CHC cutting costs and building capital as oil stays low
CHC Helicopters is cutting costs and looking to strengthen its balance sheet to cope with low oil prices.
CHC Group, the owner of CHC Helicopter, made a net loss of $465 million and an adjusted net loss of $30 million for its third quarter of 2014. It had revenues of $415 million, down 9 per cent from $454 million in the second quarter. The drop was largely driven by currency changes.
CHC’s helicopter operations revenues were down by 10 percent to $375 million, while Heli-One, CHC’s MRO business, grew its revenues by 9 percent to $40 million.
The figures were announced at a time when plummeting oil prices are causing a decline in the demand for offshore helicopter operators and MRO services.
“We believe the long-term demand for CHC’s services – especially transportation to deepwater and ultra-deepwater oil-and-gas production locations, which represents about 80 percent of our flying revenue – will grow.”
“Despite the current uncertainty in the oil and gas industry, we believe the long-term demand for CHC’s services – especially transportation to deepwater and ultra-deepwater oil-and-gas production locations, which represents about 80 percent of our flying revenue – will grow,” said Karl Fessenden, president and CEO of CHC Group.
“All of you know the current environment of the global oil and gas industry is difficult for both the companies that do exploration and production and for all of us that support them. The significant decline in oil prices is now in its eighth month and there is no definitive indication of when the trend will reverse itself or what form it will take when it does.”
Fessenden said that oil companies are cancelling and delaying projects, especially earlier stage exploration work. However, like Bristow and Era, most of its contracts support production. However, oil and gas companies are looking to cutting all costs.
CHC is focusing on cutting costs and improving its capital efficiency. Joan Hooper, CEO of CHC Group, said that they may look to use more operating leases. Hooper valued the company’s helicopter fleet at $3 billion, with helicopters on lease accounting for between 80 per cent and 85 per cent of that figure. Hooper also valued CHC Group’s order book at around $450 million, having made commitments for 19 helicopters. The company is due to receive seven helicopters in the next fiscal year.
She also touched upon the company’s plan to simplify its fleet. “The disposal strategy is not just about liquidity. Obviously that’s important to get the cash in, but it’s really simplifying our fleet,” she said. “When you have multiple fleet types [you have to have] different training mechanisms for pilots and engineers, you need to carry different parts. We have had a stated goal of really simplifying of the fleet type to all new technology.”
“We disposed about six aircraft this past quarter,” added Hooper. “We did the same last quarter of the amount of dollars associated with those disposals were something like a third less.”
CHC Group’s accident rate was covered early on in the conference call by Fessenden. “At the end of Q3, our rolling five-year accident rate was 0.38 accidents for 100,000 flight hours,” he said. “Once again, that is significantly better than the averages for all offshore operators and twin helicopters.”
Full investor transcript available on Seeking Alpha