Editorial: Delivering the Goods

Delivering the goods
Drew McCarthy
April 02, 2008
By
Heli-Expo 2008
The day that we arrived in Houston for this year’s Heli-Expo, we heard the news that CHC Helicopters was being sold. I was chatting with a group of people when we got the e-mail. Someone asked incredulously, “Who could buy CHC?” and then as if on cue we all answered – “a private equity firm.” And so it was – U.S.-based First Reserve Corp.’s bid for CHC Helicopter Corp. is reported to be valued at $3.7 billion.

First Reserve has been around for about 25 years and its portfolio is focused exclusively on the energy industry, which just happens to be the largest and most capital-intensive industry in the world.  Its bid to purchase CHC is in keeping with its philosophy of diversification across a wide range of energy sectors.

Some recent problems notwithstanding, First Reserve sees the enormous upside to CHC. Mark McComiskey, First Reserve’s managing director, was quoted as saying, “CHC is an extraordinary company.

The European and global leader in oil and gas and search and rescue helicopter services, with the world’s largest independent helicopter support business, CHC has a worldwide footprint, the best safety record in the industry and a dynamic management team executing an exciting growth strategy.”

This all makes perfect sense since it’s no stretch to say that energy creation is the most important global challenge of our time.  For the foreseeable future oil and gas will continue to be in great demand in spite of ever-rising prices. Oil and gas sources that were once considered too expensive to extract have now become economically viable because of what the world is willing to pay. And the helicopter is an indispensable tool in the business of both offshore and continental energy exploration and extraction. In fact, the more difficult it is to get to and extract, the more likely it is that a helicopter will be needed.

At Heli-Expo, we saw companies such as B.C.-based VIH Helicopters and Texas-based Bristow Group shoring up their future potential in the oil and gas business as launch customers for the new EC175. At the unveiling of the aircraft, orchestrated by Eurocopter president and CEO Dr. Lutz Bertling, 16 look-alike oil workers disembarked from the aircraft as part of the celebration.

But as important as oil and gas is to the current successes of the helicopter industry, there are other (albeit connected) drivers as well. New demand for all that expensive energy is being generated from the world’s developing and emerging economies. Many of these countries, where helicopter fleets are very small, are considering EMS, SAR and police helicopters for the first time. In many places, over and above their obvious utility, para-public helicopters are seen as symbols of civil progress and social development.

And the corporate helicopter market, with players such as Hermès, Versace and Pininfarina designing interiors, continues to expand. Confidence in this area is solid. One company, Aero Toy Store (FBO facilities in Fort Lauderdale and Montreal), has in addition to a score of single and light-twin orders, deposits on a number of corporate BA609s for delivery in 2010 or 2011.

As in recent years, all of the OEMs at Heli-Expo talked about having far more orders than manufacturing capacity, with no apparent end in sight. Concerns about the U.S. economic downturn have not triggered any dire predictions. There are two leading indicators that might herald a downturn for the OEMs: cancelled orders and/or a diminishing number of new orders. Neither of these things has happened.

Supply chain shortages, which have plagued manufacturing since the onset of the recent industry surge, are still an issue. Bell Helicopter president and CEO Richard Millman says that the supply base is just now starting to make the investments needed.  Part of the difficulty in getting that investment has been convincing suppliers that we are experiencing a new plateau in the helicopter industry and not just another cyclical spike.

A second approach to troubling supply issues is being pursued by MD Helicopters, which has undertaken a rationalization of its supply chain. Referring to the strategy as ‘vertical integration,’ CEO Lynn Tilton is actively reducing the number of suppliers in the supply chain. MD hopes to reduce its 500 or so suppliers to a final target number of about 50.

The overall message from Heli-Expo this year was again positive. Increasing demand driven by a variety of factors, coupled with the approaching need for worldwide fleet renewal, points to ongoing success for manufacturers, suppliers and helicopter operators well into the next decade.

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