The new and used commercial rotorcraft business is bucking persistent headwinds due, in part, to the sluggish oil and gas industry, but redeployment and reconfiguring of assets by lessors and operators is providing some relief.
Recently, major players in this segment of the business have demonstrated aptly the need to be proactive and flexible during these challenging times.
Milestone Aviation Group Ltd., a unit of GE Capital Aviation Services (GECAS), in February loaned $230 million to Bristow Helicopters, a unit of the Houston, Texas-based Bristow Group. As part of the agreement, Bristow extended select Sikorsky S-92 leases with Milestone. The lessor also deferred lease rentals on select Airbus Helicopters H225s to Bristow, a major provider of lift to the offshore segment.
Milestone President and CEO Daniel Rosenthal said the company understands “the challenges that exist in the current environment.”
Arguably the largest helicopter lessor, Milestone has a $3.9 billion fleet. The company has a forward order book of firm and option aircraft worth more than $3 billion.
Dublin-based Avinco, a leader in helicopter sales and re-marketing, was awarded a helicopter repossession contract in mid-2016 by a consortium of international banks and France’s official export credit agency, Compagnie Française d’Assurance pour le Commerce Extérieur (COFACE). The contract involved the recovery and re-marketing of 21 Airbus H225s and one H155.
Avinco completed 27 helicopter transactions in 2016. Around 50% of those helicopters delivered last year were reconfigured for different missions.
The current market remains tepid for larger twin-engine helicopters serving the offshore
energy market. “We don’t see any improvement for the oil and gas segment in the next two to three years,” said Francois Gautier, founder and CEO of Avinco. As such, it has been very challenging to relocate these helicopters.
“Let’s be realistic, the market is not ready to take a lot of 225s,” said Gautier.
It is tough to move the larger equipment in the present market. “There are so many helicopters idle right now, including the frontline, new technology machines like the AW139,” said Bill Wolf, president and CEO of Dublin-based Lobo Leasing LLC. Lobo has 32 helicopters in its fleet, of which most are deployed outside the U.S.
Some industry experts believe that the large helicopters will regain their top-tier position with the offshore energy sector.
“Oil prices have been slowly rising in recent months, albeit erratically,” said Ray Jaworowski, senior aerospace analyst for aerospace consultancy Forecast International. “A continuation of this trend, which appears likely points to gradual improvement in demand for new rotorcraft for the oil and gas sector.”
Meanwhile, lessors have moved to diversify their fleets to lessen dependence on the oil and gas business. Avinco is trying to market some 225s and S-92s as search and rescue (SAR) vehicles for governments or their private sector contractors. This market continues to grow, in part, because governments worldwide are outsourcing this role to private helicopter operators as a cost-saving measure for taxpayers. The U.K. led this effort years ago by awarding a major SAR contract to Bristow. Since then, numerous countries have followed suit. Lobo has leased two AW189s to the U.K. Ministry of Defence for operations on the Falkland Islands.
Some lessors believe that the need for the big birds will return. “We are pretty bullish on values and lease rates for the S-92 and AW139s,” said Ed Washecka, CEO of Waypoint Leasing, which has a portfolio of 144 aircraft worth $1.5 billion.
Regarding whether lessors have become opportunistic during this lull in the energy sector, “we are more particular now about the assets we will lease,” said Washecka. “In the old days, you had a lot of people chasing deals because they wanted to get to a certain asset size.”
Where lessors have had to be opportunistic, said Washecka, is in chasing customers that they might not have had in the past.
In addition to re-purposing some offshore equipment to SAR service, lessors and operators are scouting for other homes for their larger twin-engine rotorcraft. For years, Russian Helicopters aircraft were used predominantly for United Nations relief work. Lobo said that is changing.
“We’ve seen a lot of bids for humanitarian work and firefighting-capable rotorcraft,” said Wolf.
Gautier said there is a healthy liquidity for single-engine and light twin-engine helicopters, such as the H135, H145 and Leonardo AW109.
Lessors, operators and completion houses look favorably on rotorcraft initially earmarked or reconfigured for the emergency medical services (EMS) segment. Although this sector is relatively healthy, “its heavy dependence on local and municipal government budgets does pose some concerns for the long term,” cautioned Jaworowski.
EMS operator Metro Aviation of Shreveport, Louisiana, primarily owns, refurbishes and wet-leases H135s. The H135E is considered an ideal vehicle for EMS, with around 1,150 in service in 60 countries, according to Airbus.
Kenny Morrow, Metro’s director of finance and business development, said the company could reconfigure a several-year-old H135 for EMS for around $2 million cheaper than it would cost to buy a new one. Over the past seven years, Metro bought and reconfigured several previously owned rotorcraft to EMS, primarily H135s, from Bristow and Era Helicopters, among others.
Morrow said Metro goes through the same reconfiguring process with both used and new aircraft. It installs a new medical interior, paints the exterior and equips new avionics, which includes helicopter terrain awareness and warning systems (HTAWS), flight data monitoring and tracking systems, and automatic dependent surveillance-broadcast (ADS-B) or the out/in package typically. (Effective Jan. 1, 2020, the FAA requires ADS-B out on most aircraft operating in U.S. airspace.)
On the profit potential of upgrading rotorcraft, Morrow said, “we have seen a fair uptick in this type of work, but it is extremely difficult to make money on maintenance and refurbishment.”
