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By Thomas Sweeney, Valuations Associate, Cirium Ascend Consultancy
Helicopter emergency medical services (HEMS) has long been one of the most stable sectors in the helicopter sphere. The sector has demonstrated a modest but steady 3% year-on-year growth in the past 20 years.
In recent weeks, the Chapter 11 filing of one of the biggest emergency medical services (EMS) operators in North America has raised questions of whether a storm is brewing for the entire EMS industry. Is it likely that the developments in the region can be the same for the HEMS industry as the oil & gas downturn was to offshore helicopter transportation? Reviewing the landscape, in particular the underlying demand drivers, this appears unlikely.
North American HEMS environment
Cirium Fleets Analyzer shows that North America operates over 50% of in-service EMS-configured helicopters.
The high proportion of EMS helicopters in the region can be partially attributed to the continent’s geography.
With large areas of sparsely populated territory and diverse landscapes, the region presents challenges for rapid response from emergency medical services.
EMS helicopters enable a faster response in rural or inaccessible regions, compared to ground transportation.
An aging population requires timely access to emergency medical services. An increased recognition among healthcare professionals of the importance of providing immediate trauma care within what is known as “the golden hour” has also contributed to the high proportion of EMS helicopters in the region. Additionally, consolidation in the healthcare industry has led to many rural hospitals closing. EMS helicopters have become key in ensuring prompt transportation and access to specialised medical facilities.
No Surprises Act – progression or digression?
The EMS sector in the USA has faced similar challenges to those encountered by the sector worldwide, including reduced utilisation of services due to travel restrictions imposed during the pandemic and an unfavourable interest rate environment. However, specific to the USA, there has also been a legislative change in the form of the No Surprises Act (NSA).
The NSA, passed in 2021 as part of a broader Covid-19 relief bill, aimed to address the issue of unexpected medical bills and protect patients. The act introduced measures to limit the amount that patients can be charged out-of-pocket for healthcare services.
Relatively low caps on the amount HEMS companies can charge government programmes (namely Medicare and Medicaid) mean these companies are primarily funded through private insurance claims and patient out-of-pocket payments. Insurers provide coverage for HEMS as part of health insurance plans. Insurance companies typically have networks of preferred providers, including HEMS operators, with whom they have negotiated contracts and pricing agreements. These contracts ensure that services provided within the network are covered at agreed-upon rates.
Prior to the implementation of the NSA, if a patient needed HEMS transportation outside their insurance company’s network, they could face a significantly higher bill compared to an in-network service. This situation placed a financial burden on individuals who had to bear the cost difference between what their insurance covered and what was billed by out-of-network providers (“balance billing”). There are suggestions that the financial burden to the patient could mean the health professional hesitating to call on helicopter transportation.
The NSA aims to do away with “balance billing”, limiting the amount a patient will pay to the deductible, co-pay or co-insurance they would usually pay for in-network HEMS transportation. The NSA also requires disputes arising from an out-of-network payment to be settled using independent dispute resolution (IDR) arbitration. Such a process is often expensive and lengthy. Overall, reduced revenue from out-of-pocket patient payments and increasing costs from dispute resolution cases has made it more difficult for HEMS companies to maintain financial security and profitability.
On the other hand, a more streamlined system of billing and less financial uncertainty for patients could benefit the continued growth and demand for HEMS services.
Effect on helicopter values
The current state of the helicopter market and its impact on asset values depends on the ongoing demand for HEMS services. Provided there is a consistent demand for these services and the market is not oversaturated with helicopters, it is unlikely to have a significant impact on asset values. However, if there is a decrease in demand for HEMS services or a major disruption occurs in the industry, it could lead to an oversupply of helicopters, which was the scenario during the oil & gas downturn.
In a scenario where there is reduced demand and a surplus of aircraft available, it would increase the supply in the market.
This oversupply could potentially impact asset values as competition among helicopter operators intensifies.
The extent of this impact will depend on various factors including number of excess aircraft and the ability to redeploy them.
Cirium Fleets Analyzer shows that Airbus Helicopter’s EC135/H135 and EC145/H145 have a combined majority market share of just over 40% of all EMS-configured helicopters worldwide.
Looking at the somewhat smaller single-engine types such as the Bell 206 and 407 and Airbus Helicopters AS350 and H130, we see a similar trend where almost 50% of that fleet operates in the region.
A wide operator base in multiple geographical locations has proved to be beneficial to the liquidity of an asset. While there is a large skew per capita of population towards North America, in absolute terms there is still much of the market operating outside the region. This gives some cushion against shocks, with a large healthy market where assets can be traded without these North America-specific challenges. In general, the market for these assets has remained remarkably stable over the years and depreciated largely in line with expectations.
As with all markets served by helicopters, the Cirium Ascend team will continue to monitor any developments and shifts which may have an impact on supply and demand dynamics and subsequently on values.
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