COMPETITION FOR OFFSHORE HELICOPTERS DRIVES SHIFT TOWARD LONGER-TERM CONTRACTS
The shortage of available helicopters in the offshore oil-and-gas industry is forcing producers to offer more lucrative, long-term contracts to operators, and petroleum companies that are slow to adapt risk being left behind, warns CHC Helicopter.
“There are going to be customers left without lift from what we see . . . from both the demand coming in, as well as the limitations in available supply,” said CHC’s senior vice president for flight services, Kevin Spengler, on the sidelines of the CHC Safety & Quality Summit in Vancouver, British Columbia, last week.
“Customers are acknowledging [the situation] and reacting to it at different paces,” he said. “It’s the ones that react slower . . . that are going to be struggling to secure their sustainability for their own operations.”
Spengler’s comments come just a few weeks after the Aviation Subcommittee (ASC) of the International Association of Oil & Gas Producers (IOGP) warned its members that “a serious and deteriorating supply chain situation in offshore helicopters” is placing “an unprecedented level of stress” on maintenance departments and personnel.
While all helicopter manufacturers have struggled with supply chain issues in the wake of the Covid-19 pandemic, Lockheed Martin Sikorsky has been especially challenged in supporting the S-92, which became the preeminent offshore heavy helicopter after high-profile fatal accidents forced the exit of the Airbus H225 from the sector.
In an October 2023 safety notice, the ASC reported that six offshore operators had a total of 31 S-92 helicopters grounded while awaiting replacement main gearboxes, and that the number of S-92s out of service could double by the end of the year. The notice pointed to the increasing frequency of “robberies” or “cannibalization” — moving components from one aircraft to another in order to keep one airworthy — as a particular source of stress.
“When you get to the point where you’re routinely reliant on robbery/cannibalization action to get aircraft out of heavy maintenance or to keep aircraft flying, that is an unhealthy situation and brings with it a safety risk,” Tony Cramp, chairman of the IOGP ASC, told Vertical. “Increased maintenance activity puts pressure on departments and individuals, it means increased use of overtime or extended work hours. Potentially engineers are having to work harder or faster, which brings with it risk.”
Cramp said that “operators have done a fantastic job and are continuing to do a fantastic job in managing those risks. But they’re under strain. What we need to do as the customers is make sure we don’t exacerbate that, to make sure that our people understand the pressures that our operators are under and that they’re doing their very best to provide the aircraft safely, when and where we need them.”
According to Spengler, the problem now is that the strategy of robbing one aircraft to keep another one flying has “expired. We’ve consumed all of the parts that we can get our hands on. . . . We’ve purchased aircraft and we’ve stripped them for parts and used them in our operations.”
With the supply of existing parts nearly exhausted, the offshore sector is now dependent on getting more new parts into the system, which won’t happen immediately, he said. “So that’s going to create a real shortage of assets available to fly in the coming 12, 18, 24 months. And then I think it’s also important for the whole industry to understand that even when parts flow is re-established, there is another 12- to 24-month period at the back end of this . . . to get operators back on a normal maintenance schedule for their fleet.”
In the meantime, CHC is responding to the tightening supply of helicopters by moving its assets to locations where it can secure “more sustainable contracts,” notably Brazil. Spengler said that CHC had four operating aircraft in Brazil at the beginning of this year but could have as many as 16 by the early part of next year, because Brazil’s state-owned petroleum corporation, Petrobras, has been offering helicopter operators longer-term contracts at higher rates.
“A lot of the supply of aircraft hasn’t been moved yet, but I think the way we see it, there’s a lot of pending movements and constrictions of supply,” Spengler said. “It’s going to get worse before it gets better.”
He said that during the downturn, “every operator was faced with a decision to have some revenue coming in to offset the costs, and continue to work and do other things to live another day, or to shut down.” That led to short-term contracts of less than three years with termination for convenience, and no escalation clauses for increases in labor and parts costs.
Now, Spengler said, “we’re seeing term discussions [on the order of] five to 10 years in order to provide the assurity of capital, and this is what the capital markets are looking for, too” when it comes to financing new aircraft. “If you can lock in something with the right terms, the right rates and the right duration, now you can attract capital to come into the industry again and do the reinvestment required.”
Cramp confirmed that some oil-and-gas customers are being told that aircraft are not available to meet their needs, and that this is starting to drive a broader rethink of contracting strategies.
“An oversupply of aircraft in previous years led to behaviors where, if you needed an aircraft, one would be made available, you just needed to talk terms with your operator. We’re now very much in the situation of having an undersupply of aircraft . . . not yet for all types, but in certain areas, and for particular types,” Cramp said.
“As an industry, we’ve gone through a period that generated very short-term views around helicopter contracting, because of the oversupply and because it was possible. We’re now in a position where we need to take a different approach if we are to maintain the investment that the sector needs and think about longer-term contract relationships to secure not only the aircraft, but the people, crews and engineers, as we now have a shortage of both.