Commercial, Personal/Corporate

"Why Does My Money Cost So Much?"

By Barry D. Desfor | October 1, 2004
Send Feedback

It doesn't take a moment or two for anyone in the helicopter industry to know that our business is, and has been for many decades, one of the true "multi-national" businesses. We all know that most countries around the world follow the same standards for the design and construction standards of our helicopters and their parts. The helicopter industry knows most countries have very similar flight-operations standards.

Additionally, we try to convince each other that the manufacturers' service-life limits (for the mandatory time-retirement and/or the overhauls) are "cast in stone" and must be universally applied no matter what the job is, who the owner or operator is, or what the geographic location of the helicopter.

So, if all of this vital information is such common knowledge among us helicopter types, why doesn't my banker know all of this too? If you remember back to the previous article on financing a helicopter, ("Show Me the Money", August 2004, page 38) we talked about how borrowers were in the lenders' area(s) of expertise when it comes time to apply for a loan. That point is still worth remembering: a "banker" (either your lender giving you "cash" or your lessor giving you a lease contract) only wants to be an expert in one business--their own specialty of money-lending.


In this era of specialization and corporate governance, outside "experts" are not only preferred, they are mandatory in many cases. That's right: no matter how well you tell your banker about the virtues of your helicopter and/or your helicopter's current or long-term value, your banker may be required by law to disregard your words of wisdom.

Helicopter borrowers tend to forget (or not calculate) the cost of doing business. One of the biggest mistakes made by those looking for money to make a helicopter purchase and/or re-financing one or more of their fleet is not knowing or understanding the cost of "creating" the loan. Oddly enough, a lender's "cost" is virtually the same for a $60,000 loan for your used Enstrom, or Schweizer, or Hiller (assuming you can get one for that price) as for the $6 million plus loan for a new Sikorsky S-76! Remember folks, the banks and leasing companies are in business for the same reasons you are (hopefully): TO MAKE MONEY! In the process of making money, bankers usually know their costs down to the last dollar, euro or Swiss franc.

The fees you may be charged, whether they are paid "up front" even before you have your money or your lease contract in hand, can sometimes be reduced by going through a "loan broker". How can someone who will obviously be paid a fee for bringing your business to a lender, help make the over all cost of the transaction become LOWER?

Simple--by acting as a "clearing house" and "consolidator" for the bank the broker places your application with, the loan broker adds your business to many others. And he, or she, is supposed to do much of the pre-qualification investigation of you that would have to be done by the bank. By bringing in a volume of "streamlined" applicants to a lender, the broker may reduce the "in-house" costs to the bank, thereby qualifying for a discount that may be passed on to you.

In North America, with the emphasis being on the United States in particular, the watch-word of the day has become: "Corporate Governance." In the wake of multiple levels of gross financial misdeeds, many countries around the world have enacted new financial regulations. These rules (in essence) state:

Lenders must perform their "due diligence" to new, higher standards;

Lenders must insure that the due diligence is conducted by an independent, outside, unbiased source, whose credentials establish him/her/them as an expert whose ONLY business is performing this work.

In many cases, this outside expert opinion must be part of the basis which determines not only how low the monthly loan/lease payments can be, but also what the "buy-out" figure may be at various points in the contract.

Because of the "worldwide" aspect of the helicopter industry, most banks and leasing companies around the globe now follow most of the "due diligence" principles which have become law in U.S.-based transactions. So, whether your loan application is taken in Sweden, in Siberia, or especially if you're applying from beautiful downtown Seneca, NY., your bank will probably need to talk to some "Helicopter Guru," such as at HeliValue$.

If you are dealing with a local banker who doesn't know the difference between an altimeter and his adding machine, the guru's job is one massive education course crammed in a series of phone calls. Giving your banker the "how and why" of your helicopter's worth now and for the years to come is part of the ordinary course of HeliValue$'s business.

The bad news is that you, the borrower, will pay for this service. The good news is that, in many cases, your loan application cannot be processed without at least some services provided by an unbiased outside expert service, so while added costs are understandably annoying, you have to decide if you want the loan or not. While the evaluation and future value "guru" can't vouch for you and your business, the "guru's" professionally prepared information for your banker can often be the difference between a "No" or a "Yes" on your application.

