Adoption of Super-Medium rotorcraft has driven an 18% increase in active aircraft in the Heavy & Super-Medium category over the last two years. Is the offshore business now finally on the way to recovery?
We speak to leading H175 operator NHV to hear the current view of the market and experiences of introducing the type.
Offshore helicopter markets have made the headlines for all the wrong reasons over the last five years. From a commercial perspective, the leading three operators have all had to transition through Chapter 11 bankruptcy protection proceedings (including Bristow and PHI in 2019). Many of the problems that led to the chapter 11 proceedings persist in the market, which is characterised by over-supply of helicopters, resulting in fierce competition and weak commercial terms.
Taking delivery of a new offshore helicopter type at the exact point in time the oil markets turned south (late 2014) might sound like a recipe for further commercial disaster. However, over the same period, European helicopter services company NHV successfully entered the North Sea crew transfer business with the H175 and has taken significant market share. In this article Air & Sea Analytics takes a closer look at the Super-Medium market and speaks to NHV CEO Steffen Bay to hear his perspective on the offshore rotorcraft business.
The manufacturers of Super-Medium aircraft (‘Super-Medium’ being typically defined as having a MTOW of 7,000 -10,000kg) promote them on the basis of having the latest safety & technology features, modern standards of comfort for passengers and lower acquisition and running costs than the larger ‘Heavy’ (>10,000kg MTOW) aircraft, but with the ability to perform many of the same missions. However, introducing a new type brings with it the need to encounter and resolve inevitable ‘teething problems’. How does an operator manage this and the expectations of clients? Steffen explains:
“We have 95% of all of the H175 operating hours to date and we have been working with Airbus and adjusting our programs to get the aircraft as mature as possible. In previous roles I have worked with introduction of other new aircraft and I can say it was much tougher than what we have seen with the H175. The 175 was designed and developed based on input from the oil industry… our experience is that end users of the aircraft are very happy with it.”
Airbus are not the only manufacturer to bring a new helicopter into this area of the offshore market. Leonardo have the AW189 (following on from the success of the AW139) and Bell are expected to attain certification for the 525 ‘Relentless’ super-medium helicopter early next decade. These units will, in many cases, compete with the existing fleet of S-92 Heavy helicopters and indeed the new S-92 variant announced earlier in 2019. The need for a new weight category of helicopters has been previously questioned by others in the industry, so does NHV see its success as having also proven the need for super-medium rotorcraft? Steffen suggests that it is not as simple as thinking purely in terms of aircraft types:
“From our perspective, what we can see is that our market share has gone from zero to 10% in five years. All our H175s are flying. Many of the missions in the North Sea don’t need a Heavy and there the H175 is working well for us.
“Now from an industry perspective, we have seen that over-capacity is a problem. In our market the over-supply situation would be even more-pronounced if the H225 was still flying.
“For each helicopter type there are also many different options from the OEMs and then compounding that you have different customer configurations and requirements… harmonisation and standardisation of the fleet would help the markets a lot.”
On the face of it, industry activity is now recovering. Rig utilisation has trended upward in 2019, Final Investment Decisions (FIDs) on new developments are more numerous, and E&P company cash flow has recovered sharply as a function of cost cutting and higher oil prices than were seen in the immediate post-2014 years.
Source: Air & Sea Analytics
Our analysis indicates that this pick-up in activity is reflected in the Heavy & Super-Medium category, with an 18% increase in the number of discrete aircraft flying per month over the last two years. Of this increase, super-medium aircraft account for 65% of the additional aircraft flying.
An increase in activity doesn’t mean the helicopter business is out of the woods just yet, as Steffen highlights:
“We see the increase in activity levels but the market is very competitive. Looking at the market as a whole, you see that customers are more likely to make a change on contract renewal based on a small price reduction. When it comes to maximum age of aircraft, customers have also relaxed requirements in contracts specifying age of aircraft supplied, in order to get better pricing.
“We also see other operators are cutting prices on older, larger aircraft to compete with the super-mediums”
Offshore N. Sea Crew Change Cycles
In addition to the heightened activity in the offshore drilling, construction, and maintenance markets, there have also been changes in crew transfer patterns. Following the downturn in 2014 most North Sea operators changed from a two-week on, two-week off schedule (‘2:2’) to a 3:3 pattern or similar variants. As the financial health of operators has improved, some have now moved back to two-week working periods offshore, albeit with a number of variants as highlighted alongside.
Helicopter operators watch these patterns very closely, because a widespread change in rota patterns has a big impact on the number of aircraft required. Are we likely to see further changes? Steffen suggests we have seen rota patterns settle down:
“Most people don’t like the longer rota patterns offshore. Now, some have gone back to 2 weeks and others have been compensated for the longer time offshore. It looks pretty static at present.”
According to Air & Sea Analytics, NHV have moved from #8 to #5 in the top-10 Heavy & Super Medium rotorcraft operators over the last two years (measured by number of aircraft active in any given month). No other operator has seen such a leap in market share over this period. Finally, we asked Steffen what he saw for the years ahead:
“We are still betting on the H175. We will continue to work to mature the aircraft. In this market of course it remains tough, it’s competitive and you have to have close control on costs. Our offshore centres of activity in Aberdeen and Esbjerg are specialised for the 175 and we will benefit from that specialisation as activity increases. The oil and gas market is growing, not rapidly but there is some growth and we will benefit from that – we see continued growth for NHV in the North Sea.
“Elsewhere we have significant experience of heli-hoisting in the offshore wind market with the 145 and expect this market to grow. We are also looking at the AW169 for this purpose as well. That said, it’s early days and some of the customers are still figuring out helicopter support.”
In summary, whilst the data show recovery in activity, there remains some way to go in rebalancing the offshore helicopter markets. Steffen’s comments on pricing highlight that the commercial issues that led to the Chapter 11 proceedings for all three of the top operators since 2016 remain. Put simply, reorganising debt structures and balance sheets doesn’t help in the long run if there is a continued race to the bottom on pricing that drives revenues below the cost of providing the service. However, NHV have demonstrated an ability to not just survive but to grow in these conditions, based on providing safe, modern, fit-for-purpose solutions to clients and avoiding the hidden costs of operating several different offshore aircraft.
With sincere thanks to Steffen Bay for his time and thoughts.
Steve Robertson, Director
Air & Sea Analytics