LCI sees increased demand, but faces a shortage of airframes – Vertical

Post-pandemic, the helicopter market is recovering far more quickly than anyone could have predicted. Operator demand for airframes is outstripping availability, particularly within the leasing market.

According to Lease Corporation International (LCI), which has models on its books from Airbus, Bell, Leonardo and Sikorsky, there are signs this situation will persist.

“We are seeing real firmness in the market,” said Jaspal Jandu, the company’s CEO. “The industry was hit by a trio of issues starting around 2014/5, including an oil price shock, a tragic incident off the coast of Norway, and then a string of financial bankruptcies. These were complex issues which required time and effort to work through.

“The Covid pandemic then took root in early 2020; although an argument can be made that the industry had learnt a great deal in the preceding years. We now find ourselves in 2022 facing a unique confluence of supply, demand and sentiment-related factors pushing a tighter market in all directions. Interestingly, this is evident in both new, organic helicopter market growth, as well on the replacement side, where a delayed cycle is being rapidly addressed.”

It’s estimated that 50 percent of current global commercial helicopter fleets are more than 20 years old. Their replacement, which should have occurred between 2015-2020, did not for several reasons.

“During downturns, asset-heavy sectors such as helicopters, fixed-wing, shipping, and rail tend to delay new purchasing decisions, instead favouring the longer and harder use of existing equipment. OEMs also reduce supply as supply adjusts to demand. However, at some point these changes matter and require addressing,” Jandu explained.

“For example, there is a renewed ethos around safety and technology, so when an end-user demands the inclusion of, say, TCAS [traffic collision avoidance system] II or HEEL [helicopter emergency egress lighting] systems, we are collectively required to supply this, and we are finding that the older models don’t have these capabilities.”

As well as the technology issues, the Russian invasion of Ukraine will continue to impact the global helicopter market, he noted. Any operators using Russian equipment felt an immediate impact, such as those involved in supporting United Nations work, firefighting, and logistics operations   all of which have slowed or stopped completely. There’s now a need for Western types to backfill these operations.

Adding to this is the looming crisis across the oil and gas market as Russia cuts off supplies to many nations, with international and national energy companies having to make up the deficit. Across the Americas, Europe, Africa and Australasia, national energy security and supply are going to be critically important moving forward.

All these factors mean that we are moving back up the “demand curve,” Jandu said, and operators are now seeking both new and used helicopters in significant numbers. 

“While the demand side is becoming clearer, the supply side is more complex as it involves the stored and leased fleet. In addition, OEM production tailed off during the pandemic and has been relatively inelastic in the upturn. Added to all these are genuine supply chain issues across the world,” he explained.

“We also have to remember that there is a large military dynamic in the helicopter market, which is not so apparent within, say, the commercial fixed-wing market. Many nations have significantly increased their defence spending due to the war in Ukraine. For an OEM, there are real-world decisions to be made with regards to the allocation of labor, resources, and production lines.”

Despite the complicated external factors, the helicopter market, from a lessor’s perspective, is steady.

For LCI, a significant increase in inquiries has also been matched by longer lead times. Operators looking to secure operations in 2024-25 and beyond are reaching out to lessors such as LCI now to arrange capacity. In many cases, this has resulted in multiple operators bidding for the same unit.

“We are seeing an increase in lease rates and a firmness in pricing, and it’s difficult to see how some of the aforementioned drivers resolve themselves quickly,” Jandu noted.

The positive outlook for helicopter leasing in the years ahead is not geographically limited, according to Nigel Leishman, executive vice president and global head of marketing: “The situation is certainly not limited to certain countries or regional markets; there is potential across the world.

“If we look back to 2019, the market was already recovering from the reduced oil prices of 2014 and the drop in the offshore market. As we went into 2020 and Covid hit, there was uncertainty across the globe in all markets, but it quickly became clear that helicopters were mission critical,” he said.

As operators adapted their cockpits and cabins, many were able to return to daily operations in the offshore market, while emergency medical service (EMS), not unsurprisingly, saw an increase in activity. The offshore operators’ recovery was quick – in many cases, operations were back to normal levels by 2021. Now, 12 months later, the operational rates are higher than those of 2019.

Nonetheless, the past year has been challenging for operators, Leishman explained. “They are in the business of supplying a capacity to the end user, whether that be oil and gas or government. During Covid, we saw a situation where we thought many contracts would be coming up and then they were postponed for obvious reasons. There were quite a number of extensions to our leases which we thought we’d have been re-marketing with new contracts and operators. This was not a bad thing during Covid, but it has led to this current bow wave of demand as confidence returns, and tenders have come out that should have been raised two years ago. There’s a lot of them coming onto the market all at once.”

This demand has led to a shortage of high-quality helicopters that meet the requirements of operators. The impact of the geo-political situation, as nations worry about securing and growing their energy supply, has placed further demands on the helicopter leasing market.

“It’s an uncomfortable situation for me concerning my customer relationships. I am saying we may have a helicopter available, the current operator then wants to keep it, but the new client is happy to pay a premium as they need the helicopter as soon as possible so they can bid on further contracts,” said Leishman.

“This is happening all over the world, with high demand across Europe and Latin America, and particularly Brazil with its increasing offshore market. There’s a host of nations out there developing their energy markets that will need helicopter support. Nations are keen to grow their domestic supply.”

For the EMS market, some of the demand is created simply by the need to replace older twin-engine types likely postponed from pre-Covid times. In the United States, the single-engine EMS types are being replaced by newer technology on the next generation models.

“My team is very, very busy right now,” Leishman observed.

Airbus has released its 20-year forecast that predicts demand for around 16,500 helicopters through to 2041. To reiterate the point about replacement cycles, Jandu points out that the ratio of replacement deliveries versus growth has flipped.

“In the early 2000s it was 60 percent growth and 40 percent replacement, and it has now gone the other way with 66 percent replacement and 33 percent growth. It’s skewed even more if you look at larger helicopter types,” he said.

