By Tony Skinner, editor-in-chief at Shephard Media
While effectively navigating the uncertainties that arise is all part of doing business, the civil helicopter sector seems to have been going through a particularly tumultuous period of late. The dawning realisation that low oil prices may be a longer-term trend – rather than simply a temporary blip – has seen many suppliers to the offshore sector scrambling to find alternative areas of revenue.
The flatlining offshore business has been hit by prices plummeting from a healthy $100 per barrel in 2014 to around $50-55 – an impact that had not been felt since the 2008 global recession. Even the larger helicopter OEMs, which have the protection of a diversified business model, have taken a hit to profits, according to recently reported half-year results.
For Bell Helicopter, sales of commercial rotorcraft was down by 15 aircraft compared to last year’s results, while revenues at Airbus Helicopters for Q2 fell by 8% to €1.529 billion. Honeywell and United Technologies also highlighted this downturn in the civil helicopter market, noting a decrease in demand for engine shipments.
Some executives we have spoken to believe the offshore industry is going through a period of ‘generational change’, with one noting that the current climate was tougher than anything he had seen in the past 20 years. CHC’s recent decision to restructure under Chapter 11 proceedings has also led to dozens of medium and heavy helicopters being returned to lessors, with the subsequent knock-on effect this will cause.
A dark cloud also hangs over the helicopter leasing sector, given the number of companies that have opened for business in the past five years and that hold a good number of aircraft on order. Furthermore, the offshore industry has now introduced efficiencies that will not disappear even if the price of crude starts climbing again soon.
To complicate matters further, three fatal crashes in the past year have left the respective OEMs struggling to deal with the aftermath. The future of the Airbus Helicopters H225/Super Puma family for the offshore mission is in doubt following April’s loss of a CHC-operated example in Norway, which grounded much of the global fleet.
Meanwhile, the Bell 525 Relentless and Leonardo Helicopters AW609 tiltrotor programmes both suffered a recent fatal crash of a prototype aircraft, likely delaying any entry into service on offshore (or indeed any) missions. Nevertheless, the energy market is clearly not dead, and the need to transport people by air out to the remaining oil rigs is not going away any time soon.
Furthermore, suppliers are buoyed by the fact that despite the new realities in the offshore sector, areas of growth remain across the civil helicopter world. For instance a large number of significant opportunities have emerged in the EMS sector for manufacturers, lessors and operators.
While EMS was in the doldrums for several years as governments cut back their budgets under austerity programmes, much of this had now been worked through. Indeed, industry sources have told us there have been a number of relatively large EMS deals in the last year, with more in the pipeline. Regionally, 2015 was a reasonably healthy one for civil helicopters in Asia-Pacific, with the total fleet increasing by 4.5% to a total of 6,015 machines by the year’s end. The question remains, however, whether the region will be able to sustain this level of growth.
Figures published by the Asian Sky Group in its 2016 fleet report revealed that only a third of the 34 countries studied saw improvement, with the remainder either contracting or remaining stagnant. Around 45% of the Asia-Pacific fleet operates in a multi-mission role, followed by corporate or private flying at 28%, and offshore operations at 6%. Conversely, however, in terms of replacement cost, offshore operations make up some 20% of the market.
Airbus Helicopters recently confirmed that Asia-Pacific is the company’s fastest growing region in terms of civil/parapublic sales. Light helicopters remain the strongest performers in these segments across the region.
Sikorsky is experiencing similar growth, with company officials noting that demand for multi-role helicopters for such missions as SAR, humanitarian aid/disaster relief, troop transport and VIP missions was on the rise.
The big unknown in terms of future opportunities is the prospects for sales of Western helicopters across China. For example, across the PRC’s 44 cities with populations of over two million, there are fewer than ten dedicated EMS helicopters in service. Once Beijing opens up lower-level airspace and introduces ‘green channels’ for EMS helicopters within major cities, this will spur demand.
Various factors such as an economic slowdown, a quieter oil and gas market, and airspace that is taking a long time to free up will mean near term growth is likely to remain moderate. Nevertheless, for rotorcraft executives considering sales targets for 2017, the situation is not all doom and gloom.
While the current climate is forcing many suppliers to diversify beyond their traditional strengths to maintain resilience, this is simply ‘the first lesson on the first day of business school’, as one source puts it.
Tony Skinner is editor-in-chief for all Shephard editorial content as well as being the editor of Defence Helicopter and Rotorhub magazines. He took over the rotorcraft portfolio in 2009, after five years with Jane’s Defence Weekly, where he was latterly the magazine’s features editor.