HI Uplift: Bristow hails rising revenue from offshore & govt contracts

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by Mike Stones

10 May 2024

Bristow reports a resurgence in offshore energy markets.

Chris Bradshaw seemed in buoyant mood when he led Bristow Group’s First Quarter 2024 investors’ Call on Wednesday. It was not difficult to understand why.

The group had just reported net income of $6.6m ($0.23 per diluted share) in the first quarter (Q1) of this year compared with a net loss of $7.9m ($0.28 per diluted share) in Q4 last year. It also posted a loss in Q1 2023. Adjusted EBITDA was $47.5m; up $1.5m on the $46m reported in the previous quarter. Total revenues were relatively flat at $337.1m in Q1 2024 versus $337.9m in last year.

But it was the prospects for revenue growth that Bristow’s president and CEO most wanted to highlight. Unusually, alongside dissecting Q1 results and reaffirming full-year 2024 financial guidance, the operator revealed its financial outlook for 2025 and set financial targets for 2026. “The mid-point of our 2026 adjusted EBITDA target represents a three-year compound annual growth rate [CAGR] of 21% relative to the company’s 2023 Adjusted EBITDA,” according to Bradshaw.

The outlook is consistent with Bristow’s view that the helicopter industry is in the early stages of “a multi-year growth cycle”, he added. Driving what Bristow sees as opportunities for revenue growth are new government services contracts and resurgent offshore energy markets together with resetting legacy contract rates to the current market. It’s a view Bristow is backing with significant investment in new lift (as we will see later).

‘Accelerating offshore energy upcycle’

“The investments that we are making to grow and diversify our leading government services business, combined with an accelerating offshore energy upcycle and a tight supply of offshore-configured helicopters, are increasing the company’s visibility for significant growth in revenues, Adjusted EBITDA and free cash flow,” said Bradshaw. “The improvements in margins, capital returns and free cash flow present multiple opportunities to create value for Bristow’s shareholders.”

Let’s start with government services contracts – manifest in the operator’s existing and soon-to-start search and rescue (SAR) contracts in the UK, Republic of Ireland and elsewhere. Bradshaw is bullish about the prospects. “There is a massive backlog of long-term, high-quality revenues from stable government services contracts, which equate to $3.2bn at the end of March,” he told the Investors’ Call.

The backlog in the offshore energy services business stands at $1bn contributing to a total backlog of about $4.2bn – including fixed wing and other business.

Significant revenue growth is predicted from the resetting of contract rates to current market conditions, as legacy OES (Offshore Energy Services) contracts expire.

Revealing the potential to grow revenue from resetting rates, 70% of these contracts have yet to reset rates to the current market. “When we think about only 30% of that portfolio being reset today and 70% to come, we are really optimistic and positive about the opportunity we see in the coming contract window to reset the fullness of our offshore services contracts.”

Contract wins

In addition to contract wins with the UK Maritime and Coastguard Agency and Ireland Coast Guard, Bristow also fulfils contracts with Netherlands Coast Guard, Dutch Antilles Coast Guard and with the UK Ministry of Defence in the Falkland Islands.

Government services contracts generally last 10 or more years with the option of one-to-three-year extensions. They typically offer strong margins and reliable capital returns generated from stable, long-term cash flows with high credit quality, according to the company.

Revenue from government SAR contracts stems from the month standing charge (accounting for 65% of total revenue) and a fixed hourly rate (contributing 35%).

The resetting of contract rates in offshore energy contracts also added to Bradshaw’s buoyant view of growth prospects. In some markets, new contract rates were up to 25% higher than legacy contracts leading to a significant boost in incomes. “A new upcycle [in offshore energy markets] has clearly begun. Global demand has returned, and years of undersupply has resulted in limited aircraft available to fly.”

Strengthening demand

For evidence of strengthening demand Bristow pointed to research from James West, senior MD at Evercore ISI. “Offshore E&P [exploration and production] is expected to exceed $200bn in 2024 and reach $234bn by the end of 2027,” he predicted.

Another leading indicator signalling rising demand for offshore uplift is the upswing in Final Investment Decisions (FIDs) for offshore energy projects. They are expected to exceed $100bn each year in 2024, 2025 and 2026. This contributes to total FIDs of almost $500bn between 2023 and 2026, says the operator. Plus, global demand for floating rigs is predicted to rise by nearly a third (32%) between 2023 and 2028, according to research by Rystad Engergy RigCube last month.

Alongside strengthening demand, underpinning rising rates in both sectors is very tight supply for new helicopters. There have been very limited new additions to the supply over the past eight years and long lead times for new builds from the manufacturers, according to the operator.

Serving both the offshore energy markets and Bristow’s government contracts business are its fleet of 220 aircraft – two-thirds of which are Sikorsky S-92s, AW189s or AW139s. These are the most in-demand helicopter models in both the crew transportation and SAR markets that Bristow serves, said the operator. Bristow is the largest operator of each of these models.

30 S-92s

Owned aircraft account for 80% of the fleet with the balance being leased – including about 30 S-92s. “This provides some nice flexibility given the market demand we face at present,” he said. (The company also operates fixed-wing aircraft; the majority of which are leased).

In February this year Bristow revealed its order for 10 new AW189 helicopters with an option to buy another 10 AW189s depending on demand. Deliveries will start in 2025 and complete in 2028.

In addition to Bristow’s operations business, it also has a dry lease enterprise, where it leases owned aircraft to third parties and partners. This enables the company to capitalise on demand and generate cash flows from markets in which it does not participate directly.

Bradshaw ended the Investors’ call by reaffirming Bristow’s commitment to its core markets – offshore energy and government contracts – and their potential to generate significant earnings “well into the next decade”.

Core market focus is the key to unlocking profit, said Bradshaw. “Despite our global footprint, our ambition is not to do everything for everyone everywhere.”