Story ID: 142Bristow
Bristow CEO: No Recovery until Late 2017
By: Mark Huber
Caption: Continuing slump in oil prices is hitting the OGP services industry hard, says one operator.
Word Count: 820
Bristow Group CEO Jonathan Baliff painted a sobering picture of the state of the helicopter OGP services industry during a conference call with stock analysts in August. Baliff said the current industry downtown could extend “another, let’s call it two years to the end of calendar [year 2017].”

Baliff said his company is dealing with the industry slowdown, triggered by a continuing slump in the price of oil, by aggressively cutting costs. Measures include shedding approximately 10 percent of the company’s work force, deferring new aircraft deliveries and eschewing future and/or existing aircraft leases.

Baliff made his comments as Bristow reported a $3.3 million loss and a 58-percent net income drop for the quarter ended in June, hinting that it could have been worse without the company’s aggressive cost-cutting, a policy that will continue into next year. “We initiated a $75- to $95 million cost efficiency program in February that mitigated the impacts of this downturn for our clients’ benefit,” Baliff said. “However, we will now implement a second-phase economic restructuring to deliver [at least another] $60 million in annualized cost base reductions as we see the velocity and duration of the downturn worsen.”

Bristow COO Jeremy Akel filled in the dramatic specifics of the cost cutting, noting, “For the first quarter, capital expenditures (CapEx) were $68 million, including $40 million spent on aircraft, down from $200 million of total CapEx for the comparable period and down from $103 million sequentially, as we continue to draw back expenditures ended for oil and gas CapEx.” Akel said this included deferring some new aircraft deliveries, while preserving delivery options.

“We are working actively with our OEM partners to optimize our deliveries, reflecting our short-term realities while preserving our long-term goals,” he said.
Right Aircraft for Mission
However, both Baliff and Akel said that select new aircraft deliveries, particularly super-medium helicopters such the Airbus H175 and the AgustaWestland AW189, would continue even in this more cost-conscious environment as those aircraft provide customers with “right-sizing” flexibility and offer both Bristow and its customers lower operating costs.

“We have, as you know, signed an agreement with Airbus for those H175s and people had been inquiring why would you commit to, and stay committed to, 17 H175s in the beginning of this downturn. For two reasons: one, we think it is actually going to be a very competitive aircraft in the downturn,” Baliff said, adding, “We are going to be careful with the CapEx. So we need better line of sight on which contracts to work for. But second, and most important, the type of risk reduction we get through the Airbus contract of the H175s, which we will in the future apply to all of our aircraft purchases, starts to mitigate the issues associated with the cost overrun in Europe.” Bristow is believed to have an airline-style contract with Airbus on the H175s that guarantees life-cycle costs.

Akel said that the new super-mediums will make Bristow more competitive in hot tender markets such as Brazil and the U.S. Gulf of Mexico. “Our commitment to the H175 and AW189 is putting us in an advantageous position to offer our clients flexibility around variable passenger movements by offering them aircraft that are right-sized, and maximizing their load factors for a better term.”

Baliff noted that Bristow’s relatively young fleet, with an average age of nine years, is mostly owned rather than leased, giving the company more flexibility to relocate machines to markets that are doing comparatively well such as Australia and the U.S. Gulf of Mexico. “We can decline lease renewal options and return leased aircraft if the downturn extends to fiscal year 2017 and use owned aircraft in their place,” he explained.

Bristow’s most recent quarterly performance is being replicated throughout the industry. While overall profitable, Era Group reported that operating revenues declined by $15.8 million compared to the prior-year quarter. PHI reported consolidated operating revenues for the three months ended June 30, 2015, were $198.5 million, compared with $212.1 million for the three months ended June 30, 2014, a drop of $13.6 million. PHI’s oil and gas segment operating revenues fell by $15.2 million for the quarter ended June 30, 2015, attributable primarily to slimmer revenue from all model types as a result, primarily, of having fewer aircraft on contract and flying fewer hours. Erickson reported second-quarter 2015 revenue of $69.3 million compared with revenue of $80.9 million in the second quarter last year. In June, CHC Group reported revenue of $374 million and a net loss of $119 million for its fiscal 2015 fourth quarter, which ended April 30, 2015. In late July, CHC acknowledged that it was in danger of having its stock delisted from the New York Stock Exchange for failing to maintain a share price of at least $1 for 30 consecutive days. On August 17, the stock closed at 30 cents a share, continuing its freefall from a 52-week high of $7.37.