Brazil’s troubled, scandal-plagued and majority state-owned oil company Petrobras announced January 12 that it is revising its planned capital expenditures–including deepwater exploratory drilling–lower for the period 2015 to 2019 from $130 billion to $98.4 billion and modestly cutting oil production targets as well. The move is expected to have a major impact on the country’s already buffeted OGP helicopter services firms, which have seen business decline by more than 25 percent over the last year. Petrobras accounts for 90 percent of all OGP helicopter business in Brazil.
Brazil, once seen as the darling of new heavy and medium helicopter sales due to expanding deepwater energy business, is now headed for a deep sales freeze. OGP helicopter providers had already taken aggressive moves to defer or cancel deliveries. Last year Lider Aviação put the brakes to the delivery of six Sikorsky S-92s and several smaller helicopters. And the Brazilian real lost 38 percent of its value against the U.S. dollar; almost all aviation transactions are done in dollars. Two years ago Lider was flying 45 helicopters for Petrobras. At the end of last year it was down to 35.
The worst may be far from over. A slew of institutional investors are suing Petrobras over a corruption scandal known as Lava Jato (“car wash”) involving company executives, contractors and politicians that may have stripped the company of as much as $28 billion, of which it wrote off $17 billion. Some 2,000 Petrobras employees are under investigation, according to litigation brought by investors. One lawsuit, brought by bond firm Pacific Investment Management Co. (Pimco), charges that top Petrobras executives were aware of the corruption scheme and therefore that “calls into question the integrity of the company as a whole.” Investment firms and public pension funds across the U.S. are joining in on the litigation train while there is still money left to get.
Petrobras’s total debt last year reached $134 billion, and the value of much of that debt has been cut to junk status by rating services Moody’s and Standard and Poor’s, and increasingly markets are doubtful of its ability to pay. In an effort to reassure markets, Petrobras said in early 2015 it was selling off $15 billion worth of assets in 2015 and 2016 to help pay down debt, but to date has managed to dispose of only $700 million. Petrobras has lost $190 billion in market capitalization over the last five years and during the past year its stock has tumbled more than 60 percent. The sliding price of oil pushed company revenues down 27 percent year to date, and the company is abrogating contracts with drillers and suppliers as fast as it can whenever and wherever it can. And no drilling means no helicopters.
While there is some concern that Petrobras could default on multibillion-dollar loan payments due in 2016 and 2017, it seems unlikely that the Brazilian government would allow it, classifying the company as too big to fail. But when and if OGP helicopter activity stabilizes and begins to grow again remains an open question. As does the executive and charter helicopter market in the remainder of the country which, due to declining economic conditions, has also taken a hit, down approximately 25 percent or more in leading markets including São Paulo.