Analysis: From bankruptcy to buoyancy
With the stabilisation of oil prices at over $50 per barrel and companies now emerging from bankruptcy, the commercial helicopter market is enjoying a level of buoyancy as the oil and gas market returns to a more optimistic state.
The emergence of two key players from bankruptcy indicates that the tide of change within the industry was rising towards steady growth.
At the end of last month, Erickson announced that it had emerged from the Chapter 11 bankruptcy process after five months of restructuring, satisfying the requisites outlined by the court.
Andrew Mills has been appointed as the interim president and CEO at the company, while Erickson is no longer publicly-listed but a privately-owned company, comprised of shareholders including former bondholders.
‘We went through the restructuring process pretty quickly by American standards – in five months – and it went about as smoothly as it can go,' Mills said, explaining to Shephard the process of reorganisation.
‘So, emerging from that we have greatly deleveraged our debt - we did have a very high debt ratio but that has been reduced to a very reasonable level.’
In November 2016, the-then president and CEO Jeff Roberts cited business challenges within the industry that, in turn, forced the hand of the company as assets began to suffer.
This quick turnaround from when bankruptcy was filed at the end of last year to now has been helped by the continuation of operations by the company during the restructure, Mills explained.
‘We were able to renegotiate a number of aircraft leases on some of our intermediate aircraft down to very reasonable levels. We were able to shed a lot of our debt payments. So, the sum total of liquidity and our cash flow is [now] far, far better than it was before,’ he said.
‘From an operational and safety standpoint, we have
continued to try to set a very high bar and I am pleased to say that we didn’t
lose any customers – they all stayed with us and we even landed some new
customers during the restructuring. So, coming out [of bankruptcy] I feel very
bullish about our revenue outlook for the next year,’ Mills said.
In March of this year, the company made a series of announcements indicative that business was looking up.
Erickson was contracted for 90 days to provide firefighting support in Chile with its S-64 Aircrane. It was also tasked, in the same month, with the building of a new S-64 Aircrane to the Korea Forest Service by the end of the year.
In addition, moving from the Americas and Asia, Erickson was awarded a fixed-price contract to provide air transportation services in support of the US Africa Command’s area of responsibility with operations commencing last month, according to company literature.
‘We still have all of our fleet of 20 Aircranes. We are manufacturing a brand new Aircrane with the Korea Forest Service... Erickson has gone through a tough time the last couple of years and we’ve come out the other side. We are a much stronger and leaner company and I think we’ve got a very bright future,’ Mills concluded.
Meanwhile, CHC came out of the bankruptcy process in late March after completing a restructure aimed at sustaining the company through the energy downturn and positioning itself for growth as the market recovers.
The Chapter 11 process allowed the operator to ‘rethink every aspect of our company’, said president and CEO Karl Fessenden. The revised plan gives CHC access to $300 million in new capital, terms for restructured aircraft leases and access to an additional $150 million to fund its future fleet.
‘Our fleet mix is now balanced to meet the needs of our current customers while ensuring the flexibility needed for us to continue investing in the latest aircraft technology to meet their future needs,’ Fessenden told Shephard.
‘We’ve also worked with our suppliers to reduce our supply chain costs, and streamline and simplify our process.’ He added that the company believes ‘we are well positioned to succeed in the current market as well as attract additional customers as the market recovers’.
CHC announced in May 2016 that it had filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code, citing the dramatic collapse in oil prices as having a significant disruption on its operations.
Energy remains the single largest part of the operator’s business, Fessenden said, accounting for almost two-thirds of its revenue.
Still, he also pointed to other markets, such as SAR and EMS, in which CHC has long been active, with major contracts in both areas underway in Australia, Ireland, and Norway, among other nations.
‘We continue to see large potential for growth in both the public sector as well as SAR support for offshore oil and gas customers, particularly in more challenging regions with extreme climates, long-range offshore drilling campaigns and other service needs,’ Fessenden said.
The company is pursuing potential contracts with both government and private customers in these areas, he said, pointing to recently announced new SAR contracts with Statoil in Norway and supporting the Australian Navy, as well as a January deal with Siemens Wind Power to support the German company’s offshore wind farm that is currently under construction in the North Sea.
Fessenden also pointed to CHC’s Heli-One maintenance division.
‘Oil and gas is still the core of our business, but we continue to look to further diversify our business, grow our SAR and EMS business, and develop Heli-One’s opportunities around the world,’ he said. ‘Our goal is to find success in a low-priced oil environment as we expect the market rebound will continue to gradually recover.’
The company sees Latin America, Southeast Asia and Africa as important potential growth markets in the oil and gas sphere, Fessenden said, though he said the company had also expanded its business with current customers, as evidenced by a recent two-year contract extension announced with Shell in Aberdeen, Scotland.
The company had recognised that the US restructuring process ‘was unfamiliar to many of our international customers and had the potential to be confusing’, so there was an effort to explain the process and make the argument that ‘it would strengthen the company and make our business sustainable in this protracted industry downturn’.
Fessenden said that all of CHC’s customers ‘stood by us during this time, when they could have easily walked away’.
There had also been the addition of new customers, such as a new aeromedical evacuation contract with the Australian Army and a new agreement with Shell to provide three aircraft in support of the energy giant’s Prelude floating liquefied natural gas project.
We are already seeing results with contract extensions with current customers as well as new contracts worldwide.— CHC president and CEO Karl Fessenden
Fessenden also highlighted a new contract with Wintershall Norge AS to support their drilling programme in the Norwegian Sea, and another to provide SAR support for Norway’s Ministry of Justice.
CHC’s goal in the restructuring process ‘was to make sure the actions we took in the restructuring process set us up for long-term success’, Fessenden said. The aim was to rebuild the company to sustain the current downturn in the oil and gas market, as well as to make strategic investments in the company so it is well positioned to grow as the market recovers.
‘We’re very optimistic on our future and already seeing results with contract extensions with current customers as well as new contracts worldwide,’ he said.