CHC Helicopter Corporation

 
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CHC Helicopter (NYSE: FLI) CHC Helicopter operates the largest fleet of medium to large helicopters in the world.[1]

As of 2007, 70% of CHC's total revenue was generated by helicopter transportation and services to the oil and gas industry.[2] Higher oil prices have encouraged greater investments in offshore wells, and have raised the utilization rate of existing rigs. These drilling and exploring rigs require helicopter transportation to move crews, food, mail, and supplies to and from offshore locations.[3] Most new wells however, are up to 200 miles off land in deeper water reserves. To travel that distance, medium and large helicopters, like that of CHC's fleet are required.[4]

CHC is in a strong position compared to its competitors since it already has a wide base in the international arena. It also has a much larger developed fleet of medium to large aircraft while most of its competitors are specialized in smaller aircraft. It also has its own internal Repair and Overhaul sector, while other companies must go to third parties to have there helicopters repaired.[5]

Business Financials

CHC Helicopter makes money by renting, selling and repairing various types of helicopters. Its 2007 revenue was $1,149.1M and has consistently risen over the past 3 years. The continual rise is attributed to growth in the use of offshore oil rigs. There is a 43% forecasted growth in number of offshore oil rigs over the past 5 years and during the coming 5 years.


CHC Helicopters' can be roughly divided into 2 groups

  • Single Engine, light aircraft: These aircraft generally carry between 3-6 passengers and generally fly only during the day and good weather. Because of these requirements, the aircraft tend to be for onshore use. CHC has less of these helicopters in its fleet.[6]
  • Twin Engine, Medium-Heavy aircraft: These helicopters tend to carry between 9-26 passengers and require two pilots. They are able to manage adverse weather and can also fly at night. They are used in support of off-shore drilling, mining, construction, Emergency Medical Services (EMS) and forestry.[6]
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2007 Total Revenue by Sector[6]
Operating Income and Total Revenue from 2005 to 2007
Operating Income and Total Revenue from 2005 to 2007[7]

CHC rents out its aircraft for periods of time to its customers. Deepwater oil exploration contracts generally are 12 months long or less, while contracts to oil and gas production sites are often between 2 to 10 years. 67% of the revenue generated in 2007 was a result of long-term contracts.[8] After contracts expire, there is frequently another round of bidding to reassign the new contract. However, the incumbent generally get the contract again if the relationship is still positive. Because of this process, CHC has been able to maintain some of its customers for over 30 years. Its frequent customers include: BP (BP), Exxon Mobil (XOM), ConocoPhillips (COP), Royal Dutch Shell (RDS'A), STATOIL ASA (STO), TotalFinaElf, S.A. (TOT), ChevronTexaco (CVX), Maersk, Nexen (NXY) and Unocal.[9]

CHC Helicopter is a foreign based company with the vast majority of sales outside of North America. This provides CHC with a significant advantage since it has a strong stance in geographic regions such as Africa, Nothern Europe, Asia, and Brazil. Because of the nature of the long-term contracts which tend to favor incumbent companies, CHC's strong global position allows it to have stability and probable future growth.[5]

CHC also has a strong advantage over its competitors in that it has its own Overhaul and Repairs sector within the company. This allows them to do in house repairs, while competitors must go to a third party. CHC is also the only company licensed to repair the engine and major components of the Eurocopter Super Puma and EC225 helicopters.[5]


Revenue by Geographic Area (in millions) %
Canada$48.24.2%
United Kingdom$248.821.7%
Norway$202.017.6%
Africa$189.916.5%
Australia$74.66.5%
Denmark$29.12.5%
The Netherlands$72.16.3%
Other Asian Countries$68.15.9%
Other European Countries$120.910.5%
Other Countries$95.48.3%
Consolidated Total$1,149.1100.0%
[10]

Trends and Forces

Offshore Production: Deep water oil from 1990
Offshore Production: Deep water oil from 1990[11]

Deepwater Oil Exploration requires Helicopter support to function

As of Fiscal year 2007, 70% of CHC's total revenue was generated by helicopter transportation and services to the oil and gas industry.[2] The rise in sales of offshore drillers such as Transocean (RIG), Diamond Offshore Drilling (DO) and Noble (NE) have caused an increase in demand for helicopters.[12] Approximately 3 billion to 15 billion barrels of "sweet crude oil", possibly the largest American oil reserve, has been discovered in the Gulf of Mexico.[13] Many other sites such as off the coast of Brazil have led to speculation that future oil will be derived through off-shore drilling deepwater oil exploration.[14] Because each rig requires at least 1 helicopter to service it with food, water, mail and other necessary supplies, the growth of offshore drilling will continue to expand the demand for helicopters. CHC is particularly well placed since it has the largest fleet of Medium and Large Helicopters in the world and it has the largest base in Africa, Asia, and Brazil. [15]

Oil Exploration Companies have been trying to lower their dependence on Helicopters

The Oil Industry has felt pressure to find a way to lower the rising oil prices. There has been much research put into lowering man power on offshore oil rigs or totally automating the process altogether.[2] The rise in automation and remote controls has lowered the amount of staff necessary on both old and new rigs.[16] In addition, many of the oil customers of CHC have the capacity to run their own in-house helicopter production. If these companies were to begin their own internal production, the loss of this sector will have a large negative effect on the company.[17]

