Helicopter Offshore Sector Begins Slow Ascent
The offshore helicopter industry has endured a long and highly publicized downturn, but with a consolidated playing field and rising oil prices, is it finally set for a re-emergence?
Article by Ken Swartz and published by Vertical Magazine
When world oil prices collapsed in 2014, most in the helicopter industry were expecting a quick cyclical recovery, not a series of prolonged and well-documented setbacks. This was then compounded by two years of Covid-19 headwinds.
The good news is that offshore capital expenditures rebounded to pre-pandemic levels in 2021, and are expected to increase by 15 percent in 2022, as petroleum companies scramble to replenish their hydrocarbon reserves. And any time there are more “persons on board” (POB) offshore platforms and vessels, it fills more seats on offshore helicopter flights.
The bad news is that the upturn in the market will not immediately result in significantly higher aircraft utilization rates, which is the key to the helicopter business making a strong recovery and operators reporting consistent profits.
Increasing oil prices have always led to an upturn in activity, but a price increase driven by the Russian invasion of the Ukraine — and the resulting international economic sanctions — presents other challenges.
The offshore helicopter business has always been closely coupled to the activity of the oil-and-gas industry it serves.
When the big push to increase deepwater exploration began more than 20 years ago, helicopter manufacturers responded by developing a new generation of helicopters that had better payload range – like the Sikorsky S-92, Airbus H225, and Leonardo AW139 – that also came with higher price tags.
Offshore exploration and production companies contracted the new generation aircraft — and helicopter operators achieved good returns — until oil prices collapsed in 2014-2015, and year-over-year losses started to grow for companies that didn’t aggressively slash costs and retire ballooning debt.
The three largest offshore helicopter operators by fleet size – CHC, PHI, and Bristow – all underwent Chapter 11 bankruptcy restructuring between 2016 and 2019 to reduce debt, attract fresh investment, and terminate costly leases on parked aircraft.
The inflight break up of an Airbus H225 off the coast of Norway following a main gearbox failure on April 29, 2016, resulted in the grounding and cancellation of most Airbus 332L2 and H225 contracts. This removed a lot of excess capacity from the fleet, but as oil companies continued to slash spending and defer projects, helicopter demand continued to fall — resulting in low utilization rates.
Today, there are over 10,000 oil and gas production platforms and 453 active drilling rigs working in petroleum basins around the world, supported by a sizable fleet of helicopters, according to Steve Robertson, an energy sector economist and founder of Air & Sea Analytics.
Looking back over the last two decades, Robertson says the offshore helicopter fleet peaked in 2012, and then began a slow but steady decline. As of December 2021, it included 17 active H225s, and just over 200 S-92s, of which 154 were active. The super medium fleet included 41 Leonardo AW189s and 30 Airbus H175s, and the medium fleet was dominated by 325 AW139s.
Helicopter market intelligence firm Parapex Media reports that the global fleet also includes 42 Airbus H155s and 57 AS365N/N2/N3 Dauphins, three Bell 212s and 107 Bell 412s, 14 Leonardo AW169s, and 254 Sikorsky S-76Cs and 21 S-76Ds.
The light-twin fleet includes 21 Airbus H135s, 18 Airbus H145s, three Bell 429s, and nine Leonardo AW109s.
When it comes to single-engine offshore helicopters, the overwhelming majority are concentrated in the Gulf of Mexico, where an abundance of shallow platforms means an aircraft is never more than a few minutes from a place to land. The Helicopter Safety Advisory Council (HSAC) reports there were 120 single-engine helicopters active in the Gulf of Mexico in 2020, down from 407 single-engine aircraft in 2001.
In addition, 33 helicopters are now employed supporting offshore wind farm construction and maintenance, which is a business that is certain to grow in the coming decade.
Robertson says a defining characteristic of the present industry is that no offshore helicopter support business was set up to weather a prolonged cyclical downturn lasting more than five years. “Previous downturns, even after major macro shocks such as the banking crisis, were short-lived. No one budgeted for seven years of downturn. Re-structuring, re-financing, and M&As [mergers and acquisitions] have been common themes across the oilfield services sector.”
The growth of deepwater exploration and development expanded the helicopter leasing business, which has become an important stakeholder in the industry today.
“About 120 of the S-92s are owned by lessors such as Milestone and Macquarie,” said Robertson. “They give operators a lot of operational flexibility in terms of fleet size. Some of them have also been very active in the market, trying to take up the excess capacity by acquiring aircraft from banks that were originally released through the Chapter 11 restructurings.”
