OGP market: CHC Bankrupt, Others Posting Losses

 - May 12, 2016, 2:52 PM

In the starkest illustration of the rapidly declining fortunes of the global OGP (offshore gas and petroleum) helicopter industry to date, CHC unveiled a bankruptcy reorganization plan that would see it turn back 90 of its 230 helicopters in the next 60 days and another 65 by next year, leaving the company with just 75 helicopters. Helicopters to be returned within the next 60 days to lessors include Airbus EC155 (1), AS332s (18), H225s (20); Finmeccanica AW139s (19); and Sikorsky S-76s (16) and S-92s (16).  Of the 230 helicopters in CHC’s fleet, 153 are leased. Part of a restructuring strategy to cut costs and rationalize the fleet in favor of newer-technology helicopters, the move will leave CHC a demonstrably smaller company.

CHC and its Heli-One maintenance subsidiary filed for Chapter 11 bankruptcy May 5 in the Northern District of Texas. The highly anticipated move came days after the fatal crash of a company Airbus EC225 that killed 13 in Norway on April 29–potentially grounding 21 CHC EC225s in the UK and Norway in the wake of the crash investigation–and weeks after CHC said it could not make a $46 million payment due on $1 billion worth of 9.25-percent high-interest 2020 bonds scheduled for May 15. Defaulting on that payment would have violated several of the company’s other loan covenants and created a cascade of financial difficulties that analysts and credit rating agencies viewed as insurmountable.

Over the past year CHC has seen its stock share price tumble from a high of $57 to a low of 11 cents, all but erasing the market value of the company. In February the New York Stock Exchange delisted it for failure to maintain a consistent market capitalization of at least $15 million. It was a long slide since First Reserve purchased CHC for $3.6 billion in 2008. In bankruptcy court papers CHC listed debts of $2.19 billion against assets of $2.17 billion as of January 31.

Since then the company’s financial position has further deteriorated. At the beginning of the year, CHC had orders and options for nearly $500 million worth of new helicopters. The company released a statement concurrent with the bankruptcy filing saying that it “expects day-to-day operations to continue without interruption” and it has “sufficient liquidity” to “maintain its continuing business operations” as it proceeds through bankruptcy.

Finances at Other Operators

CHC’s competitors, too, are being financially battered. PHI released results for the quarter ending March 31 showing a revenue slide of $40.2 million, to $164 million, compared with $204.2 million from the year-ago period; $32 million of the decline was directly attributable to lower oil and gas revenues “related primarily to decreased aircraft flight revenues for all model types resulting predominantly from fewer aircraft on contract and decreased flight hours,” the company said. The reversal of fortune took PHI from a net quarterly profit of $10.4 million from the year-ago period to a net loss of $8.9 million. Breaking out oil and gas from the company’s aeromedical and technical services reveals an even starker picture. PHI said the “segment loss was $5.0 million for the quarter ended March 31, 2016, compared to segment profit of $18.9 million for the quarter ended March 31, 2015. The decrease in segment profit was due to the above-described decreased revenues, which were only partially offset by decreased expenses attributable to decreased flight hours.” PHI said it is responding to the downturn in energy revenues with “difficult but necessary” initiatives designed to “preserve our organization, our assets and our financial health.”

Bristow Group, the world’s largest helicopter OGP operator, announced on April 18 that it is “flattening” its management structure in response to the continuing market downturn, removing several top executives, eliminating their positions and consolidating their responsibilities. The move follows Bristow’s previously announced 2015 $150 million cost-cutting campaign, which involved large across-the-board layoffs and a new $200 million term loan to improve its liquidity. The company also slashed its quarterly dividend to 7 cents per share from 34 cents. At press time, Bristow’s most recent quarter, December 2015, showed a revenue decline from oil and gas of $81.2 million, or 21.2 percent, from the same year-ago period.

Indicating that he expects things to get worse before they improve, and perhaps as a precursor to quarterly results scheduled to be released in late May, Bristow CEO Jonathan Baliff said, “The current downturn in our industry is likely to further impact our clients’ capital spending in Fiscal Year 2017. As a result, to improve our safety performance, maintain our leadership position and sustain our long-term success, we have actively taken the additional and necessary steps to strengthen the business during these challenging times. These changes flatten our corporate leadership team structure, provide me with closer oversight of the operations and help us drive further revenue enhancements and cost reductions that are required.”

Era Group posted a loss of $3.8 million for the quarter ended March 31 on operating revenues of $62.6 million compared with $67.4 million for the same year-ago period. The company attributed the revenue drop to fewer helicopters on contract, lower average rates and the 2015 sale of the company FBO in Alaska. However, the company cautioned that its significant excess capacity could have a large impact on its capital commitments. This is more bad news for the OEMs. In May the company reported that “we continue to experience excess capacity in our medium and heavy helicopters, and we expect this excess capacity to persist for the next several quarters.” Era said, “We may sell certain helicopters opportunistically consistent with our stated strategy.”

Era added that it had capital commitments of $156.1 million as of March 31 this year, of which $40.1 million is payable this year, with the balance payable through 2018. “We may terminate $129.4 million of our total commitments (inclusive of deposits paid on options not yet exercised) without further liability other than aggregate liquidated damages of $3.2 million. The noncancellable portion of our commitments payable this year is $13.4 million. Included in these capital commitments are agreements to purchase seven AW189s, two S-92s and five AW169s. Deliveries of the AW189s and S-92s are scheduled to begin this year and continue through 2018. Delivery dates for the AW169s have yet to be determined. In addition, we had outstanding options to purchase up to ten more AW189s and two more S-92s. If these options are exercised, the helicopters would be scheduled for delivery beginning next year through 2018.”