HI Uplift: Seeking a buyer for Babcock (and the CHC legacy)
Babcock seeks a buyer. It’s a sale few expected and even fewer seem to want. Unless you are the UK Competition and Markets Authority (CMA). The authority’s decision earlier this month to order CHC to sell the UK parts of the Babcock offshore business – Offshore Helicopter Services UK – it acquired last year raises at least two key questions: Who will acquire the business and what will be the likely impact for CHC?
But let’s start with the reaction. Jeremy Parkin, of Parapex Media, believes the CMA’s ruling that oil companies need at least four helicopter operators to choose from reveals a fundamental misunderstanding of the market. “I do not believe that the CMA has grasped how the offshore helicopter industry works,” he tells Helicopter Investor (HI). “Three operators are more than sufficient and that is clear both from soundings I have taken within the industry as well as submissions to the CMA such as that from lessor Milestone.”
The CMA also overlooked the risks operators run that any oil company customer could follow the example of Apache, he adds. That was when Apache invoked a 120-day termination clause on Bristow in March 2021.
There’s a more visceral reaction from Clark McGinn, principal, Uplifting Advice. “Amazed, shocked then quite angry.” McGinn tells HI it is an illogical and uncommercial decision that will harm the potential to rebuild overall profitability for the crew-change helicopter market. “Consolidation is the classic way to rebuild value in a sector which has faced multi-year trauma like ours,” he tells us. “The status quo is a recipe for sustained unprofitability, which can only increase the risk of more bankruptcies.”
Since the North Sea oil and gas sector has long “put bread-and-butter work on the table” for the global industry, if that region remains unprofitable for the next few years, it will certainly hold back the current positive trends towards recovery, he argues.
But which companies could be in the running to buy Babcock? A number have been fancied: PHI, Omni, Weststar and Heli-Union. PHI looks to be the favourite. It’s the third biggest global operator after Bristow and CHC. Traditionally a Gulf of Mexico operator, but the company is spreading its (rotary) wings to merge with Helicopter New Zealand (HNZ).
When it comes to tipping a potential buyer, Parkin, of Parapex Media, starts from first principles. “We need to remember that Babcock is loss-making and, therefore, unattractive to buyers. CHC was in the best position to acquire it, as its existing UK footprint would enable it to remove duplication and hopefully bring it to profitability, something that a buyer from outside the UK would find much more challenging.” But he concedes PHI, Omni, Weststar, Heli-Union and others could all potentially be interested in getting into the UK market.
McGinn, at Uplifting Advice, notes there has been much comment about PHI opening a London office for the first time, especially as the MD of its oil and gas business used to work at CHC. “PHI doesn’t publish its results. But it would be safe to assume that, while the ERA/Bristow merger allowed contract pricing to firm in PHI’s core Gulf of Mexico, and Bristow’s exit from Australia helps PHI there, if Bristow is not turning a profit, PHI has still a way to go too.”
CHC paid Babcock £10m in cash, but also assumed the leasing liabilities of the business, says McGinn. “Even if CHC ‘gave it away’ the new owner needs to service those monthly lease rates and while there may be efficiency savings under new management, there will not be the core ‘de-duplication’ savings (of combining two sets of HQ and corporate costs etc) nor the reduction of one competitor which were the key planks of CHC’s plan.”
There are a few other names to consider. While Gama Aviation remains tight-lipped about any potential bid for Babcock, it already runs the Scottish Air Ambulance service. And the Special Missions section of its website includes an Energy & Offshore section specifies: “Providing platforms that help energy companies create, service and maintain offshore energy infrastructure.” There also looks likely that there will be one UK bidder.
Meanwhile, if you would like to buy Babcock, please let Helicopter Investor know.