If you are a private equity specialist or a banker acting on behalf of your clients, or if you are a private or corporate investor, hedge fund manager or venture capitalist looking to invest in the aviation industry, please read on.
You may already have a very good idea in which market segments you plan to invest your funds;
You may already have engaged with aviation professionals or target companies you wish to acquire or invest in;
You may be considering investment in new technologies such as eVTOL (electrical vertical take-off and landing vehicles);
You may be seeking to diversify your investments by entering the aviation maintenance, repair and overhaul industry or possibly even launching or acquiring a commercial operator, an aircraft portfolio or a complete aviation group; or
You may be searching for short-, medium- or long-term investment opportunities offering returns above a certain threshold.
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.
Uplifting Aviation can support the largest aircraft transactions
Now I would like to discuss one of the most fascinating helicopter investment projects supported by Uplifting Aviation, the subject of which was Waypoint Leasing, previously the world’s second largest aircraft Lessor.
Context and background
Entry of Lessors to the turbine-powered helicopter market
For context, let me share with you a snapshot of the turbine-powered helicopter market and the arrival of helicopter Lessors in the industry
(Source = JetNet database, Corporate Jet Investor and Uplifting Aviation Ltd):
Past 10 years world turbine helicopter & lessors fleet growth
||World Turbine Helicopter Fleet in Operation||World Turbine Fleet Estimated Value (USD)||Estimated Lessors Fleet||Estimated % of World Fleet in Operation||Estimated Lessors Fleet Value (USD)||Estimated Lessors % of World Fleet|
|Lessors share of the fleet growth over the last decade||5,432||
Table 1 indicates the growth of the worldwide turbine-powered helicopter fleet between 2010 and 2018. Below are some of the key highlights:
- The overall fleet in operation and at the manufacturer (i.e. in production or out of production and waiting for delivery) has increased by 5,432 helicopters.
- The total value of the worldwide turbine-powered helicopter fleet is now estimated to hover around the US$55 billion mark, representing a 35% increase from 2010.
- The combined portfolios of the five major helicopter Lessors (hereinafter, the ‘Big 5’) have grown from 50 helicopters to 723.
- Despite having just over 3% of the total fleet in operation worldwide, the total portfolio value of the ‘Big 5’ is estimated at US$8 billion, disproportionately accounting for a staggering 14.8% of the total value of the worldwide fleet.
- Over the past decade, the ‘Big 5’ have acquired 13.31% of new turbine-powered helicopters sold worldwide.
Ranking of the "Big 5" Helicopter Lessors
|Estimated Lessors Helicopter Portfolio Value (USD in millions)||Estimated Lessors Fleet Size|
|Macquarie (after acquisition of Waypoint Leasing in 2019)||$1,800||200|
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.
Bankruptcy of Waypoint Leasing
The Helicopter Leasing Sector Timeline shows clearly the stellar rise of Waypoint Leasing, whose portfolio grew to encompass US$1.6 billion of assets and the best part of 160 helicopters between 2013 and 2018. The most spectacular breakout took place from 2013-2015, with Waypoint Leasing growing rapidly from US$375m in helicopter assets to US$1 billion.
Only three years later, Waypoint Leasing’s business witnessed a brutal crash. The main causes of its demise were attributed to the collapse of the oil price to just under US$30 a barrel, followed by CHC, then the world’s largest commercial helicopter operator, entering administration and finally the tragic accident in Norway, in 2009, involving an Airbus H225.
Helicopter Lessors and banks with helicopter portfolios were impacted deeply by these events, Waypoint Leasing more so due to its significant exposure to lessees operating in oil and gas markets. The business grew too quickly and in the wrong markets; it had invested in a large diversified fleet of helicopters in support of a small client base and was leasing helicopters in countries with relatively high risk. When oil prices slumped, energy companies significantly cut back on oil exploration projects and then drastically reduced oil production. They needed fewer engineers on oil rigs and therefore required fewer flight hours and less lifting capacity. This led to an oversupply of helicopters, which in turn, caused lease rates to drop significantly, providing the straw that broke the camel’s back.
Uplifting Aviation’s Role
The focus of our undertaking was Waypoint Leasing, previously the second largest helicopter Lessor, which was acquired in 2018 by Macquarie after voluntarily filing for Chapter 11 bankruptcy in New York. Before Macquarie was ultimately awarded the purchase of Waypoint Leasing’s assets, we were appointed as independent consultants by a group of private investors who sought to acquire Waypoint Leasing. Our mission was to perform the following:
- Carry out a full valuation of Waypoint Leasing’s helicopter portfolio;
- Highlight any risks associated with the assets, lessees, contracts and countries of operation;
- Present to the investor group a specific strategy to turn the business around;
- Highlight opportunities within each specific helicopter market segment, helicopter model, lessee, contract and country of operation; and
- Upon successful purchase of Waypoint Leasing, to partner with the investor group as helicopter experts, focusing on implementation of a strategy that encompasses the transformation of the business, deployment of a risk reduction programme and maximisation of return on investment.
While Waypoint Leasing was eventually awarded to Macquarie Bank, Uplifting Aviation worked successfully with all stakeholders and achieved the following:
- Gave investors pinpoint accurate and live helicopter portfolio valuations in accordance with risks and resources required to transform the business. For more information as to how we can provide a precise valuation for each serial number in the portfolio please visit our Valuations page.
- Provided a range of solutions to spread the risks across helicopters models, lessees, countries and above all types of operations.
- Integrated within the acquisition plan redundant and fail/safe options against major market swings, i.e. selection of helicopter models that are easier to repurpose, remarket and/or lease.
In hindsight, Waypoint Leasing’s bankruptcy could have been averted. LCI, another Lessor, demonstrated foresight by making investments in support of longer leases and in diverse markets, reducing their exposure to a single variable such as the oil price. With a very solid balance sheet and competitive borrowing rates, Milestone Aviation, a Lessor owned by GECAS, powered through the crisis to maintain its number one position in the helicopter leasing industry.
In an act of sheer brilliance, Macquarie Bank, which had also felt the full force of the crisis, secured second place in the industry by acquiring Waypoint Leasing at a very advantageous price.
As demonstrated by Macquarie Bank’s success story, once professionals learn this market inside out, they become inherently aware where the risks lie and how to avoid the wrong exposure with their investment.
In the aviation industry, investors need to carefully review their assets and evaluate the risks to their capital. For the most part, liabilities are attached and related to the acquisition, financing, leasing, operation and support of flying machines. When seeking to protect your capital and ensure returns are achievable, therefore, it stands to reason to instruct an established, pragmatic and unbiased expert who is steadfastly focused on the success of your project, and who has engaged in some of the largest acquisitions in the industry.
Why Uplifting Aviation?
The aviation industry presents a variety of excellent investment opportunities, and there are always approaches available for investors to minimise risk and maximise their returns. Uplifting Aviation can show investors exactly where, when and how to do so. We also know the right amount to invest and the right time to exit.
As an investor, you may currently be in one of the following stages:
- Pre-investment – Pre-term sheet
- Post-investment – Post-term sheet
- At the beginning of an aviation investment project; or
- Invested, fully launched and operational
In the fields of aircraft trading, leasing, financing and maintenance, Uplifting Aviation can help you navigate every aspect of the investment opportunity you are considering. Below is a non-exhaustive list of aviation consulting services we offer:
- Independent assessment and validation of aviation projects.
- Multidimensional risk assessment, covering:
- Revenue and cash flow generation
If you are a prospective or active investor, we invite you to get in touch with us to discuss your project and investigate the available opportunities in the aviation industry.
Contact us now to find out how we can help you optimise your investment in the aviation market.