Helicopter lessors cautiously optimistic about oil-and-gas rebound
Written by Ben Forrest | Retrieved from Vertical Magazine
With the painful lessons of a decade ago fresh in mind, helicopter lessors appear cautiously optimistic about an oil-and-gas market rebound, though several of the key players are calling for discipline and restraint to avoid another disaster.
In a roundtable discussion hosted by the Aero Asset market intelligence firm and moderated by former Waypoint Leasing CEO Ed Washecka Dec. 12, major lessors LCI Aviation, Milestone Aviation Group, Macquarie Rotorcraft and start-up lessor GDHF, noted varying degrees of hopefulness.
“There’s no question the market’s gotten a lot better since Waypoint fell apart,” said Washecka, whose former company filed for bankruptcy in 2018 following the Chapter 11 filing of CHC Helicopter, one of its largest customers.
The looming question: Will a market rebound coincide with better decision-making all around, or are lessors likely to repeat the mistakes of the past?
Some are more bullish than others, but several players exhibit a positive outlook.
“At the moment, supply is limited into many of the markets that we’re active in, and lead times for new deliveries are now 24 months—even longer, in some cases,” said Nigel Leishman, chief commercial officer at LCI. “I think somebody needs to be able to provide helicopters in the near term.”
“I think we’ve learned our lessons,” Leishman added. “It’s more about just making sure that there’s some discipline out there.”
The oil-and-gas industry downturn that began in 2014 led to major turmoil for helicopter lessors, some of whom had agreed to customer-friendly contracts that could be cancelled on short notice.
Operators also parked aircraft during the downturn, and an influx of new aircraft orders contributed to oversupply in the leasing market.
Despite a recent rebound, some lessors are maintaining a conservative approach, with modest order books and a focus on managing portfolios of existing aircraft.
“Most of us have been through the worst of the oil-and-gas segment,” said Sebastien Moulin, chief commercial officer at Milestone.
“I think keeping a modest order book across the industry is probably key, and discipline … is obviously very important.”
Dublin-based GHDF has a more aggressive approach, targeting a $1 billion fleet portfolio, including an order book of 50 Airbus H160s.
In the panel discussion, GDHF CEO Michael York defended that stance, saying the previous downturn had an “oversupplied market with a lot of froth and bubble.”
“I see a different market now,” he said.
He pointed to a sustained period of few aircraft deliveries in the heavy and super-medium space, leading to what he said is a “very finely-balanced market, very tight.”
“Lessor fleets are utilized, operator fleets are fully utilized, and … now we’re seeing a healthy, sustainable price being paid for helicopter services that washes through the MROs, the financiers, all the way back to the OEMs.”
York also pointed to the projected need to replace nearly 200 Sikorsky S-92 heavy helicopters which he says are approaching retirement age, along with about 80 super-medium helicopters, roughly evenly split between Airbus H175s and AW189s.
“We feel that ecosystem is solid,” he said. “We do know in the next 10 years, those S-92s are going to retire … and that’s pretty mechanical. That will happen. The zero-growth thesis of GDHF is based around this mechanical aging-out reality, and the need for metal. Someone’s got to supply the market.”
There’s also an apparent shift away from easy-to-cancel contracts.
“Fortunately, in this market, we’re seeing more discipline from the operators,” said Trey Wade from Macquarie. “I am pleased that not only oil companies, but the operators, they’ve learned their lessons, too. Obviously, all of us have learned some very painful lessons. So things are getting better. We’re still not there yet. But I think the progress is encouraging.”
As lessors manage their legacy fleets, they’re also looking toward the planned arrival of the Bell 525 Relentless, which secured its first orders early this year as it continued on its certification path.
“It’s an extraordinarily impressive aircraft, maybe the smartest aircraft out there,” said Wade. “It’s got some stuff that no other super-medium, or even a 92, can do. It is a really impressive machine.”
While Wade predicts a “natural transition” to super-mediums, some lessors are taking a wait-and-see approach.
“We follow that [525] program with interest,” said Nigel Leishman from LCI. “The 525 is obviously that next development, but at the end of the day, like any lessor, we’re looking at helicopter types that have large operating bases, multi-mission, proven markets. So it’s going to be very hard to go to our investment committees or shareholders to look at some of these helicopters, which at the moment are very early in the development phase.”