The CEO of helicopter services company Era Group said this week that the helicopter offshore oil-and-gas business is “not sustainable” and “in dire need of consolidation.” Chris Bradshaw made the remarks in written comments contained in the company’s annual report issued April 24.
“Consolidation will not only address the excess capacity in the industry, but will also facilitate better absorption of the significant fixed costs required to run an air carrier,” Bradshaw said, adding that the bankruptcies of Era’s competitors and helicopter leasing companies are likely to become a revolving door. “A simple, standalone equitization of these distressed balance sheets is unlikely to address the fundamental issues at play and may only lead to subsequent rounds of restructuring. In our view, the offshore helicopter industry is in dire need of consolidation, among both the operators and the lessors.”
Bradshaw said consolidation of any two of the three deepwater operators in the Gulf of Mexico would create cost savings sufficient to “create significant value” for the surviving companies’ stakeholders.
While competitors Bristow and PHI both lost money on their offshore operations in 2018, Era managed to post a modest net income of $13.9 million for the year on $222 million in revenues while operating 108 helicopters. However, that result included a $42 million settlement from Airbus Helicopters related to the grounding of H225 heavy helicopters in Era’s fleet. (Era had nine H225s at the time of the fleet's worldwide grounding in 2016, but only one remained at the end of 2018.) The 2018 results contrast with revenues of $231 million and a net loss of $28 million in 2017.
Bradshaw credits Era’s comparatively better results, as opposed to its peer group, to an aggressive cost-cutting campaign begun in 2014 that slashed corporate debt by $165 million and raised cash from asset disposal, including $110 million via the sale of underutilized helicopter, $46 million from asset sales in Alaska, and $38 million by selling its equity in Dart Holdings earlier this year. From 2014 to 2018, the company also reduced U.S. employee headcount by 45 percent and reduced costs via examination of all line items, “from helicopter maintenance expenses to coffee and office supplies.”
“Our early and proactive efforts to right-size Era’s cost structure for the new reality in the offshore oil-and-gas industry allowed us to continue to generate positive operating cash flow throughout the downturn,” Bradshaw noted. That included what he called Era’s “differentiated strategy.”
“Rather than approaching the business simply as an operator of helicopters, we view the company as managing a pool of assets from which are trying to generate the greatest cash return. This results in a differentiated strategy whereby we operate, lease, and actively sell helicopters, depending on the relative value proposition of the three alternatives,” Bradshaw said. Era’s current fleet consists of nine heavy, 46 medium, 23 light twin, and 30 single-engine helicopters.