“It’s clear that if you pause a replacement cycle for five years, you then have to catch up at some point. You have the OEMs pushing new technology into the market and the end users demanding similar requirements on the helicopters that they will be using. These have become very much the table stakes and end users are telling operators not to bid unless certain minimum criteria are met.”

Such demands have set a benchmark across the industry that some operators are unable to meet. Helicopters have an enormously long and useful economic lives with around 50 percent of 37-year-old aircraft still in service, for example.

Within the industry, this is known as the survivor curve and many of these older types serve in secondary roles, such as utility and firefighting. LCI is seeing is an increase in demand for the replacement of newer younger machines within the market.

“It’s created a push-pull situation where an operator may have older helicopters that may well be ideal for a second life in the utility market, but they also need newer types for newer contracts. This presents us [LCI] with a challenge,” said Jandu.

“As a lessor you are therefore required to have different channels to acquire, finance and supply a diverse set of helicopters to the operators. If we solely go to the OEMs, for example, we have to work around slot availability and production schedules. We also must factor in PBH [power by hour] arrangements and spares support, both of which are not as cheap as they were two to three years ago.

“At a macro-level, we are all dealing with rising inflation and interest rates too. As a lessor, we work very, very hard at solving financial and capacity issues for operators and end-users – it’s our very job to facilitate such trades.”

The bow wave of the replacement cycle rippling across the helicopter industry shows no sign of ending anytime soon and that means lessors must continue to perform a very smart juggling act.

To view the article on Vertical, click here

LCI READY FOR RISK-ON MODE – AIRFINANCE JOURNAL

Fixed and rotor-wing industry player Lease Corporation International (LCI) aims to be an early adopter of new technologies in the market as evidenced by its recent commitment for 125 electric vertical take-off and landing (e-VTOL) aircraft.

“We don’t mind diversifying our investments. We are in growth mode and it is a good time to be risk-on,” chief executive officer (CEO) Jaspal Jandu tells Airfinance Journal in an interview.

“The basic order is interesting for us for a number of reasons: It is completely battery-powered and, therefore, support our vision on ESG and sustainability; an evolution of what LCI has done previously. The order is also an extension for us as we have had a history in the helicopter market for the past decade, and many lessons are applicable to such orders, for instance in the healthcare, cargo and logistic markets. It is a nice overlap with helicopter leasing.”

In late April the Libra Group’s subsidiary signed an agreement with Beta Technologies to acquire up to 125 eVTOL aircraft. Under the terms of the deposit-backed agreement, the commercial aircraft and helicopter lessor will initially acquire 50 Beta Alia-250 aircraft with an option for another 75 eVTOL units.

The lessor said the new eVTOL aircraft will complement its existing fleet of modern helicopters and fixed-wing aircraft, and almost double the number of aircraft on its aviation platform to over 270 units. In addition, LCI and its parent company plan to share commercial, financial and supply-chain expertise with Beta through well-established industry networks.

LCI does not yet anticipate traditional passenger application but sees cargo and logistic applications as well as aeromedical (including emergency medical service and search and rescue) and reconnaissance missions for the aircraft.

“In those roles, LCI sees the eVTOL playing a complementary mission to its current rotor-wing portfolio. Some helicopter operators are going to be the first to use eVTOL technology, indeed there are many examples of drones already augmenting helicopter services,” Jandu states.

“Within LCI we have done a lot of research in this market, which broadly divides into two. The first one is in air taxi where the ‘Nirvana’ is cheap, fast and efficient mass transportation for everyone. However, within that environment, it is vital to consider the ‘speed limit’ of the network as a whole in addition to the vehicles themselves. The second covers non-passenger markets such as cargo, logistics, last- and middle-mile delivery, healthcare and non-combat military applications. Given the opportunities in these spaces such as warehouse-to-warehouse and hospital-to-hospital operations, we’ll probably see earlier and faster mass adoption there than the passenger markets.”

“Overall, however, it’s an exciting time for a new era of aviation that could generate trillions of dollars of value and investment.”

Nigel Leishman, executive vice-president and global head of marketing, says: “LCI is an early adopter of the Beta Alia programme. Their focus has been on strategic customers including the US government really looking at the logistic and transportation side of the business.”

“The air mobility-air taxi time will come but there are more hurdles to overcome in terms of certification infrastructure, air transport management, as opposed to the initial mission critical applications. From that point of view, when we started looking at the applications that is where it gets complementary to our helicopter business and light utility aircraft.”

He points out that some customers operate small turboprops on regional airports to hub, then use the road network to distribution centres to eventually reach the consumer. “Here you have a vehicle that has significantly lower operating costs that can fly warehouse to warehouse, by passing regional airports and hubs for distribution.”

Leishman says LCI is not targeting that passenger urban to airport link and he believe that LCI’s applications have a bigger social impact than passenger use.

Jandu adds: “For an operator, vertical lift with horizontal flying is attractive. You can imagine a whole range of operations also including offshore wind and energy industries. From an operating point of view, you can see a case where they have a battery-powered technology that gives a slightly shorter but more optimised flight envelope than a conventional aircraft or helicopter. In the end, they will all augment and complement each other.”

He says lessors have been looking at how they can engage in this market, possibly on a slightly different basis than existing business. “I feel we need to be innovative and possibly learn lessons from the shipping or automotive industries,” says Jandu.

“We don’t mind looking at other sectors, like we did a decade ago with helicopters. It is part of the LCI Libra Group DNA.”

To find out more about LCI’s and The Libra Group’s broader aviation strategy, please click here.

DYNAMIC DECADE AHEAD FOR ASIA – Asian Sky

Despite the human and business impact of COVID-19 across the globe, the pandemic has done much to illustrate the in-built resilience of helicopter operations and the often mission-critical areas they serve. Aside from a short-term decrease in flying hours at the outset of the pandemic, the vast majority of helicopter operations continued virtually unaffected, as governments and local authorities prioritised key missions such as emergency medical services (EMS) and search and rescue (SAR), despite countries in the Asia-Pacific region going in and out of lockdowns, and movement being at times severely restricted.

