“We look forward to better days.”
That is how Bill Chiles, CEO of oil service helicopter operator Bristow Group, ended the company’s investor conference call earlier this month. Over the last year the company’s stock has been slammed, plunging from $58.51 to $16.45, before making a respectable rebound to near $30 in recent weeks, even as company revenues doubled. The revenue jump came in large part from the acquisition of Norsk Helicopters and a one-time gain from the disposal of 53 light turbine singles servicing the Gulf of Mexico.
But against this backdrop, Chiles and CFO Perry Elders admitted that they are battening down the hatches at Bristow by resisting downward price pressure from customers, freezing executive pay, deferring delivery of some new helicopters and aggressively pursuing internal efficiencies and long-term contracts with large or state-owned oil companies.
Bristow is also mothballing some large helicopters slated for disposal until used helicopter prices stabilize and parting out some older, medium helicopters, such as Sikorsky S-76As. Bristow is one of the largest operators of S-76s, with 25 A models and 44 C models.
Chiles said used helicopter prices were depressed, in part, due to potential buyers’ inability to obtain credit, causing prices to fall anywhere from 5 to 20 percent, with larger helicopters holding values better. “Old A-model 76 prices are falling much more dramatically,” Chiles said. Bristow currently has 24 aircraft either mothballed or awaiting disposal, including eight large and 14 medium helicopters. “The aftermarket isn’t there for us at this point,” Chiles said.
Bristow is continuing to accept new helicopter deliveries, but is deferring others, and has stopped ordering new helicopters just to secure delivery positions. During the last quarter, the company took delivery of 11 aircraft and has 31 more on order. Two large helicopters will be delivered next month and 20 more new helicopters are expected over the next 12 months. Of those 20, Bristow has client contracts for only four.
But those new helicopters will, by and large, be used to replace existing ones, as opposed to being used to service new contracts. “We are not going to order further aircraft without firm demand from our customers or a contract in place. We are just not going to order new aircraft at this point,” Chiles said. He said Bristow currently has financing in place to acquire $407 million of new aircraft and is working with OEMs to defer orders and hold onto options. Of that $407 million, $298 million remains to be paid. He still expects the company to need close to $2 billion worth of new helicopters over the next five years.
Bristow also has $400 million in additional cash that could be used for new aircraft acquisition or for other business purposes, including acquisitions, stock repurchase, debt retirement or simply to hold onto until the “market is clear.”
Chiles said that, overall, the company is well-positioned to ride out the collapse of oil prices but admitted, “We will be affected on the margins” and “we are not isolated from these market conditions.” The margins include writing down bad debt from independent oil and gas operators who have collapsed, and dealing with the impact of the rising U.S. dollar on its North Sea operation revenues.
Bristow operates throughout the world, with concentrations in four main areas: U.S. Gulf of Mexico, the North Sea, West Africa and Southeast Asia (including Australia and Malaysia). Two thirds of the company’s revenue is from oil production, as opposed to exploration, 60 percent of it comes from major or national oil companies, and most of its overall revenues are from multi-year contracts that are heavily weighted in favor of fixed fees as opposed to hourly aircraft operating charges.
The Gulf accounts for 20 percent of Bristow’s revenues and it operates six large, 27 medium and 56 small aircraft there, including three new large aircraft and 19 new mediums. The Gulf also appears to be an area where Bristow incurs a substantial amount of its risk as most of its customers there are independents, with the exception of Chevron. Revenues in the Gulf have softened and only 40 percent are from deep-water operations.
But Bristow has spread its risk worldwide and other parts of the globe appear to, hold more promise at least in the near-term. Nigeria, despite what Elders termed “periodic disruptions due to civil unrest,” posted operating margins of 26 percent in the last quarter. The company operates 45 helicopters there including a new S-92 dedicated to search and rescue, and nine of the helicopters based there are new. Operations in Mexico achieved a 29.7-percent margin and the company is hoping to land a large contract for nine to 10 heavy helicopters from Brazil’s Petrobras for operations up to 200 miles off that country’s coast. Petrobras also has tender orders for up to 30 medium helicopters.