Helicopter Leasing – Complete Guide + Financing from $10 MillionSeptember 25, 2019
Assets America® continues its series of articles about helicopters with this one focusing on helicopter leasing. First, we’ll describe how it works, and the differences between a straight lease and a sale leaseback structure. Next we’ll review several popular helicopters and answer some frequently asked questions. Finally, we’ll discuss helicopter leasing companies and how Assets America® can help you lease helicopters costing $10+ million.
How Helicopter Leasing Works
At the outset, let’s clearly define the difference between a straight helicopter lease and a helicopter sale and lease transaction. In a straight lease, a lessee enters into a helicopter lease with a lessor. The helicopter may be new or used, and the lease may dry or wet. A dry lease means that the lessor provides only the aircraft, but no crew. In a dry lease, the lessee gains operational control of the helicopter. Conversely, in a wet lease, the lessor supplies at least one crew member and maintains operational control. Unless exempted, a wet lease requires an FAA commercial operating certificate.
A sale leaseback involves a buyer/lessor and a seller/lessee. The buyer/lessor buys the helicopter from the seller/lessee, and then leases the helicopter back to the seller/lessee. We discuss sale leaseback structures below.
Guidelines for Dry Lease Agreements Part 1
As noted earlier, a dry lease involves no crew members and the lessee maintains operational control of the helicopter. Typically, a dry lease agreement has the following terms and conditions:
- Identification: The lease specifies the identities of the lessor and lessee. It also identifies the year, make, model, FAA registration number and serial number of the helicopter and its engines.
- Terms: The lease terms include a description of who provides what. Also, the lease identifies the lease cost and term. Furthermore, it may include language describing the disposition of the helicopter when the lease expires.
- Consideration: This is a complete description of the lease payments, whether fixed or variable, periodic, or hourly. Also, it includes other payments and reimbursements that are not rent, although the state may disagree with the distinction.
- Expenses: The lease will specify that the lessee must directly pay for its own crew members. Also, it can specify which party pays for other helicopter expenses.
Guidelines for Dry Lease Agreements Part 2
- Taxes: Typically, dry lease lessees must pay fuel taxes rather than federal excise taxes (FET) of 7.5% plus segment fees. However, if control remains with the lessor, then the lessee must pay FET. Additionally, the lease will specify relevant state and local use/sale/excise taxes and whether they apply — normally, they do. Accordingly, the lessor must collect the taxes from the lessee and remit the taxes to the taxing authority. Naturally, the lessor pays any personal property/ad valorem/state aircraft registration taxes and fees on the helicopter.
- Delivery and Return: The lease specifies when and where the lessor will deliver the helicopter and recover it at lease end. Sometimes, return conditions, such as the ending condition of the helicopter, may apply. If a dry lease is non-exclusive, then the lessee returns the helicopter after each flight or flight series. Then the lessor re-delivers the helicopter before the next flight.
- Operational Control: The lessee explicitly acknowledges its responsibility for operating the helicopter. Also, the lessee is liable for costs arising from operational control. In cases where the lease is not exclusive, the parties tell the flight crew who is in operational control.
Guidelines for Dry Lease Agreements Part 3
- Representations and Warranties: Describes the helicopter’s condition at the start of the lease and what warranties the lessor is giving the lessee.
- Title: Title remains with the registered owner (which may be the lessor or a third party). If this is a sublease, the lessor acknowledges the dry lease already in place. Furthermore, the lessee warrants that it won’t do anything to interfere with the owner’s rights. The owner, lessor, and/or lien-holder has the right to inspect the helicopter on suitable notice. Also, the lessor has the right to review the helicopter’s records.
- Lawful Use: The lessee represents that it will not violate the law when flying, maintaining, or storing the helicopter. Naturally, if the lessor will be maintaining the helicopter, it will make the same representation.
- Location: The lease may restrict operation from locations that are hostile, not covered by insurance, or risk the helicopter’s seizure. Normally, the lease identifies the helicopter’s home base, important for determining state and local taxes.