Over the last twelve months, LCI too has shown its resilience and growth in many areas. The number of aircraft on its leasing and management platform grew substantially to over 140 with LCI’s acquisition of Nova Capital Aviation (Ireland), it re-joined the fixed wing market with the acquisition of an Airbus A330-300, and longstanding majority shareholder the Libra Group demonstrated its confidence in LCI’s future by becoming its principal owner.

Over the past decade, the Asia-Pacific region has been a major contributor to the growth of the helicopter sector, and there is every indication this will continue for the next. By 2030, the regional economy is forecast to reach US$45.8 trillion – more than 40 percent of the global total. Against this backdrop of increasing prosperity, the demand for helicopters across the region is set to continue its fast rate of growth, which presents opportunities for the industry as a whole.

The Asia-Pacific region has long been a strategically important region for LCI. The region’s dynamism is best exemplified for LCI by its rapidly growing partnership with Japan’s Sumitomo Mitsui Finance and Leasing Company, Limited (SMFL). Initially formed in 2020 as a US$230 million joint venture with a fleet of 19 helicopters, this grew by 63% in 2021 with the addition of a further 12 helicopters worth over US$120 million. Their JV leases helicopters in Asia, and other global markets including EMS, SAR and transportation to offshore wind farms. As LCI’s Singapore-based Executive Vice President & Global Head of Marketing, Nigel Leishman says:

“Recent world events have shown that the helicopter industry provides essential services that carried on throughout the pandemic.

This has, in turn, generated interest among the Asian investment community, as helicopters have proven themselves as an attractive asset class. Globally, financial institutions are looking to the future and want to invest in renewable energies such as offshore wind, which is one of the sectors LCI is actively involved in in the Asia-Pacific region”.

Right across the Asia-Pacific region, LCI is seeing opportunities for growth in helicopter leasing emerging in many geographic markets and operating sectors.

HELICOPTER EMERGENCY MEDICAL SERVICES (HEMS)

The HEMS market in the Asia-Pacific region is well established in certain higher-income markets, such as Japan and Australia. However, in other countries, EMS is still in its infancy.

Asia’s largest HEMS market is Japan, where 40 of its 47 prefectures are served by at least one helicopter, and the larger prefectures are served by multiple aircraft. There are currently over 60 twin-engine helicopters in Japan’s Doctor Heli network, which dates back to 2001. Many of these helicopters are in the process of being replaced with newer generation aircraft, and this process will continue for several years to come.

The South Korean HEMS market is also recently well established, with 11 helicopters serving the country’s hospital network, and plans to add further helicopters in the near future.

In Australia and New Zealand, there is a strong demand for HEMS. Australian States provide HEMS services with larger twin-engine helicopters and LCI currently leases 12 AW139s to operators for government-backed HEMS contracts. LCI expects this to grow, with further contracts set to be awarded in the near future. In New Zealand, HEMS services have been reorganized into three operators which together operate around 20 helicopters. Many of these helicopters are now aging, with some over 35 years old. As a result, there will be pressure to bring in newer generation, reliable aircraft in the years ahead to ensure better patient outcomes.

In contrast, many Southeast Asian counties do not have a dedicated HEMS service, although EMS helicopters are available on an ad hoc, case-by-case basis. A dedicated HEMS infrastructure is likely to develop in the future as these countries experience increased prosperity and a growing middle class. The HEMS market in China experienced a rapid start with many helicopters entering the market in a short space of time. The initial surge was not sustainable however, and this has resulted in many of these helicopters exiting the market or being grounded.

Overall, however, LCI expects demand for HEMS in China to continue to rise and, in the years ahead, envisages this will increasingly be met by state-backed institutions as opposed to private operators.

As with China, in India there is a huge potential for helicopters to service the country’s hospital network, and it is only a matter of time before both these countries develop a dedicated HEMS network. As of now however, the HEMS market in India is underdeveloped, despite the efforts of several start-up operations over the past few years.

OFFSHORE ENERGY

There is a growing demand for offshore helicopters in the region, as new projects come on stream and oil prices return to the levels last seen seven to eight years ago. However, the often restrictive age requirements set by either the local aviation authorities or the oil companies are limiting the availability of suitable helicopters. This, combined with headwinds in the finance markets in this sector, has led to a shortage of supply, which if left unchecked could lead to production bottlenecks in the future.

LCI is already actively supporting several offshore oil and gas operators, and in Asia-Pacific, helicopters are mainly supporting large natural gas production, for example in Australia and Malaysia. Natural gas is an important transition energy source as it is being used in North Asia to replace coal in electricity production.

The offshore wind sector is the fastest growing sector in the energy market and there is great potential in Asia. There are several large projects underway in Taiwan which will require helicopter support, as there are in China and in Japan. LCI’s VP Marketing for Asia, Christopher Lloyd explains:

“Currently the Chinese and Japanese offshore wind turbines are being serviced by vessels, but as the fields grow and expand further offshore, inevitably there will be a demand for helicopter support as we have seen in Europe where helicopters are recognised as safer, faster and having a lower carbon footprint compared with Crew Transfer Vessels (CTV).

Offshore wind support is an area that LCI has been involved with for many years, and we welcome the opportunity to work with operators in Asia as this market grows.”

PARAPUBLIC

The Parapublic sector is an area that is already well-developed in many countries in Asia, and includes police, coastguard and SAR services. Whilst it is often delivered directly by government agencies, this is an area in which private operators are increasingly offering their services to the government agencies, especially in markets such as Australia, Malaysia and China. With its expertise www.lciaviation.com in these sectors in several markets outside Asia, LCI looks forward to bringing these skills to Asia to help accelerate these highly effective private – public sector partnerships.

LCI’s CEO, Jaspal Jandu, concludes:

“LCI These are just a few of the areas of growth we see developing in Asia. In 2022, LCI will continue to invest in its presence and partnerships and is very much open for business in this region.”

