Steffen Bay

Steffen Bay is the Chief Executive Officer of the NHV Group. He has 20 years of experience across the helicopter services value chain including appointments at OEMs, rotorcraft operators and lessors. He will be familiar to regular readers of this website for his straight-talking, honest insight. We were delighted to have the opportunity to catch up with him again over a video call on the 2nd February 2021.

2020 and RECENT CONTRACT WINS

Steffen – great to talk to you again. We’re a month into the new year as we speak and you have just announced a new contract supporting the field development of Neptune’s Seagull project – a four-well subsea tieback to be developed over 2021 and 2022 – congratulations! You’ve recently expanded the Aberdeen operation and brought in additional aircraft so you must be pleased to be seeing this success in Aberdeen?

Yes, we have brought additional aircraft into Aberdeen, one aircraft which came over from Denmark and we had expected some project wins, we were hopeful on the Neptune opportunity and quietly confident… we had it in the budget for 2021. Very pleased with the win and I like the Aberdeen operation, it’s very nice, it’s a busy, single aircraft type operation.

What is the plan with the other aircraft in Denmark?

Of the other aircraft - two of the aircraft are going to Brazil to work for OMNI on the Petrobras contract. We have still been flying this month in Denmark.

The timing of the Neptune project works out quite nicely… as this construction project comes to completion there will be the re-tendering of the Neptune crew change work at Cygnus (one of the largest gas fields in the UK) … do you see this contract as a chance to get “a foot in the door” in advance of the opportunity of winning additional contracts further down the line?

Certainly we are looking at this. Working for a customer obviously gives you more exposure, they get to know you. However, we are looking at every tender that fits our fleet and our strategy and if it’s doable with the 175 we are very interested.

2020 was a roller-coaster of a year and looking back on it you opened an MRO base in Ostend, started flights from Midden-Zealand for Ørsted, from Blackpool for Spirit, from Norwich and Den Helder for Shell, extended the Ithaca contract for five years, and won a contract supporting the German Armed Forces. Not to mention re-configured your entire operation to manage a global pandemic! How do you feel looking back on it?

Obviously a very tough year, we had to adjust our financial structure to the new reality as well whilst managing these other issues, so I’m very proud of my team in the headquarters but also in the bases for pulling this off. We had the loss of Total, as you know, but we managed to look forward and win other work like you said with Shell, with Spirit and the German Army (Bundeswehr) which is a completely new market, in MRO - an area where we want to be more active in the future.

I think so far the Bundeswehr has been has been quite happy with our performance. We managed on extremely short notice to win this contract, to provide the aircraft and set up the maintenance in Laupheim, we have a mixed Belgium / German team. So far it has been seamless. I need to give kudos there to Thomas Hütsch who joined in 2019 as our COO and he has worked with the Bundeswehr before so he was instrumental in getting this work.

MRO Business - OPEN TO THIRD PARTY WORK

You are supporting some of the MRO activities from your new MRO base in Ostend – is this going to become a ‘hub’ in the long run for supporting civil and military H145 operations across Western Europe? Will this include third-party work as well as NHV’s own operations?

What we have done since Thomas joined is that we have clustered our maintenance centres and we have three: Aberdeen for the H175, Norwich for the AW139, AW169 and in Ostend we do the H145 and the Dauphin. Compared to supporting our own aircraft, if you have a third-party setup you know it’s very different from a support side, from a costing side, on the documentation side and the contact with the customer is very different, however, right now we are now ready for this. We have learned a lot by working with the French army, the French Navy and we want to use this experience and work with third parties. It’s not going to become a major part of our business overnight but certainly we want to pick up more MRO work in the future.

AIRCRAFT LEASING

We trust your friends at Milestone gave you a good deal on the H145 aircraft? How important is the role of lessors in terms of supporting companies such as NHV bidding this type of contract?

Talking to banks and lessors, what I hear re leasing is that it’s really very complicated to finance an oil and gas aircraft. Something the oil companies need to be worried about is the supply chain drying up, due to the pricing pressure, the image problem of the industry, it is easier in other areas.... everything but oil and gas!! We have a problem here as an industry . If you can’t finance aircraft... this will be a big challenge here for the industry to deliver the latest technology.

In the case of Bundeswehr, Milestone was a real partner because they were confident in NHV’s approach and we went into this project together. I was quite pleased with how Milestone aligned with us and worked with us on this transaction.

What are the issues for financiers, the cancellation clauses in the contracts?

That’s a huge issue, the cancellation for convenience clause, the oversupply, still, and the duration of the contracts. As an example, if it’s a five year contract they want a commitment for ten years. It depends on the type, a bit, but you know the fact that some banks have still assets on their books that are not flying and it doesn’t help, of course.

The H145 and the Offhore Wind Markets

As you noted in the press release for the Bundeswehr contract, the H145D3 is a highly capable state of the art multi-role aircraft. Whilst these aircraft will be based in the south of Germany (not far from where they are built!) are you looking at other opportunities in the German market for operating the H145? For example, we note that in the north of Germany there is a strong and growing market for offshore wind heli-hoisting?

