The Helicopter Market During the Pandemic and In 2021

Tony Kioussis (00:33):

Welcome to another asset insight podcast, covering the aircraft ownership lifecycle. Tony Kioussis, president of Asset Insight and your host. Aero Asset is a Toronto, Canada-based helicopter brokerage firm with over 100 years of aggregate experience marketing and selling aircraft worldwide. The company produces quarterly and annual pre-owned helicopter market trend reports based on his proprietary intelligence and market research. William Sturm serves as vice president of sales for Aero Asset and is a co-owner in the firm. He joins me today to review how the helicopter market has withstood the pandemic thus far and where things might be headed the remainder of this year. Thank you for joining us, William. Having limited exposure to the helicopter market, I’ve been looking forward to this discussion.

William Sturm (01:26):

Happy to shed some light on the rotor side of the industry and tell you a little bit about how things work.

Tony Kioussis (01:32):

Let’s start off by understanding of the landscape. How was the helicopter market fairing during 2019? And how did it weather 2020?

William Sturm (01:41):

2019 was a fairly routine year. Retail sales volume was down slightly year on year, but so was supply. One of the key metrics we use to monitor the health or liquidity of the market is its absorption rate or the time it takes to exhaust today’s supply considering the current transaction volume. And these were down across the three weight class variants that we tracked, the light market, the mediums and the heavies. It comes to no surprise Tony that 2020 was a veritable rollercoaster of a year compared to 2019. As the pandemic started to take effect in Q2, pre-owned twin engine retail sales volume dropped by more than half and then was followed by a real sharp increase in the number of units for sale in Q3 and Q4. So to answer your question, the landscape was really challenging in terms of logistics, just the mechanics of getting a deal done. But moreover there was a notable lack of consumer confidence across all types of buyers and that persisted.

William Sturm (02:46):

But the interesting thing is that the market showed incredible resilience in Q3 and Q4. Ultimately, in the twin engine markets that we track, we actually saw 2020 retail transactions increase by 10% in volume over 2019. And that’s actually the highest level of transactions we have seen in four years. And it’s remarkable when you think that 2020 was basically a three-quarter year.

Tony Kioussis (03:15):

Those statistics are quite remarkable and, in fact, kind of in line with fixed wing, but quite remarkable nevertheless.

William Sturm (03:22):

Yeah, really encouraging.

Tony Kioussis (03:24):

How have aircraft trades been fairing during the early months of 2021? And which of the models are the ones that are actively selling?

William Sturm (03:33):

Transaction volume has decreased in Q1, but so has supply. So, again, that lends to the absorption rates staying fairly consistent. Light twins have remained strong with models like the EC145 and the 109 seeing really good strong transaction volumes. We’re also seeing a slight rebound in the heavy market, which has been very light the last five years, continues to remain encouraging,

Tony Kioussis (04:01):

Generally speaking, what has driven helicopter purchases and what is driving purchases today?

William Sturm (04:08):

There’s a number of different types of helicopter buyers from private VIP to institutional, and the biggest drivers for investors and lessors have always been low acquisition costs and highly liquid asset types that can have a predictable residual value. That allows them to have the best possible chance on their return on investment. When you look at operators, it’s more of an acquisition price and operational costs of those machines that are the real drivers, because they want to maximize their fleet commonality. It’s a way to reduce maintenance costs. Typically, when a good pedigree aircraft that fits their profile comes down on the market, they’re going to be interested. As we start to come out of this pandemic, the real driver spurring buying is consumer confidence. The economy is recovering and government incentives that supported companies during the pandemic are being extended and allowing them to thrive. Plus private buyers, I think just having visibility on what the next six months is going to be like is driving their confidence.

Tony Kioussis (05:13):

Speaking of private buyers, we’re seeing a great number of first-time buyers acquiring fixed-wing aircraft. Are you seeing many first-time buyers within the helicopter sector?

William Sturm (05:24):

We have seen a small number of first-time buyers in the VIP segment. For instance, we’ve noticed an uptick in demand in the U.S. and in Europe for 10- to 12-year-old 109 Grand that has its major inspections and overhauls completed. That market’s very difficult to find any available aircraft for sale right now. But there’s also demand for new aircraft as well. And we have sold several single-engine, late-model aircraft to first-time buyers as well.

Tony Kioussis (05:54):

With respect to the market itself, where is the majority or where are the majority of the helicopters sold? Are they in North America or is it a more worldwide market as opposed to the fixed-wing market, which is mostly North America?