To read the full article, click here

European Helicopter Market Bounces Back – AIN

While fixed-wing commercial air transport in Europe was severely hit by the global Covid-19 pandemic, the helicopter industry has been coping well, experts agree. The European helicopter market, in line with the wider global economy, did feel the effects of the pandemic in early-to-mid 2020. However, that impact was minimal compared to the commercial fixed-wing market, observes Christopher Grainger v-p of marketing for the European, Middle East, and Africa regions at LCI Helicopters (Booth 11348). “Since then the market has bounced back strongly, particularly in the emergency medical services [EMS], search and rescue [SAR], offshore wind, and corporate/VIP sectors,” Grainger said. “Once again, helicopters have proven their resilience during difficult times, due in large part to the mission-critical nature of the roles they perform.”

Thomas Hütsch, CEO of Belgium-based helicopter operator NHV Group, noted that offshore oil and gas projects were under pressure since world oil prices collapsed in 2014. “With the recent recovery of those oil prices, we do expect an increasing demand for helicopter services in the months and years to come. However, margins will remain low because of the overcapacity in aircraft,” he said.

The offshore renewables sector will continue to grow but cannot make up for the decline in oil and gas projects yet, Hütsch added. “SAR and EMS missions were mostly affected by the pandemic in the very beginning of the health crisis during the strict lockdowns. They have recovered well and will probably be the subject of increasing demand in the European market.”

Other types of helicopter operations like tourism flights and flight training suffered significantly, according to Christian Mueller, chairman and technical director of the European Helicopter Association (EHA, Booth 7319). “In these areas, it was very difficult or impossible to maintain the required level of protection against Covid-19. Also, priorities of pilot candidates and travelers shifted,” he said. “Usually, helicopter operators combine a number of operations under their certificate, so it was possible to compensate to a certain degree.”

Offshore Wind Sector

The offshore wind sector is also growing rapidly, encouraged by environmental, social, and governance initiatives throughout the European continent, affirmed Grainger. “Currently, the utilization of helicopters to transport crew and equipment offshore is limited by competition with crew transfer vessels, but to quote Air & Sea Analytics’ Offshore Wind Rotorcraft Market Review and Forecast 2021-2030, ‘the available data on windfarm operations tell a clear story: The helicopter is faster, safer for the passengers, and less harmful to the environment than a crew transfer vessel while being less susceptible to interruption in service through bad weather,’” he said.

As a result, Air & Sea Analytics expects nearly a hundred additional aircraft to be active in offshore wind by 2030, said Grainger. “The tourism, oil, and gas sectors were hardest hit by the pandemic. However, we are seeing positive signs of recovery for the latter, as oil prices have steadily increased in recent months,” he added.

Fleet Modernization

The renewal of helicopter fleets started five to seven years ago and will continue during the next five years, Hütsch stated. “Technological advancements and flight performance (modern avionics, autopilot, composite materials, etc.) are the main drivers behind the modernization process,” he noted. “And as fuel is a major cost for operators, lighter helicopters (especially 4/6-tonne class aircraft) have become more popular in an attempt to reduce fuel consumption.”

Yet, in the last two years, the appetite for large investments has been subdued, observed Mueller. “We have not seen significant fleet change. We hope that this will adjust as there are still a significant number of legacy aircraft without the latest protection measures (e.g., fuel tanks) flying,” he said.

According to Mueller, there are also some factors that may limit the appetite for investing in newer helicopters. “Smaller operators are sometimes faced with regulatory requirements to use simulators for training and checking that would put significant financial burdens on them,” he acknowledged. “They would rather stay with the older models to avoid that. That being said, regulation will eventually force fleet change that will provide a higher level of safety and efficiency as well as being a more modern workplace for crews.”

Mario Pierobon

To view the article in AIN, click here

Asian Sky Podcast with Jaspal Jandu

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.

