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Helicopter Financing Tight But Not Terminal

By By Charlotte Adams | February 1, 2010
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Services | Financing

Although helicopter financing is in the doldrums compared to the boom years, some experts predict a recovery beginning in the second half of this year. The current chill followed a prolonged period of hot and heady days from 2004 through much of 2008, when user demand and helicopter shortages fueled a pricing bubble and financing terms hit historic lows. The bubble burst in late 2008, lagging the wider bust.

As a result of the turmoil and government regulation, operators have seen a banking contraction and a ratcheting up of lending standards and interest rates, along with increased scrutiny of applicants. Rotor & Wing talked with a number of lenders, operators, dealers and analysts in late 2009 to ask about financing conditions and future prospects.


The squeeze is not unique to the helicopter market. Anyone scanning the headlines knows that the credit markets stalled in late 2008 and the U.S. economy was ailing long before that. A presentation at Heli-Expo early last year noted that in 2008, financial services stocks took their worst beating since the Great Depression. Among the most battered were the Royal Bank of Scotland, Wachovia and CitiGroup.

According to the UBS Rotorcraft Survey published in September 2009, financing remains weak—63 percent of respondents indicated that it was “not available at reasonable terms.” One may debate what’s “reasonable,” of course. In 2008 and the immediately preceding years, credit was perhaps too easy. When competition between banks was intense in 2008, for example, some people were doing deals with no margin, according to Sharon Desfor, president of HeliValue$, a major, helicopter-focused appraiser.

Graph shows that the percentage of the active fleet for sale and lease has not gone over 10 percent between January 2007 and December 2009. Courtesy of AMSTAT

The boom saw unusual developments. Some helicopters were selling for 30 and 40 percent over their depreciated manufacturer’s cost because of the shortage of supply, said Ms. Desfor. Because of user demand and the helicopter shortage, a good, low-time Bell 407 was going for 10 and 20 percent more than its current list price, according to Barry Desfor, managing director of HeliValue$. This bubble was bigger than the one in the late 1970s, when people bought helicopters on speculation. This time around, very few new aircraft were ordered purely for speculation, according to the company.

The oil price crash drove the helicopter market downturn, said Ms. Desfor. It was a “seriously depreciating” market, she said, with prices for many models down on average around 25 percent in November 2009, compared with October 2008. Losses are flattening out now in the single-engine helicopter market, however, and “heavy twins really didn’t take hits,” she said. Ms. Desfor anticipated at least the beginnings of a recovery by the last half of 2010. Long-term, HeliValue$ predicts that helicopter prices will resume their normal trend line.

Ms. Desfor acknowledged the credit crunch in the helicopter industry but pointed out that it’s worse for operators with marginal credit scores. Experience with a particular lender helps close a deal, as does impeccable paperwork. Although some banks disputed this, she thought that deals have taken longer to close in the downturn, as lenders and lessors were spending much more time on due diligence than in 2006-2008. Competition for funding has been sparse, so lenders and lessors have had more say in the deals than operators even though there have been fewer deals for the lenders to spread their money among.

Similar to the single-engine market, the percentage of resale in the multi-engine turbine helicopter fleet has stayed below 10 percent during a two-year period ending in December 2009. Except for a few small dips, average asking price continued to rise in 2009. Courtesy of AMSTAT

She expected credit will remain tight for a while yet. A final round of bank mergers and acquisitions should weed out the weakest banks and stabilize the financial markets a bit. On the upside, most of the larger institutions have already improved their capital in compliance with the Basel II accords, recommendations on banking laws and regulations related to capital reserves, Ms. Desfor said. This is good for the long term but has left them short of cash for loans and leases. The U.S. government’s Troubled Assets Relief Program (TARP) hasn’t really had much direct effect on the helicopter market, she said. The planned increases in leasing and lending never materialized, so it had no noticeable impact on the credit crunch. 

