HI Uplift: Start early with end-of-lease management

Written by: Mike Stones Retrieved from Heli Investor

Managing end-of-lease helicopter assets should start with effective planning at the beginning of the leasing process, without undue speed to agree a deal, according to speakers at Helicopter Investor’s London 2025 conference.

There’s lots to consider when planning the end of a helicopter lease agreement. The long check list includes: assessing the aircraft’s condition, ensuring all required maintenance is current – including scheduled inspections, airworthiness directives, and any outstanding service bulletins – and records management. There are also lease return negotiations, transition logistics and the final financial settlement to consider.

The importance of effective planning was highlighted by Padraig Conneely, chief technical officer, LCI. “In terms of planning, you have to look not just at the first lease, but at the follow-on lease. And then in terms of redelivery, you have complicating factors in there.” End-of-lease helicopters could be transitioning between jurisdictions, which increases the complexity in terms of perhaps additional modifications that a follow-on lessee might require. It might, for example, involve moving between FAA and European Union Aviation Safety Agency (EASA), the status of aircraft supplemental type certificate (STC) and getting that import inspections done.

‘All about risk mitigation’

“It can be a complex and a difficult process,” said Conneely. “There are a lot of factors you have to try to plan for. It’s all about risk mitigation and how you manage those risks.” He reports helicopter transitions have been reducing for LCI. “I think that's a reflection on where the market is at now and as operators and end users are trying to secure those assets for longer lease terms,” he said. “But it's been busy from a technical point of view, in terms of the deliveries.”

Marc Schechter, MD, Thora Capital dismissed suggestions lessors would fudge return conditions in a lease to secure a lease. “I can't imagine any responsible lessor would do that,” he said. “Have you ever seen it elsewhere? That a return condition was eased? For a commercial purpose? Frankly, no.”

Thora Capital has financed more than 50 aircraft over the past five years or so, according to Schechter. “Our Fund One, which had about 35 aircraft, has been in the mature phase for the past couple of years,” he said. “And we've been selling or releasing those assets and have now sold about 20 aircraft from that Fund One – releasing or redeploying 15 of those aircraft. So, we've had a busy couple of years moving 35 aircraft from their initial homes at Thora to new homes.”

Failing to plan end-of-lease management efficiently could prove extremely costly to both the operator and the lessor, said Brad Shaen, director and founder, International Aviation Marketing. He believes end of lease management does not always draw the full consideration that is due. To make his point he uses an automotive example: If you lease a car, you treat a car in one way and if you own the vehicle you may treat it in another way.

“You could have operators who may not view a long-term asset as theirs, and therefore, they may treat it a little differently,” he said. “So, I think it gets to a point where, yeah you need to be concerned, because the financial impact to your business could be significant, especially when you're talking 50 to 60 assets returned. You could have a million-dollar problem, 60 times over – that's quite a big problem.”

Avoiding such expensive problems depends on strong communication and partnerships between lessors and clients to ensure a smooth transition. “Managing leases by lessors with customer is imperative. You’ve got to be planning your lease return at least a year out, if not more, just to make sure that all the variables – such as power by the hour transfers and other factors – are taken care of properly.”

‘Keeping assets longer’

But, with some ageing helicopters in pressing need of replacement and demand for lift rising, against a background of bigger manufacturers’ backlogs, operators are looking to hold on to their assets for longer. “The market is much more stable today than it was in the tough times of 2015, 2016 and 2017,” said Shaen. “Leases are being extended as people are keeping their assets for longer.”

Earlier this year, Shaen launched Shakespeare Heli Finance, focusing on acquiring end-of-lease assets that are non-core to a lessor's future requirements. Its model is to initiate discussions about the acquisition of non-core helicopters approximately 12 to 18 months before the asset's return.

Meanwhile, strong communication is the key to avoid unwelcome (and potentially costly) surprises when a helicopter lease approaches its close. Starting end-of-lease conversations with clients about the assets in their control at least a year out from the re-delivery date was the panellists’ recommendation.

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