Surviving the Slump in the Offshore Helicopter Market
The helicopter industry has always been closely linked with oil and gas. Thus, when oil prices fell from 2014, it was expected that the helicopter industry would be negatively affected too. As prices fell, oil companies scaled down their exploration and production activities, reducing the demand for air transportation.
Turbulence in the Offshore Helicopter Industry
The continued downturn burdened helicopter operators, leading to lay-offs and a greater need for organizational restructuring. Procurement organizations within oil and gas companies didn’t want to keep a large fleet of helicopters for reduced requirements. As a result, between 20% to 30% of the global helicopter fleet became a surplus to requirements, substantially impacting the offshore industry. Heavy offshore helicopters accounted for 15% of helicopter deliveries in 2014 but now account for only 6% of deliveries.
With offshore exploration budgets at their lowest, these are challenging times ahead for helicopter operators. Helicopter utilization rates are at 68 percent and 63 percent for medium and large offshore helicopters respectively; a supply glut that needs to be addressed. Both PHI and Bristow Group — the world’s largest and oldest operators — had to file for bankruptcy in 2019. Bristow recently emerged from its chapter 11 bankruptcy protection after successfully completing a debt restructuring and reorganization plan. With exploration activities picking up, there is cautious optimism about the helicopter market slowly turning a corner in the future.
Will Consolidation Be the Key to Recovery?
Oil and gas companies should note that there are visible movements in the offshore helicopter industry to manage the current downturn. Bristow Group and Era Helicopters announced plans to consolidate in 2020, creating an offshore helicopter behemoth with a fleet of more than 300 aircraft. The combined entity (called Bristow) would become the world’s largest operator of Sikorsky S-92, and Leonardo AW189 and AW139 aircraft. This would help Bristow address the issue of excess capacity in the market.
Oil companies should expect more acquisitions to happen in the near future. The current offshore industry landscape wasn’t sustainable in the long run, and consolidation will help helicopter operators with bloated fleet sizes to run more efficiently, realize cost synergies and better absorb the fixed costs required to run an air carrier. Cash influx and equitization are methods that have traditionally been used to boost a floundering company. However, this is unlikely to address the fundamental issues ailing the offshore helicopter industry and may only lead to subsequent rounds of restructuring.
Strategies to Help Survive and Thrive
Best-in-class operators like Era have paved the way for navigating the market amidst the current downturn. Oil and gas companies can choose helicopter operators who are adopting the below best practices to improve utilization:
- Helicopter operators who have reduced their fixed or general and administrative headcount and are actively restructuring their organization by reducing spend on indirect costs.
- Operators who are pursuing differentiated strategies, such as not just operating aircraft, but also looking to actively lease and sell them depending on the market conditions and value proposition.
- Operators looking to replace their older fleet by investing in newer helicopter variants like the super-medium sized Leonardo AW189. Such models present a compelling value proposition for operators and customers alike as they can do the work of a traditional heavy helicopter at a lower cost.
Procurement can also look towards helicopter operators who are working with original equipment manufacturers to help diversification. Offshore helicopters are not traditionally reconfigurable to different services like military or search and rescue. The cost of converting an offshore helicopter into a different purpose is too prohibitive for helicopter operators and customers. OEMs and operators could help the market by making helicopters more easily reconfigurable for new roles.