Story ID: 119BristowAINFeb14(2)EditedByAY_NM
Lider Key To Bristow in Brazil
By: Mark Huber
Caption: 
Word Count: 911
In 2009 offshore-energy helicopter operator Bristow Group bought 42.5 percent of Brazil’s Lider Aviação Holding for $174 million. “Bristow is happy with its investment in Lider,” Bristow executive vice president Mark Duncan recently told AIN. “It was a bold and strategic move and it was the right move.”

Brazil is the fastest-growing offshore OGP helicopter market in the world and Lider–a diversified aviation company–is the largest player in it, with 64 helicopters and 34 percent of market share. Brazil’s majority state-owned energy company, Petrobras, plans to invest $237 billion between now and 2017 to develop deepwater energy wells in several areas generically referred to as the “pre-salt,” some 200 to 300 miles off Brazil’s Atlantic coast. The world energy market has never seen growth this explosive. Right now, the pre-salt accounts for 7 percent of Brazil’s daily output of 2 million barrels of oil; by 2020 that is forecast to increase to 50 percent of total production, itself expected to more than double to 4.2 million barrels per day. And that does not include activity in Brazil’s newly discovered Libra deepwater offshore fields, which could hold as much as 12 billion barrels and generate $1 trillion over the next 30 years.

Duncan said Brazil’s deepwater ventures will be profitable, even if the price of oil were to take a dramatic and unlikely drop down to $60 or even $50 per barrel. “These projects are robust,” he said, adding that Lider was involved in providing lift for all phases of them: exploration, construction and production.

Heavy Helicopters Needed Now

All that activity is placing enormous pressure for OGP operators to add heavy helicopters in Brazil as quickly as possible. “Mediums aren’t going to do it,” said Duncan. “It has to be a large helicopter.”

Petrobras forecasts that it will need to move 1.3 million workers to its offshore platforms by 2020; that is 350,000 more than it does today. Most of those will be to the deepwater fields at least 200 nm offshore. In 2011, Petrobras employed the services of 89 helicopters for this mission–36 percent of them large and 64 percent medium. By 2020 that fleet mix is expected to be an even split between a support fleet of 178 helicopters.

This need for lift was reflected in Bristow’s agreement to invest in Lider: It included provisions for Lider to purchase one large and four medium helicopters from Bristow at a valuation of $55 million. The deal also gave Bristow the right to provide 100 percent of Lider’s helicopter lease requirements as well as the right to lease 50 percent of Lider’s total medium and large helicopter requirements for five years. Since Bristow’s investment, Lider has boosted its helicopter fleet from 46 owned helicopters to 66; it owns 53, 11 are leased from Bristow, and two are leased from third parties.

For Bristow, those leases–for three Sikorsky S-92s and eight S-76C++s–have been lucrative, contributing a forecast $22.4 million worth of Ebitdar (earnings before interest, taxes, depreciation, amortization and restructuring) in Fiscal Year 2013. That number represents a more than healthy annual Ebitdar rate of return of 44 percent, according to Bristow’s third-quarter financial filings.

Today, Lider operates a modern fleet that includes 10 S-92s, 28 S-76C++s, 14 S-76C+s and 12 other mediums. Lider did not operate any heavy helicopters before teaming with Bristow, and its bottom-line impact has been significant. “The rate for a heavy helicopter is two-and-a-half to three times what you can get for a medium one,” said Duncan. And due to demand outstripping the supply of heavies worldwide, that rate has increased in Brazil, he said, by 30 to 50 percent since 2009 alone. “We were able to bring our large expertise in S-92s and heavy helicopters to [Lider],” explained Duncan. “Lider knew heavy helicopters would be required in Brazil, but it didn’t have the access, experience or capital the market demanded.”

Ramping up for the deepwater boom, both Bristow and Lider have more heavies on order and those delivery positions are critical to future success. “The demand is great and the supply [of heavies] is finite,” explains Duncan. “If you are not already in line and you call Sikorsky today and ask, ‘When can I get an S-92?’ they likely will tell you 2016. They can’t increase production because the supply chain can’t keep up.”

For Bristow, which has growing operations worldwide, the opportunity in Brazil presents its own set of problems. “The growth in Brazil is obvious and, worldwide, we don’t expect demand to go down. Our challenge is, do we send everything to Brazil or do we balance it [with the needs in other markets]?”

Bristow’s investment in Lider is paying dividends well beyond revenues associated with helicopter leasing. For 2013, Lider had forecast a consolidated Ebitdar of $129.2 million. Yet, because of what Duncan calls very technical differences in accounting between Brazilian and U.S. generally accepted accounting principles reporting, Bristow was able to reflect only $19.8 million of this in its bottom line. Bristow thinks this understates the true value of its investment in Lider–the $24 million in annual lease revenue plus 42.5 percent of $129.2 million or roughly $55 million. Bristow currently values its investment in Lider at $400 million.

But no matter how you add it up, the Bristow-Lider deal appears to have been good for both companies. “We are positioned as number one in the number-one growth market, and that is encouraging for us,” said Duncan.