The H145 is a great aircraft for windfarms, performance wise and safety wise, maintenance wise. Specifically now with the five bladed rotor you have low vibration its very good, hardly any downtime on the machine hardly any unscheduled maintenance. The problem in windfarms you need a certain scale, more than one customer or a large operating area to make this work financially. The windfarm operators still have a ”marine first” mindset - they will only use the helicopter in case of emergency . if they would really calculate the numbers and look at the helicopter as a primary asset they would see it is cheaper than the boat and see that it emits lower levels of CO2 and you could deploy a lot of people by helicopter. But if you look at their current setup, where they meet is the harbour and not the heliport! They have a marine mindset and they see the helicopter as an expensive toy or an emergency tool if something breaks and when they need a quick fix. If they went out and gave longer term commitments and more volume to the helicopter operators the pricing would be more interesting for them but so far it’s been hard for the companies to look at this in a different way.

Yes, we’ve been looking at this and think the heli-hoisting market in wind is an interesting growth area, with green credentials. The helicopter does it quicker, safer and emits less CO2 than a CTV. Yet the commercial pressures are huge…. We have heard of operators asking “if the decimal point is in the right place?” on receipt of a bid from a helicopter company, and others have lamented the use of older, non ‘powerclass 1’ aircraft and single pilot HEMs operations, citing huge cost pressure from the end users. How come some windfarm operators are getting the use of helicopters right, and others not so much? Is there more education or regulation required in the market?

You know, our hopes for windfarms are still in the future... the way it’s done currently is a challenge. A helicopter is a valuable asset with a long life and we have a lot of commitments and a lot of requests to deploy helicopters for 3 months or six months and it’s a tough period to make anything work.

Fleet Renewal

The offshore rotorcraft market in general has gone a long time without a fleet renewal, thanks to half a decade of downturn. You recently announced you are moving old aircraft out of your fleet and have invested in the latest-generation aircraft from Leonardo and Airbus (AW169, AW139, H145, H175). Will other operators follow-suit to keep up? Are we going to see a renewal cycle finally start in offshore?

All of the 155s will be out of our fleet by the end of this year. Regarding renewal - I wish I knew! The S-92 will probably fly until the wheels come off. We still have price pressure. I think we see some more demand for the H175.... I think the customers appreciate the aircraft.... as you know there were some doubts about it in the past. We see also one of the factors why the 175 was so successful in Brazil is that Petrobras has changed their evaluation formula to value more the lower fuel burn of the H175. Petrobras has the super medium and the heavies in the same category. They bid the aircraft by category (light, medium, heavy etc) but there was not a ‘super-medium’ category and so because they have put them in heavy category so you could not bid a 175 for a medium lot. What Petrobras has done in the last tender is consider the fuel burn (presumably for CO2 emissions) which has favoured the H175 over the S-92. We can fly almost all the missions with a 175 in the North Sea (a couple we would be a reduced payload) for me the 175 is a better aircraft than the S-92.

I don’t see any immediate fleet renewal I see the AW139s still going strong, I think there’s hardly any more market for the H155, and for the H160 it is new and to be seen, too early to tell, on the heavy side I think we will be competing with the S-92 for quite a while. I think everybody who has S-92s will fly them as long as they can. We will probably add incremental 175s if we get additional business.

Internationally, as you have mentioned, you have managed to relocate aircraft into other markets such as Brazil. Are you seeing intense competition there?

Brazil is a very competitive place, you have 4 major operators and some smaller niche players competing for jobs. We have offered our aircraft to OMNI, in order for them to complete a lot and bid for it. I spent some time in South America, so this helped me evaluating on how and with whom we can win.

As I mentioned, I understand that the S-92s in Brazil were bid at very competitive rates but the H175 were successful because of the consideration of the fuel burn in the formula.

The Brazil contract has a flexible date… our aircraft will probably move over there in March / April. They’ve been working in Esbjerg in January for Total as the contract moves over and Babcock get up to speed.

Company Financing and Future M&A

Going back to the refinancing you mentioned earlier, what have NHV done there? Are your shareholders Ardian looking at an exit anytime soon?

It is a rearrangement of debt, not a forgiveness of debt. Its basically a realignment to the new reality. I think a lot of players in the market are looking for an exit, the problem is finding a buyer and agreeing a price!! I honestly don’t focus on it, its not something I can influence. I do my job, I try to make NHV better, modernise the fleet, harmonise the fleet, win new business, phase out unprofitable contracts. We want to make NHV more profitable, that’s our plan, we wait selectively for opportunities. We have said we are not going to bid on loss-making contracts. If other people want to do that, so be it, we will not participate as we said before, and at some point the industry will clean itself out, the unprofitable people will go away. We can and will be patient.

There’s quite a lot of small European companies, especially in the wind market. Do you expect to see consolidation here?

There’s always rumours. I think everybody is probably talking to everybody! It’s not easy to do what ERA and Bristow did…. A lot of things need to align. We definitely need further consolidation in order to get pricing power back from our customers, that’s for sure.

With sincere thanks to Steffen for his time and thoughts.