CHC worried about major contract loss

[roundwego]

The following is an extract from the CHC 2002/2003 2nd quarter report. They seem concerned.

"The Company has learned that a new company, owned by the Bond brothers, is
planning to enter the U.K. offshore market. We have also confirmed that this new
company has secured delivery dates for Super Puma Mk2 helicopters in 2004. During
our current negotiations for the renewal of our BP crew contract (expiring July 31, 2004)
BP confirmed that they are seriously considering Bond as a potential supplier for their
crew change requirements in the Northern North Sea. We expect that BP will announce
their decision sometime before Christmas. Management believes the Company has
significant competitive advantages over any new market entrants, including economies
of scale, extensive fleet, experienced personnel, facilities and a long–term track record
of safe operation. Despite these competitive advantages, the outcome of the contract
award is uncertain at this time. There continues to be strong demand worldwide for
these aircraft types so if we lose the contract we are confident that we will be able to redeploy
the BP aircraft at market rates. "


Full report available at http://www.chc.ca/fiscal.html

[ATPMBA]

Well, that makes sense as I have been wondering why CHC stock price has been dropping in the last few days. I have not seen that report, luckily I sold some of my CHC shares recently before the stock price slide.

I think some interesting things will be going on in the helicopter offshore market as vendors position themselves for upcoming contract renewals. CHC has reported in it’s annual report for fiscal year ending April 30, 2002 that 48% of its International contracts are up for renewal in fiscal 2004 and 47% of its European contracts are up for renewal in fiscal 2005.

Having about half of your business up for renewal in a two year time period can be risky business. As a matter of fact if you tally up CHC’s renewal percentages from now until the end of fiscal 2005, 88% of the European and 81% of the International contracts are up for renewal. If the oil market is good they will get good rates, if not then rates will surely suffer. They need to smooth out the contract renewal schedule to reduce the “bulge” in contracts. If the market goes against you this can be very deadly.
Maybe CHC has a super-computer at the hanger in Newfoundland and has determined the crude oil price cycle and is eagerly awaiting those contract renewals! Yet many oil companies have super-computers so whoever has the bigger super-computer wins the game.

I was actually surprised that CHC published its contract renewal schedule, in an Offshore Logistics annual report this information was nowhere to be found, and I have read both reports cover to cover. This type of information is inside business knowledge, distributing it can put one at a competitive disadvantage. The field of competitive intelligence covers the uncovering of business information, the say 80% of what you are looking for is in public records.

The two year contract renewal period window represents an opportunity for new entrants to enter the market. They will start making their moves now because after the window of opportunity closes the renewal percentages are less than 10% per year. Perhaps will see small “low-cost” operators emerge (as in the airlines) or air taxi firms obtaining offshore machines and entering into the bidding process. The U.K. laws also invite foreign investment into flight operations (up to 49% ownership), they are less restrictive the U.S. laws (up to 30%).

[chopperpunter]

As an offshore worker, we used to be able to reasonably rely on getting home the day we were due off. For the last couple of years, we seem to have more and more cancelled flights for breakdowns, no pilots etc etc. We also get a lot of guys being bumped because of low loads. We were told that things would get better. If bringing in some more competition is going to get Skoda (sorry - Scotia) to pull their socks up then the sooner the better.

[MBJ]

In my view the oil companies have been cheapskates for so long with their helicopter support that I am surprised anyone wants to get into the market. No good oil companies whingeing about lack of competition - thats where they drove the operators.

I would be very interested to know how often an oil company has awarded contracts to anyone other than the cheapest bidder?

The obvious knock on effect is "chopperpunter" waiting for his crewchange!

[donut king]

6 words!!!!!




YOU GET WHAT YOU PAY FOR!

D.K

[ppheli]

Earlier this week, Rotorhub.com listed this article from the Evening Express (http://www.thisisnorthscotland.co.uk/displayNode.jsp?nodeId=84108&command=displayContent&sourceNode=83937&contentPK=3169129) which was presumably based on the CHC report?

[chopperpunter]

We are getting a bit fed up of the chopper companies constantly winging about not being paid enough. Every other oil service company has had to be innovative and look for clever ways to cut their costs. If we hadn't, the majority of the oil fields in the North Sea would have been abandoned by now as being uneconomic.