- Maintenance: The lease clearly identifies which party is responsible for inspecting and maintaining the helicopter. That party must warrant that it will observe all FAA regulations to keep the helicopter airworthy.
Guidelines for Dry Lease Agreements Part 4
- Equipment: The lease specifies restrictions on modifying the helicopter or any of its components. This includes additions, removals, and substitutions. The lessee must receive written authorization from the lessor before modifying the helicopter. The lease will also identify the owner of the modifications.
- Pilot: The lessee is responsible for providing the pilot and crew. However, the lessor may put conditions on the pilot’s qualifications. These include minimum certification, training, and experience standards required by the insurance policy and the FAA.
- Recordkeeping: The party responsible for the helicopter’s maintenance is also responsible for keeping logbooks and records per Federal Aviation Regulations. The lease should specify where to store the records and logbooks and each party’s inspection rights.
- Allocating Risks: The lease specifies the insurance requirements for each party. This includes insurance types, amounts, deductibles, and premiums. Also, the lease addresses mutual liability limitations and indemnifications regarding certain damages.
- Termination: Includes the date of lease expiration. Also, the lease specifies early termination rights and penalties, with or without cause. Of course, termination rights may affect the lease’s tax treatment.
Guidelines for Dry Lease Agreements Part 5
- Assignments, Subleases and Encumbrances: The lease should address any rights of assignment upon which the parties agree. Other assignments must receive written consent or face prohibition. Typically, leases prohibit the lessee from subleasing, pledging, or mortgaging the helicopter without prior written consent. A copy of the lease may reside in the FAA Aircraft Registry.
- Defaults: The parties should provide for lease defaults and breaches, including bankruptcy, insolvency, involuntary proceedings, delinquencies, assignments, and deficiencies. The lease should also discuss the consequences of an insurance lapse. Furthermore, the lease should specify default remedies, such as lease termination and helicopter repossession.
- Waivers: Normally, waivers for any requirements by either party are temporary and don’t affect any other parts of the lease.
- Truth in Leasing (TIL): If FAR §91.23 is applicable, include required TIL certifications and statements in the lease. If not applicable, clearly state that the lessee will maintain operational control and that it understands its responsibilities.
- Miscellaneous Provisions: These include language regarding notices, cooperation agreements, severability, force majeure, compliance, confidentiality, and delivery/redelivery certificates.
Wet Lease Provisions
Most wet lease provisions are similar to dry lease ones. However, the parties must take notice of certain differences under a wet lease for a helicopter:
- The lessor provides the helicopter and the crew.
- The lessor maintains operational control of the helicopter if it operates under Part 135. However, if helicopter usage is non-Part 135, then the parties rotate operational control based on usage.
- The lessor must have an air carrier certificate and must comply with air carrier regulations (Part 121 or Part 135). These apply to maintenance requirements, crew qualifications, rest and duty times, and more.
- If the lessee operates the helicopter under Part 91, it cannot carry passengers or cargo for hire or compensation.
- The lessee must pay a federal excise tax on its lease payments.
- Accounting and tax treatments may be different from those for dry leases.
- Ultimately, the FAA determines whether a leasing arrangement is wet or dry, based on facts rather than lease language.
Benefits of Helicopter Leasing
The benefits of helicopter leasing include:
- Avoiding Capital Costs: You don’t need to make a down payment or supply equity when you lease a helicopter. This frees up your capital for other uses.
- Avoiding Closing Costs: You don’t need to pay the closing costs associated with a purchase.
- Retaining Available Credit: By leasing a helicopter rather than financing a purchase, you don’t use up your available credit at a bank.
- Risk Reduction: Leasing a helicopter puts the financial risk of owning a helicopter with the lessor.
- Tax Advantage: The lessee can immediately deduct lease payments rather than depreciating a purchase over multiple years.
