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What's happening in CHC?

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What's happening in CHC?

Old 22nd Jul 2015, 09:56
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I don't have an MBA or a Bloomberg terminal, but the industry heavy Wall Street Journal ran an interesting article on 1st July at First Reserve's Funds Pitch South - WSJ, which includes the text...

First Reserve’s CHC Group Ltd. was already in trouble last year when the oil slump curbed demand for its helicopter flights to offshore drilling rigs. Deep in debt and hemorrhaging cash, CHC and First Reserve handed control of the public company to a rival investment firm in exchange for a $600 million infusion.

The day after the deal closed, the Organization of the Petroleum Exporting Countries said it would maintain its output despite a market glut. Oil prices and energy stocks, including CHC’s, fell into a tailspin.

First Reserve earlier this year told investors that the roughly $700 million of their cash that it invested in CHC in 2008 was valued at about $56 million at the end of 2014, according to people familiar with the correspondence.

CHC’s shares have fallen 81% this year, including a 30% drop on Wednesday.
Another article a week later from Octafinance (no, I hadn't heard of them before) at Cowen Analyst Reaffirmed $1.50 Price Target on CHC Group (NYSE:HELI) stock, While Reiterating Market Perform Rating - Octafinance includes share price graphs, details on large shareholding etc.
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Old 22nd Jul 2015, 13:05
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Danger

Another article a week later from Octafinance (no, I hadn't heard of them before)
A review of Octafinance reveals this:

Get the latest CHC Group (NYSE:HELI) Stock Ratings at Octafinance. Completely free access to our Analyst Ratings Database for 6000+ stocks.
Much like legal advice - financial advice is worth exactly what you pay for it. . .
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Old 25th Jul 2015, 10:41
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Unhappy

Did the first shoe just drop? -- Two days ago.

CHC Group Ltd. (NYSE:HELI; the “Company”), the parent company of CHC Helicopter, today announced that on July 23, 2015, the Company was notified by the New York Stock Exchange (“NYSE”) that the trading price of HELI is not in compliance with the NYSE’s continued listing standard that requires a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days.

I hope there is a plan.
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Old 25th Jul 2015, 21:54
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perhaps they intend to buy back the shares at sub 50 cents which they sold at 10 dollars... they have had 9.50 a share for free...
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Old 26th Jul 2015, 08:22
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I have heard 16 pilots in Norway have been given their notice, with 19 more in August. Shame.
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Old 29th Jul 2015, 19:36
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Investment opportunity? Not!

CHC Group: This Bird Is Flying Too Close To The Sun - CHC Group Ltd. (NYSE:HELI) | Seeking Alpha
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Old 29th Jul 2015, 21:07
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Interesting article that was written by a Chartered Financial Analyst with no axe to grind.

His summary as follows:

You should avoid this company or risk losing your entire investment.

CHC Group's reporting is misleading investors.

The company's governance and shareholder protections are very weak.

CHC is losing money, and its balance sheet is highly levered, especially if lease-debt is included.

Of greater interest is that he forecasts CHC to run out of cash in 4 months and to run out of liquidity in 15 months. He believes that if CDR are not prepared to throw more money at this then CHC will likely go into bankruptcy proceedings.

In my opinion, CHC's financial situation (real or perceived) must now be impacting on it's ability to attract new business?
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Old 30th Jul 2015, 12:58
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Mitch

You can't polish a turd.

many parts of the business are profitable
Do you have a list of those parts of the business that are profitable? CHC have refused to state which parts of the business are losing or making money during their investor briefings.

The EV of a company is basically the sum of its debts plus its cash and assets. Or what you would have to pay if you wanted to buy it and take on all its existing debt. As the author quite rightly says, that will not happen as CHC's EV is mostly debt.
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Old 30th Jul 2015, 13:26
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Max,

Unlike some operators who win loss making contracts just to win them (Inaer Italy's recent forays into Africa being the most recent example), CHC does not have any contracts which are not profitable at the moment (emphasis on at the moment).

Therefore all the business units are profitable. Brazil, Aberdeen and Norway are the big units revenue wise, I think Aberdeen is the biggest.

The major issue CHC faces (as outlined very well by the Seeking Alpha article) is the catastrophic debt CHC holds which comes out of the corporate centre, not the regions. I appreciate that an investor does not need to see the difference and does not.

The debt was accrued by First Reserve issuing debt to buy CHC and then making CHC pay for it. This is what is crippling CHC. Some regions are bleeding more than others with idle ac (undeniably a problem for sure) and the leasing companies are laughing all the way to annual bonuses.

First Reserve have screwed CHC royally and for me it's bordering on criminal. Literally. But I still think it's worth more than 50c odd...
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Old 30th Jul 2015, 13:27
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Originally Posted by Mitchaa
Interesting article with a good analysis
Albeit somewhat less than authoritative, given the claim (by a "former [energy] industry analyst") that CHC "has the world's largest helicopter fleet (231)."

Also surprised that he has "never seen a company with so many versions of adjusted financials." CHC is certainly not alone in its 'slick' financial reporting (several large A&D companies with 'innovative' accounting practices come to mind), and I'm often bemused how many companies these days quietly alter prior-year financial data (e.g. for quarter-to-quarter comparisons) without officially restating the data.

I/C
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Old 30th Jul 2015, 20:18
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It might also be pertinent to consider this in relation to the larger picture at First Reserve? As a mjor player in the O&G sector, they are of course experiencing any number of challenges to their core businesses. Tough times.