Part of the labor force is unionized and there have been labor disputes

The labor force in Europe and Australia is unionized, and the Global Operation pilots have submitted an application to unionize. In 2007, CHC experience a work-to-rule job action in Denmark which had a negative impact on production.[18] A work-to-rule job action is when workers do only the minimum work required by rules. The result is a slowdown in production which puts pressure on the management.[19] The companies operations in Netherlands are also bound by law to ask to advice of the Netherlands Work Council before taking actions on a variety of decisions.[18]

CHC relies on licensing regulation which is subject to change

In order to operate, CHC must receive a license to do so by the nation. In 2007, 45% of the total revenue was generated in Europe. The European Union requires a majority of the company to be owned by national of member states of the European Union. This requirement is fulfilled on the basis that the Estate of Craig L. Dobbin is a citizen of both Ireland and Canada. In 1994, two European competitors challenged CHC's right to operate in Europe. As a result, the company lost the license to operate, but has since then, regained the right. Similar legislation stands for other countries such as South Africa, where the law requires 75% of the voting rights of must be residents of the Republic of South Africa. CHC indirectly acquired Court Air, a South African registered company. A letter from the Ministry of Transportation approved the registration of Court Air, but reversal of this decision will force CHC to lose its ability to operate in the nation.[20]

Competition

CHC competes with a few other, mainly American, companies. It is the only company with with a large international base. BRISTOW GROUP (BRS) and PHI (PHII) both have a larger fleet of small aircraft, but CHC has the largest fleet of medium and large sized aircraft. Because of this, CHC Helicopter has the strongest position in the growing Oil & Gas Drilling & Exploration. The Offshore rigs require helicopters that can fly long distance at night and in bad weather, only medium and large aircraft can do this.

  • Seacor Holdings (CKH) - Seacor's fleet is mainly based on off-shore activity and so is a large competitor with CHC who is also heavily based on off-shore activity.
  • Rotorcraft Leasing Company LLC – Rotocraft is the largest privately-held helicopter company in the Gulf of Mexico. It has a significantly smaller fleet than the others. Since it is almost solely based in the Americas, it does not have as active a competition with CHC.
  • PHI (PHII) – Phi owns the largest helicopter fleet operating in the U.S. It has operated in 43 countries, but as of 2007, it has focused on the U.S. market. In 2007, just 5% of its revenues was from oversees operations.[21]
  • BRISTOW GROUP (BRS) - Bristow operates the largest fleet of commercial helicopters in the world. 99% of its 2007 revenue was generated from offshore drilling. However, the company is heavily based on small aircraft which cannot service the deepwater oil exploration industry which is beginning to grow rapidly. [22]


' Small Helicopters Medium Helicopters Large Helicopters Other and Fixed Wing Revenue
CHC Helicopter (FLI)[1][23]21468920$1.26B
Seacor Aviation Services[24][25]804430$215M
BRISTOW GROUP (BRS)[26][27] 1411186811$919M
Rotorcraft Leasing Company LLC[28][29]89500$15M
PHI [30][31]16058190$446M

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References

  1. 1.0 1.1 CHC Helicopter – Investor Relations
  2. 2.0 2.1 2.2 FLI 20-F 2008 "Risk Factors" p.9
  3. PHI 2006 424B3, Item 1, Page 5
  4. Oil Online – Flocking to bigger birds
  5. 5.0 5.1 5.2 FLI 20-F 2008 "Business Stratery" p.22
  6. 6.0 6.1 6.2 FLI 20-F 2008 "Industry" p.23
  7. FLI 20-F 2008 "Revenue" p.34
  8. FLI 20-F 2008 "Business Strategy" p.22
  9. FLI 20-F 2008 "Industry" p.24
  10. FLI 20-F 2008 "Industry" p.15
  11. Arabian Business - Deep Water Boom
  12. CNNMoney.com Fortune "Copter Crisis"
  13. The New York Times: World Business "Big Oil Find Is Reported Deep in Gulf"
  14. World Net Daily: "Brazil's giant offshore oil discoveries"
  15. SINLetter "'Copter Crisis:' Investment Opportunity?"
  16. O&G: Next Generation Oil & Gas "Intelligent oilfields"
  17. FLI 20-F 2008 "Risk Factors" p.10
  18. 18.0 18.1 FLI 20-F 2008 "Risk Factors" p.14
  19. Answers.com Definition: "work-to-rule"
  20. FLI 20-F 2008 "Risk Factors" p.12
  21. PHII 2007 10-K, Item 1A, Page 7
  22. BRS 2007 10-K, Item 1, Page 6
  23. Yahoo! Finance – FLI Key Statistics
  24. CKH 2007 10-K, Item 1, Page 14
  25. CKH 2007 10-K, Item 7, Page 36
  26. BRS 2007 10-K, Item 1, Page 5
  27. CKH 2007 10-K, Item 4, Page 32
  28. Rotorcraft Leasing Company - Fleet Info
  29. Indeed - Rotorcraft Leasing
  30. CKH 2007 10-K, Item 1, Page 11
  31. CKH 2007 10-K, Item 1, Page 15
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