MBR and donut king and others of similar attitude need to join the real world otherwise before you know it someone else will be innovative and the present helicopter requirement will all but disappear. Have a look at this link. The system is still a bit basic but watch this space.

http://www.antarctica.ac.uk/Living_and_Working/Diaries/RRS_Ernest_Shackleton/northsea2001/esnsdiary15.html


:eek: :eek:

[Woolf]

Dear Chopperpunter,

From your comments in your posts on this thread I see that the oil companies have suceeded in putting all the blame on the helicopter operators. I think you would see things very different if you would know how things are run in reality.

You are complaining about poor service in the last couple of years lack of pilots, aircraft, break downs .....! The lack of pilots in 2001 was a direct result of the oil companies telling the operators that the amount of flying was going to go down when in fact it went up. It takes quite a considerable amount of time for a pilot to be trained so there was a time in 2001 when we did not have enough pilots but this is not the case for 2002 - plenty of pilots now.

The amount of aircraft for a particular contract is the decision of the oil company - so if your company is only paying for 2 aircraft - thats what you will get!!!

There are and always will be aircraft unserviceabilities. There is not much an operator can do about this apart from servicing the aircraft in accordance with the instructions laid out by the manufacturer. Interestingly an investment in new aircraft does not really improve this much since new aircraft are actually more prone to break down then the older ones.

If a punter is bumped of a seat on a flight because of payload problems this has nothing to do with the company, the pilots or anyone else in the company! This is purely to allow us to get enough fuel into the helicopter to bring you guys safely ashore!!!! If thats a problem then they can bu**er off and take a swim! And actually since you have mentioned Scoda - aehh Scotia - they are the only operator here in Aberdeen with the new Super Puma Mk2 for commercial flights wich can take about 500 kg extra!!!

Since you have mentioned basket tranfer from a boat to a platform - have you thought about how long it will take a ship from Aberdeen to the East Shetland basin???? I don't think that any of the workers would put up with this!!!

And here is another thought for you: We as crews only plan flights and tell the oil companies how much payload we can take on a particular flight. It is entirely up to them to decide if the flight is going ahead and who the punters are. Often they cancel a flight because of their own commercial reasons and leave it for the next day......

So as you can see it's not as easy as you think and just putting all your travel problems down to a crap operator is not really justified.

And by the way - thanks for safely flying you guys out there and back day in day out in crap conditions all year round - we do appreciate your gratitude!!!!!!!!! :p

Woolf

[chopperpunter]

Woolf, you still don't get it do you. If the rest of the industry hadn't bust a gut to cut costs, you wouldn't have half the rigs to fly to - how many pilots would you need then?

I don't dispute that most of pilots and engineers do a good job with the resources available - I'm sure you do. What we object to is the helico managers who, very occasionally nowadays, come to the rigs and blame the oil companies for all the troubles. It is the oil companies who are trying to squeeze the economics of our fields to extend their lives (yes, and make money for their investors which probably includes your pension scheme).

If all your intellegence can do is tell your customers to F*** OFF, it is not suprising we want an alternative.

Look guys, we should not be slagging each other from from the other side of the fence. We should be working together to give us all as big a chance of continued employement until our respective retiral date, and if it takes a bit of pain, so be it.

[Woolf]

Hey Chopperpunter,

Sorry for using the F word, but you got me really upset there - I've edited the post to make it a bit friendlier! :)
I am not trying to slag anyone off - all I am trying to say is that just because a couple of your flights have been delayed and you have been bumped a few times ... etc .... etc ..... you can't just assume that this is because the operator is crap! How would you know?? Just because some other bloke says that this is because of a lack of pilots or because the operator does not give a toss? I don't think so!

Anyway if you believe that BP is looking for another operator because the service is crap - then you are very much mistaken!!!! The only reason they need another operator here in Aberdeen is money! All they want is more competition to drive the prices down to where they were a few years ago (and operators were actually flying for a loss to stay in buisness).

This is fair enough, everyone wants to reduce their costs as much as possible but I can tell you this: There are two loosers in this game.

The first are the employees of the operator (me) who might lose their jobs, pensions, pay rises and above all stability in their lives!

The second are the punters (you)! More competition and therefore lower rates and less money will have the following effect: less pilots engineers ground staff, less spares, smaller facilities and a generally unhappy workforce! I you think that this will lead to an improved service you are very naive.

For you as a punter it would actually be best if CHC retains the contract - you will certainly receive the better service in the long run and i think that a lot of people up here will back me up on this!

Anyway have a nice X-mas and if you are delayed or bumped next time ask the pilot coming down for a pee why, and I am sure he'll be happy to explain!

Woolf

[Special 25]

Hey Chopper Punter,

Interesting to get a customers point of view for once - Although its not part of this thread, I would be interested to know what the general opinion is offshore, regarding the two helicopter companies, their pilots, the different aircraft available. We rarely get information from the other side of the fence.

