Critical Elements of Helicopter Value - Part 1 of 2

Are you thinking about buying a helicopter? Selling one? Funding a purchase or lease? As in economics, there are both micro and macro elements critical to its value.

Let's define micro elements as those which are inherent in the helicopter itself. These are the things that a buyer looks for: the status of the components as a percentage used, the existence of power-by-the-hour contracts on the engine(s) or drivetrain, the configuration and installed equipment, the avionics, the country of registry, and the quality of the operator who has been using it.

Micro Elements of Value

Component status

Arguably the most famous definition of a helicopter is "an assembly of forty thousand loose pieces, flying more or less in formation." Given a specific helicopter, the most important micro element of value is the components' Time Since Overhaul (TSO) or Time Since New (TSN). This includes the dynamic components such as engines, transmissions, swashplate, main- and tail-rotor blades, drive shafts, and flight controls; and we'll throw in the major airframe inspection as well. "TSO" is used for components which must be periodically overhauled and then returned to service. "TSN" is used for components which must be removed and replaced with new or serviceable components at specific intervals. The second are often called "life-limited" components and the first "rotables."

Most serial-numbered components are given a finite amount of flight time before they must be removed. The percentage of flight time used is the primary determinant of a helicopter's value relative to the resale market. More flight time used = lower value; less flight time used = higher value. However, when these parts time-expire, they can be replaced or overhauled, which raises the helicopter's value by approximately the cost of the overhaul or of the replacement part.

flight-graph

As you can see from the chart above, not every component depreciates over the same amount of flight time. A series of formals is used to determine the average of all the components' percentages used at any point during its life, allowing the helicopter to be accurately measured against comparable sales, offerings, and pending contracts.

Component times are determined by examining the helicopter's flight and maintenance logbooks. The logbooks record every minute of flight time, every component change, every overhaul and inspection related to that particular airframe or engine. Additionally, every serial-numbered component has a hard card (the flight and maintenance records for each individual component) that follows it throughout its life, from birth to death, regardless of what helicopter the component is installed in at any given moment. Components move frequently from inventory to airframe, and from one airframe to another. It's faster to remove a component and replace it with a fresh one than to take a helicopter out of service while waiting weeks for an inspection or overhaul. This is as true of a small component such as a hydraulic servo as it is of a large one such as an engine. With so many component changes occurring at any time during a helicopter's operation, individual records are required for every component as well as for the helicopter itself. (These required records are absolutely critical to the operation of a helicopter and its resale value. Any FAA inspector can shut down the helicopter at any time if he requests a record that does not exist or is inaccurate. Questionable records could do more than shut down the helicopter, they could shut down an entire operation. Clean, detailed, accurate records are a point in favor of a helicopter at its time of resale, regardless of your role as buyer, seller, or financier.)

Power-by-the-Hour

A Power by the Hour (PBH) contract is essentially a prepaid maintenance agreement in which the operator sends the manufacturer a fixed hourly payment and the manufacturer provides a freshly overhauled replacement part for every component under the contract term that comes to its life limit (or fails). The PBH-covered parts and components are therefore considered to always be guaranteed to be either actually in, or to be qualified for restoration to, a "zero" or "low" time service life condition. They each retain a high dollar value, regardless of their actual service life status, by virtue of remaining in "like new" condition as a result of the paid-up PBH program. Because PBH includes scheduled maintenance, it is far more than an insurance contract, and carries far more weight when valuing the helicopter.

Configuration and installed equipment

Installed equipment and avionics values are unique to each helicopter. Those items that translate well across multiple usages like air ambulance, offshore oil support, and personal use, or those that improve the performance of the helicopter, are those that supplement the helicopter's value the most. Three examples: 1) the Carson Helicopters composite main rotor blades for the Sikorsky S-61 can increase the value of the helicopter by more than the cost of the blades. 2) The Garmin 430 GPS is the most popular navigation aid in a helicopter's cockpit across all models and all usages, and correspondingly adds more value than smaller or less popular models, and an equal amount to larger, more expensive units. 3) A Restricted Category certificate of registration will reduce the value of the helicopter except in very specialized models and usages.

Country of registry

A financier will want to know the country in which the operator will be operating. Some countries carry inherently higher risk, such as those which have been known to exercise eminent domain under questionable circumstances on assets with liens perfected by someone else. Higher risk causes the financier to charge accordingly higher rates. Countries which are signatories to the Cape Town Convention (properly known as The Convention on International Interests in Mobile Equipment and Aircraft Protocol) offer the lender better remedies for default conditions, among other improvements in perfecting their interests.