A new offshore Sikorsky S-92 might once have cost upwards of $28 million, but since the market downturn, some off-contract aircraft have been trading in the $4-to-$7 million range, which has put a lot of downward pressure on monthly lease rates.
Order books for new offshore aircraft are very thin at present, and Robertson suggests that growth in the heavy market “is likely to be initially met by returning parked aircraft to work, given the lag time of circa two years on new orders.”
There are still plenty of helicopters shuttling offshore workers to towering drilling rigs and production platforms, but the companies flying these aircraft are not the same businesses they were two to six years ago.
In 2020, Era Helicopters emerged as one of the strongest offshore companies from a financial perspective, after rapidly slashing its fleet and cost overheads as oil prices slipped in 2014.
On the eve of HAI Heli-Expo 2020, Era Group Inc. and Bristow Group Inc. announced plans to combine the two companies, with Era’s Chris Bradshaw becoming president and CEO of the combined company, which kept the Bristow name.
The combined fleet totaled almost 300 helicopters and made the new Bristow the world’s largest operator of the S-92, AW139, and AW189.
The groundwork for a merger was laid when Bristow Group Inc. filed for Chapter 11 bankruptcy protection in May 2019. It emerged five months later, having significantly reduced its debt.
When the Era-Bristow merger closed in June 2020, the company had significant operations throughout the Americas, Nigeria, Norway, the United Kingdom and Australia.
The company’s first priority was to realize at least $35 million in annual cost synergies by bringing the two Houston, Texas-based companies together.
Today, Bristow is the only remaining publicly listed offshore helicopter company. That provides a lot of transparency to the company’s activities, but also means it can turn to banks and equity markets to support future mergers and acquisitions or growth initiatives.
Last year, it identified advanced air mobility (AAM) as a natural growth opportunity, announcing plans to purchase eVTOL aircraft from three developers (Vertical Aerospace, Embraer’s Eve and Overair), as well as with Electra.aero, which is developing a hybrid-electric short takeoff and landing (eSTOL) aircraft.
The first of the big offshore helicopter operators to restructure was actually CHC Group, which made its Chapter 11 filing in May 2016. It emerged in March 2017 “a significantly stronger, better-capitalized company,” having secured $450 million in new investment, including $150 million from Milestone Aviation Group.
CHC’s biggest market is the North Sea, with operating bases in the U.K., Norway, the Netherlands and (at one time) Denmark.
In March 2021, it announced an agreement to buy Babcock’s oil-and-gas aviation business, which operates 30 helicopters. The sale closed in September 2021, with helicopter operations in the U.K., Denmark and Australia held separately and operated independently while CHC awaits approval from competition authorities.
Over at PHI, Inc., the operator emerged from its restructuring in September 2019 as a private company, having filed for Chapter 11 bankruptcy in March that year. When PHI began the process, it had a fleet of 238 aircraft, including 119 helicopters dedicated to offshore use, 111 to air ambulance use, and six deployed seasonally to Antarctica to support polar research.
When it came out of restructuring, the size of the fleet was largely unchanged, with PHI Health running the air medical business and PHI Aviation running the offshore, search-and-rescue, and other new business.
HNZ won two major S-92 contracts in Western Australia in 2016-2017, leading PHI to buy out its Canadian partner, after which HNZ International was renamed PHI International.
Today, 60 percent of PHI’s oil-and-gas revenues are generated from the Gulf of Mexico, and 40 percent from international operations in Australia, Cyprus, Ghana, New Zealand, Papua New Guinea and the Philippines.
In February 2021, Shell Aviation announced it had selected PHI to operate four new H160s on a contract in the Gulf of Mexico from a base at Houma Airport. Airbus will provide one H160 sometime this year, ahead of final deliveries to PHI and Shell for a year-long route-proving program.
Offshore in the Americas
Reflecting the deep impact of Covid, HSAC statistics show the number of helicopters in the Gulf of Mexico declined by 18 percent from 2019 to 2020, and flights were down 33 percent. The statistics also highlight a long-term trend that has seen fleet, operators, passengers, hours and flights decline steadily for at least the last 20 years.
For example, 583 helicopters carried 3.5 million passengers on 1.4 million flights in 2000, compared to 483 helicopters carrying 2.3 million passengers on 938,690 flights in 2010. In 2020, 234 helicopters carried 788,242 passengers on 275,579 flights.
The prominent companies have been PHI, Bristow, Era, Chevron, RLC and Westwind, along with a handful of independent operators.
The merger of Era and Bristow included a decision to close two large Bristow facilities, including the “super base” in Galliano and an office and maintenance facility in New Iberia.
