HI Uplift: the US HEMS market – the Air Methods legacy


Wafer thin margins and the No Surprises Act threaten to frustrate growth in the US HEMS market.

Slow Train Coming is the 19th studio album by American singer-songwriter Bob Dylan. The title also sums up for many seasoned observers the decision by Air Methods, one the world’s largest Helicopter Emergency Services (HEMS) companies, to file for Chapter 11 bankruptcy protection. So where does the company’s decision leave the US HEMS market and how are investors likely to respond?

Let’s start with the profit potential. No one denies the size of the US HEMS market, as the country’s population rapidly ages. In 2020, about one in six US citizens were age 65 and over compared with fewer than one in 20 in 1920, according to the US Census Bureau.

Worldwide, the air ambulance services market size is expected reach a value of $47.1bn by 2032, up from $17.5bn last year, forecasts research organisation Market.us. Predictably, North America was the biggest market, claiming 38.8% of total revenues in 2022. So, a compound annual growth rate (CAGR) of 10.7%, fuelled by an ageing and often ailing population, during the forecast period is sure to lure investors. Well, maybe.

The long shadow of Covid, which prevented people taking car journeys and inevitably requiring ambulance services, has receded. But unfettered growth could be braked by complications – not least the financing model of the US HEMS industry, the impact of the No Surprises Act, the complexities of insuring air ambulance operations and the high barriers to market entry.

Private equity accounts for the vast majority of the US HEMS market, Alastair Fallon, director and senior appraiser, at valuation business F4 Fly Fast Further First, tells us. 

“More than half of the US HEMS programmes are now owned and operated by two large private equity firms,” he says. “The financial structure of a HEMS programme has a tremendous influence not only on the type of aircraft and medical equipment used but also the education, level of experience, and specialty training of the personnel. Quality, aviation or medical, comes with a price.”

Also, payment for HEMS service is based only on the distance transported. There is no financial incentive for medical or aviation quality beyond the bare minimum. “During the last two decades there has been a massive shift in HEMS from the traditional hospital-based model to for-profit, free-standing community bases,” he says. The small proportion of community, not-for-profit air ambulance programmes typically offer long term (10-year) contracts, which eases business planning.

Fallon thinks Air Methods’ filing will make investors more cautious before making further big investments in the sector. True, Chapter 11 filings in America lack the stigma of bankruptcies in Europe, with airline filings reading like a Who’s Who of the US airline industry. But it will make potential investors scrutinise debt more closely than before the Air Methods filing. Also, finding ways to offloading debt will be topping more investor in-trays at the beginning of November than at the start of October.

(Back in 2017, some observers questioned American Securities purchase of Air Methods at $43 a share offered and accepted in cash. 12 Air Methods board members decided to accept the American Securities’ offer while one dissented).

Another factor deterring investment in the air ambulance sector is the US No Surprises Act. Passing into law from January 1st, 2022, the legislation requires health plan commercial members to be protected from balance billing after receiving emergency care and non-emergency care from out-of-network providers at in-network facilities.

This can cause cash flow difficulties for health care companies enmeshed in long legal disputes. The act continues to transform the landscape for the medical transport providers, with billing and operational processes all significantly impacted by the legislation.

There’s little sign of what operators regard as a necessary rebalancing of the act to offer fairer terms to air ambulance providers. In August a US federal court rejected claims made by the Association of Air Medical Services (AAMS) that the No Surprises Act favours insurers over air ambulance providers in the resolution of pay disputes. Further controversy surrounds a plan by the US Veterans Administration (VA) to reimburse non-contract ambulance and air ambulance missions at rates operators say are significantly below costs.

Finding insurance coverage in some areas of the US is difficult or sometimes impossible, says Fallon. Lack of cover can pile the financial pressure on users – deterring them from using air ambulance services.

The sectors’ high barriers to entry could also dissuade new entrants from trying the market. High helicopter costs, long waiting times, rising fuel bills and the difficulty in sourcing parts, pilots and airframe and power plant mechanics plus regulatory compliance make the air ambulance industry less attractive than it once appeared. Wafer thin margins (if any) do not offer a welcome mat to new entrants.

If clarity is not brought to the HEMS sector soon, Fallon and many others see other (perhaps smaller) operators following Air Methods’ into Chapter 11 protection. “The EMS stream will require a rethink and a more reserved approach,” says Fallon. “Part of the 2021 Congressional No Surprises Act was transparency. We need to see that in action. Covid probably didn’t help any operator and the 2021 Act has exacerbated margins and those already on the breadline will be feeling the pinch.” One consequence is likely to be declining services in the least profitable areas of operation – remote communities.

Another appraiser who expects more HEMS Chapter 11 filings is Jason Kmiecik, president of appraisals business HeliValue$. “I wouldn’t be surprised if there are more to follow in the upcoming year,” Kmiecik tells Helicopter Investor. “The main issue that has pushed them into this situation, I believe, has been the problem with getting paid for their services,” he said. “Everything I have heard and read about since the government implemented the NSA, No Surprises Act has been a detriment to the EMS operators.”

Meanwhile, Air Methods’ senior lenders, bondholders and shareholders have agreed to a restructuring plan which will cut the company’s debt by $1.7bn. A group of first-lien lenders have also agreed to disburse $80m in debtor-in-possession (DIP) financing. The company is continuing to operate normally during the financial restructuring and expects to complete the process by the end of the year.

If you would like to know more about the HEMS market, sign up for our one-hour, free, Town Hall online meeting, sponsored by Aero Asset. Taking part were speakers from Bell Flight, HeliFlite, Flexjet Helicopters and Airbus Corporate Helicopters plus other industry experts.

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