size so we actually shaped our market as the 145 up to the 175, 189 and then we moved towards placing orders directly with the manufacturers and working with the manufacturers to get our foothold shall we say into the market. So over the last seven, eight years we have now expanded our focus so we’re taking on slightly smaller twin turbines as well, still staying in that market and we have gone upwards to the 92. But our focus has been primarily in risk mitigation and being very careful in the way we’ve shaped our portfolio so for example, offshore oil and gas exposure is running at less than 30 percent of our overall portfolio, about 50 percent of it is EMS and the balances with search and rescue pilot transfers and other interesting markets and training helicopters so that’s where we are at the moment. Looking into and this is one of the things that I particularly like about this sector compared to fixed wing, the technology cycle is far longer than we see in fixed wing primarily due to really the nature of this business. The classic limit for a helicopter size is 19 passengers to go any higher, you need to have a cabin attendant on board. There is some interest in going faster but there is a natural technical limitation which I know that airbus in particular are trying to push out, but essentially, it’s more range and safety. I mean safety without doubt. As far as avionics are concerned, as far as performance is concerned single-engine performance rig and fly and all these things, don’t forget we must remember that our industry operates between effectively 8000 feet and sea level and it’s pretty murky down there. We are very much safety focused and indeed I was very interested in one of the questions about ‘are our operators beginning to cut corners too much, are they being pushed by the oil companies’. I fully agree with Chris that the industry has got to push back and just say fine I’m not going there. I’m not saying that any operator is wilfully operating unsafely or anything like that, but I do think that you know time has come for the people that show us they pay us pay all our salaries as such on this call need to actually reflect as to what sort of service standard and safety standard they are insisting on and we should therefore then manage our house accordingly.

Alasdair Whyte:

How do you value the lease rates in the next year and how have they been impacted by Covid?

Crispin Maunder:

Surprisingly in our market, not that much. To be perfectly honest we’re in an off cycle. I was listening to some of the comments made in particular Brad’s, I disagree with him. Now admittedly, I’m looking at it very much as a medium capacity helicopter lessor, but we’re seeing beginnings of an appreciable upward cycle at the moment, probably start at the back end of last year now obviously Covid had an impact, I mean Covid’s had several impacts that are not directly affecting the market but for example, obviously the oil price was badly affected so that has affected the offshore oil and gas market, but it wasn’t direct Covid, it was indirect Covid as far as the oil price coming down.Then we had the Covid impact directly on the operators and so far as they couldn’t get the people going out to the rigs or to the wind turbines or into the bases to fly them out so that had a direct impact, and certainly some of our operators have therefore suffered as a consequence. But it was relatively short term and certainly at the moment I’m seeing an up cycle, particularly on some of the more popular types like the 169 and the 139 lessor, at the moment in the super mediums 175 and the 189 but certainly the mediums 145 169 139 they are definitely positively trending upwards now which is good to see. There is without doubt replacement cycle that was going on and then to a certain extent stopped. It’s now come back again, and I can certainly see current technology aircraft, and doesn’t necessarily need to be new aircraft, it could be old current technology anything between five and ten years old, coming in to replace the older types such as the 76, the 412s dove guns and the like. This goes back to Sarah’s point and Chris’s point there are too many 76’s in offshore configuration but some of them are going to go to the knackers yard but some others are going to be repurposed. It’s a good utility helicopter so there will be secondary markets for them.

Alasdair Whyte:

Mark Kelly is asking will we see new entrants into the helicopter leasing space?