A330-300 available for lease

Alud Davies: [00:19:12] Mentioning large commercial aircraft. I think it’s probably fair to say over the years you’ve sort of invested in and divested yourself of commercial portfolios, but earlier this year, not so long ago, actually a couple of months ago, you took your first tentative steps back into that market again with the acquisition of an A330-300, I think it was. Do you see that fleet, that portfolio expanding rapidly in the next coming months. Jaspal Jandu: [00:19:41] Very much so, Alud. I saw it referred to as a ‘return to’, but it’s really for us, ‘a continuation of’. Many of us at LCI have been working in fixed wing for more years than we care to remember, Alud, so we do have fixed wing Jet A1 running through our veins!We started LCI actually back in 2003/4 and have a long-established track record in fixed wing leasing. We’ve purchased and sold at least $7 billion worth of equipment there, so it really is a part of the DNA and it’s part of the shareholder’s DNA as well. If your listeners don’t know, LCI is a privately owned company of the Libra Group, and fixed wing aviation is certainly on the agenda there.So Alud, we’re in an interesting point in the cycle. As you know, the fixed wing cycle can be quite, well, cyclical! Covid hit us in March last year and it’s sort of not really left us as we’ve had various variants of it ever since. Immediate passenger demand (as you know, you live in Hong Kong, you should tell me how Cathay Pacific fared, for example), fell off quite dramatically; planes got stored, etc., etc., so it was probably a little bit early to go in back then. But, certainly, we’ve been tracking that market very, very closely and now is a perfectly opportune time to re-enter the market, as we have done, as you alluded to, three or four times in our history. So yes, we’ve started with one and we will grow that fleet quite aggressively, Alud, they are the plans.Alud Davies: [00:21:20] Would you focus on widebody aircraft?Jaspal Jandu: [00:21:24] Yes, a good question. We actually went into widebody aircraft in 2008/09/10 when a lot of people were going into narrowbody aircraft, so we are very au fait with that market. If you look, for example, I’ll just pick on the A330-330 but I could choose a range of types here, it’s a very mature, proven type and platform. We know what it does, it says it on the tin. But I think rather uniquely for that aircraft and a great selling point are the seat mile economics. So, you will find that it is a tremendously attractive proposition when you put ownership costs into the equation. So, yes, we’re not afraid of widebody traffic. I mean, you’re connecting rather large hubs together and in the case of the A330-300, you can actually go from hub to spoke as well, so it can actually do two types of missions. So, yes, you get a little bit more versatility with the widebodies, and we’re not we’re not afraid of them. So, Alud, all power to our elbow there.Alud Davies: [00:22:27] Absolutely. And so switching tracks slightly. I’d like to touch upon something you said earlier on about eVTOL, which I’ll come back to in a second if if that’s OK. But staying on a similar thing, I think Airbus helicopters have said that it wants us to certify 100% SAF usage before 2030, around that sort of time frame. I was just wondering if as a helicopter lessor does SAF touch upon what you do?Jaspal Jandu: [00:22:59] It does, and it will do. And if it will do in the future, then it’s important to us, I’ll just start there. Number two, before we go into SAF, let’s look at the bigger picture. Now, the picture we have at the moment for right or wrong is under a banner called ESG (Environmental, Social and Governance), so we are talking about the ‘E’ of ESG here, and we could maybe touch upon the ‘S’ and the ‘G’ later, Alud. But while we’re on E, yes, I mean, if you look at some of the dialogue coming out of COP26 and then IATA and ICAO, we are looking to be net zero as an industry by 2050; net zero being a very interesting concept as it doesn’t, as of now, include offsets. So, you can’t run a helicopter or fixed wing network over here and then go plant some trees over there and suddenly everything’s fine. It’s net zero.So, we are looking at around 65% of that betterment from today coming from SAF or SAF-like fuels, the rest being air navigation, aerodynamics, propulsion, etc., etc. So on the SAF part, I mean one has to be quite careful here as it’s easy to solve a problem by creating a problem somewhere else: SAF fuel has to be produced, we’re not producing it in the quantity that we quite require just yet. So certainly, if you’re using the Power-to-Liquid recipe of creating SAF and the power itself, the ‘P’ of Power-to-Liquid, is developed in a renewable way, well, that’s a very good and robust way of producing the fuel and off we go. So, I just note an asterix here, which is that SAF comes with its own challenges, number one.Number two, you’ll actually find certain Airbus helicopters are already certified to 50% SAF. So, in order to get the incremental step we need tests – as you’ve seen in various news articles, certain operators are now flying 100% SAF fuel helicopters as a proof of concept, where we are looking at power requirements, we’re looking at wear and tear in the engine, we’re looking at any equipment required or special modifications, and of course, to your direct question, as an investor and a lessor, we are looking at the long-term implications of using SAF fuel and long term residual values.  There is absolutely no doubt that this genie is out of the bottle and we are going to be hearing more of it than less. But just the implementation and the monitoring, I think we just have to keep an eye on that. So, yes, let’s work to a more sustainable and renewable future without creating ancillary problems as a result, is my comment.Alud Davies: [00:25:53] And as a lessor, would you ever get to the stage where you write into a lease agreement that an operator of one of your helicopters absolutely must use SAF?Jaspal Jandu: [00:26:06] I think it’s just far too early to say that right now, Alud.Clearly a lease document is a complex, complex document, and there are more than one ways to skin a cat; there are other mechanisms one can use if we get to the point of promoting greener technology, you could do it commercially, for example. So, it’s very hard to say Alud where we may be in terms of lease agreements in the next 5 to 10 years, and you may find the operators are doing it naturally anyway, because they probably don’t need a lease agreement to align themselves to a greener future because they have one hundred and one other incentives to do so. They’ve probably got creditors themselves; they probably got a Board; they’ve probably got shareholders who are pushing in a certain direction. So, you may find an operator comes to you and says, “please, we’d like to use one hundred percent SAF are we allowed to do so?” rather than us dictating it in a lease agreement. So, let’s see how we go is my answer to that question, Alud.Alud Davies: [00:27:12] Absolutely. And so coming on to the big question about eVTOLs, I think we’re probably not only quite a long way away from actually seeing them flying, certainly seeing them flying autonomously. But I think we’re probably quite a long way from seeing the likes of LCI and other lessors leasing those assets. But do you do you have a long term view? Does LCI have a long term view on eVTOLs? Jaspal Jandu: [00:27:38] Yes, it’s a great question, and this one definitely deserves a secondary podcast because there are so many aspects to this!So, yes, look, clearly we are on the start of a J curve here and it’s very exciting – we’re talking trillions of dollars of market cap if it all comes to pass, number one. Number two is, as I said before, I think we should expand our view beyond just the vehicle. We’ll certainly talk about the vehicle in a moment, Alud, but an eVTOL, or SVTOL, or UAM, or AAM, I mean it really is acronym soup right now, is part of a network, and that network is very broad. You’re talking about vertiports, you are talking about noise, you’re talking about regulation, you’re talking about charging, you’re talking about performance in inclement weather, you’re talking about safety, etc., etc.. So, the entire water line has to rise, for us to be even thinking about a vast network of eVTOLs. Number three is, yes, it’s something I think many companies are exploring. I think there has been tremendous strides in battery technology, for example, but we still have a way to go. There was a very interesting analysis from Airbus Helicopters, which looked at the hover performance of a datum helicopter. Now, as you know, a helicopter in hover has tremendous power requirements. So, for a 30-minute hover, you would typically require about 200 kilos of traditional fuel, of Jet A1.  And the same would be true for SAF fuel. You’d probably need the equivalent of about seventy-two kilos of hydrogen, for example, a longer kid on the block. (Hydrogen comes with its own problems because, yes, you may need that mass, but in volume terms, it’s a lot more because of the particularities of hydrogen.) But you’d need around an eight and a half tonne battery to do the same thing! So, I can’t imagine many people saying, yes, let’s put an eight and a half tonne battery in to hover for 30 minutes; so the battery technology is still a way to go. Having said that, I just want to make very clear that it’s an exciting space and there are nuances even within this market: so, one could talk about Air Taxi or Air Metro as its very own, unique, distinct segment. You’re based in Hong Kong, I’m currently in London, we have our friends in Tokyo, Japan, and in these big metropolis you will find lots of very wealthy people who are time poor and surrounded by congested traffic. Yes, I mean, there are huge requirements for traffic there. But I think what is even more interesting is then the move into last mile and middle mile logistics, small packages, freight, non-combat military use. I mean, once you start getting into something like one to three hundred kilos useful load and let’s say, one hundred to one hundred and fifty nautical miles, that actually is very interesting. I mean, you can transfer equipment and packages to rigs or wind turbines. And so naturally, that means we would be looking at exploring that space. So, Alud it is a very broad topic you raise there. And yes, we’re monitoring it, but I just say think ‘network’ as opposed to ‘vehicle’.Alud Davies: [00:31:14] Absolutely. I think that’s probably the perfect moment to end things on, if that’s okay with you. So I’d like to thank you very much for your time. It was really interesting. Appreciate it.Jaspal Jandu: [00:31:24] Thank you very much. Can I just wrap saying, Alud, we enjoy your work tremendously and the reports you put out. So, I just want to thank you and show our appreciation for the stuff you do for us and everyone else. So, Alud, thank you very much; you’ve raised a number of topics which we can explore in the future so let’s do this again. End: [00:31:46] Thanks for joining us this week on Asian Skycast. Make sure to visit our website, Asian Sky Media, or you can subscribe to the show on your phone or via RSS so you’ll never miss a show.

