By Doug Cameron
The energy-industry downturn has created a huge surplus of
helicopters, a sharp turnaround from two years ago when oil-and-gas
companies were forced to share rides to and from far-flung oil
platforms.
Operators such as CHC Group Ltd. and Bristow Group Inc. that
ferry workers and cargo on behalf of the energy industry said they
have been surprised by the severity of the downturn, and don't see
any prospects for recovery until next year at the earliest.
The slump comes at a tough time for big helicopter makers such
as Airbus Group SE and Textron Inc. that are introducing new
models, and others such as General Electric Co., which paid $1.8
billion last year for Milestone Aviation Group, the largest
helicopter-leasing company by sales.
Industry executives said a fifth of the 1,900 helicopters
serving the oil-and-gas industry world-wide are idle or
underemployed, and expect this overcapacity to worsen before it
improves.
Helicopters used by the oil-and-gas sector account for 26% of
the global commercial fleet, according to AgustaWestland, a unit of
Finmeccanica SpA.
Helicopter operators also have tried to diversify, expanding
into search and rescue missions, medical and VIP flights.
But John Mannion, a Houston-based industry consultant, said
there is limited scope for redeploying helicopters to other markets
or uses because customers differ in their preferences for aircraft
types and configurations. For example, some aircraft are kitted out
with new radar equipment, making it easier to land and take off
from oil platforms in bad weather. Helicopters that primarily fly
over water are also equipped with flotation devices to keep them
afloat in the event of an emergency landing.
Mr. Mannion said the industry will have to look--for the first
time--at options for storing unsold helicopters. Manufacturers said
limited indoor storage facilities in hangars had created a need for
alternative solutions. Mr. Mannion said the alternatives included
shrink-wrapping or Heli-Cells--inflatable climate-controlled
canopies originally developed to protect expensive classic
cars.
Era Group Inc., one of the largest helicopter operators in the
Gulf of Mexico, has said it may cancel or defer almost
three-quarters of its orders, including deals with Lockheed Martin
Corp.'s Sikorsky unit and AgustaWestland.
Market leader CHC, which went public two years ago, has seen its
market value wiped out after peaking at $1.3 billion, and the
company was delisted from the New York Stock Exchange in January.
It has hired multiple advisers to examine restructuring a heavy
debt load.
Moody's Investors Service last week downgraded CHC deeper into
junk territory.
CHC has been cutting costs, reducing its workforce and paring
its fleet, but remains optimistic it can weather the storm.
"Despite the prolonged nature of the current downturn, we believe
the long-term market fundamentals supporting our industry remain
intact," CHC Chief Executive Karl Fessenden said on an investor
call earlier this month.
Shares in Houston-based Bristow, the second-largest global
operator by sales, are down 77% from their peak.
"The length and severity of this downturn is worse than
initially expected, but that is why we have always kept lower
levels of leverage and lower numbers of leased helicopters as part
of our business model," said Jonathan Baliff, Bristow's chief
executive, in a statement.
Increased exploration when oil was above $100 a barrel led
operators and a new breed of leasing companies to place orders for
dozens of new helicopters able to fly faster and farther for
clients such as Royal Dutch Shell PLC and Statoil ASA.
Demand for new helicopters was so high at the end of 2013 that
it had created yearslong waiting lists for the largest models, even
with factories running at full rate.
The fastest growth in recent years had been in the so-called
super-medium category, $30 million machines able to carry 12 to 18
workers 200 hundred miles or more to far-flung platforms off the
coasts of Norway, Brazil and West Africa. Airbus and AgustaWestland
have also rolled out faster and larger models designed to serve
fields farther from shore.
Energy companies are now paring production and slashing
exploration budgets, forcing helicopter operators to cut staff,
streamline operations and shelve or cancel new helicopter
orders.
"It's a challenging market to be launching any new aircraft,
especially one targeting oil and gas," said Ed Washecka, chief
executive of Waypoint Leasing Ltd., one of the new-breed companies
that sprang up to rent helicopters to the industry.
Dana Fiatarone, vice president of Sikorsky's commercial unit,
said it could take three to five years to burn off the excess
capacity.
Lockheed Martin, which paid $9 billion for Sikorsky last year,
expects the unit's commercial sales to slide to $375 million this
year from a peak of $1.5 billion in 2013. While Lockheed's interest
was driven primarily by Sikorsky's military helicopters, executives
were also drawn by the commercial market.
One bright spot for manufacturers is that toughening global
safety rules could hasten pushing out older helicopters in favor of
newer models.
Textron's new Bell 525 is due to be delivered to its launch
customer next year, and has been designed so that every passenger
is just one seat from its safety-exit windows, closer than rival
rotorcraft. Such design changes that add safety features could make
new helicopters more attractive to customers.
Write to Doug Cameron at doug.cameron@wsj.com
Corrections & Amplifications
Textron's new Bell 525 is due to be delivered to its launch
customer next year. An earlier version of this article misstated
the type of product.
(END) Dow Jones Newswires
March 30, 2016 21:16 ET (01:16 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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