There are various challenges in making money by upgrading avionics systems, since it is very labor intensive.
“You crack open the avionics panel and there is a bundle of spaghetti that is different every time,” said Morrow.
The bigger problem, said Morrow, is what happens when the original glass avionics is no longer serviceable. Some new helicopters come equipped with proprietary avionics, for which there is currently no replacement. Morrow said Bell Helicopter made a wise choice in choosing the Garmin G1000 package for its 407GX because the system is already on thousands of aircraft worldwide. A successor to the G1000 for helicopters will be available because the established market will demand it, he added.
Wysong Enterprises of Blountville, Tennessee, is reconfiguring many rotorcraft for EMS and utility work. Cost to outfit EMS-bound rotorcraft, which includes night-vision goggle (NVG) systems and new avionics, can cost between $500,000 and $800,000, said Paul Schrader, sales manager for Wysong.
Reconfiguring 3- to 5-year-old helicopters with new interiors could cost between $100,000 and $300,000. Price depends largely on how extensive the interior retrofit is, said Schrader.
Buying slightly used rotorcraft remains a bargain, including equipment resold by Airbus Helicopters Inc., the Grand Prairie, Texas-based subsidiary of Airbus Group. Prices for used equipment taken in trade and resold by this division are typically higher than used equipment sold by independent outfits, the company said.
“Between 2016 and early 2017, we probably had 30 aircraft that have come in on trade,” said Jeff Donahue, manager of aftermarket sales for Airbus Helicopters.
The unit of Airbus resells light singles and twin-engine rotorcraft of various OEMs. Eighty percent of the buyers of used equipment sold by Airbus are paying with cash through a local bank, said Donahue. Few are leasing the used equipment. While business is spotty, the division has sold used helicopters to Mexico, Malaysia, South Africa, South America and the Dominican Republic.
Despite the lull in new rotorcraft sales, Airbus remained the top seller of new commercial rotorcraft. In 2016, Airbus Helicopters Inc. and Airbus Helicopters Canada Ltd. maintained their market leader positions, despite a cutback in unit manufacturing and a drop in sales of new helicopters. In 2016, both companies together delivered 60 new helicopters to the civil and parapublic market, representing 50% of total deliveries in North America for the year.
Both companies posted 64 orders for new aircraft, an estimated 73% of all new helicopter orders in North America for the year, said Airbus. In 2015, there were 84 deliveries in North America, representing 45% of the market. Total orders for 2015 were not available.
Bell delivered 35 commercial helicopters during the fourth quarter, down from 56 the previous year, according to the company. Textron Chairman and CEO Scott Donnelly said there has been increased activity in commercial orders and letters of intent during the second half of 2016.
When oil prices were higher, there was a big demand for heavy twins like the H225 and S-92 to support offshore oil and gas operations worldwide. Huge chunks of lessors’ portfolios were invested in the heavy twins. When oil prices sunk, there was an immediate oversupply and many large twins were parked.
Adding to the problem are the regulator-imposed operating restrictions of the H225. The FAA lifted the flight ban on the 225s, but authorities in Norway and the U.K. have yet to lift their bans — further reducing the marketability of the helicopter.
The December 2016 emergency landing of an S-92 on an offshore oil platform in the North Sea due to unexpected control response didn’t help matters for these large twins either.
“If you can’t fly them out of the U.K. or Norway, where else are you going to use them?” asked Sharon Desfor, president of HeliValue$, Inc. and R&WI editorial advisory board member.
Some contend, said Desfor, that the 225 would be a useful addition to offshore oil and gas operations in the Gulf of Mexico, South America and Asia-Pacific regions. But that doesn’t appear to be happening in significant numbers, she said.
Regarding which rotorcraft are retaining their value, Desfor said most lessors and potential operators want to know about the worth of Leonardo’s 15-seat medium AW139 helicopter.
“The 139 is probably the most firmly valued helicopter worldwide,” she said. “It is probably the only [civil] helicopter that has not fallen in price over the last few years.”
Desfor spoke generally about the value of a few commercial rotorcraft. On the H225, HeliValue$ is deferring resale value pronouncements until there are resale buyers.
Light twin-engine rotorcraft, such as the H135 and H145, have stopped decreasing in value. Some aircraft are moving. The older H135 T1s are softening in value, but the H145 T2s are holding their worth, said Desfor. And the Sikorsky S-76+ and ++ have lost significant value over the past six months, she said.
Regarding the state of the used and surplus market, “these markets will always be popular,” said Desfor. “A vast number of people don’t want to take the depreciation hit of a new helicopter.” Consequently, they’re more inclined to upgrade their existing equipment or look for deals on slightly used helicopters, she added.
Michael Chase, JetNet’s director of special projects, said there were 31,633 piston- and turbine-powered commercial rotorcraft in operation. There have been 7,773 turbine- and piston-powered helicopters retired as of Feb. 6, according to the JetNet 2016 market data. Forty-three turbine and 31 piston-powered helicopters have been stored. This means equipment could be returned to service or retired permanently, said Chase.
Last year, retail sales transactions of turbine and piston rotorcraft were down 13.1% and 15.3% respectively from 2015, said Chase.
But Tony Kioussis, president and CEO of asset evaluator Asset Insight, LLC, noted that maintenance condition of these units remained high. “This asset quality versus low-price relationship represents an unprecedented value-creation opportunity for those who are ready to buy.” R&WI