HI Uplift: Welcome to the ‘Replacement Decade’ in offshore helis

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by Mike Stones

5 May 2024

The next decade in the offshore helicopter industry will see a focus on replacing the ageing fleet currently in operation, according to the latest forecast by Cirium Ascend Consultancy. It forecasts a compound annual growth rate (CAGR) for the sector of just 0.3%.

“Since the downturn [in oil and gas markets] there has been a significant reduction in new deliveries to the offshore space,” said Sara Dhariwal, lead appraiser, Helicopters and AAM, Cirium Ascend Consultancy during a recent webinar. Overall fleet numbers have reduced by 25% since 2014.

The Cirium Helicopter Fleet Forecast predicts the industry will continue to see low levels of deliveries for the immediate future. About one quarter of the current fleet is expected to be replaced as helicopters, particularly Sikorsky S-92s, near the end of their primary mission life – generally regarded as about 20 years of age in the offshore oil and gas sector.

‘400 deliveries in the next 10 years’

“It means that 90% of the forecasted 400 deliveries in the next 10 years will be replacement and the market will see a CAGR of 0.3%,” said Dhariwal. Most deliveries are expected to be for new designs with better economics and payload range.

In addition to oil and gas, growth is also expected to be driven by emerging markets in wind farm segments, according to Cirium forecasts.

Light single helicopters are predicted to see continued decline in offshore, with more focus on light twins and intermediate aircraft, with new deliveries mainly for wind farm support.

“The forecast is for around 40% of deliveries [to comprise] mediums and super mediums, with the combined category anticipated to increase its share to 50% by 2032,” said Dhariwal. Following the cancelling of the S-92 B, the forecast does not predict demand for new heavies into the offshore sector.

Confidence in the sector – as measured by the Cirium Rotorcraft Aircraft Market Sentiment Index (RAMSI) – is growing as revealed by a slight increase in the number of orders, according to the consultancy.

‘What is the right size?’

The backlog is not as strong as it was pre-downturn and the offshore sector is cautiously moving towards a more confident platform. “The industry needs to look at what is the right size because the consequence of not having the right size has affected [helicopter] values over the past 10 years; which we are still working through to some extent,” said Dhariwal.

Steady growth in offshore demand over recent years was confirmed by offshore helicopter operator Bristow. “The E&P [exploration & production] spend is forecast to increase for the third consecutive year,” said Samantha Willenbacher, senior vice president, Key Accounts, Bristow.

“And OPEC [Organization of Petroleum Exporting Countries] production cuts will tighten global oil supply and help to keep the price of oil at a point where customers … [that Bristow supports] … will want to continue to invest in the sector. So, all the signs – barring any unforeseen circumstances – continue to be positive as far as production/demand goes.”

In Brazil, the state-owned oil and gas giant Petrobras confirmed this year its intention to launch new contracts in 2025 and 2026, said Junia Hermont, CEO of Brazilian operator Líder Aviação. The contracts specify super-medium helicopters. “There are a lot of heavies, S-92s, operating in Brazil and AW139s, so we will see more diversity with more super-mediums operating here in the next couple of years,” said Hermont.

Favourable termination clauses

Talking of contracts, all three speakers recommended the offshore sector needed to see more favourable termination clauses, longer lead times for new tenders, increased contract fees and longer contract terms.

“If you look from an investment case, you can clearly see a longer and securer contract term is absolutely vital to underwrite the cost of new equipment,” said Dhariwal. “Equally longer lead times for tenders also helps the industry in right sizing.”

The present lead times of between six to 12 months for tenders compared with 18 to 24 months for helicopter delivery could lead the industry to order in anticipation of contracts, which risks returning to the bad old days of over supply.

Matching the likely demand for lift with its supply is occupying all helicopter operators, said Willenbacher at Bristow.

“Something all helicopter operators are working through right now is to make sure we are carefully managing the opportunities that are available versus the supply that we have within our own fleets,” she said.

Returning to super-mediums, these aircraft have steadily gained market share since their introduction, said Dhariwal. “The industry has always been aware of the risks of operating only one type with a particular capability. The recent challenges with the S-92 has re-emphasised this,” she added.

‘Bridge between super-mediums and S-92’

While the super-mediums’ entry into the market was muted by market conditions, there’s evidence the category has slowly gained market share. Also, a new contender has entered the market with the first commercial sale of 10 Bell 525 Relentless aircraft to Norwegian oil giant Equinor. “On paper, it’s positioned to be a bridge between the super-mediums and the S-92,” said Dhariwal. The first delivery is scheduled to take place in 2026.

Alongside the Bell 525s, Equinor ordered five AW189s. While oil companies directly ordering helicopters was not unknown, it is unusual and could be a sign of things to come, according to Cirium. The Airbus H160 will also become an option in the offshore market.

Meanwhile, an audience survey revealed 31% expected strong growth in the offshore sector over the next five years while 36% anticipated slight growth. Stability was predicted by 8% of the audience with 8% predicting a small decline. You can watch the video here.