Helicopter market set to further grow

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The helicopter market will continue to grow over the next 10 years with new deliveries worth between $10 billion to $15 billion, according to Lease Corporation International's advisory board member John Sheldon.

Sheldon is confident that demand will outstrip supply in the future as offshore oil and gas markets continue to be the main drivers.

According to him, offshore oil and gas applications in the 120 to 220 nautical miles (nm) sector will grow 100% over the next 15 years.

On the 100nm to 120nm radius missions, there is 47% growth in that sector, according to him. Shorter sectors as 30nm to 100nm will grow at 30% over the next 15 years, he says.

Today’s fleet includes 7,900 helicopters in the heavy medium market. About 13% of today’s fleet includes search and rescue helicopters while another 19% are offshore models, he says. Emergency Medical Services helicopters accounts for 9% of the fleet, police rotorcraft for 10% and civil utility for 14%. Other applications in the heavy medium market account for 28% while training and corporate represent another 5% of the current fleet.

The helicopter industry has attracted new leasing players over the past few years and more banking appetite.

Before 2007, helicopter financing was largely done with the export credit agencies and the commercial banks, according to Sheldon. Today four major lessors are driving the heavy market along with two smaller leasing entities, he says.

“There are fluctuations in the sector but there are no such cycles as in the commercial aircraft market because it is mission critical,” says CHC Leasing managing director Clark McGinn.

Compared with fixed wings the helicopter market has “no disruptive technology in sight” he says. “Maintenance is constant and not pressurized so there are no life limited factors.”

“It is a very exciting time for lessors building up the business,” says Waypoint Leasing's chief financial officer Alan Jenkins. “It is a very attractive proposition from an equity prospective. But this not like the fixed wing world where there is a very large market. However there is room for a number of lessors in helicopters but it is a small market that is very relationship orientated.”

Jenkins says the debt side of the helicopter market has been getting more traction over the past few years despite differences with the commercial aircraft industry. “It is a very interesting space for the debt finance community. Many of those are with the fixed wings lessors, so we have been educating them around helicopters because it is a different market.”

Helaba’s head of aviation Joerg Schirrmacher says the stability and value retention of helicopter assets are attractive.

“From the bank’s prospective we try to get a bigger picture on the long term asset class we analyse,” he says.

The supply side is not that different from the commercial market with a handful of manufacturers in the sector, he says.

Schirrmacher adds that there is little correlation with fixed wing assets on the demand side because helicopters are mission critical.

However he is yet to get convinced on the growth in the helicopter sector.

“My impression over the past two years is that helicopters have been a scarce asset. There is room for growth but I don’t know how much growth.”

Sheldon says there are reasons for a rush of lessors in the helicopter market.

“A negative reason is the disruption in the banking market,” he says. Back In 2007 all transactions were done with commercial banks, he adds but the regulatory changes have made banks prefer to lend rather than being asset financiers.

"The positive reason is banks prefer to have their hands held. They prefer to work with someone who is used to switching assets around. The demand from the oil companies is constant and it should be easy to play round with contracts, and lessors are good at that.”

"Have we put too much money into the space. I doubt it, given the volume we are expecting,” he says.

According to Sheldon, helicopters operating lessors have about 47% of next decade's orders.