“Lagom” (pronounced law-gohm) is the Swedish word used to describe an amount or a state which is ‘just right’. Not too much and not too little, but an amount that creates the perfect balance.

In the helicopter sector, the concept of “Lagom” plays a crucial role in optimizing the industry’s operational efficiency and preserving asset value. Balancing resources effectively is arguably one of the most significant challenges in the industry, especially post the oil and gas downturn that commenced in 2014. This downturn resulted in an oversupply of helicopters, exerting pressure across the helicopter sphere, impacting helicopter values and the financial performance of all industry-related businesses.

The turning point was the Russia/Ukraine conflict, prompting countries to secure their energy supplies independently of Russian exports. This shift led to boosted exploration, drilling, and production in non-Russian territories, resulting in a surge in demand for helicopter services.

Whilst downturns are undesirable, from an analyst’s perspective it provides some interesting insights. The next sections will highlight some observations gained from the helicopter sector over the past decade. 

Exposure to multiple usages

Very early on in the downturn we observed two key characteristics which help to reduce the impact of a downturn in a certain sector and support value retention –

• Exposure across multiple usages.
• Proven capability in a sizeable secondary role.

The Medium Twins – exemplified by the Bell 412EP, S-76C++ and AW139 – provide a good illustration of this.

Chart 1: 10 year constant age value chart – Half Life Market Values*

*Chart shows Half-Life Market Values for unconfigured aircraft without CPI adjustments
Source: Cirium Ascend Consultancy

• S-76C – combined, the S-76C-series, including the C, C+ and the C++ had a current fleet of close to 390 helicopters as of 1^st January 2014. Over 60% of the fleet was configured for offshore, and around 25% for Business/VIP roles. When the downturn started, a large excess put significant pressure on values. Those aircraft with low time and in good condition, were converted to Corporate/VIP usage but the opportunity in this usage was not large enough to soak up all the excess which today remains significant with an over 20% storage rate.
• Bell 412EP – the fleet of the Bell 412EP was diverse in terms of usage. As at 1st January 2014 only around 35% of the fleet was in offshore configuration with another 35% in public service usages. Given the fleet’s age, about 25% had already been demonstrating its versatility in secondary roles through various utility missions. This flexibility allowed any surplus resulting from the downturn to be absorbed by other roles, primarily utility, thereby mitigating the impact on values. Recently, the Bell 412EP has experienced increased demand from the utility sector, displacing Russian equipment.
• AW139 – with the offshore market contracting, the AW139 emerged as the primary workhorse of the offshore fleet. Although values were affected, the impact on the AW139 was not as pronounced as seen with the S-76C. During the downturn, approximately 40% of the AW139 fleet was configured for offshore, a figure that has remained consistent. There is limited indication of the AW139 transitioning into secondary roles, likely attributed to its historically low storage rates averaging about 5% of the total fleet over the past decade. Given the program’s maturity of over 20 years, an increase in transitions is anticipated, giving an opportunity to observe where the AW139 will find its secondary role.

Fleet diversity

The heavy (18-19 seat) helicopters are important to the offshore market as their range enables a return journey to oil rigs furthest offshore without having to refuel.

Historically, there has not been a significant number of types in this sector due to their relatively niche role, as well as the expense in both acquisition and operation.

In 2014, there were two key in-production civil heavy turbine types operating in the offshore sector – the H225 and the S-92A.

The H225’s regrettable accident in the North Sea on 29 April 2016, left the offshore industry relying heavily on the S-92A. The type’s market share subsequently increased by 25% to close to 75% of the overall offshore heavy fleet.

In 2022, as the oil and gas industry started its recovery, the manufacturing industry experienced significant challenges. This was especially highlighted in connection with the S-92A and shortages of replacement main gearboxes, as there were no suitable alternatives available. Concerns about maintaining the fleet started to mount. Norway in particular expressed strong concerns as a failure to meet capacity requirements had the potential to impact the country’s GDP growth. Subsequently, the risks associated with relying on only one type of a certain capacity were brought to light.

Since 2014 and the introduction of the Super Mediums, the alternatives in the Super Medium / Heavy category has increased and is likely to continue with another entry into service,  the Bell 525 expected soon. In addition, Airbus Helicopters are motivated to re-introduce the H225 following a decade of development on an upgraded main gearbox.

By way of risk mitigation Norwegian oil major Equinor placed an order for Bell 525s and AW189s to reduce risk by ensuring access to alternative types.

Chart 2: Annual delivery trend of offshore configured Super Medium / Heavy helicopters

Source: Cirium Fleets Analyzer

Despite a wider variety of available aircraft types, demand for heavier types remains constrained. The introduction of new technology in the Super Mediums has increased diversity, but deliveries of heavy helicopters have notably decreased by approximately 70% over the past decade.

The introduction of more varied models may result in fleet fragmentation, offering greater flexibility and risk mitigation. However, this scenario may also introduce complexities in maintenance planning and logistics, potentially leading to lower resale values for certain types—particularly those with limited demand.

This is again bringing back the point, that striking a balance is key. Can too much be as concerning as too little?

Resilience

Apart from the oil and gas downturn, there has been a number of other significant economic and geopolitical events in the past decade such as Brexit, Covid-19, Ukraine/Russia conflict and Russian sanctions, geopolitical instability and conflict and rapidly fluctuating macroeconomic conditions in the years since the pandemic. Through these challenges, the only sector that has been significantly impacted in terms of asset values is the offshore sector for which just under 10% of the civil turbine helicopter fleet is configured. The remaining sectors have stayed remarkably unfazed by all events and continued a slow but steady growth.

Chart 3: 10-year fleet development trend by sector

Source: Cirium Fleets Analyzer

Providing the helicopter industry continue to be managed with caution and expertise to ensure the right size supply there is every reason to believe the future will continue on the same path. “Lagom” is best.

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Hear from Sara Dhariwal at Helicopter Investor London on the panel: The Current Market Dynamics & Investment Opportunities on Wednesday 4^th June.

Attending Helicopter Investor London? Book a meeting with the Cirium team.