Quality of previous operator

Buyers and financiers alike want to know the quality of the previous operator before investing in a helicopter. Their predominant interest obviously lies in the maintenance of the helicopter, since that directly impacts the helicopter's value in terms of the status of the components' TSOs and TSNs. Because of the chain of liability, buyers and sellers will also want to know whether there are any pending or contingent charges, liens, or litigation against the previous owner and/or operator.

End of Part 1

2014, Q2 Blue Book Pricing Update

Quarterly Pricing Update

For over 35 years, The Official Helicopter Blue Book® has provided the most accurate and up to date resale information in the helicopter industry. HeliValue$ is consistently working to improve The Official Helicopter Blue Book®, and this year has seen some big improvements with the launch of our new website. As part of the improvements being made, we will be publishing a quarterly pricing update that will notify our customers to changes made to each model as a result of our quarterly pricing meetings. Our quarterly pricing updates are one of the many ways we ensure that we are providing the most up to date resale information available. HeliValue$ is constantly gathering information from brokers, owners, operators, lenders, leasing companies and equipment manufacturers worldwide. The HeliValue$ team then reviews every model covered in The Official Helicopter Blue Book®, discusses and analyzes the transaction information received from our sources in the helicopter industry, and makes adjustments to each model as needed.

As always we look forward to our subscriber's feedback on any changes as well as any suggestion for future improvements. If you have any comments or suggestions, please contact us at [email protected].

Results of our July 15, 2014 Pricing Review

The following models each had a resale pricing change. If you would like to view the changes for these models log into your HeliValue$ account and click on the resale trends page for each model.

AgustaWestland

Airbus

Bell

Sikorsky

A109C

AW109E Power

AW109S Grand

AW119 Koala

AS-350B Astar

AS-350B1 Astar

AS-350B2 Astar

AS-350B3 Astar

AS-350BA Astar

AS-350D Astar

AS-355F / F1 TwinStar

AS-355F2 TwinStar

AS-355N / NP TwinStar

AS-365N1 Dauphin 2

AS-365N2 Dauphin

AS-365N3 Dauphin

EC135P1

EC135P2

EC135T1

EC135T2

EC155B1

206L-1 LongRanger II

206L-3 LongRanger III

206L-4 LongRanger IV

412

412EP

430

430 with Skids

S-76A

S-76B

S-76C+

Subscribe To The Official Helicopter Blue Book® Now!

“Don’t Look Back; the future may be gaining on you”

Everyone with any experience in the helicopter industry knows how and why helicopters are different from fixed-wing airplanes. Helicopter people also know that these differences are a “good thing”. The helicopters’ uniqueness is an irreplaceable asset - until the times comes to explain it to important people.

Some of the “important people” in the life of helicopter people are:

Financiers: Most directly the lenders and lessors;

Insurers: Primarily the agent/brokers, and the companies they sell for and represent, and, probably most important, the insurance underwriters who really determine coverage and rates;

National regulators: Who can either encourage the development of local helicopter operations, or, they can make sure that local helicopters (word play intended) “never get off the ground”.

Non-helicopter people frequently try to say what helicopters ARE. Helicopter people are most

often telling the world what helicopters are NOT. Helicopter people know that the helicopter is

not a car or a bus, they are not trucks nor are they trains, and finally: (this is where we really lose them) helicopters are not airplanes. In fact, most of the economic and mechanical facts that the important (fixed-wing) people know about airplanes is directly opposite with helicopters!

As the misconceptions about helicopters continue, so do the myths, misinformation, wrong impressions, and (most annoying), the chorus of useless chatter from incorrect “experts” that prevents the important people from seeing what’s truly going on in the world of helicopters. What’s going on in the world of helicopters is simply this: Helicopters are getting more and more like fixed wing.

One way helicopters ARE like fixed-wing airplanes is how both groups of aircraft actually do fly

in/through the air. This is true, despite the popular conception that helicopters have to spend

most of their flight-time simply beating the air into submission! But the real way helicopters

ARE like their fixed-wing relatives, is how much some new helicopters are becoming more and more like airplanes.

Helicopters are getting bigger, faster, and, more economical on a cost-per-hour operating expense viewpoint. Cases in point: The Bell-Boeing V-22 “Osprey” tilt-rotor transport currently on active duty with the U.S. Marine Corps is paving the way for fast, safe and dependable “Vertical Replenishment” of troops and materiel under some of the most complex and inhospitable conditions. The “Son of Osprey”, the Agusta Westland AW609, (also a tilt-rotor) scheduled to finally enter commercial service reasonably soon, will look like and act like a modern “light-twin” business-class turboprop. Except that it can carry an oilfield drilling crew to the rig 100+ miles out at sea in airliner comfort and speed, yet descend vertically onto the rig’s small space of the existing helideck with no “runway” or flight deck needed.

