HI Uplift: Milestone upbeat but warns against speculative orders


Lack of overcapacity is leading to improving terms and conditions for Milestone's customer operators and their end users.

Milestone Aviation is upbeat about the prospects for the commercial helicopter industry but warns against over optimism and speculative orders. “The market, across all missions, is in a very good place at the moment – certainly in a better place than it’s been over the past decade,” Pat Sheedy, president and CEO of Milestone Aviation tells us. But speculative orders could destabilise the industry, he says, the week before Helicopter Investor’s London conference.

First, Milestone’s upbeat assessment of the market. The over capacity that has plagued the market for some time has now cleared. “For us, we now have supply and demand balance for the first time in a long time,” says Sheedy. “There’s probably a lack of capacity in certain asset classes and helicopter types.”

‘Longer contract terms’

The good news is that the stabilisation in supply and demand has started to filter through to the real economy. “The lack of overcapacity has meant that terms and conditions for our customer operators and their end users have started to improve,” he says. “We have seen oil and gas companies commit for longer contract terms and commit earlier to securing aircraft lift.”

Plus, tight supply also means that offshore operators’ bugbear – cancellation for convenience – is more difficult to enforce.

All the signs are that the prolonged industry downturn, across the board, has returned to a more stable position. In offshore oil and gas relatively stable prices over a number of years have encouraged both production and exploration, with demand set fair for at least the next 15 years.

That will create a demand for super-medium helicopters, as the ageing Sikorsky S-92 fleet of heavy helicopters nears the end of its primary mission life. Launched in 2004, the first S-92s off the production line are beginning to hit 20 years of age, with 10 to 15 aircraft a year ageing out in the run up to 2030. That involves the rational use of capital to manage the transition of the older heavy helicopters out of the industry and the super-mediums into it, according to the lessor.

‘Replacement wave’

“This will create a replacement wave which, if managed in a rational and considered way, will create demand for super-mediums without disrupting the overall supply and demand balance,” Sheedy tells us. “Maintaining discipline is important and we don’t believe in growth in this area from speculative OEM orders.” As the world’s largest owner of commercial super-medium helicopters, including H175s and AW189s, Milestone is deploying capital into the asset class based on operators’ realistic contract expectations, it says.

Demand from offshore wind generation is also likely to contribute up to 10 units a year for the next decade. (This includes heavy and super-medium helicopters during the construction phase followed by light twins, such as the H145 and AW169, for the transport of installation engineers).

Over the past nine years, the lessor’s portfolio has diversified from about 85% reliance on the oil and gas sector to less than 60% today. While it will remain a big part of the total, the company has seen significant growth in its emergency medical services (EMS) business. It’s a sector that for Milestone continues to “tick a lot of boxes”.

Cancellation for convenience

Typically, EMS contracts in Europe (mainly the UK, France, Italy and Spain) and Australia are longer term, government-backed contracts. Plus, there is no cancellation for convenience. Milestone is watching the American EMS market but, after the Air Methods Chapter 11 bankruptcy, is wary of US regulations such as the No Surprises Act.

Overall, the company looks to deploy between $100m to $200m of capital in the global rotary industry, annually, if the right opportunities present themselves.

But Milestone’s optimism is tempered by realism. While the industry has come a long way from the trough of the mid 2000s, it is still nowhere near peak performance. True, under supply is driving improved contract terms and conditions, but operators’ profitability has not regained previous levels.

“We are not back in the glory days,” says Sheedy. “If you look at operator balance sheets and income statements, although we are getting to a stage where most of these companies are cash flow positive, they are still not generating significant returns for shareholders. Their balance sheets are still highly levered – I don’t think the pressure is off. As an industry, we need to improve terms and conditions for the entire chain.”

Supply chain challenges

Profitability is not the only concern, with lingering supply chain challenges. Although Milestone detects moderate improvement in some areas, blockages remain in both the fixed-wing and rotary-wing aviation. Certainly, the difficulties of sourcing Sikorsky S-92 main gearboxes – a hot topic at last year’s Helicopter Investor conference – have improved significantly. But the supply of other items – such as aircraft windscreens and inflator bottles – has become troublesome across the entire industry.

And, now for Milestone’s warning. This concerns what the lessor regards as the danger of speculative orders. “A slip into over supply again could be possible if collectively we don’t maintain our discipline around supply,” says Sheedy. The established lessors, in business since 2013/2014, have no wish to return to the bad old days of over supply, he claims. “We certainly bear the scars of battle and have learnt the lessons of what significant overcapacity means for this industry.”

‘We bear the scars of battle’

But there remains a question mark over new players who “for whatever reason are focussed solely on growth and either ignore or have not learnt the lessons of the past”, he adds. “The risk for the industry is irrational capital,” said Sheedy.

He discounts the risk of manufacturers over producing civil helicopters on two counts. First, in an increasingly uncertain and dangerous world, production capacity can always be dedicated to military helicopter production. Second, helicopter engine manufacturers would be highly unlikely to keep step with a big increase in demand from OEMs.

Meanwhile, the Milestone CEO is looking forward to meeting industry colleagues at our Helicopter Investor London 2024 conference next week at The Landmark Hotel on June 5th and 6th. “The conference is probably the biggest collection of financiers we get in this space,” said Sheedy.

“We’ve articulated our views about speculative orders and why it’s not part of the Milestone strategy in the short term. Others may have different views and I’ll be interested to hear them next week.”

Pat Sheedy, from Milestone Aviation will join the first session of the conference: Helicopter Leasing – the next 10 years. Meanwhile, if you enjoy our newsletters please encourage colleagues to sign up here.  Thanks.


See you at The Landmark.


HI Uplift Dashboard: Helicopters for sale

Multi engine

  • Total for sale/lease: 317
  • Percentage for sale/lease: 4.3
  • Absorption rate: 4.84
  • Total fleet: 7,373.

Single engine

  • Total for sale/lease: 410
  • Percentage for sale/lease: 3.58
  • Absorption rate: 3.74
  • Total fleet: 11,450.

Source: Amstat, May 31st, 2024.