Brad Shaen is the Director and Founder of International Aviation Marketing Ltd., a helicopter sales, acquisition and advisory company that provides tip-to-tail solutions to aircraft buyers and sellers across the globe. He specializes in the offshore oil & gas and utility sectors, but is also extremely well versed in the EMS, Utility and VIP helicopter markets, along with Turboprop fixed wing aircraft. Brad has done business in nearly half of the countries in the world, and dealt with the most complex jurisdictions and difficult airworthiness authorities.
How are you Brad? What does a day in the life of a leading helicopter broker look like in the context of the current pandemic?? Are you doing things differently? More busy? Less busy??? How many different countries have you completed transactions in now?
Despite the pandemic, I’ve had a busy second quarter leasing two S-76s and six sales transactions including an S-92 and an AW139. Overall though, transaction activity is about 70-80% of where it was. That said, there are less transactions, but activity is generally good. I have more aircraft for sale, and I’m having more discussions and advisory work. The timeframe for closing a deal went from 30-90 days to 90-180 days. There is greater complexity with each transaction as navigating challenges related to Covid-19 are a first for all of us – everything from logistics, customs, tax and inspection requirements, getting aircraft to desired closing location, and speaking with local authorities.
With all of that, I’m definitely staying busy. Although, I am normally one that is travelling to all corners of the world (at last count, I’ve transacted in 75 countries). It’s nice to take a break from travel, but I’m getting restless!
One of the biggest challenges right now is managing expectations and coordinating buyers and sellers. Someone can say – “I want to buy a helicopter now”. But how many helicopters are actually ready and fit their requirements? The reality is that in many cases calendar maintenance has been deferred. In a normal world, I cannot stress enough the advantage of doing a live inspection, and getting someone to come and physically inspect the aircraft. To do that, you really need to have trusted relationships, local resources, and a global network. It’s not good enough to have just anyone perform a pre-purchase inspection. However, in some cases, that’s just not possible and a virtual inspection will have to do.
There is a lot of back and forth that we typically would not have. How long does maintenance take? How long does moving an aircraft take? Uncertainty creates confusion. It’s hard to draw a straight line between ‘point a’ and ‘point b’ when there are so many unknowns. This is the art of the deal. Buyer wants a perfect aircraft delivered to their door. Seller wants an as-is-where-is sale. Seems simple enough, but we are dealing in multiple jurisdictions with extremely complex equipment.
What’s your take on the current situation in the rotorcraft markets?
I’m actually excited about the current situation. Hopefully that excitement is coming from opportunity and not challenge. There are a lot of tenders in places like Brazil, Indonesia, and Thailand. This is an opportunity for value-oriented buyers, which may potentially lead to more transactions. I’ve put forward used aircraft options to purchase to compete with leasing options put forward by traditional leasing companies.
Tendering has been dominated by National Oil Companies, at least more than private oil companies, and has focused on the AW139, but we’ve also seen an uptick in activity around the heavies and the super-mediums (both for renewals and new helicopter placement)
S-92 MSN 920165 in Offshore Configuration - Click image for more details
In the heavy market – what are you seeing with respect to the S-92? We have heard that there is now quite a difference between values for older aircraft (especially those off-lease) and newer examples?
Not all aircraft are created equal – a $4m SAR aircraft in Brazil is very different from a $4m O&G aircraft in the US or in the North Sea. Frictional costs, maintenance costs, and re-configuration costs are exceptionally high, difficult and time consuming.
In terms of requirements, in some markets age is important and some operators are asking for 5-year old (or newer) aircraft, but there’s some flexibility there. Sure, you may want a newer vintage aircraft but does the backup need to be that new? You can’t just fly one S-92 in a remote operation, so I think operators will have flexibility on the backup aircraft. Given that’s the case, I think there’s still some market for the older S-92s. I don’t see Milestone or Macquarie providing super-mediums if there’s a sensible S-92 solution.
My proposal to operators is that there are aircraft out there for $4-8 million. There is a certain cohort, primarily US banks, that financed PHI and Bristow back in 2012. But you have to think about how many aircraft are there in this bracket? How many could you buy for $4-8 million? Do the aircraft have PBH? How have they been maintained? Where are you going to get the next one when the low priced ones are gone? And, what would they be priced at? I suggest a lot more than $4-8m. Milestone might buy an aircraft for what is perceived as cheap, but they are not going to flip the aircraft as clearly they have a long hold position. There’s a dichotomy in the market.
What do you think will happen with the older and out-of-work units?
The S-92 will likely move to secondary and tertiary markets. That said, for PHI to take an aircraft out of storage and get it working, that’s one thing, they can do that. For a third-party MRO to do it, especially one with little S-92 experience, that’s another thing entirely. There are only a few MROs/operators that regularly work on the S-92, and frankly, the inexperienced are going to face issues they don’t know how to deal with. That makes PBH (power by the hour) programs all the more important and valuable to the broad market.
The banks that have been left holding aircraft – they want them gone. However, it’s unusual to see operators sell aircraft. There are some, but when you look into them there’s always a reason, for instance, CHC needed a SAR aircraft right away, Bristow sells them one at a premium.
S-92A MSN 920194 in Offshore Configuration - Click image for more details
What do you think this market needs to do to come to equilibrium faster? Are there simply too many units? Are seller price expectations too high?
Seller expectations are always too high, right? Some sellers are stuck at $12 million and they don’t want to move. But how many transactions have there really been? Few and far between. What’s going to sell first is the low end of the market.
What’s a 7 ton AW139 aircraft worth? Who knows… because no-one is going to sell you one except the OEM! From a valuation perspective, buyers are trying to influence appraisers’ values downwards, while sellers are trying to influence appraisers’ values upwards.
When do you think we’ll be back to some kind of ‘normality’ in this market? Are there coronavirus-related changes that might stick with us for the long term?
The market has been getting better in the last two years and I think everyone agrees that as of February we were moving in a positive direction. The way I see it, as of March 2020 everything went on hold. We're hopeful that things will pick up quickly as we evolve out of the pandemic and that we will systematically return to where we previously were. And we are seeing tendering and government work coming through now. That said, the helicopter market is resilient and certain services do not stop because of a pandemic. People still need essential services like EMS and SAR. Although human activity is limited during Covid, thus resulting in perhaps a lesser need, we still need to operate oil rigs, wind turbines, power lines, military, etc. Certain other sectors will change to some degree – for example, the marginal user of VIP or charter may choose this form of transportation to go to their country home or cottage going forward.
There’s no doubt, the pandemic will create opportunities, but it will also expose weaknesses in certain business models and it is likely that Covid will speed up some bankruptcies. While banks have been very forgiving with their loans, I think we will start to see more organizations that need to liquidate assets and/or go into bankruptcy.
So obviously transaction volume is temporarily put on hold. However, activity levels will recover and we can't completely blame Covid for the supply and demand imbalance that existed in the space before and will exist after.
With sincere thanks to Brad for his time and insight.
Brad Shaen - Director & Founder of International Aviation Marketing
As a reminder, our latest S-92 fleet census was released earlier this month. Providing unit-by-unit detail on current status and location for the offshore crew transfer fleet the report is ideal for stakeholders in the S-92 business and likewise for those that work with competing aircraft. We use state-of-the-art data analytics techniques combined with good old-fashioned primary research to establish who is operating the aircraft, where, and how that has changed. For more detail see here:
