Investors

Aviation investments present attractive opportunities to achieve growth, cash flow, dividends and profits, provided they are in the right businesses and under the right conditions.

The aviation industry is made up of a multitude of very deep and fragmented market segments. At its core lies the manufacturing, operation, maintenance and financing of state-of-the-art flying machines, with support services – legal, accounting, consulting and brokerage, among others – providing the oil that keeps the engine running.

The aviation industry itself is as complex and esoteric as any aircraft ever designed, prototyped, manufactured and flown. It takes an average of ten years and hundreds of millions of dollars per Ton of weight of research, development and testing to bring a new helicopter engine to market. Likewise, it takes decades – in a wide range of roles, with the right companies and clients, and with various aircraft and engine models – to gain a deep understanding of the industry and to attain the specific knowhow needed to ensure success of aviation projects.

Often, investors are guided by aviation professionals with outstanding expertise but not necessarily with their clients’ best interests at heart. Moreover, the managers and directors taken on by aviation businesses are not always equipped with the precise know-how and expertise required to deliver on your investment.

An indispensable success factor for investors in the aviation industry is in-depth knowledge of the underlying assets, including but not limited to helicopter manufacturing, operations, trading, maintenance, financing, valuation and project management. Furthermore, this knowledge must be reinforced by an ability to execute acquisition and sale transactions across a variety of helicopter and engine models from different manufacturers.

Table 2 ranks the five largest helicopter Lessors as of January 2019.

Global financial crisis impact on the aviation industry

Before discussing Waypoint Leasing’s eventual financial predicaments, I will set the scene for those less familiar with the helicopter industry and recap key events of the past ten years.

Following the 2008 financial crisis, banks largely moved out of the helicopter financing market, opting to regroup and focus on their core businesses. Capital to fund large helicopter fleets became scarce. This posed a fundamental and existential challenge for the largest commercial helicopter operators, which relied on rapid deployment of capital to purchase newer and younger fleets to support major contracts, particularly in sectors such as oil and gas, Parapublic operations (search and rescue, air ambulance, police, etc.), to name a few. With helicopter acquisition costs ranging anywhere from US$7m to US$35m, helicopter operators need to complete purchase or lease transactions and deploy the helicopter assets within a short period of time, typically between three and nine months.

It is key to note that most helicopter manufacturers run tight production schedules. For the most sought-after helicopter models, lead time from order to delivery can often exceed 12 months.

In 2010, market demand was validated and essentially reinforced by the largest energy companies. Assets with more than 25 years of useful life, with relatively low rates of depreciation, became a very attractive investment proposition.

Numerous factors – including a shortage of funding, excessive time to fund large purchases through traditional banking, bidding timeline constraints and extended new helicopter delivery lead time – aligned to create the perfect environment for independent Lessors to reap rewards and generate very attractive returns for their investors.

Enter one of the genius and visionary captains of the aviation industry, Mr. Richard Santulli, founder of NetJets and Milestone Aviation Group. In 2010, foreseeing an enormous opportunity to occupy the gaping hole left by banks’ decision back in 2008, Mr. Santulli created the first and as of 2020, the largest leasing company, Milestone Aviation Group.

Milestone Aviation was soon to be followed by Lobo, LCI and Waypoint Leasing. You can click here to see a complete timeline covering the growth of all helicopter Lessors over the past ten years.