William Sturm (06:11):

It’s a very worldwide market. I encourage you to refer to our quarterly and annual trends report that we produce for the twin engine pre-owned market. The majority of buyers and sellers are in Europe and the U.S, but we have really seen deals all over the globe, even since coming out of COVID. Deals in Asia, in South America. The other thing that’s different about helicopters to business jets is you can put them in a box and send them anywhere in the world and put them to work. So there’s really is a global community of helicopter operators and the market doesn’t really have too many boundaries. So we do deals from every part of the globe.

Tony Kioussis (06:54):

Can you explain the reason why a twin is favorable to the single and why you focus on twins?

William Sturm (07:01):

Helicopters are a lot like business jets or any aircraft really. Every aircraft is like a tool in a toolbox. They all do one job really, really well. So if you’re doing one type of transport or aerial work that requires you to be light and nimble, then a single engine aircraft is going to do very well. If you’re going off shore to a oil platform in the North Sea in the middle of January, you’re going to want a very robust twin engine aircraft, because we’re going to sea and also make it through the storm and carry a load. But to further answer your question, a lot of civil aviation authorities have requirements for twin engine helicopters for commercial operations, and also just for government tenders.

Tony Kioussis (07:48):

I would think that safety is the big issue, right? Especially if you’re trying to cross the North Sea, as you said, in the middle of winter.

William Sturm (07:54):

Precisely, but that’s also just a functionality point of view. They really need to be able to make those trips and come back with reserves and you’re going to need a helicopter that makes a lot of power and has the stamina to get out there and survive it.

Tony Kioussis (08:09):

A hurdle that fixed-wing buyers are presently facing is limited supply of younger, lower-time aircraft. Is that type of inventory scarcity and issue with respect to the helicopter sector?

William Sturm (08:22):

It definitely can be. The OEMs actually have done a really great job, since COVID really took hold, of cutting production. We really don’t see any white tails available. This can actually be difficult for large operators. If they’re going to get an immediate requirement for a tender that stipulates using the latest variant or less than 5 year old aircraft, they can have a challenge to find a suitable aircraft. And it’s not uncommon to see, for example, an EMS operator go after a low time, late-model, VVIP-configured ship only to gut it and then medicalize it. It really does just come down to price. Sometimes you’ll see a late-model aircraft come on the market and it’ll be asking right at or even above what you can get at the OEM. And then that can be a challenge to get sold. Buyers of that profile sometimes are okay with waiting to get a new delivery from the factory with all the OEM benefits. Just comes down to price.

Tony Kioussis (09:20):

Have you seen the days on market increase or decrease for helicopters that are listed for sale today versus say last year?

William Sturm (09:33):

Well, there’s been an increase because of COVID. It’s had an impact on time to days on the market. At Aero Asset we had discussions with a number of our customers about reevaluating asking prices in light of COVID. And we always want to be competitive on the market. If there’s a number of aircraft available for sale, we want to be price positioned based off the spec and pedigree that if a active buyer reviews the market, our aircraft is going to be the one that’s selected for purchase.

Tony Kioussis (10:06):

At the other end of the spectrum, what did you see relative to distress sales during 2020? And are you seeing any distress assets sales in the current market?

William Sturm (10:18):

Fortunately, no. I can’t really put my finger on a reason why. I presume that the banks have been very friendly and these government incentives have really helped out the operators. So really, Tony, we’re not seeing those types of situations at the moment.

Tony Kioussis (10:34):

Well, that’s good news. Glad to hear that. Care to hazard any predictions for 2021?

William Sturm (10:41):

At the moment, we’ve got a pretty ambivalent read on the market. After four consecutive quarters of decline in the deal pipeline and, Tony, the deal pipeline is basically the number of deals pending at various stages of transaction. We saw that number improve in Q4 2020, and it also continued to improve in Q1 of 21. Even though 5 of the 13 twin engine markets that we track didn’t have retail transactions in Q1, that deal pipeline is back at pre-pandemic levels. So we’ll have to see how many of those convert to transactions in the coming months, but hopefully the trend will continue.

Tony Kioussis (11:23):

Thanks for the market overview, William. What should people know about Aero Asset services as they pertain to the business aviation sector of the market?

William Sturm (11:33):

I think just like all sectors, business aviation and helicopter buyers and sellers need reliable market intelligence to help them in the decision-making process. Our objective is to consistently provide clients and prospects with great data because we know their decisions are really only as good as the information that they base it on. I’d really encourage you to sign up for our quarterly and annual twin engine pre-owned market trends report. If you visit aero asset.com on the Market Intel page you can sign up and we’ll make sure you get all the details on what’s trending and where the market’s headed.

Tony Kioussis (12:12):

This has been another Asset Insight podcast covering the aircraft ownership lifecycle. Please visit our ever-growing podcast library at assetinsight.podcast.com and select from any number of topics discussed with business aviation industry experts. This is Tony Kioussis and, as always, thank you for listening.