Photo courtesy of Bristow
The third quarter of fiscal year 2018, which ended Dec. 31, 2017, went better than Bristow Group expected. The third quarter is historically the toughest operational period, president and CEO Jonathan Baliff told investors on the company’s earnings call Friday, due to wintry conditions in the northern hemisphere.
Although this third quarter did not deviate from that norm, operating revenue increased 6.5% compared to the same quarter last year. Bristow was able to increase its financial guidance for the fiscal year.
“With this higher revenue and lower cost structure, we were able to leverage incremental activity so that most of our additional revenues fall to the bottom line,” Baliff said. “In fact, we expect to finish this year with higher flight hours than last year.”
The company announced a major restructure June 2017. That resulted in splitting its global structure into two regional hubs: Europe (including the Middle East, Africa Asia Australia and Turkmenistan) and Americas (including U.S. Gulf of Mexico, Brazil, Canada, Suriname, Guyana and Trinidad). The restructure also involved the exit of many Bristow executives and business divestment, like the sale of Bristow Academy.
“As the fiscal year began, we knew that we had to make dramatic and critical changes in order to align with our clients and the current market conditions — hence, the new Bristow with the hub structure,” Baliff said. "As a result, clients are rewarding us with revenue growth in this continued short-cycle market, as demonstrated by our third-quarter results.”
That short-cycle market has been a bright spot in the struggling offshore oil and gas market. Short-cycle work, Baliff explained, are pop-up demand requests for months-long contracts, instead of years. Bristow has seen this sort of business continue to expand in the third quarter, particularly in the Gulf of Mexico, he continued. These short contracts won’t necessarily translate to multi-year contracts, though.
Baliff said that, in the natural progression coming out of any down market, clients are looking to gain confidence before they sign long-term contracts. Those long-term contracts won’t look attractive until it becomes more expensive to continually contract on the short-term. The market hasn’t quite gotten there yet, though. Right now, short-cycle work is the focus.
“We in helicopter transportation are also benefiting from relatively low day rates in both rigs and boats, which in turn reduces our oil and gas clients’ [operating expenditure] and [capital expenditure] and generates increased demand for offshore transportation like helicopters,” Baliff said.
He gave the example of stacked rigs being employed quickly for short-term drilling campaigns. Although a global occurrence, Baliff noted its particular presence in the Gulf of Mexico.
“This is demand that we didn’t predict in the second quarter of 2018, our fiscal year,” he continued. “And due to our success in reducing costs and our faster hub response, we have become more competitive and are gaining market share in this new environment for these short-cycle requirements.”
Bristow does not announce these short contracts — that fanfare is exclusive to multi-year contracts. But, Baliff did have one of those to announce on the call.
“Today I am also happy to announce a multi-year contract renewal in Guyana to support helicopter crew change and search and rescue services that commenced on Jan. 1 of 2018, utilizing three existing medium aircraft,” he said. Those aircraft, he would later explain, are Leonardo AW139s. “This contract is strategically important as we continue to pursue additional growth opportunities in the Caribbean.”
More long-term contracts could be coming down the pipeline. Alan Corbett, VP Europe, Africa, Middle East, Asia (EAMEA), and Rob Phillips, VP Americas, are working opportunities arising from contract renewals. Some are Bristow’s contracts that it would have to re-compete, but most, Baliff said, are contracts belonging to competitors.
The third quarter was also a good one for Bristow’s search and rescue (SAR) operations. During the quarter, its U.K. SAR contract began full operations, which provided revenue growth.
“We’ve been seeing expansion in our U.S. SAR operations, and other SAR operations around the world as we’re bidding for a number of long-term contracts in civilian SAR in the Americas and European hubs,” Baliff said.
Bristow also was able to sell five legacy aircraft during the third quarter, for proceeds of $6 million, which helps improve earnings reports. Year-to-date, Bristow has sold 11 aircraft for $48 million. There are currently nine aircraft for sale.
As the company mentioned last quarter, it reached agreements with original equipment manufactures that are set to result in some $130 million in cost recoveries. The settlements are subject to confidentiality agreements, but Bristow did say it received about $125 million in the third quarter, with $5 million expected to come next quarter. These cost recoveries are set to be a focus of Bristow’s in fiscal year 2019.
It also doesn’t hurt the earnings report that Bristow has been returning some helicopters to the lessor. Bristow has a fleet of 27 Airbus Helicopters H225s — it owns 16 and leases 11. The operator said it was able to return three in the third quarter and expects to offload another five aircraft during fiscal year 2018, including Sikorsky S-92s — some of which are due for return in March. In fiscal year 2019, Bristow can return 13 aircraft, including three H255s and several S-92s.
“Look guys, it is still a very tough market,” Baliff said of the offshore oil and gas industry. “But across the board we’re seeing an increase in offshore vessel utilization, off of a very low base. Increased utilization of floaters and jack-ups indicate that the [offshore market appears] to have stabilized — and even marginally getting better.”