By Sara Dhariwal, Senior aviation analyst, Lead appraiser – helicopters & AAM at Cirium Ascend Consultancy

While lessors have established themselves in the commercial fixed-wing market for around 40 years, the civil helicopter market is relatively new. The emergence of Milestone Aviation Group in 2010 marked the beginning of the growth of specialized leasing companies in this sector. Helicopters became an attractive investment due to their long lifespan and strong value retention. Initially, the focus was on the offshore support market, which presented an ideal opportunity for leasing as it required capacity for a specific period with the ability to return the asset to the lessor afterwards. Twin turbine helicopters are particularly sought after by lessors and often require significant financing.

The leasing model experienced significant growth during the expansion of the offshore sector between 2012-2014, driven by high oil prices.

Operating lessors have become increasingly important players for manufacturers, having received nearly 300 new civil twin turbine helicopters over the past decade. This accounts for almost 10% of all civil twin turbine deliveries. Additionally, lessors serve as a crucial source of finance for operators through sale-and-leaseback arrangements involving both new aircraft and those available on the second-hand market.

With hindsight, it can be argued that there was an excessive number of orders and subsequent deliveries of offshore-configured helicopters driven by the market demand. The unprecedented downturn in the oil and gas industry which started in 2014 resulted in overcapacity as oil production, and thereby demand for helicopters to transport workers to and from rigs, reduced.

A considerable increase in number of available aircraft put significant pressure on asset values.

For lessors, the downturn exposed a vulnerability for lessors who had a fleet model heavily concentrated in one sector.

As the downturn persisted longer than expected, both offshore operators and lessors faced challenges to stay financially viable. By the end of 2018, Waypoint, the second-largest lessor at that time, filed for Chapter 11 bankruptcy protection.

In response to these challenges and in an effort to mitigate risk, the lessor industry has undergone fleet diversification. The proportion of offshore-configured twin turbine helicopters in the lessor fleet has reduced from approximately 60% in 2014 to around 40% by the end of 2023. Emergency medical services (EMS) now account for about 30% of the twin turbine lessor owned fleet, while the utility sector represents around 20%.

Since 2017, the proportion of the leased fleet has remained relatively stable at 20%. Furthermore, there has been a stabilization in the offshore sector over the past few years. This was achieved by reassigning excess capacity and redeploying a significant portion of the fleet as the oil and gas industry began to recover. Additionally, modest new deliveries have helped in bringing the overall fleet size back to a more appropriate level.

The decline in delivery numbers of helicopters to the offshore sector cannot solely be attributed to the industry’s caution and restraint. Several factors have contributed to this decline, including:

• Scarce financing: The downturn in the oil and gas industry has made investors wary, resulting in limited access to financing for new helicopter purchases. This scarcity of financing options has hindered the ability of operators to acquire new equipment.
• Disparity in contract terms: There is often a disparity in perception regarding contract terms between operators and contracting oil companies. This discrepancy can be seen as increased investment risk for new helicopters.
• Supply chain challenges: The supply chain for helicopters faces its own set of challenges, leading to lengthy lead times for the delivery of new aircraft. These extended lead times require long-term investment commitments, which may further contribute to a decrease in delivery numbers.
• Future use of fossil fuels: the debate about decreasing the reliance on fossil fuels and the emphasis on ‘green financing’ is affecting the investment case for oil and gas support.

The consequence of these factors is that the current fleet is aging with a limited pipeline of new equipment entering service.

According to the Cirium Helicopter Forecast, it is predicted that approximately 20% of the total helicopter fleet will need replacement within the next 10 years. Within this figure, the offshore sector is expected to account for around 5%, which translates to under 400 helicopters. This projection suggests that an average of 40 new deliveries per year will be required for the offshore sector alone over the next decade.

In comparison, over the past decade, there has been an average of 30 new offshore deliveries per year. Therefore, meeting the forecasted demand would require a production increase of just over 30% in order to accommodate these additional deliveries.

This data highlights the potential growth and demand in the offshore sector and indicates a need for increased production capacity to meet future requirements.

In early 2024, Norway expressed growing concerns about the limited pipeline of new helicopters and the lack of diversity in available types. As a response to this issue, Equinor, an oil major, made a rare move by announcing their own fleet order. While such actions are not unheard of, they are relatively uncommon.

Towards the end of April 2024, a new player entered the helicopter leasing market with GD Helicopter Finance (GDHF). Spearheaded by Michael York, who gained experience in the industry at Milestone Aviation over the past decade, GDHF is backed by Chinese helicopter lessor and operator GDAT. Notably, GD Helicopter Leasing aims to primarily focus on serving the offshore market.

GDHF positions itself as offering “near-term availability of the newest technology” indicating that they recognize the opportunity that exists.

The lessor has currently earmarked 20 H175 and 50 H160 through a mix of firm orders and LoIs. Would all the aircraft be delivered, they would make up nearly 20% of the forecasted replacement demand.

The growth of lessor portfolios does not solely rely on new deliveries but also involves providing financing options such as sale-and-leaseback arrangements both upon delivery and in the secondary market.

In the commercial fixed-wing sector, leased fleets comprise about 50% of the total thus a comparison indicates the helicopter sector has potential for growth. However, such growth, does not necessarily equal more market participants. There has been some consolidation amongst the lessors in the past decade with Macquarie acquiring Waypoint along with most of its portfolio following the bankruptcy. LCI acquired a portfolio from Lobo Leasing in 2022 and some asset trading between lessors continuing.

It begs the question of whether existing lessors can withstand increased competition without comprising their stability? Or is it just what the market needs to signal optimism for growth and innovation?

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