6-Jul-2016 Source: Allan Blake
The Chapter 11 insolvency process is a daunting one for companies entering into the procedure, but it can also be a stark reminder to suppliers that the contracts they entered into with debtors can not only be worthless but also leave them with significant additional burdens to consider. For the CHC Helicopter Group of companies, the Chapter 11 procedure was necessary and is continuing, the latest event being the approval of three court orders allowing CHC to hand back up to 84 helicopters to 13 lessors. A decision on 21 aircraft in this fleet has been reserved and there are another 16 helicopters subject to a further two CHC motions yet to be heard by the court, including 13 helicopters to be abandoned by CHC to their security holders. More motions may well follow as CHC plans to reduce its fleet of 230 to 75 by the end of 2017. CHC owns 67 of its fleet; the rest are leased.
The breakdown of the 100 helicopters subject to motions to be returned to lessors or abandoned is shown in the Tables below.
Table 1: Aircraft Type Returned/ Abandoned
In their first motion CHC stated that they were looking to return or abandon 20 H225s and 16 S-92s. Following on from the tragic H225 crash in Norway on 29th April 2016 of LN-OJF and the subsequent grounding of the H225 fleet, CHC altered their plans and 38 H225s are now to be returned or abandoned and only seven S-92s. Parilease has by far the greatest H225 exposure with 22 aircraft of the type to be returned to them.
It is difficult to place a value on the aircraft being returned, particularly the H225 fleet at present. The investigation into the accident is ongoing and the latest preliminary report of the Accident Investigation Board Norway (AIBN) states:
“At this stage of the investigation, the AIBN finds that the accident most likely was the result of a fatigue fracture in one of the second stage planet gears. What initiated the fatigue fracture has not yet been determined.” (AIBN Preliminary Report, 28 June 2016, ACCIDENT AT TURØY, NEAR BERGEN, NORWAY ON 29 APRIL 2016, INVOLVING AIRBUS HELICOPTERS H225, LN-OJF OPERATED BY CHC HELIKOPTER SERVICE AS)
The long term future of the H225 is obviously in some doubt given its recent troubled history, and also because the AIBN preliminary report also states:
“The observed failure mode in this investigation seems to differ from what was expected or foreseen during certification. AIBN believes that a sub-surface crack has propagated without creating a significant amount of magnetic debris from spalling. Also, the HUMS appears unable to identify symptoms of such degradation in the epicyclic module. It appears that the fracture of the failed second stage planet gear on LN-OJF has propagated in a manner which is unlikely to become detected by existing mandatory or supplementary systems for warning of an imminent failure.”
Finding and remedying the cause of the crash will also need to be accompanied by some method of identifying future symptoms of degradation before the H225 ever flies again as well as gaining certification for the process; this will take some time.
If the 38 H225s to be returned/ abandoned are excluded, the value of the remaining returned/ abandoned fleet of 62 aircraft is estimated at about US$276 million. More importantly for CHC will be the significant reduction in cash outflows, including lease costs, storage and insurance costs, following the returns.
The location of the fleet to be returned/ abandoned is detailed below in Table 2.
Table 2: Location of Aircraft to be Returned/ Abandoned
The two Orders for the return of 84 helicopters to lessors were made by the US Bankrupcy Court on 30th June 2016. Unless agreed with the lessor, CHC have to maintain their current insurance coverage and continue the existing storage maintenance program for 30 days from the date of the Orders except for those helicopters located outside of Europe and Canada where the period is 45 days. This will be a significant challenge for the lessors to say the least who do not have large numbers of relevant type rated engineers or appropriate hangars and equipment to manage the movement of and maintain the stored fleet; a challenge only exceeded by having to find where to market this large fleet of offshore equipped aircraft. Some of the older types (AS332L& L1 , S-76C, S-76C+) may well be scrapped with lessors taking a hit on their current book values, although this would pale into insignificance compared to the potential hit they may have to take on the H225 fleet.
The CHC Chapter 11 process has a long way to run yet. The outcome for the offshore helicopter market will be significant as strategies for this large fleet emerge from the affected lessors; all of them are large commercial entities in their own right not unused to being innovative in times of potential adversity.
Copyright and full responsibility for the content of this article remains with Allan Blake, an independent Aviation Consultant. He was Regional Director (Asia Pacific) with the Bristow Group for seven years. The HeliHub.com editor has added the hyperlink and emboldening in the text only.