Helitech 2016: Strategic Challenges for the Offshore Helicopter Industry

Helitech 2016: Strategic Challenges for the Offshore Helicopter Industry

3-Oct-2016 Source: Allan Blake

Helitech 2016 in Amsterdam, October 11-13, is taking place at a critical moment for the offshore helicopter industry:
•    The industry has been shocked by a series of accidents including the second and continuing grounding within three years of about 180 large offshore helicopters (H225 and AS332L2) following the tragic H225 accident in Norway;
•    A sustained drop in the price of oil has led to huge cuts in exploration budgets to a 60 year low – the oil price shows some signs of recovery but the customer focus on reducing costs in this market will endure; and
•    One of the largest global operators, CHC, has entered Chapter 11 proceedings stating that it will slim down and reduce its helicopter fleet to 75, with a reduction of about 155 aircraft of which 65 have already been released back to lessors, one sold and 30 are pending a court hearing.

A change in the market is inevitable. There are significant opportunities for those operators who identify opportunities and are willing to change, but also threats for those operators, their staff and investors, who lag behind. Against this backdrop, there are five key strategic issues for consideration by helicopter operators, manufacturers and delegates attending Helitech 2016.

1.    Diversification: We have already seen one large helicopter operator absorbed into a substantially more diverse operation (Bond into Babcock). Babcock have just secured a five year contract with Qantas to support their GSE across 60 Australian locations and already provides support services at other airports such as Schiphol and Gatwick. Bristow has diversified into the fixed wing market with its acquisitions of Eastern in the UK and Airnorth in Australia plus the large 22 aircraft UK Maritime Coastguard SAR contract which has now added a Jetstream 41 turboprop on trial from Eastern (see also Shree Airlines in Nepal).  Weststar Aviation Services is part of a large diverse group which includes fixed wing operations. This diversification into a wider base is necessary to offset the fluctuating health of the offshore oil and gas industry; lower fuel prices even boosts the margins of fixed wing operations.  Expertise and systems that manage critical transport and passenger logistics in harsh environments can also be applied to other sectors such as airport management, shipping and military support. Offshore helicopter operators that don’t diversify will find it hard to survive.

2.    Personnel only Helicopter Operators: Oil and gas companies may well look to lease helicopters directly from the large supply of available airframes held by leasing companies.  In this scenario, helicopter operators only provide the AOC and personnel – the engineering and operations staff.  This is a different economic model to the one that currently prevails as personnel only contracts are traditionally much lower margin businesses and require a different management approach to operations and management of risk. Helicopter operators have delivered personnel contracts in the military arena but these do not include AOC provision and usually focus on engineering support with limited flight crew provision. The first operator to get this model right will secure profitable business.

3.    Fleet Focus: Many operators are seeking to reduce the number of types they fly to achieve greater efficiency primarily in personnel, training and stock holdings: Weststar have excelled in this strategy, focusing on the Leonardo AW brand for all but three of their 44 strong fleet; CHC are focusing on the S-92A as their large type and using the Chapter 11 restructuring process to achieve fleet focus. This strategy will continue to develop with each operator eventually aligning to one helicopter in each size category. Of course such a focus carries risks, as we have seen with the grounding of the H225.  This requires a mitigation plan that the new “medium–heavy” aircraft are well suited to provide, the H175 and AW189, albeit with payload consequences for heavy substitution. Fleet focus is essential going forward and these new types facilitate that strategy.

4.    Regional Focus and the Demise of the “Global” operator: There is not enough profitable work in each geographical region to support the current number of “Global” operators.  They will be forced to analyse their operations and focus on the regions where they are most economic including any diversification activities in those regions. For example, it is unlikely that the current and projected offshore work in the North Sea and Australia can support the existing number of operators. Given the fleet size that CHC are planning regional focus is probably a part of their evolving strategy.  Smaller regional operators which already have such a focus may see more work coming to them as a result of this realignment or be targets for acquisition in the regions that the Global operators select for their focus. A regional focus requires some tough business decisions and will be the hardest strategy for Global operators to achieve, but it is necessary to deliver the returns required by their investors.

5.    Helicopter Safety: Delivering safe operations is a core skill for helicopter operators. However, safety systems have become increasingly complex to manage and oversee, with the various national regulators and oil and gas clients requiring enhanced and often different models of oversight and audit that the helicopter operator has to comply with.  These different models create unnecessary complexity and also place a significant pressure on helicopter operator safety systems and staff, particularly when there is huge pressure to reduce costs. Helitech 2016 offers the opportunity to look at enhancements to safety systems that deal with this issue and the other developments that HeliOffshore has been promoting.

Helitech 2016 takes place while these strategic issues are being played out.     I will assess and report how the participants view these challenges and how operators are performing against them.

Copyright and full responsibility for the content of this article remains with Allan Blake, an independent Aviation Consultant. He was Regional Director (Asia Pacific) with the Bristow Group for seven years.  He is also the author of “Dynamic Directors: Aligning Board Structure for Business Success” (Macmillan).

© 2016 Graeme Lovell for HeliHub.com

© 2016 Graeme Lovell for HeliHub.com

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