Many Happy Returns – RotorHub

With the pandemic causing only limited disruption to rotary-wing operations, and sectors such as HEMS experiencing high demand, the helicopter leasing market has remained strong, and the leading lessors expect to do plenty of business in the coming years, as Michael Doran discovers.

Since its launch in 2004, aviation leasing company LCI has undertaken transactions with a total value of more than US$8 billion. In December 2021, it announced its acquisition of Nova Capital Aviation (Ireland), the twin engine helicopter and fixed-wing leasing division of Nova Capital Group. 

The acquisition increased the size of LCI’s fleet by 40% to more than 140 twin-engine aircraft valued at half a billion dollars, and CEO Jaspal Jandu notes that it reflects the current trend towards industry consolidations and cements LCI’s long-term commitment to growth. 

“LCI has strategically developed a diversified customer base to position the company as a preferred lessor for the end markets focused on mission-critical EMS, SAR, offshore wind and utility operations,” he explains. “The acquisition accelerates that strategy by driving a wider diversification that take the proportion of our fleet deployed in mission-critical to more than 80%.”

LCI has its own propriety digital lease management system that can be accessed 24/7 on any device and has created digital twins of all the aircraft, providing back-to-birth records in real time. 

Jandu reveals that LCI has ambitious growth plans for the next five years and says that growth will come from the mission-critical sectors it is already building its business around. “We anticipate continued strong demand from mature EMS markets such as Australia, New Zealand, Japan and Europe, as well as growing demand from emerging EMS markets including Malaysia, China and Latin America. 

“In addition, there is an increasing requirement for oil companies to have a proven SAR capability to support their offshore operations, while other potential areas of public services growth include policing, firefighting and maritime nations seeking to survey national waters,” he notes. 

To read the full article, please click here

True Diversification – Airline Economics

The transportation and leisure industries have been heavily impacted by the pandemic crisis. George Logothetis, chair of The Libra Group, which owns assets across shipping, real estate and aviation, shares his experiences of the crisis period, while Jaspal Jandu, CEO of LCI, Libra Group’s aviation subsidiary, shares his thoughts on rotor and fixed-wing leasing. 

Aircraft leasing and hotel real estate may seem like very different industries but in fact they are closely related. Most hotel companies do not own the hotel buildings, they operate the hotel functions. The hotel real estate is owned for the most part by investors. Aircraft lessors act in a similar manner, they provide the aircraft assets to airlines that operate the aircraft as part of their business. The risks are similar in terms of residual values of the asset be it aircraft or property – although aircraft tend to depreciate whereas real estates for the most part tends to increase in value. Libra Group’s business interests span shipping, commercial real estate, renewable energy, hospitality, hotels, and aviation assets through its subsidiary company, LCI, which is a fixed wing and helicopter lessor. 

The Libra Group’s commitment to social responsibility is expressed through nine core initiatives that collectively seek to deliver educational opportunity, business opportunity, and acts of humanity towards people who are neglected, marginalized or under-served. 

The Libra Group is wholly owned by the Logothetis family. Airline Economics spoke to the Libra Group’s Chairman and CEO, George Logothetis and to LCI’s CEO, Jaspal Jandu. 

Airline Economics: The Libra Group’s business interests span shipping, commercial real estate and hotels, and aviation assets, but also philanthropic endeavours. How have the different industries the Libra Group works in coped during the pandemic crisis and how has that informed your current business decisions? 

George Logothetis:  Well, it has been quite a ride. Some industries have benefitted enormously from the pandemic, notably shipping and multifamily housing in the USA, while others were hit extremely hard. The most severely affected was inevitably the hospitality sector. We were forced to temporarily close almost 50 hotels across several countries within couple of weeks during the worst of the pandemic. Then, when we were able to re-open them, stringent safety measures had to be introduced to protect staff and guests. 

Shipping has experienced an epic boom due to the shifting of spending from services into goods. It was exacerbated by a fear of shortages, which in the end became a reality with the inevitable panic-driven buying sprees. Border restrictions, social distancing measures and business closures massively disrupted global supply chains, leading to unprecedented port congestion and soaring freight costs. 

Our renewable energy businesses have all benefitted from the rising demand for clean energy as the world wakes up to the realities of a climate crisis. 

Lockdowns and travel restrictions meant that we had to cut down our internship program from up to 100 students each year to 20. Our interns joined the many who accommodated working from home and attending meetings via video conference. 

The Seleni Institute, which is a mental health institute and part of our philanthropic initiatives, saw a massive spike in needs. A global mental health crisis was brought forward by the pandemic. All in all, a time of many extremes during the last 24 months! 

Airline Economics: Aviation is a small but enduring aspect of the Libra Group. Can you relate how and why Libra entered the aviation sector in 2004, and the early development of the portfolio? 

