Helicopter Operator in Oil-Field Squeeze
November 04 2015 - 11:10PM
Dow Jones News
The slump in oil-field services business could push one of the
sector's largest helicopter operators to cancel or defer almost
three-quarters of its existing order book, including deals with
units of soon-to-be-sold Sikorsky Aircraft and the AgustaWestland
arm of Italy's Finmeccanica SpA.
Era Group Inc. said Wednesday that it had amended existing
contracts with manufacturers last month allowing it to defer
deliveries of helicopters used to transfer workers and cargo to and
from offshore platforms, delay deposits or even cancel deals
altogether.
The warning from Houston-based Era as it reported an 85% side in
third- quarter profit highlights the spread of the energy
industry's downturn beyond traditional oil-field services companies
such as Schlumberger Ltd. and General Electric Co. to include
suppliers more closely tied with production rather than
exploration.
Era is more exposed to work in the Gulf of Mexico, where
production and rig counts have held up better than in regions such
as the North Sea where relatively higher costs have stunted
exploration and started to limit output.
Helicopter operators such as Era, Bristow Group Inc.—which
reports quarterly earnings on Friday—and CHC Group Ltd. have
previously said they'd been in talks with rotorcraft makers about
cancellations or deferrals, but didn't provide any details. Though
executives don't expect any industry recovery before 2017, most had
previously insisted they were relatively protected by sustained oil
and gas production rates, which kept revenues stable because of
fixed-price contracts.
Era has outstanding orders for 17 helicopters, including 14 from
Finmeccanica and three from Sikorsky, a unit of United Technologies
Corp. that plans to close the $9 billion sale of the business to
defense company Lockheed Martin Corp. on Friday.
Era said it may terminate deals worth around $127 million of its
existing $175 million in capital commitments. Most of the
helicopters are due to be delivered between the end of this year
and 2018, and Era has options on another 13 rotorcraft.
"We remain in dialogue with our long-term partners at the
helicopter manufacturers and expect that those commercial
conversations will result in additional contract modifications that
will further reduce our near-term capital commitments by deferring
additional helicopter delivery dates," Era said in a statement.
The slide in energy business comes as big helicopter makers,
which also include units of Airbus Group SE and Textron Inc., roll
out new faster and larger models designed to serve fields in deeper
waters farther from shore. GE also paid $1.8 billion in January for
Milestone Aviation, the largest helicopter leasing company by
sales.
Lockheed has said it plans to retain the commercial arm of
Sikorsky, the world's largest military helicopter maker by revenue,
aiming to develop its services business.
Era shares have fallen about 22% since the turn of the year,
less than the 44% decline at Bristow and CHC's precipitous fall of
more than 90% that has left the stock clinging on to its New York
Stock Exchange listing by a thread after a prolonged period below
$1 a share.
Write to Doug Cameron at doug.cameron@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 04, 2015 23:55 ET (04:55 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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