Professional Pilot, September 2016

2010 2015 CAGR 18 2010 2015 CAGR 05 PROFESSIONAL PILOT September 2016 11 20 15 10 5 0 Market value in 2016 billions than the civil side of the industry and deliveries of most large military models have held up reasonably well Leonardo formerly AgustaWestland which has the highest ratio of civil to military work of the top 5 primes saw its 1st half 2016 order intake decline by 576 compared with the 1st half of 2015 Its revenue fell by 192 Airbus the biggest civil helicopter manufacturer received just 51 orders in the Q1 2016 down from 86 in the Q1 2015 Other direct market indicators are also in unhealthy territory According to JETNET 7 of the world civil turbine helicopter fleet was up for sale as of June Thats up from 65 a year ago This indicates a market that is still falling Average asking prices also fell by 26 In short the civil helicopter industry has suddenly entered a violent cyclical downturn even though it hadnt fully recovered from the post 2008 downturn Its mostly about oil Just as the markets 2003 2008 growth surge corresponded to rising oil prices the present market downturn corresponds to falling oil prices There are other factors to blame after all oil and gas models represent at most 15 to 20 of deliveries by unit even by value they represent less than 1 3rd of the market But in terms of the major civil helicopter market variables and drivers there are no forces quite as important as oil prices In early August the recent and tentative oil price recovery collapsed with prices briefly dipping below 40 per barrel from 50 in early June The problem is that any increase in oil prices results in additional capacity being brought on line and in additional supplies being brought to market In the long run history shows that oil prices will once again rise most predictions call for an oil price increase to around 75 to 90 per barrel by 2018 But theres clearly no short term prospect for a meaningful increase 2003 2008 CAGR 103 2003 2008 CAGR 182 As a result the oil company financials have declined precipitously Exxon Mobils Q2 2016 profits fell 60 from Q2 2015 The company cut capital spending by 38 from the Q1 2016 The number of oil rigs in the US is down 77 from the October 2014 peak Inevitably this industry pain has filtered down to the helicopter operator level as spending falls on oil and gas field exploration and sustainment Bristow Groups Q1 2016 results showed a 253 million loss compared with a 15 million profit during Q1 2015 The companys oil and gas revenue fell 29 from 360 million to 255 million Bristows cost cutting plans include helicopter deferrals CEO Jonathan Baliff told analysts that Bristow is kind of seeing the bottom of the market but this statement was made before the recent collapse of the oil price rally The worst pain has been felt by CHC Helicopters which filed for Chapter 11 bankruptcy in May In July a Texas court allowed CHC to shed 65 helicopters from its obligations glutting the market for large and medium large models Specifically the companys AS332 fleets will shrink from 33 to 14 while H225s will shrink from 40 to just 3 There will be 15 of 50 Sikorsky S76s and seven of 46 S92s discarded along with the dropping of 20 of 43 Leonardo AW139s CHC Bristow and other service providers such as Era Group have tried to compensate for oil market weakness by emphasizing other markets for large helicopters such as government funded search and rescue SAR But the other civil segments are showing signs of weakness too Other culprits behind the markets decline include a downturn in most emerging markets currency weakness in several key importer countries particularly Brazil and Russia and declining corporate spending which has impacted the VIP and business helicopter segments Business investment spending in general is down by 35 in the 1st half of 2016 compared with the 1st half of 2015 according to the US Commerce Department Civil Military Civil and military rotorcraft deliveries by value 1988 1996 2004 2012 1992 2000 2008 2016f 1990 1998 2006 2014 1994 2002 2010 Leonardo AW139 Sikorsky S76