Challenges of Helicopter Leasing
Leasing creates certain challenges for lessors, lessees, and manufacturers, including:
- Picking the Right Helicopters: Lessors that buy the helicopters they lease must tie up huge amounts of capital. In addition, they must choose their models carefully, or else they’ll be stuck with helicopters that nobody will lease.
- Erratic Growth Cycles: Compared to fixed-wing aircraft, helicopters face unpredictable and unreliable growth patterns. This complicates the lessor’s task to plan acquisitions and long-term revenues.
- Identifying Good Lease Candidates: Lessors must choose to whom they will lease their inventory. Therefore, it’s important to pick lessees who run solid businesses and will likely make timely lease payments.
- Lessees Cannot Use a Leased Helicopter as Collateral: Leases prohibit the lessee from assigning, pledging, or using the helicopter as collateral.
- Choice Limitations: A lessee might want to operate a particular helicopter that isn’t readily available for lease. Therefore, lessors’ offerings circumscribe a lessee’s choices.
- Uncertain Missions: Manufactures who sell directly to helicopter end-users know how the buyer will be using the craft. Thus, they can tailor the helicopter’s capabilities to match the buyer’s usage profile. However, when manufacturers sell to leasing companies, they have no idea how lessees will use the helicopters. Therefore, they must build more generalized and costly capabilities into copters, capabilities that lessees may not need or want.
- Over-Purchasing: Leasing companies may over-order helicopters on speculation, only to drastically cut future orders. One reason for this is the long lead times associated with helicopter orders. Naturally, boom-and-bust ordering makes it harder for manufacturers to rationalize purchasing and construction planning. Also, this can hurt lessors, who may receive a big shipment of helicopters they can’t lease immediately upon delivery.
Sale and Leaseback Structures
Approximately 90% of helicopter leases are sale leaseback arrangements. For an extensive discussion, see our article: Sale Leaseback – Everything You Need to Know.
Luxury and Corporate Helicopters
These are four makers of luxury and corporate helicopters that are popular among lessees.
Airbus Helicopter Lease
Airbus has a manufacturing division dedicated solely to helicopters. It is the industry’s largest producer of helicopters, delivering 356 craft in 2018. Some models date back decades, such as the AS365 Dauphin, first delivered in 1978. However, others are recently designed models. In 2018, Airbus Helicopter received 413 new orders with 158 customers and delivered 356 units. It earned almost €6 billion for the year, 56% from civilian models and the remainder from military ones. About 38% of revenues came from helicopter-related services. The most popular helicopters were (in descending order of orders per product family):
- H125 (162 orders)
- H145 (121)
- H130 (33)
- NH90 (29)
- H135 (27)
Of these, the H125 and H130 are civilian helicopters, making them the favorites for business helicopter and luxury helicopter leasing.
The H125 is a single-engine helicopter with top marks for versatility, performance, low maintenance costs, and low acquisition/leasing costs. The H125 can accommodate one or two pilots and up to six passengers. Its top speed is 140 knots, with a range of 340 nautical miles and a flying time of 4.5 hours. The current market price for a new H125 helicopter is $2.5 million but quickly doubles with additions and upgrades.
The Airbus H130 is also a single-engine helicopter widely used for sightseeing, charter, and emergency medical services. Other uses include VIP transport, law enforcement and surveillance. It holds one or two pilots and up to 7 passengers. Its cruising range is 333 nautical miles, and it can stay aloft for four hours reaching a top speed of 128 knots. Current prices start at $3.3 million but can reach $6 million or more.
The Airbus H155 has a starting price of $10 million. It is a luxury helicopter with room for up to 12 passengers and two pilots. Amenities include leather seats, in-flight entertainment, and air conditioning. If you need a giant helicopter, consider the Airbus H225 Super Puma listing for $27 million. This 11-ton behemoth can carry 20 wealthy businessmen in luxurious comfort. The H225 even has galleys and lounges, which appeals to businesses and millionaires alike.
