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Old 30th May 2016, 08:16
  #8 (permalink)  
nowherespecial
 
Join Date: Jun 2005
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I agree with a lot of what RR says.

My 10c worth:

The barriers to entry in the offshore industry are not so high that the market is closed. The lack of huge barriers, especially vs 10 years ago and the explosion in ac financing, means that markets get competition. Competition means is that returns are getting generally worse on all contracts. This is how the market is supposed to work.

Over time, these returns settle into an acceptable level or 'market price'. The market price is dictated by a number of factors including difficulty of execution, availability of assets, asset type, desperation for the work, client relationships etc. As aircraft are chosen as 'industry standard' - 139, 92, 225 etc, operators only pick these ac. They pay their pilots roughly the same, the bases are in the same place, they use the same subcontractors for ground handling, the same simulator systems etc. The contracts become a commodity as to all measureable metrics they are the same and with likely roughly the same profitability.

The offshore industry is now in that state where it is unlikely there is a significant difference in standards between the top operators. I would be surprised if at the operational level there are many contracts which are hugely profitable anymore but there are plenty that are acceptably profitable to the operators who fly them.

IMO - Keeping above the waterline in this industry in the future will be one for sensible management teams with diversified customer bases across industries, EMS, offshore, SAR, military, training, utility, maybe even VIP and tourist. If one thing comes from CHC Ch 11 it should be that an O&G only model is too susceptible to oil price fluctuations. It would be ok if during the good times everyone was making enormous sums of money but they aren't (because of the competition) so the industry finds itself unable to make huge $ in the good times and crucified in the bad times. Aviation has always been this way (FW is the same). The only hedge to this issue is diversifying the model, running lean all the time (incl the good times) and never closing out an opportunity to make money because 'it's not core business'...

I think Babcock MCS already grasped this quite well, BRS too to an extent. The issue is if there is enough diversifying available for CHC, PHI, ERA etc to jump on to it too. I suspect not. The survivors will get bigger and the smaller operations will sink. I think the next 3 years will redraw the offshore operators business models radically.

The effect this will have elsewhere in the service providers to the offshore industry will be profound. Here are my predictions:
1. A couple of leasing companies will go bankrupt following CHC's ac returns which will be followed by other operators doing likewise with excess capacity, albeit not necessarily via the Ch 11 mechanism.
2. Unionised salaries will drop by 15% (cheating here as I see that BRS already started this)
3. At least one of the following will cease to exist: CHC, BRS, PHI, ERA, Heli Union, NHV, Everett. Maybe 2.
4. (States and) Oil companies will divest their heli operations as they become a drain on resources and an unwanted distraction leaving most work in private hands.
5. More centralisation of offshore training and adoption of OGP wide standards for sim work and flying, removing large chunks of ambiguity within operating and training manuals.
6. Regionally powerful operators (Pawan Hans, Weststar, Heliconia et al) will form partnerships with surviving large operators to take advantage of their scale and resources to drive efficiency in their own business.

Head above parapet - any thoughts?
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