By Robert Wall
PARIS--Sharp cuts in oil and gas exploration budgets at
companies from BP PLC to Royal Dutch Shell PLC are expected to
crimp near-term helicopter demand as providers of these reassess
operational priorities in a period of low crude prices.
The rapid decline in oil prices has created a large amount of
uncertainty about market prospects, said Guillaume Faury, president
of Airbus Helicopters. Users are scrambling to redeploy assets to
projects that are still profitable at oil below $50 per barrel.
Oil prices have declined more than 50% since June forcing
exploration companies to shelve projects no longer economical at
such prices. Oil companies have slashed capital expenditure plans
to ease pressure on their bottom line.
"We see a trend of cost reductions in this industry and this
will trigger contracts being postponed," Mr. Faury said on
Tuesday.
The Airbus Group NV rotorcraft unit generates about 15% of its
business from sales to the oil and gas sector. Those customers
typically use larger more capable rotorcraft that also cost more
and deliver better margins for manufacturers.
"The offshore oil and gas production industry is already
responding to the falling oil prices by switching off rigs, cutting
staff and putting on hold new projects. As a result we will see
reduced demand for helicopter services," Usman Ahmed, a senior
analyst at the International Bureau of Aviation said.
Delivery rates for rotorcraft are likely to come under pressure
in the next two years "as operators adjust to the new market
conditions and respond to reduced growth in the exploration
sector," Mr. Ahmed said.
Airbus is already seeing some effects with a contract for its
new EC175 helicopter to a Russian customer in limbo. UTAir was a
launch customer for the rotorcraft with a commitment to take 15 of
them to service the oil and gas sector. It received its first one
last year but additional deliveries are suspended for now amid
Russia's difficult economic situation, Mr. Faury said.
Volatility is affecting not just the makers of rotorcraft.
Shares in helicopter operators such as CHC Group and Bristow have
performed poorly in recent months as big oil and gas customers
reviewed new projects. Industry analysts say they believe these
buyers of rotorcraft may hold off on placing big additional orders
until greater certainty emerges about plans of exploration
companies.
Still demand won't disappear entirely as many oil companies have
long-term services agreement and still need to access and maintain
rigs that remain operational. "It is unlikely that the current
long-term transportation contracts will be canceled as these
account for only small percentage of the overall rig operations
cost," Mr. Ahmed said.
Mr. Faury said the renewed focus on costs in the oil and gas
sector could also spur long-term fleet replacement needs as
customer favor new, more efficient models over existing equipment.
Some of the company's Super Puma helicopters have amassed as many
as 40,000 flight hours and need replacing, he said.
Airbus Helicopters, which saw orders dip to 402 net bookings in
2014 and deliveries slump to 471 rotorcraft, is hoping military
contracts this year may help offset weakness in other markets.
Poland and South Korea are among the countries looking to place
deals for their armed forces.
The European helicopter maker faces tough competition in some of
those overseas markets from rivals including United Technologies
Corp.'s Sikorsky unit, the world's largest maker of military
helicopters. United Technologies on Monday reported a 19% sales
jump at Sikorsky for last year though the unit's operating profit
retreated.
Mr. Faury said deliveries this year should be similar to last
year's level, though with a greater mix of the larger, more
lucrative models. Order intake should surpass deliveries even
though the market for police and emergency medical services
helicopters will likely remain weak for another two years.
Write to Robert Wall at robert.wall@wsj.com
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