Just to add to the equation, Eurocopter is currently giving demonstration tours of its X3 compound helicopter. The X-3 is unique in that it has a standard main-rotor assembly, but no tail-rotor/fenestron. Instead, the X-3 has a “wing” on either side of the fuselage which holds the forward-facing (only) engines and propellers, so “voila”: instant turbo-prop speeds and economy of operation once it’s away from the take-off or landing area.

With the hugely increased capabilities, flexibility, reliability, and maintainability of these newest helicopters, fixed-wing manufactures may not want to look over their shoulder: They’ll probably see what’s rapidly about to overtake them.

“What do we learn from trade shows?”

Trade shows are more than a place to “meet and greet” old friends and business associates. Trade shows tell us the health of an industry, and, more important, they help to tell us who, and what, will be important in the near future. The Helicopter Association International’s (“HAI”) “Heli-Expo” held in Dallas, Texas earlier this year gave the helicopter industry more than it needed to know about how we are doing. Taking up the most convention center floor space than ever before (more than one million square feet), with more exhibitors (close to 700), and with what seemed like more attendees coming through the doors to attend the numerous seminars, complete the courses of instruction, and see the endless rows of exhibits, we know this was truly “the big show”!

But the heart of the matter is that we have all come to realize that helicopters, and helicopter operations, have finally moved into position where they are recognized to be a large, expensive and consistently profitable portions of the aerospace business. In fact, we predict that in 2012, the helicopter industry may well prove to be the one of the most important “engines” which powers many countries economic recovery.

Can you believe it? It’s almost a real-life Cinderella story! Here’s the helicopter industry in the real world: and it is actually discarding the impression which has held that it’s the “step-child” of aviation, and therefore not to be taken seriously as investment-quality assets. Yes, and not only that, but helicopters, their builders, their owners and operators, their vendors and suppliers, their maintenance and logistics infrastructure corporations, have all suddenly blossomed into the open to take center stage before an impressed audience.

And the audience is filled with the “heavy hitters” of aerospace: Finance and leasing wizards, operations and contracting moguls, and even fixed-wing airline promoters. Many of them may not have cared much about helicopters. Now, it’s as if Prince Charming has kissed them and awakened them to a whole new world! What’s really happening is that big banks around the world have to shift assets and make major changes to their own balance sheets. Assets that they once may have been heavily invested in may have to been removed from their portfolios. In some cases, their “home office” governments made these decisions, not giving the banks any opportunity to show how well the helicopter loan portfolio had performed. So, that could help to explain why many of the “too big to fail” mega-banks around the world who used to deal

with helicopter have been replaced on the scene. Now the new players have come to the table: not to gamble, but to put their money into what they know to be a durable, solid, predictable and responsible profit-oriented industry.

Guess what? It’s only taken about ten to 15 years, but the financial world has finally realized an embarrassing (for them) fact: After each financial meltdown, or, after each grave political or military crisis, there was NEVER a commercial helicopter parked next to the hundreds of commercial airliners sitting in the dirt of the “bone yards” in the state of Arizona in the southwest part of the U.S. Every crisis of this type put the world’s commercial airlines further and further into the financial emergency room, with many of them becoming permanently addicted to monetary life-support.

In HeliValue$’s experiences at this recent Heli-Expo, we can attest to the fact that this new breed of funding seems to be many things - they are:

Highly educated about aviation in general, and very understanding of how and why helicopters are such a different investment vehicle than commercial and private (fixed wing) airplanes;
Realizing that no “national” helicopter-operating company has been “bailed out”, and then kept running, by its government;
Genuinely interested in providing the large amounts of money needed to assist the fleet owners acquire their “latest and greatest” new helicopters;
Not afraid of older-technology machines, nor are they automatically afraid to consider older (calendar-) age units;
Not adverse to allow some of their collateral go on contracts where there may be unstable military and/or political situations;
Sometimes willing to take parts, components, accessory kits, and tools as valid collateral;
Able to make decisions quickly.

It’s not that the “old school” banks and leasing companies could not do any of these things during the time when they held (and dealt) most of the cards at the helicopter-funding buffet table. It’s just that most of them simply would not do all of these details all of the time. So, now that there seems to be some bright prospective paths for the helicopter industry to explore. Will the “new kids on the block” eventually place us on a strict diet, again leaving the industry to become lax and listless while waiting for the next transfusion? Or, will these new funders keep their positive attitudes and be able to sustain the helicopter industry’s constant appetite for dependable capital sources? Of course, only time will tell if and how the industry’s money supply will keep up with demand. But, judging from the substantially-positive numbers from this most recent Heli-Expo, the helicopter industry is showing it’s “out-performing” virtually every other segment of the aerospace industry, so how well can the “money-dealers” keep up with the players?