Sunday, August 1, 2004
Show Me The Money
How to understand what your Banker will want to know before you borrow money to buy or lease a helicopter.
Almost anyone in the world who has tried to borrow a large sum of money quickly learns the modern proverb: "A bank wants to lend you money only when you can prove you do not need it!" So, how do average helicopter owner/operators prepare for the task of showing the bank or leasing company the now and the future value(s) of the object of their affection?
Preparation, information and organization are the key elements in any "deal" to be made. You may know everything there is to know about helicopters and their operations, but when it comes to borrowing, the bank or leasing company you are dealing with is operating completely in their area of expertise. You may assume your potential lender is "completely in the dark" about helicopters and their operations and that is their problem. First bit of advice: Their ignorance is YOUR problem, not theirs! Don't take it personally. Remember that both a bank and a leasing company will approach their decision-making process about you in the same way--all they really want to know is: "Will we get our money back on time and with a profit?"
Leasing expensive equipment such as helicopters has several advantages, most of which have to do with accounting practices. However, leasing has one feature that can be especially attractive to helicopter operators--lower monthly payments when compared to an outright purchase. But lower payments sometimes can lull cash-starved helicopter operators into thinking a lease may be the "cheapest way" into their next helicopter acquisition. Like so many complex scenarios which raise questions we would not normally think of ourselves, it is often worth the time and expense to bring in expert third party advice from experienced professionals. The firm of Conklin and de Decker, widely known for giving the "Helicopter Management" courses at HAI's annual Heli Expo exposition/ convention, offers the most detailed guidance from their expert staff for those who need to "crunch the numbers" of aviation financial planning. One of the best preparations any helicopter operator can make is having the benefit of a completely thought-through financial road map that takes into account the business model, the equipment and the finances (to include the buy-versus-lease considerations). If the operation is going to involve air-ambulance work, then Fitch and Associates is the necessary first stop for this planning.
But what do ordinary small operators do when they find their "dream machine" which will make them super stars in the helicopter operating business? First of all--be honest and try to understand just what the helicopter will really cost in the long term, to include marketing its services and supporting it while it's on the job site(s). Also remember that the machine must still be available for the bank or leasing company to inspect at any time or place they choose while you make payments to them.
The preparation phase begins with playing a short game. Imagine you are the bank or leasing company. Take a close look at yourself, your business and the helicopter you want to acquire. Be honest: Can I prove the helicopter is worth what I'll pay for it? How will I make a presentation to them that will positively prove the helicopter's value? Will it be put to work commercially? If "yes" is the "going to work for a living" answer, what can I show them to prove that the unit will be gainfully employed? If the answer is "no" to the gainfully-employed question, am I ready to show what my personal financial status is now? Also, how do I prove I will be financially strong into the future so as to be able to carry the lease or payment schedule out of my own resources without difficulty?
Never forget: You may have the "...fire in the belly..." about how wonderful the helicopter is, how you'll make every payment in full and on time because of how well you'll do if only you had the helicopter.
But while you are singing the praises of everything about helicopters, the lender's glazed-over eyes may be hiding his true thoughts, which are: "If this hand-grenade comes back into my lap, what do I do with it? Where can I sell it...immediately, with no sales costs and no time in idle inventory?"
If our dreamy lender knew all the answers to those questions, there would be little need for helicopter operators, brokers, expert advisors, appraisers, web-sites and publications advertising resale offerings,or that reference called "The Official Helicopter Blue Book", which purports to show what is reselling in what price ranges around the world.
Borrowers should remember that banks and leasing companies are creatures of habit. They only want to do business with the best customers. These customers should be in easy-to-understand businesses using common equipment. Why would a bank or leasing company get involved with helicopters when they could do deals involving familiar things like trucks, cars, telephone and medical equipment systems, or even corporate fixed-wing airplanes and commercial airliners? Most banks and leasing companies do not have the desire, nor the corporate policy, to lend money towards assets they do not understand orhave no track record with. The happy exception to this problem lies in some resources which are obvious, and within other resources which are not so obvious
Who are the likeliest sources for loans and lease contracts for helicopter acquisitions? The "900-pound gorilla" of helicopter lending is GE Capital, which made the deliberate move some 15 years ago to concentrate on the helicopter industry. In the process of developing a portfolio of helicopter business, GE Capital slowly but surely set up the personnel, the processing methods and the corporate structure to "corner the market" of helicopter lending.
What GE Capital did not have or developed internally, it acquired from the industry or brought into the corporate fold via acquisitions. Over the years, GE has absorbed about six formerly independent lending/leasing companies from around the world, so now it can be contacted directly from Saskatchewan to Sweden.
Speaking of Sweden, SE Partners is a relatively new venture formed by highly experienced helicopter lenders having direct knowledge of the market, the helicopters needed and the money sources.
From Shinjuku to Shanghai the leading helicopter-experienced financial partner in Asia is ITC Aerospace. ITC's experience not only deals with Corporate and Government-agency loans and leases, but their extensive expertise covers the complex world of "cross-border" financial dealings, which can be a very sensitive matter.
In terms of "global reach", few companies can claim to be as well-entrenched as the giant automaker, General Motors. In many places where GM has a presence, they have their commercial finance division represented. General Motors Acceptance Corporation ("GMAC") not only has one of the widest geographic positions, but they also have some of most experienced aviation lending personnel staffing that part of the business.
Borrowers often think lenders have the money sitting around just waiting to be picked up; but in truth, there is often a process by which your banker or leasing company has to "reserve" your money from the company's general funds. More of a surprise is the fact that many banks and most leasing companies have to go out and borrow the money they need for your transaction! That's right--your application may come at a time when your bank is "tapped out" of available funds marked specially for helicopter transactions. If the well has run dry, you could face time delays and added costs in your transaction.
So, going to the local bank where your home mortgage and/or your business loans come from can be a double-edge sword: your local banker may know you and your business and like both of you, but he may suddenly find himself in way over his head while trying to learn the truth about why the rotors turn. On the other hand, the local banker may be willing to listen to you and venture into "the wild blue yonder" with you and your helicopter. If this is the case, he or she will definitely want professional assistance in the areas of historical proof of long-term helicopter values, of your unit's current value, and projections into the future ("residual") values for the unit.
Our organization, HeliValue$, Inc. and its publication, "The Official Helicopter Blue Book," have been relied upon for 25 years for just such purposes. With a quarter of a century experience in dealing with proving the helicopters' long-term value, "The Helicopter Blue Book" has finally been able to get banks and leasing companies to listen to the truth about the quality of helicopters and their values. The bad news is that the banks and leasing companies are beginning to understand our message, and we may no longer have ways to keep the industry's best virtues a mystery! Maybe that's what happens when proper education helps to eliminate job security.
Barry D. Desfor is President of HeliValue$, Inc./ The Official Helicopter Blue Book (tm) Contact: P.O. Box 575, Wauconda, Illinois 60084-0575, U.S.A. 847-487-8258 Fax: 847-487-0206 email:email@example.com