Wednesday, June 1, 2016
Brazil: Severe Turbulence
The country’s recession is becoming deeper than expected. The International Monetary Fund sees Brazil’s gross domestic product this year shrinking by -3.8%, the same rate seen in 2015.
Further deterioration in Brazil “could lead to a sudden repricing of regional assets, reduced demand for exports among trading partners in the region,” the fund said in an April forecast.
Brazil’s offshore helicopter market was confronted with reality in late 2015. After nearly a year of postponements, state-owned oil and gas giant Petrobras canceled helicopter tenders to support drilling below a 6,500-ft-thick layer of salt on Brazil’s continental shelf. (The salt layer is nearly 15,000 ft below the Atlantic Ocean’s surface.)
The “pre-salt” program had more than 110 medium- and large-sized helicopters flying 1 million-plus passengers a year to dozens of offshore platforms. (About 70% were Sikorsky S-76C++ and AgustaWestland AW139 aircraft, with the rest Airbus Helicopters H225s and Sikorsky S-92s.)
Most Brazilian operators are subsidiaries of or have partnerships with international operators and fly locally for global oil and gas companies like Shell, BP Repsol and Saipem.
The forecasted new fleet would increase the number of helicopters to 200 by 2020, still balanced between medium and large ones.
Brazil’s oil production occurs mainly in waters of 5,000 ft or deeper and is expensive, especially with prices running at $30 to $40 a barrel. Still, Petrobras’ 2015-2019 investment plan says exploration and production operations will remain its priority, representing about 80% of its total investment. But the decreasing number of helicopters and reduced flight operations might mean that added investment won’t benefit helicopter operators for two years. Given the emergence of renewable energy sources and the unpredictability of the global oil market, the timing of offshore projects and the speed at which they are implemented might change significantly.
Operators have been reviewing their strategies, rechecking operational procedures and adjusting their workforces as they await Petrobras’ new phase of work.
Some work may be found elsewhere in the region. Oil and gas operations in Uruguay, for instance, might draw Brazilian operators, who could fly their aircraft and crews there under Brazilian registration for up to 12 months.
In manufacturing, the downturn has chiefly affected Airbus Helicopters’ largest regional project: the Brazilian armed forces’ acquisition of EC725s. This also affects Airbus’ regional subsidiary, Helibras, which is responsible for delivering those aircraft. To preserve the program, last December Airbus and Brazil agreed to cut the delivery rate from seven to four a year and extend the program from 2017 to 2022. Of the contracted 50 helicopters, 22 have been delivered and are operating.
Leonardo-Finmeccanica has again postponed plans for an AW assembly line in Brazil. It has more than 200 helicopters operating there.
In the private sector, entrepreneurs who decided in recent years to acquire their own helicopters (mainly piston ones) are selling them and even exchanging them for real estate or expensive cars. They instead are flying air taxi services. More expensive helicopters are finding buyers in the U.S., Mexico, Europe and Australia.
The services market also has been affected, particularly those for the top five heliports in greater São Paulo. Together, those facilities have a capacity of more than 350 helicopters.
Brazil’s political turmoil reached a critical point May 12, when the Senate of Brazil voted 55 to 22 to suspend President Dilma Rousseff and begin an impeachment trial. Rousseff was suspended immediately; the Senate has six months to try her (on charges that she oversaw the misuse of government funds). Conviction requires a two-thirds vote by the Senate. That would result in Rousseff’s permanent removal from office. In the meantime, her vice president serves as acting president.
The lack of a permanent head of state adds to the sense of risk and uncertainty. Amid those concerns and the weak economy, wise business executives will search for strategies and ways to create opportunity from such market dynamics.