Video: Airbus Helicopter H160 Review and Startup
AgustaWestland Helicopter Lease
Agusta Westland manufactures about two dozen high-quality helicopters for both military and civilian applications. The AW139 sells for $12 million and up. It holds up to 15 passengers in the largest cabin in its class (282 cubic feet). Of course, you can order it with a variety of seating configurations. This model has a range of 460 nautical miles. Also it has a maximum cruising speed of 165 knots and a top altitude of 20,000 feet.
A new double-engine AW609 costs $14 million. It is a vertical take-off and landing craft that can fly much faster than the typical helicopter. It features a pressurized cabin and low vibration levels that are perfect for VIP transport. The AW609 can fly at 25,000 feet night or day using a synthetic vision system. Its maximum cruise speed is 275 knots and it can accommodate 12 passengers and two crew member. Impressively, it can fly up to 1,000 nautical miles with auxiliary fuel.
For a starting price of $21 million, you could buy the AW101, but leasing costs much less. This is AgustaWestland’s top executive helicopter, with a huge 970-cubic-foot cabin that can hold 24 passengers. It sports three turbine engines for a 466 nautical mile range, 15,000-foot ceiling and 150-knot cruising speed.
Video: AgustaWestland AW109 GRAND NEW 4K
Bell Helicopter Lease
Bell manufactures about half a dozen civilian helicopters. The 525 Relentless is about to hit the market for $15 million. It is a palatial helicopter with room for 16 passengers, and sports fly-by-wire technology. Its top speed is 160 knots, can hover at 8,100 feet, and has a range of 580 nautical miles. Bell also offers several military helicopters topped by the $68 million V22 Osprey.
Video: Bell 407 GX Helicopter Review
Sikorsky Helicopter Lease
The Sikorsky S-76C has been flying since 1977. Today, you can buy a newly upgraded S-76C++ for just under $13 million. It is a stalwart performer for VIP and corporate transport, as well as air rescue and offshore drilling applications. The cabin volume in 205 cubic feet and has a range of 335 nautical miles.
For $27 million, you can buy a Sikorsky S-92, a favorite among heads of state. This model holds 10 passengers in ultra-luxury for a 439 nautical mile trip. The S-92 can reach an altitude of 15,000 feet and has a 155-knot maximum cruise speed.
Video: Sikorsky S-76-D Luxurious Helicopter for Business Travel
Frequently Asked Questions
How many years can you lease a helicopter?
Helicopter lease terms typically range from three to 10 years, although longer terms are possible. Most lease agreements contain language describing if and how the lessee can terminate the lease early.
Is a helicopter lease right for me or my company?
A straight lease or sale leaseback may be perfect for your business because it can let you operate a helicopter without tying up any capital. In addition, a lease can preserve your access to credit and provide you important tax benefits.
How common are helicopter sale leasebacks?
About 90% of helicopter leases are sale leasebacks. These are popular because they free up a company’s equity investment in a helicopter and provide immediate expensing of lease payments. Sale leasebacks are popular for all types of aircraft.
What are the standard requirements for a helicopter lease?
Helicopter leases require regular rental payments in return for use of the helicopter. In a dry lease, the lessee provides the crew and maintains operational control of the helicopter. Conversely, in a wet lease, the lessor provides at least one crew member and maintains operational control.
Helicopter Leasing Companies
Good helicopter leasing companies offer a wide range of models and flexible lease terms. They should make leasing a helicopter easy. If using a wet lease, good helicopter leasing companies supply high-quality crew and maintenance. The lease terms should feature a competitive built-in interest rate. Furthermore, the lessor should be able to accommodate both straight leases and sale leasebacks. Of course, when leasing a helicopter, always make sure you are dealing with a reputable firm.
How Assets America® Can Help
Assets America® can help lessors purchase helicopters by providing financing starting at $10 million. It can also help companies buy a helicopter and then arrange a sale leaseback transaction. Please contact us today for a free consultation at 206-622-3000.