The importance of the oil and gas sector to the commercial helicopter market, which we have frequently discussed in Rotorhub magazine, in recent years, was again highlighted by the recent plunge in oil prices.
On 12 December, Brent crude dropped below $62 a barrel – its lowest level since 2009 – and the head of the Organization of the Petroleum Exporting Countries (OPEC) has reportedly confirmed that the cartel would not try and shore up the price by mandating a reduction in production.
On a visit to Airbus Helicopters to mark the first delivery of the new EC175, CEO and president Guillaume Faury said the drop in oil price was one factor behind a ‘flat’ civil helicopter market (for more, see my news story here).
Other factors are also contributing to a slow-down in orders, including the situation in Russia (where EC175 customer UTair Aviation may take longer than expected to accept delivery of its first aircraft), the healthcare changes in the US and slower than expected growth in some of the emerging economies.
However, the fact the oil and gas business is currently ‘refining’ the economics of offshore extraction due to the drop in oil price will be jangling nerves across the four main civil helicopter OEMs.
The rise of hydraulic fracturing in the US has introduced an un-forecast source of oil, providing an oversupply that has lowered the price. Therefore, the more difficult to access oil fields – in other words, the ones that require more sophisticated, economical helicopters with suitable range capabilities – become less economically viable.
While I am far from qualified enough to attempt to predict what will happen to oil prices in the near- to mid-term, analysts are suggesting that the recent plunge foreshadows much greater volatility – also potentially impacting exploration operations in the Gulf of Mexico (see the Dec-Jan issue of Rotorhub).
Against this backdrop, the whole raison d’être of the AW189, EC175 and Bell 525 suddenly becomes less certain.
Each was conceived to provide the most economical way to transport crews the increasing distances from shore that new rigs were expected to be situated.
Speaking during the delivery ceremony of NHV’s first EC175s, founder and CEO Eric Van Hal told me that the operator still believed the aircraft was in the ‘sweet spot’, capable of flying 80% of the current missions in the North Sea.
He said the company is confident that once the aircraft are plying their trade flying crew-change missions, it would start to eat into the market share of the larger and more expensive EC225 and S-92 – the whole idea underpinning the super medium segment, for which Bell Helicopter originally coined the term for as part of the launch campaign of the 525 (even trademarking the phrase in 2012).
As volatility in the price of oil casts a cloud over the sector, Bell’s claim that the heavier 525 will provide the most economical solution for the majority of crew-change missions may prove to be a harder sell.
The AW189 continues to outsell the EC175 at around two to one, according to sales figures that admittedly include less certain options and framework agreements.
AgustaWestland even issued a press release the day before the EC175’s delivery ceremony, announcing that Gulf Helicopters of Qatar had celebrated the entry into service of its first batch of AW189s – although knowing the Byzantine approval process for Finmeccanica Group press releases, that may have been more through good fortune than design.
Airbus Helicopters executives remain outwardly confident, however, that once it is in service and plying its trade on North Sea operations, any market hesitancy towards the EC175 will be removed.
There may be some truth to that, but with overall bookings already down 15-20% for the first nine months of 2014, the company is already hoping that the traditional end-of-year sales rush will provide a sufficient boost to order numbers that it doesn’t have to report an annus horribilis in January.