HI Uplift: Reviving the old, the shock of the new (eventually)
The reviving fortunes of the commercial helicopter market, powered by renewed oil and gas demand, coupled with excitement about the deployment of drones and, eventually, eVTOLs dominated Helicopter Investor’s two-day conference in London earlier this month.
Optimism about rising demand for helicopters to serve the offshore oil and gas sector was underpinned by western governments’ re-appraisal of energy security, forced by Russia’s invasion of Ukraine. But Pat Sheedy, president and CEO of lessor Milestone Aviation Group, detected improvement even before the invasion with its devastating humanitarian consequences. “We saw signs of growth starting in the second half of last year and in the last two months of the year, it really took off,” he said in the opening panel dedicated to the lessors’ perspective of the market. “Overall, the way the market performed last year made it probably one of the best I’ve ever seen since joining the business.”
Fellow panellists joined Sheedy in praising the resilience of the helicopter market. Con Barber, chief investment officer, Macquarie Rotorcraft, said: “The offshore energy sector has rebounded really strongly and one of the lessons learnt is the resilience of the industry.” Barber highlighted the streamlining of businesses that has taken place across the whole value chain, which had contributed to the strong performance last year, notwithstanding the global pandemic. Last year Macquarie closed 50 lease transactions and sold some older Sikorsky S-92, Sikorsky S-76, Bell 212 and AS350 helicopters.
The theme of resilience – after bankruptcies among lessors and operators – was picked up by Crispin Maunder, executive chairman, LCI. “The industry has gone through tremendous strain,” he said. “As a small industry, we have gone through an immense amount. We have learned a lot of lessons and matured a lot. We could show the fixed-wing market the way forward in some respects.”
It’s also been a busy year for LCI, with the business now principally owned by Libra Group and the acquisition of Nova Capital Aviation (Ireland), as well as substantially expanding its portfolio. After the acquisition, 60% of the LCI’s portfolio rests in emergency medical service flights (typically attracting seven-to-10-year end-user contracts) and only 20% in offshore oil and gas (which generally have shorter end-user contracts). LCI agreed to acquire Nova Capital Aviation (Ireland), which mainly owns Nova Capital Group’s twin-engine helicopters business last December.
Both groups entered a strategic partnership whereby Nova Capital will now focus on the helicopter single-engine market as well as light utility aircraft, developing its existing portfolio of about 50 owned assets. Olivier Piot, CEO and founder Nova Capital Group, said: “We are more than delighted with our new strategic relationship with LCI. We are both focusing now on serving different segments of the market and bringing even more value to our customers. We are seeing a lot of synergies and exciting cooperation to come.”
Strain was still evident in the supply chain, according to Sheedy, at Milestone. “There’s real strain in the entire supply chain now – getting aircraft ready for operation. Finding basic parts from OEMs is becoming a real challenge,” he said. ”There’s going to be a significant call for lift [within the next 12 months] and that’s not been the case for a long time in this industry.” A particular problem was returning Sikorsky S-92s to service in the offshore oil and gas sector.
Long-term demand for helicopters to support the oil and gas sector was identified by Tony Cramp, vice president Aircraft, Shell. “There’s still a requirement for oil and gas for the next 15 to 20 years at least,” he said. “Oil is still expected to peak a lot earlier and gas is going to take longer.”
“Energy transition [from oil and gas to renewables] is probably going to be accelerated by the events of the past couple of months [in Ukraine],” he explained. Shell Aircraft has pledged to spend $2bn on producing SAF over the next couple of years. The company wants SAF to account for 10% of all aviation fuel production by 2030.
“But we are still going to require core oil and gas to provide the energy the other forms cannot provide and to fund that transition because it’s not going to happen for free,” said Cramp. “The massive investment in these alternative sources of energy has to funded.”
New oil and gas exploration is likely to continue for the next four or five years, he added. Promising exploration was taking place in West Africa and South America in addition to other places.
Helicopters could also be switched between servicing the oil and gas sector and wind generation in the North Sea. That is because constructing wind turbines required transporting large numbers of people.
