Helitech 2016: Shaking Up the Offshore Helicopter Business

Helitech 2016: Shaking Up the Offshore Helicopter Business 13 Oct, 16, Source: Allan Blake

In my article, Helitech 2016: Strategic Challenges for the Offshore Helicopter Industry, I stated that a change in the offshore helicopter market was inevitable and success for the offshore helicopter companies depended upon how quick and able they were at:
1.    Diversifying their business;
2.    Providing a “Personnel Only” option for oil and gas clients;
3.    Focusing regionally; and
4.    Focusing their fleet.

So what signs have there been at Helitech 2016 of an awareness of the need for such change? The response is important:
•    Thousands of jobs, including highly skilled engineers, pilots and operations staff, are dependent on strategic swift action in these four areas – I discovered today that the Aviation Skills Awards that were scheduled to be presented at Helitech have just been postponed because the main helicopter operators are not taking any UK traineeships this year, usually numbering between 70-80 places;
•    The Norwegian Civil Aviation Authority warned Statoil that a weak economic  position amongst helicopter operators “can lead to safety culture withering” potentially exacerbated by fears over job security; and
•    Investors (and lessors as potential creditors) are clearly acutely aware of the current precarious position of operators and assessing their positions.

The background for Helitech was set very ably by the Flight Ascend Consultancy. They charted huge uncertainty in an offshore market that has not yet reached bottom, with opportunities out there but primarily in Asia and Russia.

The main uncertainties revolve around the future of the H225, CHC’s continuing shedding of aircraft, and whether the price of oil will recover to spark up the market. The potential upside in this market lies in Asia and Russia.  In Russia there is a very large and aged Mi-8/17 fleet: 5,500 aircraft with an average age over 20 years. In China, there has been a massive growth in the training helicopter market comprising 30% of new deliveries in the region which have more than quadrupled in a few years. At Helitech, Chris Seymour of Flight Ascend used his crystal ball to provide a ten year outlook.  He  pointed out that only 9% of the helicopter turbine market of an estimated US$57billion helicopter spend over that ten years is linked to oil and gas, and that overall the turbine fleet is aging.  Being situated in a variety of markets and focusing on different types for different markets is as important for manufacturers like Bell  as it is for offshore operators to focus on type and region of operation. Chris projects that Asia will overtake Europe to achieve 24% of total market share in 10 years.  The projected total turbine rotor market is for 9,150 helicopters with just under 1,000 of these in the offshore market.

The leasing companies are trying to make sense of the position they find themselves in.  Many I spoke to are taking the long view, some of them supported in their ability to do so by holding companies used to seeing cyclical downturns in parts of the businesses, riding them out and being innovative to make a long term return.  However, some lessors are definitely not welcoming the recently announced Milestone (part of GE) relationship with CHC, with Milestone stepping in to become CHC’s lead lessor and provider of $150m of asset backed finance. The Milestone move is strategic in intent both in the leasing market generally and in the broader offshore operational context.  In August of this year on Helihub I advised readers to:

“Expect some marketing innovation which could alter the offshore helicopter market structure as the lessors are very experienced teams based within large global entities:  they will see this sequence of events as a challenge to their undoubted skills.”

The CHC-Milestone initiative is the first step.  As the implementation of the four key areas unfolds in the offshore market there will be more: personnel only contracts, fleet and regional focus need to evolve quickly and pressure may need to be exerted by new stakeholders to see that it does.

Obviously everything is being done by lessors to mitigate potential losses and write down of value in aircraft.  Expect to see regular announcements of sales of CHC returned aircraft seeking to reassure both internal and external stakeholders. But have no doubt that the position is pretty dire for those lessors focused on heavy aircraft in the offshore oil and gas market and those with CHC exposure – so expect some adjustments in the structure of the leasing business.

The manufacturers have the wider turbine market to support them, with offshore helicopters only driving 9% of that market in the next 10 years. Airbus Helicopters however has been hit badly by the second H225 grounding and is fighting battles on a number of fronts at present. The Polish decision not to embrace Airbus hit hard as can be seen by the vigorous nature of the Airbus response. The AW189 timing as the first-to-market in the super-heavy category has made it hard to dislodge with the H175. There is also a broader focus on profitability within Airbus who are reported to be looking at a wider restructure and relocation of parts of the business. The French media have reported initial consultations with the labour unions regarding an internal restructuring plan that could lead to 1,000 job losses.

Whilst the atmosphere at Helitech has seemed quiet the Workshops have been generally excellent and there has been an awful lot of discussion in corridors about the position of the market embracing people working in MROs, training companies, and the whole range of businesses at Helitech that support the offshore market.  This includes the staff I met from the Aviation Skills Partnership who were so sad for their prospective apprentices that the Traineeships had not materialized this year because of the downturn in the market. It’s an understandable decision in the current market, but we sometimes forget the significant number of people this industry supports and the personal impact that significant change has on them. Helitech 2016 has reminded me that many people’s lives depend on successful strategies to develop and grow this business, and that is the main reason why it is so important to get it right.

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. He is also the author of “Dynamic Directors: Aligning Board Structure for Business Success” (Macmillan).

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