Billionaire William Macaulay Suffers Another Oil Setback with Sabine Bankruptcy - Forbes
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Old 30th Jul 2015, 21:01
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Unlike some operators who win loss making contracts just to win them (Inaer Italy's recent forays into Africa being the most recent example), CHC does not have any contracts which are not profitable at the moment (emphasis on at the moment).
nowherespecial

You are not correct. there are some quite large contracts which are hurting CHC which were "won" to get market share and which they are stuck with.

and the leasing companies are laughing all the way to annual bonuses
Not really, because Milestone (now GE) and Waypoint have idle aircraft with CHC (and Babcock) which CHC is having to pay for. The leasing companies are getting very worried that CHC won't be able to afford to pay them each month. even a debt / equity swap is of no value as the publicly traded part of CHC is worth about 1x equivalent EC225 in terms of market capitalisation.

All of the leasing companies have new aircraft on order which have been partly or fully paid for and have nowhere to go. Some have 225s and 92s soon to be delivered just as Bristow is actually looking at reducing its 225 and 92 fleet.

I don't know of too many smiling leasing companies at the moment and none who are laughing.
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Old 31st Jul 2015, 02:55
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Quote:
Unlike some operators who win loss making contracts just to win them (Inaer Italy's recent forays into Africa being the most recent example), CHC does not have any contracts which are not profitable at the moment (emphasis on at the moment).
nowherespecial

You are not correct. there are some quite large contracts which are hurting CHC which were "won" to get market share and which they are stuck with.

Quote:
and the leasing companies are laughing all the way to annual bonuses
Not really, because Milestone (now GE) and Waypoint have idle aircraft with CHC (and Babcock) which CHC is having to pay for. The leasing companies are getting very worried that CHC won't be able to afford to pay them each month. even a debt / equity swap is of no value as the publicly traded part of CHC is worth about 1x equivalent EC225 in terms of market capitalisation.

All of the leasing companies have new aircraft on order which have been partly or fully paid for and have nowhere to go. Some have 225s and 92s soon to be delivered just as Bristow is actually looking at reducing its 225 and 92 fleet.

I don't know of too many smiling leasing companies at the moment and none who are laughing.
Interesting insight and probably the most interesting perspective all OIL GAS heli companies are stressing about.
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Old 31st Jul 2015, 10:48
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Several things to address here:

1. Ref leasing companies, they make 14-18% per ac depending on who they lease them to, if they can;t make money on them at that rate I will curl up and laugh. They have billions of dollars of assets and billions of dollars at low rates owing to the credit quality of their owners (ie low interest rates). A few idle new S92s/ 225s when you just financed BA's new A380 fleet is a drop in the ocean.

2. When other operators are bidding 100k per ac below the rest of the bidders then there is a problem. I am perfectly happy for people to win work against CHC, it is a competitive market after all but when everyone else who bids is within about 20k of each other and someone bids 80k below that then something is wrong. Inaer is the most recent example. They also showed up in Mozambique with no GSE and tried to buy CHC's off them. Buy hey, they were very cheap.... Beyond that, TenTon I agree with everything you say.

3. Genuine qn - I'd be interested to know which contracts CHC holds which are loss making?

Lastly I really think the RW industry needs to get together and tell the oil companies that 3 month termination clauses in all contract are no longer acceptable. If you sign a contract you should honour it. This sh!t fight we are all engaged in (and CHC is not blameless in this) is not helpful and merely makes churn and huge disruption to our industry. If someone signs a 5 year contract, we should be able to stand up and hold an oil company to it.

But we won't because customer is king and they hold all the cards... it's exhausting.
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Old 31st Jul 2015, 11:52
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NWS

1) Leasing companies might charge 14% (more like 9% these days) but they don't make that amount in profit. They make nothing at all if they don't get paid.

BA pay their leases, some helicopter operators are struggling to do so. A"few" S-92s and EC225s? 20x aircraft idle on the books awaiting customers would be $600m, these aircraft could be idle for 3 -5 years because it will take that long for the operators' existing idle capacity to be soaked up again.

2) No comment, I am not an operator but some are desperate to win work to at least keep cash coming in to pay leases (those that have a large leased fleet) GSE would be unlikely to be expensive enough to have deliberately not supplied to save money.

3) Some won at low rates 3- 4 years ago which have had subsequent escalations wound back as part of cost cutting by the oil and gas industry are not making money. One operator recently offered us a 40% discount on the marginal MSC price bid.

Lastly: 3 month termination? I may not agree personally but my company default is 30 days for termination for convenience. However "together" the RW industry may get, I assure you that one will always break ranks around the negotiating table as they chase cash contributions for idle aircraft.
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Old 31st Jul 2015, 11:57
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I think you would be very surprised to see the costs of GSE to support the AW 139. Add on the tooling and test equipment and will climb much higher.
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Old 31st Jul 2015, 16:59
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I think you would be very surprised to see the costs of GSE to support the AW 139. Add on the tooling and test equipment and will climb much higher.
And S92/EC225/EC175/AW189/S-76.

They all have high costs for special tools and test equipment, not just the 139.
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Old 31st Jul 2015, 18:01
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Isn't it a little odd that a question gets asked, with what seems as an air of surprise, about what contracts are loss making - when the organisation is loosing money over multiple years?!!

On what basis are we using to see if a contract is profitable or not?? It surely needs to relate to the business entity as a whole?
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Old 31st Jul 2015, 21:59
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Unless your being bank rolled like Greece there comes a time when you have to pay the piper....
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Old 2nd Aug 2015, 23:28
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Or the Brent,forties,braes,alwyn,beryl...........
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