Two and a half weeks ago, on April 15th, CHC chose to delay the payment of $46 Million in interest due on its 9.25% senior secured notes maturing October 15, 2020 (the “2020 Notes”). At the time, our analysis of the company’s unaudited balance sheet at 31 January 2016 showed that its liabilities exceeded its assets, even after issuing $40 million of convertible preference shares in the quarter ended on that date. Going through the last eight quarters of results published in CHC press releases (all showing “unaudited”, for some reason?) shows the following – all numbers in US$ millions.
The small print governing the 2020 Notes allows CHC a 30-day grace period after the interest payment due date, allowing them to still make the payment and not go into default. The Company has stated that “it is in the best interests of CHC and all of its stakeholders to use the grace period to continue working with its advisors to review all strategic alternatives for restructuring the Company’s debt and improve CHC’s long-term capital structure”. That 30 day grace period expires on Sunday 15th May. Midway through the grace period, the company passes its next financial year end on 30th April 2016, and thus the company accounts could still look relatively intact at the year-end date, but with significant contingencies in the accompanying Notes to the Accounts. Indeed, in announcing the interest default, CHC noted that “the default itself could result in a cross-default under other agreements, even without the grace period”, and CHC has stated that “the amount of such payments could be material”. That does not paint a positive picture.
Almost as an aside, but confirming the overall situation, CHC announced on 1st February, the first day of the company’s fourth financial quarter, that they had been delisted from the New York Stock Exchange for not being able “to maintain an average market capitalization of $15 million or more over the preceding thirty trading days”.
As if things couldn’t get worse, on Friday 29th April, the Norwegian operation of CHC suffered a tragic accident, with one of their Airbus EC225 helicopters crashing on a return flight from the Gullfaks B platform to Bergen Airport with the loss of all 13 on board. As a result, the Norwegian and British authorities have suspended all flights of the EC225, despite manufacturers Airbus stating on 1st May “Considering the additional information gathered during the last 48 hours, Airbus Helicopters’ decision, at this stage, is to not suspend flights of any nature for the EC225LP”.
One of CHC’s customers, Shell Norway, has issued a statement to HeliHub.com to say they are not using CHC Norway for the time being, but will continue to work with CHC in other countries.
At a press conference on Tuesday 3rd May, the Accident Investigation Board of Norway (“AIBN”) said that they believe the accident was down to a “technical error” and not “human failure”. However, they did not clarify whether that meant “in-flight human failure” or “human failure” in any aspect of the helicopter’s maintenance, or flying.
A statement from CHC, issued to the Press Association, said: “It is correct that the helicopter returned to base on Tuesday 26 April. The pilot had a warning light and returned to Flesland (Bergen Airport) according to procedure. At Flesland the helicopter was inspected, according to procedure, and a part was replaced. Wednesday (27 April), the helicopter was taken on a test flight, where the warning light reappeared, the helicopter returned to base, changed another component, the next test drive was completed without any warning light. Thursday (28 April), the aircraft completed six commercial flights, all without any indication of problems. None of the changed parts were physically connected to rotor or gearbox.”
A video has been published online showing the full rotor head and five blades separated from the rest of the fuselage and spinning slowly down to earth like a sycamore leaf. A photo of the rotor blades and hub can be seen here in its resting place. This is matched by the brief description given by EASA in their statement when issuing an Emergency AD.
57 year old pilot Olav Bastiansen had flown for CHC Norway (and its predecessor Helikopter Service) for 27 years, had been chairman of CHC Pilots Association, a Representative of the CHC European Workers Council, and a Board member of Norwegian Airline Pilots Association – according to his LinkedIn profile. This was a very experienced pilot.
So, in summary, the post-accident situation finds the manufacturer saying they would not suspend flights, the Norwegian and UK certification authorities grounding the EC225 while they investigate further, EASA issuing an Emergency AD, a key client stopping using CHC in Norway, and the Norwegian investigation authority saying the accident was a “technical error” and not “human failure”.
Given the manufacturer not wanting to suspend flights, and the investigators suggesting “technical error”, what implications are there on CHC?
Added to that, we have a company in a dire financial position, unable to make a $46M interest payment. The 2020 Notes have a face value of just over $1 Billion, and are “secured”, but it makes observers wonder how much security there is when the company has liabilities exceeding its assets. The CHC fleet in Europe consists of the following
- Norway – 13 EC225s, 15 S92s
- United Kingdom – 8 EC225s, 10 S92s, 12 AW139s
- Netherlands – 1 S92, 8 AW139s
However, one factor in their favour is that there is significant under-utilisation of helicopters in the offshore market following the oil price crash in autumn 2014, so it is feasible that CHC can still come somewhere near to their expected turnover figures by flying their S92s and AW139s more than they have been. The toll on the company, both financially and in morale, will continue to be felt until the EC225 returns to service, or the company enters a new financial phase – such as administration. Which will arrive first?
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