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The Xingwang deep-sea semi-submersible drilling platform at Liwan3-2 gasfield in the South China Sea. Photo: Xinhua, Zhao Liang
Opinion
Across The Border
by Sijia Jiang
Across The Border
by Sijia Jiang

Helicopter industry awaits recovery as oil-price rebounds to over $40

While other parts of the aviation industry have gained from slumping oil prices, helicopter companies have been suffering.

The aviation industry has benefitted from plunging oil prices which has saved them billions.

The exception has been the helicopter industry which has suffered because of less business from offshore oil and gas companies — their biggest clients — that have curbed investment. Some relief may be at hand, though, after crude prices climbed back above the US$40 a barrel mark.

The shares of Citic Offshore Helicopter, China’s largest operator with a 63 per cent market share in offshore oil transportation, have fallen 17.12 per cent so far this year. That compares with a 15.26 per cent drop of the CSI300 index.

With an operating fleet of 57 aircraft, Citic Offshore Helicopter counts oil and gas producer CNOOC

as its largest client and generates 80 per cent of revenue from offshore oil transportation. It suffered a 49 per cent contraction in net profit to 18 million yuan in the first three months of this year compared with the same period of 2015. Revenue dropped 10 per cent, according to its quarterly report last week.

Hong Kong-based consultancy Asian Sky Group’s annual report on the civil helicopter fleet in Asia said major oil and gas producers downsized operations or cancelled exploration in 2015, driving down the worldwide utilisation rate of drilling rigs to 70 per cent from 90 per cent a year earlier.

Helicopter operators have been trying to cope with slumping business by deferring vehicle deliveries, consolidating fleets and laying off pilots.

“The helicopter market is struggling at the moment with the oil price and what that’s doing to the oil and gas market,” Andy Gill, a Singapore-based senior director at aerospace manufacturer Honeywell, said “We see a delayed recovery until at least 2017.”

According to industry insiders, the price threshold for offshore oil activities to pick up is at least US$50 per barrel and the figure is higher still in China, where most oil rigs are at a greater distance from the shore.

Brent crude sold at an average US$35 per barrel in the first three months of 2016, a 36 per cent year-on-year fall.

Citic Offshore, which recently established an overseas base in Myanmar, is still to take delivery of the last of seven EC225LP helicopters it ordered in 2011 from Airbus.

“Based on market conditions and Amendment One of our aircraft contract, we will firm up details regarding this order at a later date,” the company said.

Given the slow recovery of oil prices, the company is trying to grow its other businesses. It said it recorded a 44 per cent increase in the number of flights performed for the forestry patrol in 2015 and total flight numbers dropped 2.38 per cent.

Suzhou-based Soochow Securities said in a recent report that it expects Citic Offshore Helicopter’s oil transportation business to grew at a compounded annual rate of 5 per cent , compared with 30 to 40 per cent of growth for its land transport business and 30 per cent for its maintenance business.

Citic Offshore Helicopter’s performance doesn’t look so bad once compared with international peers, which have been worse hit.

In the past 12 months, Bristow Group, one of the largest helicopter operators and listed on the New York Stock Exchange, saw its share prices plunge 64 per cent. The shares of Era Group, the longest serving helicopter transport operator in the US, dropped 58 per cent. Nasdaq-listed Petroleum Helicopters International declined 35 per cent, and CHC Group saw its over-the-counter shares plunge 97 per cent. Citic Offshore’s A-shares lost 31 per cent in the same period.

“The Chinese helicopter industry depends less on the oil and gas industry compared with their counterparts in the US Gulf of Mexico or the North Sea in Europe, because that’s where most of the offshore activities take place,” Chris Jaran, managing director of Bell Helicopter in China, said,

According to Bell, there are 764 helicopters in China, more than half of which are multi-missioned. Only 9 per cent of the fleet is dedicated to offshore operations. Jaran said there are around 120 Bell helicopters in China, used mostly for agricultural missions and power line patrol.

Han Yichao, an analyst with Changjiang Securities, recommended buying shares in Citic Offshore Helicopters in a report last week, saying that it has managed to cut costs and diversify its revenue stream by rapidly expanding its business in maintenance and forestry patrol.

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