George Logothetis:  Libra was founded in 2003 with the idea of investing in areas outside shipping that was our sole business at the time. We sent several of our top leaders around the world to look into global investment opportunities. The main thesis was to diversify risk away from shipping and get the timing right on cyclical buys in other asset classes. 

One day in 2004, I was reading the FT and came across an article stating how aviation was ‘low’. Well, at the time shipping was ‘high’: two commercial cycles that were out of phase. Hence, the idea of looking into buying planes came about. So we started to meet people from various segments of the aviation industry. What struck me was the relative hubris in the shipping markets compared to the relative humility in the aviation markets – it was evident even when meeting people and seeing their body language in meetings. It was almost as if aviation was devoid of hope and shipping was devoid of fear. So we started buying planes while we were selling ships. The first transaction was agreed with my friend Steve Hazy at the bar of the Metropolitan Hotel at an aviation event in June 2004. We agreed the purchase of two narrow-body and one wide-body jets, to be managed by ILFC – All written down on a napkin that Steve and I co-signed. Thus LCI was born. 

We were encouraged by the many similarities between aviation and shipping – and many of the banks we used in the shipping world also lent in aviation. A few months after those three planes agreed on the napkin, we negotiated a second package of five planes with ILFC. Interestingly, this deal was concluded with Mike Platt who is now the Vice Chairman of LCI. From these beginnings, our aviation journey began. 

Airline Economics: Shipping and Aviation are both cyclical industries and as such complement each other, however the pandemic seems to have broken that cycle somewhat, what are your thoughts for the future of both sectors, and has your strategic planning had to adapt in light of the recent crisis? 

George Logothetis:  Container shipping has gone through incredibly volatile times. Our shipping company made a huge bet on the container market, buying almost 100 vessels during a 12-year crisis that finally ended with the pandemic. Now, all of a sudden, the whole world knows that 90% of the world’s goods are transported by sea. 

We are all aware of the vessels outside Long Beach and Los Angeles, of the supply chain crisis and of the difficulty in securing any products. Less known is the mental health crisis for seafarers who cannot leave their vessels; the incredible difficulty of running and operating a shipping company in COVID times; the inability to get spare parts to vessels; the restrictions that can literally trap vessels in ports – on occasions for months. The ‘just in time’ production theory only works if the goods arrive in ‘time’. A whole new appreciation, and concern, is now out there for the supply chain logistics of the world. 

The earnings of some vessels has gone from $5k per day to in some cases this year $300k per day for spot trips. Then the vessels sit off the coast of Long Beach waiting for berths. The conflict between, on one hand, the ‘new world expectation’ of being able to order ‘stuff ’ and have it appear tomorrow at your front door, and on the other hand, the harsh ‘old world’ reality of needing to get it made, sent to a port, shipped across the oceans, unloaded at a port etc. has now been brought in to sharp, inescapable focus. 

On the aviation side, we are very proud of the work LCI has done over these last years – the leadership shown, the partnerships created, and the innovation that has led to new strategies that will define it in the coming years. Transport will always be at the soul of the Libra Group. 

Airline Economics: You recently bought KKR’s share of LCI Helicopters and now own the entire company, can you explain the reason behind your decision? Is this a vote in confidence for the rotor-wing market? 

Jaspal Jandu:  This is a vote of confidence in the aviation leasing market as a whole. 

Since it first invested in the rotor- wing market in 2012, LCI has built on its reputation as a proven lessor of fixed wing aircraft by developing a large and diversified portfolio of helicopters that is in operation across the globe. LCI’s recent acquisition of Nova Capital Aviation (Ireland) and with it, the expansion of its portfolio to over 140 rotary and fixed wing aircraft, is testament to the robust leasing platform we have built. 

We believe there will be many opportunities in both the rotary and fixed wing markets in the years ahead, and felt this was the right time to be fully invested in LCI’s future. 

Airline Economics: LCI exited fixed-wing aircraft assets some years ago to focus on rotor-wing aircraft, what were the main reasons for that and why has LCI recently bought back into the fixed wing space? (Why the A330 type and do you expect to increase your fixed-wing portfolio further, and if so which aircraft types?) 

Jaspal Jandu:  LCI has always been an aircraft leasing company, and we have had a large portfolio of fixed wing single aisle, then twin aisle and then freighter aircraft within our fleet. We pride ourselves on moving where we identify opportunities in the aircraft leasing marketplace, even if that is not where others are going, and we have been very successful with this strategy. 

Our helicopter strategy was always intended as additional element to our aviation leasing and investment platform, and we are delighted how that portfolio has grown and performed. 

We believe this is the right time to re-enter the commercial market and we believe that the A330-300 is the right aircraft, along with other fixed wing aircraft that have recently joined our fleet from Nova Capital and serve the emergency medical services market. 

LCI has previously owned many A330-300s and they were all good investments. We see an opportunity to re-invest in the type at today’s prices which reflect the downturn in international travel caused by Covid-19. The A330 is a mature and proven design. There is no competitor aircraft that has equivalent seat mile costs or capital cost and we expect the values to come back strongly as international travel resumes. 

The A330-300 high gross weight variant (which is the variant LCI has recently acquired) is an extremely capable and versatile aircraft that can fly between 300 and 400 passengers over 6,300 miles. We see good opportunities for existing A330 operators to expand their fleets but, more importantly, for new operators to move into widebodies for the first time. There are currently 108 operators of A330s, but nearly three times as many A320 Family operators who we could easily see up-gauging to A330 as markets grow. 

LCI has a very experienced management team with executives that have been in this business for well over 30 years. Libra relies upon their expertise and knowledge of different aircraft types and the long-term demand for them within the marketplace. 

Airline Economics: The helicopter industry has had its own cyclical ups and downs. How has LCI coped during the crisis and what are the new challenges ahead – such as ESG funding issues with oil & gas related assets? 

Jaspal Jandu:  When we entered the helicopter market nearly a decade ago, unlike many of our competitors, we did not chase the then higher yields of the offshore Oil & Gas markets. We deliberately built a diversified portfolio in terms of types, operators and missions, to the extent that Oil & Gas only accounts for around 20% of our total fleet today and continues to fall. However, it remains an important part of the helicopter market and we must remember that these helicopters provide an essential service, providing safe and reliable transportation for thousands of passengers every day. 