The development of offshore wind farms along the U.S. coast has already caught the interest of the helicopter industry. As of March 2021, 12 projects were under review by U.S. authorities for the East Coast, and work has begun on mapping potential lease areas along the Pacific Coast and the Gulf of Mexico.
Off Newfoundland and Labrador, work on the Terra Nova FPSO was halted and no oil produced for more than a year. This, plus delays on the Bay du Nord development project, reduced flight hours for Cougar Helicopters, which is affiliated with Bristow.
In South America, deepwater exploration in the Suriname-Guyana basin has resulted in some exciting oil discoveries, while new gas fields have been found off Trinidad and Tobago. In all three markets, Bristow is the predominant offshore transport and SAR provider.
“Looking forward, we see a strong growth outlook in Latin America, with Brazil and Mexico continuing to dominate offshore activity,” said Robertson.
“Mexico is continuing its relatively-recent ventures into deepwater, and of the discoveries made thus far, BHP’s Trion project is expected to be the first project to move into the development and production phase.”
Brazil remains a huge market, but the work is changing hands.
“Of four lots tendered in the autumn of 2020 in a reverse-auction process, local operators Lider and Omni Táxi Aéreo were successful at the expense of CHC,” said Robertson.
Omni operates more than 50 helicopters, including South America’s only fleet of AW189s and H175s. It is now the largest offshore operator in Brazil, and twice as big as its second-largest competitor in terms of fleet, flight hours, and revenues.
Overseas, Omni has an air operator’s certificate in Mozambique to support offshore gas field developments with an AW139.
Era and Bristow both had Brazilian affiliates prior to their merger. Bristow ended its 41.5 percent minority ownership interest in Lider TáxiAéreo S/A in August 2020, prior to Era’s Aeróleo Táxi Aéreo S/A subsidiary being renamed "Bristow".
The North Sea
The North Sea is the largest offshore market in the world for helicopter operators. Prior to the pandemic, close to two million passengers a year were flying offshore from about 16 bases in the U.K., the Netherlands, Denmark, and Norway.
In the U.K., the four-way competition between Bristow, CHC, Babcock, and NHV has resulted in several major contract upsets over the years.
“Operators continue to fight over contract renewals for long term — three- to five-year — contracts, whilst trying to secure ad-hoc work supporting short term drilling, decommissioning, and windfarm construction projects,” said Robertson.
In July 2020, Babcock commenced a new five-year contract with CNR International, EnQuest, and TAQA to fly offshore from Sumburgh in Shetland, with Loganair fixed-wing aircraft shuttling passengers between Aberdeen and Sumburgh.
The new Babcock contract replaced helicopter service from Scatsa Airport. This was operated by the Integrated Aviation Consortium (IAC), which was a partnership between Bristow Helicopters, Eastern Airways, and five oil-and-gas companies.
Bristow has a long-term SAR contract in the U.K., where it operates S-92s and AW189s from 10 bases for HM Coastguard, which was extended in 2020 through the end of 2026.
In November 2022, it will commence a new 10-year SAR contract on behalf of the Netherlands Coastguard.
In the Norwegian sector, the government directed some fiscal support during the pandemic to the offshore sector, which increased exploration to find new oil reserves. The busy Norwegian passenger market is divided between CHC and Bristow, with almost all service provided by 34 active S-92s — the largest single market for the type.
Robertson highlighted the Eastern Mediterranean as an area of great promise, as it holds vast offshore gas reserves. If high oil prices are sustained, he said the Gulf of Guinea in Africa could return to favor, but said “more interesting opportunities” could lie elsewhere in the continent.
“Total and Shell have important discoveries in South Africa and Namibia respectively, and in Senegal and Mauritania huge gas reserves have been discovered since 2014,” he said.
Over in China, the offshore heavy helicopter fleet has been expanding as the country continues to move forward with deepwater hydrocarbon development.
Further south, Australia is seeing major change, with Bristow pulling out of the country after being active there since 1967. Fresh competition from CHC and Babcock saw Bristow steadily lose its market share.
“Today, CHC, Offshore Services Australia — previously Babcock — and PHI are the main providers of medium and large offshore aircraft [in Australia],” said Robertson
The medium and heavy offshore crew transfer market is reasonably well consolidated in most areas. It is unlikely that we will see fewer than two options for oil companies in any major offshore region, albeit whether the current competitive intensity in Brazil and the U.K. can be sustained is questionable.
“Elsewhere in the offshore supply chain, we have seen M&A in oilfield services as a method of achieving efficiency and meeting oil company expectations on pricing, but there are not too many places where you can do that with helicopters,” said Robertson. “The current CHC/Babcock process shows it’s not all plain sailing when you try to do it, either.”
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