HI Uplift: ‘Tailwinds and storm clouds’ shape Brazilian offshore market

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by Mike Stones

2 April 2024

Offshore contracts are lengthening in Brazil. (Photocredit:CHC Helicopter).

“Tailwinds, headwinds and storm clouds” are shaping the Brazilian offshore market, according to our conference in São Paulo, Brazil earlier this month.

The panel started on an upbeat note. “We happen to be in a really good upswing cycle right now, so we’ve got a good story for you today,” said David Fowkes, senior MD, FTI Capital Advisors. “There are incredible tailwinds behind the market right now, which is wonderful with the downturn we had – with all those bankruptcies,” said the helicopter industry veteran with 25-years’ experience of aviation banking.

His view sparked a chorus of approval from the panel he chaired. Gustavo Semeraro, vice president, business development, Lobo Leasing said: “Brazil was always a very important market for us. Lobo was the first helicopter leasing company to establish an office in Brazil back in 2015. This is a great, great market for us.”

CHC Helicopters is growing in Brazil, said Vinicius Moreira, senior sales manager with the rotary operator. “This is a really good moment to be in the offshore aviation market, especially in Brazil.” Moreira estimated the size of the market in Brazil at about 120 aircraft, with most deployed on missions for oil and gas giant Petrobas.

‘Very strong growing demand’

Over the next four to five years, CHC expects that at least 50 to 60 aircraft will be tendered or retendered. Plus, there are many “greenfield projects”, which are likely to further swell demand for helicopters. “So, we expect to have, a very strong growing demand in Brazil for at least more five years,” he said.

The current global upcycle was offering welcome relief after a prolonged down cycle between 2015 to 2019. During the downturn many investors and leasing companies had diversified their portfolios, trying other markets such as emergency medical services, search and rescue and firefighting, said Semeraro, at Lobo Leasing. “This is this is exactly our case as well.” But reinvestment in the offshore market was justified with offshore activity returning, the redeploying of previously idle assets and prices returning to more realistic numbers, he said. “So, definitely, Brazil is our target.”

The recent upcycle was leading to a readjustment of offshore contracts. “Finally, customers understand the real necessity of this market, not only for us [operators such as CHC], the aircraft operators, but also the lessors,” said Moreira.

Aircraft availability a headwind

The availability of aircraft is a headwind. Faced with a large tender, CHC would not be able to find available aircraft in the market right now. “So, we’d probably need to go to the lessor and request a new leasing, with the terms being at least five-to-seven years,” said Moreira. The main customers in Brazil are offering secured five-year contracts. “Petrobras is changing the understanding, and we expect that the upcoming tenders will have, at least, certainly more than five years, We expect something around five, seven or up to 10 years.”

The offshore market has returned to growth, agreed Steffen Bay, director of the consultancy Brazilone.biz, which he set up six months ago. “Brazil is a country that is still increasing its oil production, while the North Sea is stagnant or declining,” he said.

The Brazilian market is now in equilibrium, judged Bay. Fleet size had fallen from a high of about 120 helicopters to about 70, with the expectation it would reach about 100 aircraft. “During Covid a lot of aircraft were in storage or were with banks, or were parked, or partied out, and they have now come back to production,” he said. “So, the prices have increased for the lessors and for the manufacturers.”

Returning to contract length, operators in Brazil were benefiting from longer terms – without the cancellation for convenience clause, sometimes seen in North Sea operations. “In Brazil, contracts are much better because you get a five-year commitment,” said Bay. “I would not want a 10-year commitment. Five years is perfect because the market is changing. If you had locked yourself in for 10 years, five years ago, you would now be stuck with a very bad contract and would not be able to increase the prices like you need right now.”

‘Just fly the aircraft longer’

In addition to longer term contracts, oil companies were more willing to accept older helicopters given the shortage of aircraft. For example, Petrobras has ditched its requirement for offshore helicopters to be younger than 10 years at the end of their contract. “If I’m informed correctly, they will accept aircraft that are up to 30 years old,” said Bay. “That can also change the supply imbalance if you just fly the aircraft longer. I have never understood this 10-year requirement because there is absolutely no statistical evidence between accidents and the age of the aircraft.” Most accidents are caused by pilot error, or maintenance; not by the age of the aircraft.

Supply chain problems remained a problem for the industry in Brazil as worldwide. “It’s tough because due to these constraints regarding supply chain, especially the manufacturers … are going through severe issues to secure the global supply,” said Moreira at CHC Helicopters. “We are really on the limit of our capacity.” The back up aircraft that used to be available have disappeared.

Scanning the horizon for storm clouds, Fowkes invited panellists to consider the impact of losing a key helicopter model following the grounding of a helicopter type. Bay noted the lack of heavy lift in the offshore market but suggested operators could fly smaller helicopters, such as the super-mediums, with reduced payloads.

New helicopter types

Semeraro, at Lobo Leasing, made the point that most operators in the offshore industry are global operators. They could relocate aircraft to cover regional shortages. Oil companies also sometimes offered waivers enabling the use of different aircraft. Plus the industry awaited the commercial arrival of new helicopter types such as the Airbus H160 and the Bell 525 Relentless, he said.

The session ended on a $1bn note of optimism for helicopter operators and offshore suppliers. Fowkes, from FTI Capital Advisors, said: “One of the things to remember is many of these deep-water, platforms cost a billion dollars to get running. So, if the oil price drops, it takes a while [to have an impact]. They may fly less, but even if oil drops to $25 [a barrel] tomorrow, they won’t shut down the wells that are going.”

Our conference Corporate Jet Investor & Helicopter Investor Latin America 2024 took place at the Renaissance São Paulo on March 5th and 6th. Watch the video of this session here.

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