The energy transition is already taking place, and LCI is taking a leading role in this as one of the first helicopter lessors to target the offshore wind power marketplace. Offshore gas will also play an important role in this transition as we quickly move away from other fossil fuels such as coal. 

Helicopters will continue to provide an essential supporting role into the future, and given their range and performance, we do not believe they will be replaced by any new technology vehicles. However, innovation and improvements are continuing and LCI is working closely with manufacturers and other stakeholders, to reduce the carbon footprint of the helicopter industry for example with the adoption of SAF (sustainable aviation fuel). The current generation of helicopters have already replaced older and less efficient models, and overall helicopters are still more fuel efficient and less polluting than vessels. 

LCI’s leadership in this area and focus on the importance of ESG within its overall commercial strategy reflects the approach of the Libra Group as whole. In Europe, our EuroEnergy subsidiary has built an extensive portfolio of grid- connected solar energy parks and wind farms whilst, in North America, Greenwood Sustainable Infrastructure manages investments in solar energy as well as combined heat and power (CHP) installations. In Central and South America its sister company, Greenwood Energy, is involved in the development, installation, operation and finance of projects in the cleantech space with a focus on distributed generation. 

Airline Economics: ESG but specifically sustainability issues have been brought to the fore again following the COP26 conference, what has been your experience with ESG influence on investors and its impact on your business areas today, and how do you expect this to impact them in the short and longer-term future? 

George Logothetis:  I met with a group of students this week and this point was top of mind. The concern in their faces and eyes when asking me the same question remained with me. Here were 25 young people who were palpably distressed about the way they see the future and the risks to their lives. All I can say is we all have a duty to do what we can to help. It starts with awareness – for we cannot fix what we are not aware of. Unlike five years ago, we see awareness everywhere. 

Finally, this cannot be ignored because it is the students that I met this week and their descendants who will pay the price if action is not taken. We see across our businesses a vast amount of capital looking for ‘ESG’ homes – a massive reduction in lenders willing to finance non-ESG assets and so the rules are starting to kick in. Commercial conscience is playing its part – but so too are market forces: companies are coming to realise that they will be unable to close deals and attract the right talent if they do not govern their companies with utmost probity while demonstrating clear responsibility to the environment and to society. Change is occurring and the rate of change is increasing. 

Airline Economics: On the “S” in ESG, The Libra Group has a strong reputation for supporting its workforce and promoting diversity, which has been a founding principle of the business, what is your view on the development of regulation in this space and how businesses in general are advancing their own ESG programmes? 

George Logothetis:  We are proud of the multiple social initiatives that our group leads and the millions of people’s lives around the globe who benefit from them. Philanthropy is at base giving without expecting to get anything back in return. And it starts with being decent and respectful. Once more, awareness is needed. We all live in information pods it seems these days. So sharing best practices with other like-minded organisations has helped us and helped them to improve the programs. 

As for regulation, it will probably always be easier to regulate for the ‘G’ in ESG, but it is worth remembering that the ability to do business has always depended both on the terms of the ‘deal on the table’ and on the reputations of the parties concerned. Companies realise that today their reputation is inextricably connected with their actions in respect of the environment and society. 

I remember when we started our first internship program in Greece 10 years ago during the crisis…..it was born out of anger at the way young Greeks were being treated. But anger properly governed and weaponised for the better can be a force for good. Other companies who saw our program begin started creating their own. The result is a major positive influence on society and a feeling of having positively contributed. For it is not all about business, spreadsheets, risk models and management meetings. 

Airline Economics: Looking ahead, transportation technology is advancing more quickly than in the recent past, with climate change issue pushing the development of cleaner fuels and more efficient vehicles? What are your thoughts on the electric air taxi phenomenon (eVTOL or electric vertical take-off and landing aircraft), which is attracting significant investment? Likewise the push for cleaner fuels – from sustainable aviation fuel to hydrogen, what are your thoughts on the likely timeframe for entry into service, and what would be of interest for early investment by the Libra Group? 

Jaspal Jandu:  As part of LCI’s efforts to develop a more environmentally efficient portfolio, we are engaged with developers, OEMs, operators, investors and other stakeholders about new initiatives in the AAM (advanced air mobility), eVTOL and electric aircraft markets. We recognise that while some of these projects are fast becoming reality, there remain some significant challenges that the industry as a whole must address. 

However there needs to be a sound business case, and this will require support from lessors, financiers and possibly governments. In order to achieve this, there needs to be some product maturity, a wide application and customer base, and longer technology cycles to avoid obsolescence. As an operating lessor, we are a long- term investor, so we are taking a particularly close look at the market and technologies of the future. 

While many of the current projects are focused on urban air mobility or air taxis, LCI has typically invested in assets which perform mission-critical functions. These could include cargo transportation and logistics, but also have specific applications in aeromedical (including emergency medical services and search and rescue), reconnaissance or remote sensing or humanitarian support. In these roles, we see AAM and eVTOL playing a complementary role to existing technology, including the larger, new-generation helicopters which comprise the majority of our fleet. 

Current timescales for some projects are quite ambitious, and while initial developments could be in the market within five years, we do not expect widespread adoption of these technologies for another decade. Even then, there will be many missions which still require the range, capacity and payloads of current helicopters. 

With regards to larger commercial aircraft, there is clearly a fast-growing momentum towards zero-carbon and, while SAF is a near-term solution, in the longer-term the industry will need to find a way to make hydrogen powered aircraft a reality. We all recognise the benefits but there are still logistical and practical challenges to overcome. While there are companies looking to convert current aircraft designs to new fuels, ultimately there will need to be all-new designs which will require very significant investments. 

In short, there is plenty to do in the commercial aviation, helicopter and AAM spaces and we are very much open for business and are keen to grow at this time. 

Read the original article in Issue Sixty Four of Airline Economics

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