Cheers

[PPRUNE FAN#1]

So CHC is worried about losing a big BP contract to Bond. I would assume that CHC has already stated that they're not making any money on this contract in the first place. Yet for some reason, Bond feels that the profit margin is sufficient to bid on the contract. What does this tell us, lads? Maybe the operators aren't being perfectly honest with us?

[leading edge]

Chopper Punter and Pprune fan and anybody else who thinks that they pay too much for helicopter services:

The fact is that the helicopter industry has undervalued its services for too long. Look back in history and examine the profits made by the helicopter operators.

As a return on the considerable capital, training and manpower investments required to provide a safe service, the return to shareholders has been miserable for many years.

When CHC bought out HS and Bond, it allowed some of the contract rates to be increased to where there was an improvement in profits and hence a better return to shareholders. The previous competition with 3 operators led to depressed returns, low wages for pilots and engineers and made it increasingly difficult for the helicopter companies to attract and keep experienced, talented staff. Luckily for you, the travellers, the companies did manage to keep many, although many left and went to other parts of the aviation industry.

If you think you are paying too much, its YOU who doesn't get it. The oil companies are publicly traded and as such have a responsibility to maintain returns for their shareholders. CHC and Airlog (who own half of Bristow) are also publicly traded and have the same feduciary duties to their shareholders.

If another oil company started producing oil at half the price you can do it for, you would really understand what reducing costs was all about.

Helicopter operators have to make money, just like oil companies, for their shareholders and to re invest in new equipment. It is the low rates over the past few years which causes you to have to fly in 20 year old equipment. That cannot continue. A new privately owned entrant who gets into the business with new equipment will only be able to do it for a short time at low rates before their rates have to rise to pay for that new equipment.

What you are seeing now (and compaining about) is an increase in rates which is a part "catch up" to put them where they should be under any rational business model where a company requires large capital investment and talented staff.

LE

[MBJ]

I repeat: "I would be very interested to know how often an oil company has awarded contracts to anyone other than the cheapest bidder?"

Come on chopperpunter, are you really saying that you are happy flying in equipment that is being offered to you by Operator A because he thinks he can do it cheaper than Operator B AND still provide a better service.

Peanuts = monkeys and your own industry is the same as anyone else's in that respect.

[SASless]

PruneFan....Shame! Suggesting helicopter operators might be less than completely candid with the hired help......shame Sir! Whatever in the world has gotten into you? What possibly could the operators have said or not said over the past 10-15 years that might lead you to such a preposterous statement? I strongly suggest Sir.....you observe your toes for a few....reconsider that completely uncalled for base slandering of the august Management of the operators.....and beg forgiveness for your outrageous candor!

You may feel free to turn on the light and shift some of that bovine fecal matter from around you while you reconsider your position......I realize the environment within which we usually find ourselves as provided by management tends to cloud our perspective of such issues. Granted, there will be some sort of policy change memo come bounding down from on high reminding us to turn the light out and merely enjoy that warm, fragrant, substance that continues to be heaped upon us. Now if we were in fact mushrooms.....then all this would be the situation to embrace.;)

[chopperpunter]

Any company (oil producer, helicopter operator or widget maker) can improve their profit margin and disposable cash two ways. Either push charges up or drive their costs down. If the first option is chosen, the company risks pricing itself out of the market. Oil companies will try and get as high a price as they can for their oil but they have to work within a world market which includes OPEC, non OPEC, western and eastern producers.

Alternatively, profit (and payrises) can be improved by doing things better and finding ways to cut costs. This is just as important as trying to get the best price for your product.

I have heard helicopter people say that the oil companies can afford to pay more and that the cost of helicopter transport is a "drop in the ocean" of the total cost of oil production. THIS IS NOT TRUE. Helicopter costs are a significant cost in the total budget for annual running costs of a platform, particularly the ones at great distance from their airport. With some of the more mature platforms, the cost of production rises and the economics of the platform can make it marginal. A 2% increase in cost can cause the field to have to be abandoned.

The North Sea has to compete for development funds against other world production areas and the North Sea is expensive. Labour costs are high and regulatory matters can make things difficult.