Here's the problem for every would-be helicopter owner/operator around the world, regardless of how big or small their fleet is: You may have explained everything there is to know about your helicopter to your banker or leasing company. You may even be 100 percent correct on every point you've made. But, truth be told, it is likely that none of your opinions may be usable by the banker/loan officer.

The "expert" may have to come in and give the material in a format and presentation which the lender can take to their management and/or board of directors, their credit committee, their asset management group, and/or their legal and accounting staff. Many times, this "expert information" may in fact be very similar to what you have told your bank previously.

One of the essential documents needed by the bank or leasing company is your aircraft's Residual Value Projection (RVP) found in publications such as "The Official Helicopter Blue Book" (and provided free to "Helicopter Blue Book" subscribers or their lender). This is a projection of where, during the term of your loan or lease, your "guru" believes the value of your unit will go. The RVP is usually given as two value progressions. Bear in mind, however, that the RVP may not be what YOU THINK your helicopter is worth to you as a "working ship". Why is this so?

  • Because the value(s) given are what your lender must be able to rationally and confidently justify to his/her management and staff as a "reasonable resale" value.
  • Because your bank/leasing company wants the individual helicopter's value, not the value of the machine as part of an "ongoing business".

There is no doubt that you can prove what the helicopter can earn once it is in service, but helicopter owners and operators have to remember that the banker most likely does not want to take your place as a helicopter operator! The bank just wants to know: "If something goes wrong and the borrower cannot or will not make the payments, for how much can I, the lender, reasonably and accurately expect to sell the equipment?"

As impractical as it might be, and as insulting as it may be to you, the bank always wants to know the value of your helicopter in the "0-year", which is that "Day/Week/ Month" period of time at the beginning of your contract. We've always wondered: "Why do a deal on anything if they genuinely thought it was going to be turned back to them almost immediately?" There has never been a satisfactory answer, so we continue to give the numbers.

There are up to 20 to 30 factors which are computed by HeliValue$ when preparing an RVP for your bank or leasing company. Not all of the factors carry equal weight. For example, the past resale history of the prior models may not count for much with the current model being analyzed. An excellent illustration is how AgustaWestland Inc. has seriously changed its marketing tactics, thereby preventing the free-fall resale pricing of its latest A109E Power helicopter.

This is good for the manufacturer and the Power's future values, bad for new and used buyers of those helicopters in that there may be few "fire sale" low-priced bargains as there had been with the old A109A-models. Also remember: While the RVP's future values for the helicopter are realistic resale values projected into the future, your banker will probably "give the numbers a haircut". This "haircut" is the margin of value safety, usually a reduction, so they feel absolutely safe and confident that even they can unload your helicopter. Don't get insulted if your lender's values are unrealistically low. There are ways to improve the numbers.

To reduce the "haircut" amount and raise the future values, thereby lowering the monthly payments, some lenders may require the borrower/operator to enroll the machine in a power-by-the-hour program. The best-liked power-by-the-hour programs are those offered by the Original Equipment Manufacturers. The bankers and leasing companies generally like these programs because the actual zero-time since overhaul part is normally available, or there is cash in the escrow account available for each of the power-by-the-hour enrolled parts.

Another factor which appeals to lenders is the fact that, in most cases, a helicopter that has been enrolled in a PBH program (especially if it is the OEM's program) usually has a better chance of reselling more rapidly when compared to a similar unit which was not on PBH.

Since lenders are scared to death about "idle inventory" time, what else can you do to assure your lender that your helicopter will be in "showroom" condition if and when it comes time to sell it?

In the long run, it will be the use of common sense and good business practices that will determine when and how the bank or leasing company will be positively impressed with you. They will want to know a lot about you, your business and how you will take care of the helicopter. The impressions you make on them will probably count more than what a broker or "expert" can do for you.

Barry D. Desfor is owner and president of HeliValue$, Inc. and publisher of "The Official Helicopter Blue Book." He can be reached at: P.O. Box 575, Wauconda, Il., 60084-0575; phone: 847-487-8258; fax: 847-487-0206 - email:

Receive the latest rotorcraft news right to your inbox