Published on May 6th, 2016 | by Jim Lee0
CHC Group Files Voluntary Chapter 11 – CHC Ireland Ltd not impacted by the move
On 5th May, the CHC Group announced that the Company and certain of its wholly-owned subsidiaries have filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court, for the Northern District of Texas. The move was made to facilitate the restructuring of its balance sheet and fleet, and position the Company for long-term success, according to the Group’s statement. “The reorganisation is expected to strengthen CHC’s financial position by reducing long-term debt and enhancing financial flexibility while allowing the Company to manage and operate its fleet of aircraft” the statement adds.
In total, 43 of the company’s subsidiaries are included in the Chapter 11 filing, although its operating business in the UK – CHC Scotia, is not one them. Neither is CHC Ireland Ltd., which provides the helicopter search and rescue (SAR) service for the Irish Coast Guard (IRCG), from its four main bases at Dublin, Sligo, Shannon and Waterford. Accordingly, it will not be impacted by the announcement. The Company also announced that it had filed certain ‘first-day’ motions with the court to facilitate operating in the normal course, throughout the court-supervised restructuring process.
The announcement comes only days after the fatal crash on 29th April, of LN-OJF, a Eurocopter EC 225LP Super Puma Mk2+, operated by CHC Helikopter Service (previously CHC Norway). All 13 occupants were killed, when the helicopter impacted the rocky shoreline of Turøy Island, just west of Sotra, near Bergen in Norway. It was on a round trip from Bergen-Flesland Airport, Norway to the Gullfaks B offshore installation in the North Sea.
However, CHC’s problems were more deep seated than that. It has seen its share price collapse from a high of $57 (around € 49.98) per share, to just 11 cents (around €0.10), seriously eroding the market value of the company. The New York Stock Exchange delisted the company in February and more recently, on 15th April, CHC declined to make an interest payment of $46 million (around €40.34 million) in interest, on $1 billion (around €876.86 million) worth of bonds. The payment is due later this month and their action triggered a 30-day grace period, before the payment would technically be in default.
Like many companies in the oil and gas industry, CHC’s operations have been significantly affected by the dramatic decline in oil prices, since their peak in 2014 and general uncertainty in the energy market, which has led to decreased customer demand and an increase in idle aircraft. Despite significant efforts to reduce costs, these factors, coupled with CHC’s debt and aircraft lease obligations, resulted in the Company’s decision to engage advisors to assist in evaluating strategic alternatives, to improve its capital structure. As of 31st January, CHC’s long-term debts stood at $1.4 billion (around €1.23 billion), plus an additional $1.4 billion of lease commitments and $236 million (around €206.94 million) in aircraft purchase commitments.
As noted above, the CHC statement says that key part of the restructuring will be to “facilitate its financial and fleet reorganisation”. CHC’s most recent quarterly accounts, for the period ended 31st January 2016, show its fleet consisting of 231 helicopters, of which 157 of them are leased. The fleet consists predominately of variants of the Airbus Helicopters Super Puma – either the H225 or AS332 – with a total of 75 in operation, along with 46 Sikorsky S-92s. In addition, it operates 110 medium-class helicopters: 43 AgustaWestland AW139s, 50 S-76s across three variants, and a small number of Bell Helicopter 412s and other Airbus Helicopters models. It also has $500 million (around €438.43 million) worth of outstanding orders and options for new helicopters. We understand that the Group had been making efforts to dispose of aircraft and cancel leases, but had run into opposition from its suppliers.
CHC and its advisors subsequently determined that a court-supervised reorganisation process would provide, “the best and most efficient way to align the Company’s debt, lease and interest costs with customer demand in the current operating environment, and position CHC for long-term success,” the company’s statement added. In its bankruptcy court filing presents a grim picture, with debts listed of $2.19 billion (around €1.92 billion), against assets of $2.17 billion (around €1.9 billion), as of 31st January. However, since then the company’s financial position has further deteriorated.
In a comment, Karl Fessenden, President and Chief Executive Officer of CHC said: “CHC continues to be a strong company operationally and we remain fully committed to delivering safe and reliable service to our customers. Importantly, normal business operations will continue. The step we have taken today provides an orderly path to enhance our financial flexibility and establish a competitive capital and operating structure that will allow us to invest in and grow CHC’s business over the long-term. We remain committed to maintaining our position as a world class helicopter service provider – one that continues to set the standard for safety, customer service and value across the industry. We thank our customers and suppliers for their ongoing support as well as our employees for their continued dedication.”
CHC expects that day-to-day operations will continue without interruption, throughout the court-supervised restructuring process. The Company also expects to maintain sufficient liquidity, throughout the restructuring process and maintain its continuing business operations.
The statement concludes by saying that customers, suppliers and other stakeholders can find additional information about CHC’s reorganisation at www.chc.ca/restructuring. In addition, court filings and other information related to the restructuring proceedings are available at a website administered by the Company’s claims agent, Kurtzman Carson Consultants, at www.kccllc.net/chc. Seabury Advisors, PJT Partners and CDG Group are serving as financial advisors to the Company and Weil, Gotshal & Manges LLP and Debevoise & Plimpton LLP are serving as its legal advisors.
Finally, in the aftermath of the tragic accident involving LN-OJF, CHC immediately put all EC 225 flights temporarily on hold, with the exception of those aircraft dedicated to life-saving SAR missions.
Based on the information available to-date, the Accident Investigation Branch Norway (AIBN) has stated that the helicopter suffered in-flight separation of the main rotor hub from the main gearbox (MGB); the root cause has yet to be identified. As a precautionary measure, and while investigations are ongoing, Airbus Helicopters has issued an Emergency Airworthiness Service Bulletin (EASB) 553-A-058, which calls for checks on the installation of the suspension bars.
Subsequently, EASA issued Emergency Airworthiness Directive (EAD) 2016-0089. The EAD mirrors the requirements of the EASB while additionally requiring checks on the main gearbox chip detector and the oil filter for contamination. It also requires the verification of HUMS data. The EAD is considered to be an interim action and further mandatory action may follow.
Airbus Helicopters has since updated their original EASB and on 4th May it issued a Revision 1 to EASB 553-A-058 which effectively mirrors the additional requirements of the EAD.
CHC is complying fully with the requirements of both the EASBs and EAD in addition to any ongoing commercial operational limitations laid down by Regulatory Authorities.
In a statement the company said; “While CHC recognises the additional assurances provided by the EASBs and EAD, we consider continuing to place all EC225 commercial flights around the world on hold to be the most prudent course of action”.