Oil companies WILL usually go for the cheapest quote for a contract. BUT this is AFTER the prospective service providers have gone through a strict pre-qualification process to ensure the final list of bidders have the technical expertise in both hardware, infrastructure and personnel matters as well as the financial backing to provide the level and safety of service required. Only then will cost be considered. We don't want our contractors to go out of business due to lack of finance but only YOUR managers can manage that. A successful company should NOT bid for a contract, which in the long term will not be financially rewarding for the Company. If it does, it deserves to go out of business. The clever company will be able to provide a higher level of service at a competative price because it has the lowest costs - and that doesn't mean it has to pay the lowest wages. Low costs require quality staff , best use of technology, being able to negotiate good supplier prices etc etc. Successful company's always try and differentiate themselves from their competition - they give themselves the commercial edge by being innovative. The two existing UK North Sea operators are almost indistinguishable. There don't seem to be any good ideas coming out of them.

Someone mentioned the Mk2 Puma in an earlier post. Yes it might carry a bit more weight but what does it do better than older helicopters. Does it allow you to fly to lower weather minimums? I am told not. Is that because it is not technically possible or because no one has thought of it? We have autoland in fixed wing now. I'm not suggesting that the Mk 2 should be capable of it but is anyone thinking about it? Is anyone thinking "out of the box" on other subjects? The companies which will still be here when the last oil is produced will be the ones which have thought "out of the box". Which helicopter company is thinking "out of the box" today?

[redandwhite]

Chopperpunter,

Methinks you have misheard the statement about helis versus other costs. The truth is that helis do constitute 'a drop in the ocean' compared to the companies overall transport costs, not to the cost of overall production. This was stated to me by a senior Shell rep; helis were approximately 2% of their transport costs. How this affects individual rigs has been changed by the oil companies given the OIMs responsibilty for their budgets, and not keeping it centralized.

Autoland: Yes, this has been available to fixed-wing for decades, a form of this has also been available for helis; the only problem being that the CAA do not allow it's use below the published minima for a given approach, so if you don't see the lights/runway at the given height, away you go!:mad:

[The Missing Piece]

Chopperpunter
It's all very well for a helicopter company to think 'out the box' and come up with wonderful ideas but what you fail to realise is that these wonderful ideas cost money and take time with no guarantee that they will be approved by either the CAA or the helicopter manufacturer at the end.

For example if a company decided on a plan to develop some sort of helicopter rig autoland system then the company would have to go out on a limb to design, manufacture, seek approval for, airtest and finally implement the equipment. This costs money, a lot of money. At the end of this process the equipment may not be approved OR, which is probably closer to the truth, the oil company turns round and says 'Nice piece of equipment but as it won't be required that often we're going to give the contract to the other guy because he can do it cheaper without it!'. People can do all the thinking they like but if the helicopter companies don’t make a profit and have money for development then none of these thoughts will be coming out of the box. What you will get is a low cost service with fewer pilots and engineers, smaller stores, less aircraft with no backup. This will mean more delays, more cancelled flights and more frustration for the offshore worker.

Incidentally, it is highly unlikely that the CAA will ever reduce the landing limitations on offshore rigs in our lifetime. Regardless of any new equipment that a helicopter may have, it would be too controversial and if there was an accident, which could be directly attributable to the lowering of limits, then the blame would lie directly at them ...... and they ain't that brave.

[chopperpunter]

To Redandwhite

Methinks you have misheard the statement about helis versus other costs. The truth is that helis do constitute 'a drop in the ocean' compared to the companies overall transport costs, not to the cost of overall production. This was stated to me by a senior Shell rep; helis were approximately 2% of their transport costs.

It is not a matter of me mishearing anything. I KNOW that helicopter costs are a significant part of a platforms budget. The 2% of transport costs quoted to you by your Shell "rep" will relate to Shells total transport costs which will include inter-terminal global bulk product shipping, ie supertankers plying the worlds oceans as part of Shell trading activities.



To The missing piece

it would be too controversial and if there was an accident, which could be directly attributable to the lowering of limits, then the blame would lie directly at them

This reminds me of the time when a rig supply company approached an oil major and suggested a solution to the accommodation problem the major had with a number of its platforms during the construction phase in the '70s. The rig supply company suggested mooring a rig within 50 metres of the platform and having an articulating walkway connecting the rig to the platform. This effectively gave the platform an extra 150 beds for construction workers. The reaction was "it would never be allowed" - "it would never work" - "far too dangerous" - "what a bloody stupid idea". How many cases of Flotels alongside platforms have there been in the North Sea?