Strengthening oil prices show that helicopters are very long-term assets, said Dan Roberts, CEO, Lobo Leasing. “There may be dips in values. But if you can hold onto those assets long term, they continue to operate and continue to deliver commercial revenue,” he told delegates. “That’s a great story to tell new investors in the industry.”
Nova Capital’s Piot added: “When it comes to lease rates calculation, it’s instrumental to consider what is the true residual value of the helicopter over its real lifetime.”
It wasn’t just helicopters that dominated the presentations and conversations at the conference. The potential of drones and eVTOLs excited delegates’ attention, with their promise of lower cost, quieter and more efficient transport, as part of urban air mobility (UAM) and advanced air mobility (AAM) solutions. For example, US medical delivery drone service Zipline claims 275,000 commercial deliveries over 20m miles of flights.
Alex Brown, director of Drone Services Skyports, explained how the company has already concluded successful tests of drone deliveries of urgent medical cargo, such as Covid-19 test kits and Personal Protective Equipment (PPE), between remote medical facilities. One delivery route in the Highlands of Scotland deployed a drone to cut end-to-end delivery times from an average of 20 hours to one hour, said Brown.
Stephen Lyons, CEO AYR Logistics explained how his company is focusing on developments in unmanned aerial vehicles (UAVs) and drone deliveries of organs, blood, medicines/vaccines and medical supplies, mainly in the humanitarian sector. The company is also planning the drone delivery of urgent medical supplies for humanitarian relief in Ukraine.
But the development of eVTOLs for cargo and passenger transport – whether piloted or autonomous – was acknowledged by many speakers to be 10 years or more away from commercial operation.
While millions of dollars of investment have been attracted to the sector via special purpose acquisition vehicles (SPACs), key challenges remain. They include gaining regulatory approvals for eVTOLs, integrating such aircraft into existing aerial ecosystems, the need to develop more efficient batteries, infrastructural support and charging points, detect-and-avoid technology for autonomous flights and winning public approval.
The scale of the challenges led Oliver Althoff, MD Capital Markets at Seabury Corporate Finance, to highlight the potential of hybrid electric aircraft to bridge the gap between now and the overcoming of barriers to the commercialisation of eVTOL flights. “The right market [for electric aviation] is a hybrid electric approach – and will be for quite some time,” he told delegates.
First to market was not a strategy favoured by Roberto Garavaglia, senior vice president Strategy & Innovation, Leonardo Helicopters. With so many competing eVTOL designs he believed a wait-and-see strategy was advisable for now. “You don’t need to be first [to develop eVTOLs]. If the market is huge, there will be room for everyone and we will size our opportunity.”
However, the lure of AAM casts a powerful spell in terms low lower cost travel, reduced or zero carbon emissions, improved safety and quieter transportation systems.
Steffen Bay, head of Market Development, Latin America, Vertical Aerospace, highlighted the potential to maintain top safety standards while slashing flight costs. Vertical Aerospace is aiming for low seat costs at a slight premium to a taxi, based on today’s assumptions. Overall aircraft design, battery cells and the rotor design are the aspects Vertical Aerospace decided to keep in-house, Bay told delegates. Outsourcing, with top-tier aerospace partners such as Honeywell, helps to mitigate the difficulties a developer faces to reach certification on a completely new aircraft, as well as avoiding delay issues by developing all the technology itself, he said.
Melissa Tomkiel, president and general counsel Blade Urban Air Mobility, said the business had selected New York City as a key development area because of the friction frustrating ground transportation. “We can transform three-hour car journeys into five-minute flights,” said Tomkiel.
Adam Twidell, head of Future Flight, OneSky Flight, looked forward to a time when final mile passenger transfers would be completed by eVTOL, OneSky is already offering services from business jets to city-based heliports after acquiring two helicopter firms including the London-based Halo. “So, day one operations will really be a continuation of what we are doing now, except we will be using an eVTOL instead of a helicopter,” said Twidell.
Helicopter Investor London took place at the Landmark, London on April 6th and 7th, 2022.