Crispin Maunder:

I think it’s an interesting market. I still think the value proposition is there, residual values whatever Sara comes up with later on. I mean the extravagancy consensus view is 30 years, and maybe that’s challengeable today, but it’s considerably longer than fixed aircraft where I suggest even economic lies for 20 years is being challenged now and spared, certainly on wide bodies. I think the technology cycle is a far more reliable cycle than this constant upgrading and indeed this what I call a transatlantic battle between airbus and boeing, each tried to outdo the other. I think we have a more mature OEM sector it’s far more collaborative in a lot of respects. Yes we see sort of head-to-head competition on things like the 175 and the 189, but generally they are not completely on top of each other like you have with the A320, 737 or 350 and 787. I think the general outlook for this business is therefore more stable and I think it’s certainly an extremely interesting market with regard to investors coming in. Also of course you know we’re a very different market to the airline market where the airline market is reliant on the passenger that’s us and we’re very fickle, so you might have a 10-year relationship with an airline when you finance an aircraft, but you don’t know what the management’s going to be doing in five years’ time. Whereas a lot of for example EMS contracts that the lessors get tend to get very much involved with their tenure relationships with either a government or sometimes an old company. Some of the contracts are ten years longer – search and rescue and the like so it’s much more analogous I would say to the old airline business back in the 70s and 80s where you could identify your customers customer and that customer’s customer quite often is a good investment grade customer so that provides the stability and of course, once the helicopter is embedded into an operation, it’s like a cog uh within a machine. Everyone’s interest is to make sure that that cog just does what it does, it’s well-oiled and it therefore performs its role in the industrial cycle, be it EMS or offshore oil and gas or whatever.

Alasdair Whyte:

Okay more questions for you: Jeremy Cox says the insurance market rate surprised you recently?

Crispin Maunder:

Well that’s more of an operator issue than us but yes obviously it’s a burden that the operators are having to take on and yes it there has been a substantial increase.

Alasdair Whyte:

Scott Ashton President O2 Aero Acquisitions: is there a market for these legacy aircraft with all the teardowns occurring? What will all these tear-downs do to the MRO supply chain for components?

Crispin Maunder:

Well I must confess that we are with a few exceptions and in fact only one exception which is 176C which we are actually in the process of parting out. We have some older aircraft which are in our managed portfolio, but the majority of our aircraft we acquired new, so we frankly aren’t in that market at the moment so i’m really not the right person to talk to that’s really one for maybe Brad or Sebastian.

Alasdair Whyte:

Okay question from uh Bobby Osan: is this time for small operators to take advantage of over capacity? Is this the time for them to get good leasing deals?

Crispin Maunder:

To a certain extent if you wanted to take advantage of the cheaper rates you should have been around about two or three years ago but they have been trending upwards as I said for the last couple of years for the more popular type, but certainly we’ve seen what i call a proper upcycle from the end of last year.

Alasdair Whyte:

Okay final question from Andre Cohen, CEO Cohen Financial: In evaluating a lease prospect, do you place more reliance on the underlying contract or the credit worthiness of the operator?

Crispin Maunder:

Well certainly we look at the underlying contract and the credit of the end user without doubt, and then we look at the operational capability of our customer being the operator, but obviously there are some operators that you don’t need to look through. Bristow as a classic case and Babcock but generally we would do the full due diligence from our customer, their credit standing, their ability to operate and who are they operating for and is the end user going to be around to provide the wherewithal for that contract to continue.

Alasdair Whyte:

Okay actually final comment, congratulations to Jaspal, I see you have a new CEO. What’s happened there?

Crispin Maunder:

Well we’re just sort of reshaping the business, we’ve just exited the fixed-wing market which turns out to be rather fortunate but obviously now we are really looking at the fixed-wing market. There could be opportunities next year but LCI has always been a cautious lessor so we’re now devoting some senior resources to looking at this market. Mike is now Vice Chairman with the focus on fixed wing but very much involved with me and Jas and Praveen Victorville in the strategy of the business overall but Jas is now in the hot seat as I call it. And Praveen who’s moved up from being out of structured finance he’s now our CFO. We’ve all been together for a very long time, it’s a fun company and we will work together really without status. We don’t use titles but sometimes they’re useful as far as a business card is concerned.

Alasdair Whyte:

Thanks so much to Sebastian, Chris, Sarah, Brad and of course Crispin Maunder.

See you soon, thank you very much.

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