But the picture has changed. Wachovia, formerly a significant player, has been absorbed by Wells Fargo. At Bank of America (BoA), bizjets were outpacing rotary wing aircraft in the bank’s new aircraft finance business in 2009, a situation that reflected the far larger size of the corporate jet market vs. the rotary wing market, according to the bank. It’s not that the banks are getting “tighter” on lending, a common perception in the market, said Michael Amalfitano, managing director and executive head of the bank’s Global Corporate Aircraft Finance unit. “It’s getting to more of the basics and traditions that lending is founded on.”

Amalfitano agreed, however, that solid prospects can still get financing. “Spreads have increased but the LIBOR [interbank loan] rate is at historic lows, so I think that’s making it attractive for folks to still want to finance,” he said. “We have a long-term commitment to the fixed-wing and rotary wing market.”

At JP Morgan Chase’s equipment finance arm, there was also more bizjet business than rotary wing business as of late November 2009. But helicopter transactions were up in 2009 as a percentage of the total aircraft new business volume, said Mark Schrieber, senior vice president and lead territory manager with Chase Equipment Finance (CEF).

The majority of CEF’s helicopter financing transactions in 2009 have been leases, rather than loans, driven primarily by clients’ unique balance sheet, cash flow and tax sensitivities, according to CEF. Leasing is a great way to support clients in a growth mode, Schrieber said. It generally provides 100 percent financing, cash flow benefits and may potentially be off balance sheet.

“Everybody feels we’re knocking around the bottom [of the market now],” Schrieber said late in 2009. Peak-to-trough, fixed-wing aircraft values probably fell about 40 percent, he said, and agreed that, on average, helicopter values had fallen about 25 percent from 2008 to 2009. From his perspective, overall inventory levels of used helicopters were still building in late 2009, but he noted that interest in helicopters was up in the third and fourth quarters, compared to earlier in the year.

Used Helo Inventories

According to numbers provided by AMSTAT, the percentage of the active fleet available for sale or lease in the multi-engine and single-engine turbine helicopter resale markets has not exceeded 10 percent in the period of time between January 2007 and December 2009 (see charts). The percentage of the single-engine fleet available for sale or lease continued to grow from 6.64 percent in January 2009 to 8.44 percent in December 2009. Inventory increased steadily from August to December 2009. The average asking price had declined from July to November but increased in December to a level close to that registered at the beginning of the year.

The multi-engine turbine helicopter inventory picture was comparable. The inventory of available multi-engine helicopters was 8.66 percent in early December 2009, down slightly from 8.67 percent in November 2009, but up from 3.97 percent in December 2007. Average asking prices, except for a few dips, continued to increase in 2009.

This data, however, does not show what buyers are actually paying for the aircraft, numbers which are typically less than the asking price in a down market. The numbers also average out the spikes and dips in the inventories of different makes and models.

But inventories are uncomfortably high and indicate distress among some operators. Some buyers who bought helicopters at the peak, when prices were rising, are now “upside-down in them,” owing far more than the assets are worth, said Stephen Johnson, sales manager with Hillsboro Aviation, a major independent U.S. Bell dealer. Several buyers who bought brand-new Bells in 2007 or 2008 are looking to downsize to an older model, he said.

According to Bank of America’s Amalfitano, pre-owned inventory is still at record levels—“extremely high.” That will keep values low well into 2010. “In our opinion, new sales starts are not going to rebound to the levels we’ve seen in the past before 2012. You need to get into low single-digit inventory levels—less than 5 percent—before you start to see true sales growth,” Amalfitano said.

Niche Financing

While banks are pulling in their horns, one financing company has tapped other sources of funding. Asset Solutions Group (ASG) has lined up private investors and small entrepreneurial companies to invest in new and used helicopters, matching the needs of investors and owner/operators, said president Chuck McGuire. Many transactions have involved investors not previously engaged in aviation. ASG has been active in the offshore, seismic, forestry and air medical sectors.

ASG’s business has been stronger in the downturn than in the boom, McGuire said. “We’ve been able to be nimble and go to where the [funding] sources are.” He has seen individuals and companies investing in the helicopters that a company is acquiring. These are transactional investments in the assets rather than equity investments.

The financing vehicles have typically been leases, McGuire said. Investors look at the asset valuation, cash flow from payments on the revenue-generating asset and value retention. They also look at potential risks and do what-if, or scenario, analysis. Another consideration is the possible residual gain after a five- or seven-year investment. If the helicopter numbers compare favorably with other investments these people are making, then they may choose the helicopter.

