HI Uplift: Helicopter market prepares for Year of the Tiger
Out with the ox, in with the tiger. As the global helicopter market prepares to welcome the Chinese New Year of the Tiger (which begins on February 1st, 2022), we begin a two-part focus probing how far the trends of its predecessor – the Year of the Ox – will continue into the next 12 months.
A good guide to the New Year could be found in last month’s Helicopter Investor Virtual Summit, with its key themes of consolidation, the impact of oversupply in helicopters serving the oil and gas sector and environmental concerns. Steve Robertson, Air & Sea Analytics director, highlights consolidation. “Last year will be remembered, as a year of consolidation and M&A, with the CHC and Babcock offshore MCS deal being a notable one amongst operators,” he tells Helicopter Investor. “Amongst the lessors, the Aercap-GECAS deal and LCI-Nova Capital Aviation Ireland ones stand out.”
But, for many, 2021 may not be considered vintage. “We have had a few ‘memorable years’ in recent times and usually for bad reasons – I think 2021 will be quickly forgotten compared with many of those years,” says Robertson.
Sara Dhariwal, Ascend by Cirium, valuations manager thinks 2021 was a year in which the helicopter market proved its resilience in facing global market challenges. “Once again, the helicopter market proved it is an industry worth investing in,” Dhariwal tells us.
Alastair Fallon, IBA, Helicopter Aviation analyst also highlights the market’s resilience. “The helicopter market did not see a major impact from the global pandemic, as did fixed wing commercial transport,” Fallon told Helicopter Investor. “Helicopters mostly fly mission-critical operations – they are not elective in the way that many fixed wing flights are.” But he did note some improvement in helicopter operations last year, which will strengthen into 2022, as the vaccination programme rolls out worldwide. One indicator of this was the rise in heli-tourism flights.
Also, demand for VIP helicopter services rose during the pandemic, as high-network individuals sought the sanctuary (and Covid security) of exclusive helicopter cabins.
Dhariwal, at Ascend by Cirium, reports the corporate market appears to be continuing strongly, with types such as Airbus Helicopter’s H125/AS350 and the Leonardo AW109 leading the way. Plus, the parapublic sector is likely to continue its steady growth and new deliveries driven by Airbus Helicopter’s five-blade H145 in the EMS sector.
This year will also see the return to service of more stored aircraft, hopes Dhariwal. “We are hopeful for a recovery scenario where more of stored fleet returns to service, particularly in the offshore market, as the global market increases in confidence post-pandemic, which would take some pressure off values.”
Robertson, at Air & Sea Analytics, also highlights the potential for growth, as Covid becomes endemic and the demand for offshore operations strengthens. “Strong recovery in many oil and gas markets with new greenfield project sanctioning and mobile rig reactivations are the key leading indicators to watch,” he says. Robertson also predicted continued strong investment in offshore renewables, such as commercial seabed-supported offshore wind generation and the widespread social and political push for energy transition. We should also watch out for the award of some major public tenders for SAR contracts. Both the UK Maritime and Coastguard Agency and the Irish Coast Guard are expected to announce contract awards in the fourth quarter of this year.
Dhariwal says it will be interesting to see how the challenged offshore market will behave in 2022 as storage volumes remain at 20% across the offshore configured helicopter fleet, compared with 5% at the same time in 2014. “Such ratios highlight the supply/demand imbalance, which subsequently puts pressure on values.” Ascend by Cirium did detect some optimism at the start of 2020 but that faded as the pandemic took hold. “Two years on, it seems time to make some decisions with regards to the excess. Best case would be that demand to allows the fleet returning to service, versus reducing excess supply through retirements,” she says.
Robertson recommends watching out for tightness in supply in mission-critical markets including offshore, SAR and HEMS. Towards the end of 2021, the 7,000kg MTOW AW139s were clearly in strong demand and at the start of this year the same can be said for AW169, he says. “In oil and gas markets, OEMs and owners will continue to argue the case for heavy versus super-medium helicopters – the data clearly show the super-mediums have displaced S-92s in the past two years. But from this point forward we are looking at a very thin pipeline of new deliveries and incremental supply is more likely to be met by idle S-92s,” he says.
Fallon, at IBA, agrees, noting the offshore market is gaining a little more confidence after recent dips. While the heavy helicopter market will probably never recover to the level of five years ago, these models will be required to deliver the range, capacity and safety for long distance offshore missions. He sees more attention focusing on the super-medium and lighter helicopter categories.
Although demand for helicopters to service wind turbines will grow this year, it cannot make up for the decline in oil and gas, says Fallon. Two other sectors set for significant growth in 2022 are SARS and EMS.
Consolidation is likely to continue to be a theme this year, with Dhariwal anticipating some “interesting partnerships”. But Fallon notes consolidation can only go so far without blunting free competition.
Robertson worries about supply problems. “Whilst we are bullish on the demand side, supply chain constraints could become a serious issue for certain parts of the industry and drive delays and cost inflation. We are already seeing that in the labour markets.”
Meanwhile, 2022 is likely to continue and possibly accelerate progress towards a more sustainable aviation market through alternative fuel solutions, as well as alternatively technology, says Dhariwal. “It is an exciting space to be part of with lots of innovation, collaboration and in particular, a sense of a common purpose across the industry.”