In the case of inovation in the helicopter world, I can quote a case. Flare tip changeouts used to be a hazardous, lengthy procedure involving pulleys and cables and tirfors etc. Helicopters started being used but problems of having to build cages etc to drop them into and guide them onto the correct position on the flange created a high manhour requirement operation. Then came along a company which developed a system using a hydraulic winch which "pulls" the flare (and supporting helicopter) down and automatically locks the new flare onto a flange support mechanism. This system has made the operation cheaper, quicker and safer. It was an electricity network company which drove the development work, marketed the system and now get most of the profit from runnning these operations - not a helicopter company. You chopper guys need to progress. Negative thinking (it can't be done, mentality) does you more harm than you can possibly imagine. OK you may have had it rough for a few years. Every industry has to go through these pains. The weak companies will die the strong ones will survive. Its the law of the jungle.

Don't tell me when you go out to buy a car you worry about making sure the dealer makes a nice profit out of you. You will do everything you can to get "the best deal". Oil companies are no different.

[roundwego]

As the original poster on this thread, I must say that it has gone somewhat off topic. I don't want to delete my first post which would delete the whole thread as there are some interesting comments about helicopter aviation in general. Does anyone want to start a seperate topic to discuss the allegations put by Chopperpunter? He/she doesn't seem to think much about the North Sea helicopter companies but he/she has made some valid points. The responses so far don't seem particularly robust.

What can the helicopter industry do to make it more attractive/competative. I am in the onshore side of the game and am constantly having to fight the anti brigade to promote our industry. What are you offshore guys doing?

[The Missing Piece]

Chopperpunter,

While it’s nice to hear your old war stories from the 70’s it’s now the 00’s and things have moved on and ‘Safety Cases’ are the issue of the day. I don’t think there are many North Sea Pilots who would disagree with me when I say that flying the North Sea is more restricted than ever before. Scotia or Bristow can’t bid for contracts on a ‘Anything thing you can fly – I can fly lower’ or ‘I’ll fly in fog if you give it to me’ basis. There are rules and regulations which have to be followed which not set by the helicopter companies but by the CAA – it is as simple as that. If ‘innovation in the helicopter world’ means to you lower the safety limits then we will never agree and I hope you never fly with, by your definition, an innovative helicopter company.

You quoted an example of a electricity company developing a device to assist in tip changes. Well I think that’s great but totally irrelevant to the argument because you always seem to miss the point – if there is no money there is no innovation! You seem to think that more competition on the North Sea will promote a better service. Well go back 7 years. Three companies struggling to survive, one loses all its contracts but gets bought out by CHC which then merges it with another and the other major player nearly goes bust and gets bought by the Yanks. The pilots and engineers seeing the disarray in the industry start leaving, aircraft are sold, supply lines reduced, major maintenance problems etc. etc. Next, big upturn, oil companies start screaming for aircraft and pilots and guess what - there’s not enough of either. So if Bond come back I predict more of the same. This sort of pattern doesn’t just apply to the helicopter world either. If the oil companies want a steady continuous service from any of their contractors then they must show some degree of responsibility to them otherwise you will always have this boom or bust culture.

You seem to suggest that helicopter companies just sit on there arses and do nothing new which, and I mean this respectfully, shows your complete ignorance on the subject. Large helicopter companies are and have always been involved in all sorts of new design and third party work for years and perhaps the reason why you have never heard of it is because it isn’t just specific to the oil industry. Bond/Scotia were/are actively involved in bringing new types on to the North Sea and have options on other new types. Bristow are at the forefront of developing and testing new SAR technology by working with the Coastguard/BP and have sold their expertise in this area for years.

You said : -
“Don't tell me when you go out to buy a car you worry about making sure the dealer makes a nice profit out of you. You will do everything you can to get "the best deal". Oil companies are no different.”

No but I know that if I pay £400 for a car I’m going to get an old banger in poor condition.:cool:

[coalface]

CHC announced today that its United Kingdom operating subsidiary, CHC Scotia Limited, was unsuccessful in its efforts to renew a contract to supply helicopter services to bp in the Northern North Sea. The current contract with bp, which produced revenues of $51.5 million in fiscal 2002, expires on July 31, 2004. This represents approximately 8% of CHC's revenues but less than 4% of EBITDA. CHC will continue to service bp under other contracts in the Southern North Sea, Angola, Norway, and Azerbaijan.

Bond Offshore Services is the lucky recipient of this contract award.

[roundwego]

Well surprise surprise. Maybe CHC Corporate will now realise they picked the wrong management team when they had the choice between Brintel and Bond when they merged the two companies. God only knows why they backed a three legged horse which had been left standing by the opposition.

[Earpiece]

I heard that the guy responsible for ensuring that Bond received the long term contract with Hamilton Brothers in Liverpool Bay is now doing the same job with BP - or am I well out of date/order?