McGuire cited many reasons why lenders should prefer rotary wing to fixed-wing assets: helicopters generate revenue, the unpressurized aircraft can be relatively long-lived, and they are continuously updated and overhauled. Nevertheless, bizjets are attractive to banks, which want to market synergistic services, such as product and inventory financing and revolving lines of credit, he said. Helicopter operators don’t typically produce products or offer lenders entrées to other fee-generating services.

International Sales

Some experts think foreign sales of U.S. helicopters will loom larger this year. Whatever the commercial banks may be planning, a major engine driving U.S. helicopter sales abroad has been the U.S. Export-Import Bank. Ex-Im Bank in May 2009 announced a 10-year, $500-million, incrementally disbursed loan to Textron Financial Corp. (TFC) to support TFC’s loans to foreign buyers of Bell and Cessna helicopters and bizjets. The “first of its kind” deal “has resulted in improved rates for international customers,” said Chad Polman, vice president of Bell Helicopter Finance Group.

The Textron deal is a little unusual, as the Ex-Im Bank historically has done more loan guarantees, although direct loans are up ten-fold overall in the last year or so, said Phil Cogan, the bank’s vice president of public affairs. The Textron deal is also unusual in that the bank is providing liquidity to a U.S. finance company so that it can fund loans to foreign buyers of U.S. products.

Previously Textron Financial Corp. had been able to finance exports with funds raised in the capital markets, according to Ex-Im Bank. Bell Helicopter Finance Group financed a record 61 helicopters in 2008, Polman said. When Rotor & Wing spoke with him in mid-December 2009, he expected the number for that year to be “well below” the record. “But as our rates have improved, we’ve seen an inflow of business … and expect that to continue,” he added.

TFC works closely with Ex-Im Bank. Each month, as TFC makes loans for export sales, it submits notification to Ex-Im Bank and receives funds to cover those loans, according to the bank. TFC counts the disbursements as debt, which it will repay over a 10-year period, bank officials explained. TFC is also paying the bank interest and a risk fee. (The level of financing in Ex-Im Bank transactions is based on the U.S. content of the export rather than its purchase price.)

Also in 2009, a subsidiary of CHC Helicopter Corp., Heli-One Leasing Inc., received a $99-million direct loan from Ex-Im Bank to finance the acquisition of eight Sikorsky helicopters, a combination of S-92s and S-76s to be used in operations all over the world, said Kathleen Flanagan, a senior loan officer in the bank’s Transportation Division. That loan had been mostly disbursed as of mid-December 2009. This was a more traditional transaction, supporting a foreign borrower’s purchase of U.S. products.

In August 2009 AgustaWestland’s Philadelphia branch also benefited from Ex-Im Bank financing. The bank guaranteed an $80-million, 10-year loan to the government of Trinidad & Tobago for the purchase of four AW139 multimission helicopters. The bank also provided that country a $9-million loan guarantee to support the sale of a Sikorsky helicopter.

All told in FY 2009, Ex-Im Bank authorized $204 million to foreign borrowers to support the export of U.S.-manufactured helicopters and help preserve U.S. jobs. This compares with only $52 million in fiscal 2008. The $204-million total for 2009, however, does not include the $500-million loan facility to TFC because the borrower is a U.S. company and the Textron funds were not explicitly earmarked for helicopters. In the coming year, Ex-Im Bank expects to continue to build its relationships with helicopter companies and to see a higher level of support for these types of products via direct loans or loan guarantees through commercial banks, Flanagan said.


Although business is normally slow in the fourth quarter, Hillsboro Aviation said that it was “extra slow” at the end of 2009 because of the economic downturn. When the economy tanked in the fall of 2008, the company saw a lot of helicopters coming out of the market, Johnson said. But “there are more helicopters for sale now [November 2009] than I have ever seen in the 17 years I’ve been selling them.”

“It’s a buyer’s market—no doubt about it,” he said. But would-be buyers requiring financing are holding back, he added. A lot of people are investing in parts to keep their existing fleets flying rather than buying new equipment.

