We’ve become very familiar with a few specific industries here at 37th & Moss. Today, we’ll share a brief summary of our insights into the Utility Inspection Services Industry - specifically, airborne inspection services.
Why are we interested in airborne inspection services? First, electricity is becoming more expensive as demand for power grows (1). Many factors drive the increased costs homeowners and business owners see every month. Datacenter expansion, increasing population, severe weather, transitions to sustainable energy sources, and other factors push demand higher. In fact, the Federal Energy Regulatory Commission (FERC) expects demand to increase 4.4% this summer over last year (2). Unfortunately (for the homeowner), utility companies rely on their existing infrastructure to meet surges in demand. New power plants and sustainable energy sources take years to develop, and even after utility companies build them, they still rely on the power lines you see on your street to deliver energy. Cities, hospitals, farms, and every business in between require reliable transmission, regardless of the source, and federal and state governments mandate specific reliability levels (for obvious reasons) (3).
How do aging transmission lines become more reliable? By replacing worn equipment, removing fallen limbs, and increasing inspection frequency. Inspections identify impending and ongoing issues along transmission lines so that maintenance crews can respond appropriately. However, power lines traverse mountains, forests, and spans of largely uninhabited, untraversable, wilderness. Efficient inspection must be airborne!
Airborne inspection is largely dominated by two methods: drone inspections and helicopter inspections. Both scan power lines after storms, conduct periodic patrols to monitor line health, and identify and communicate potential problems to utility companies. Helicopter inspection companies need a track record of safety, experienced pilots, and specific qualifications to bid utility contracts. Drone inspection services can be inexpensive and have a lower barrier to entry (less expensive to train a drone pilot than a helicopter pilot and drones are cheaper than helicopters) when compared to helicopter inspections; however, unless the drone company has a Beyond Visual Line of Sight (BVLOS) exemption (which can take years to receive from the Federal Aviation Administration), power line inspections by drone can be slower than inspections by helicopter. Without the exemption, drone pilots must maintain visual contact with their aircraft at all times which makes patrolling hundreds of miles of transmission lines difficult.
Given the restrictions on drones, and the price elasticity of utility companies (more on this below), helicopters seem like the obvious choice. The drawbacks to operating a fleet of helicopters may not be as clear. Success depends on team and culture construction (in the Navy we called this a “squadron”). Utilities expect experienced, safe pilots to conduct efficient (and safe) operations. Safety and response times rely on experienced operations and maintenance teams. More flying can bring more revenue, but it can also lead to maintenance capital expenditures. Strong maintenance departments are crucial for successful airborne utility operations.
Sometimes utility companies bring these services in-house and use company pilots and helicopters to conduct required annual patrols. However, during peak storm seasons most utilities will increase their inspection capacity by contracting with external contractors. After a severe storm, especially one that results in a loss of transmission across a critical line, utilities need a rapid response, often to remote locations. These “on call” contracts can be lucrative, but highlight a challenge in this industry - asset utilization rates can be widely variable and dependent on mother nature.
The airborne utility inspection services industry benefits from strong demand tailwinds generated by an increase in energy consumption across the country. However, asset requirements, regulation, and unpredictable revenue can be challenging for inspection businesses. Great airborne utility inspection companies have strong safety cultures and baseline contracts that minimize revenue and utilization variability.
37th & Moss is led by two partners (Nick Smith and John Washington) with decades of combined experience in finance, aviation operations, software development, and sales and marketing operations. John and Nick founded 37th & Moss to give liquidity options to one business owner and operate one small business.
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