“[Lenders] are now requiring very high—25 to 30 percent—down payments,” Johnson said. Back in 2007, he recalled, loans were available for zero and five percent down. “The only people actively working the market are the discount buyers, he said. If there is a bright spot in this picture, it’s local lenders. “If you have a good relationship with your bank, you can find pretty competitive rates.”

As to the future, “most people I talk to are just not optimistic about things changing any time soon,” Johnson said. He is interested in tracking transactions in the first quarter of 2010. Historically, a lot of operators go to the market to buy aircraft for anticipated contracts in the first three months of the year.

Banks are much tighter now, agreed Ed Eckhart, president of Eckhart Helicopter Sales, which deals with EMS, general charter, commercial and corporate operators, including a lot of smaller companies. Banks are “very shy-slash-scared” and are looking for very low risk, a lot of down payment and a lock-tight contract with the helicopter. He advised buyers to start early because lenders are asking for a lot more.

Sloane Helicopters, a UK-based distributor of Agusta and Robinson aircraft to private owners, saw a similar slowdown in its territory. Robinson business was almost flat while Agustas were still selling as of late 2009, but very slowly, said Giorgio Bendoni, sales and marketing director.

Would-be buyers were hampered by economic uncertainties and financing was much more difficult, he said. Leasing companies in late 2009 wanted 20 or 30 percent down payments, he said. And the aircraft, itself, could be insufficient security. Lenders wanted “clearly liquefiable assets” as collateral. If history is anything to judge by, it will be a while before things get better, he said. After an economic dip in the UK about 10 years ago, it took one to two years for the helicopter market to get going again.


While EMS and offshore operators seem to be holding their own, charter and tour companies are having a harder time, partly because it’s often more difficult for them to provide long-term cash projections. Las Vegas-based Maverick Helicopters, a tour and charter operator with some long-term contracts, nevertheless succeeded, but not before talking with 14 banks over a period of 45 days, said president Greg Rochna.

Some of the banks wanted interest rates as high as 14 percent, he said. He finally got a deal after telling the bank he would withdraw a large deposit and pay for the helicopters in cash. Maverick found financing through relationship banking, something mentioned frequently by lending institutions.

Other operators were not so fortunate. Eckhart described one operator of a couple dozen helicopters who wanted to buy a couple more. A prospective bank wanted a five-year cash flow projection when the operator said he couldn’t even give a five-month projection. “The stuff they’re being asked for is unusually detailed and very difficult for some of these guys to provide,” Eckhart said.

Bristow: Good Timing

Bristow Group Inc., a major player in passenger transport for the offshore oil and gas industry, benefited from good timing with its most recent helicopter financing deal—it last accessed the capital markets in June 2008, just before the financial crisis hit. Bristow procures predominantly new medium and large twin-engine helicopters whose values have held up well through the downturn.

In recent years, the company has typically financed helicopter purchases in the capital markets through the issuance of equity and public debt securities, according to Joe Baj, company vice president and treasurer. Bristow reported that earnings per share in the second fiscal year quarter, ending Sept. 30, 2009, rose to 92 cents from 77 cents for the prior year period.

With its fleet of about 300 commercial helicopters, Bristow deals directly with the manufacturers concerning availability of new aircraft to meet its customers’ needs. Baj observed that there is still a lot of demand for new large helicopters worldwide. In fact, as of mid-December 2009, there were not many large helicopters available for delivery in 2010 and 2011 due to demand, he said.

The financial crisis and substantial losses experienced by banks negatively affected lending activity and significantly increased the cost of borrowing. While Bristow has not been adversely affected because it completed its financing activities prior to the financial crisis, Baj said, other companies, particularly smaller ones, have experienced difficulty obtaining new loans and leases over the past 15 months.

Outlook for the future: The financing situation was significantly better in late 2009 than it was at the end of 2008 when the markets had basically shut down, Baj said. The equity and public debt markets began to recover in March 2009 and the commercial bank market seemed to be improving. Barring some event that would result in risk aversion, the financial markets are expected to continue improving in 2010 as the global economy recovers from the recession.

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