The Canadian company said it can “no longer bear the weight” of its burdensome debt structure and expensive fleet amid declining oil prices and the resulting drop in demand for its services.

Oil and Gas People understands that under chapter 11 bankruptcy protection CHC will be able to hand back leased aircraft without penalty or cost.

CHC addressed employees at a tow hall meeting last week. A source summarised the key meeting points to Oil and Gas People:

• CHC Scotia are not under Chapter 11, they are owned by a Dutch consortium and are a profitable company in their own right with their own positive cash flow. Should CHC group fail to leave chapter 11 and enter chapter 7 bankruptcy, then CHC Scotia are structured in a way that offers them full protection. The bankruptcy cannot asset strip CHC Scotia. CHC Scotia would continue as a business.
• CHC have tried to negotiate with lessors on debts and leased airframes and these negotiations have proved unsuccessful. As a result, CHC have taken the choice to enter chapter 11 which offers them full protection from the courts to hand back idle aircraft without penalty or cost. They are to be handed back in their current state as soon as possible, with 240 or so aircraft, up to 100 of these will be returned.
• CHC group expects to come out of Chapter 11 within 6 months much stronger than they entered.
• Staff and day-to-day running is unaffected, salaries and benefits to be paid as normal.
• CHC also plan to exchange $1bn worth of debt for equity in their company.
• CHC plan to re-model their business model based on a favourable owned vs lease count. They are going to buy a number of leased aircraft at negotiated rates.
• All in all, staff were left satisfied with the briefings and the answers given. It’s a positive for the company, not a negative. The company will be a smaller leaner more profitable company in the future.

Oil and Gas People delved a bit deeper into CHC’s current business and the more we look into it the more the Chapter 11 move makes sense. The company is currently paying over the odds for a lot of their aircraft having entered into lease agreements when the market conditions were less favourable. Chapter 11 allows them to walk away from these lease contracts and hand back air frames that are currently sitting idle.

With the market conditions for helicopters so poor there is a lot of idle aircraft around, if CHC have 100 or so that they want to get rid of, then how many do the other big players in the market have? The leasing companies of course won’t want these aircraft back but under Chapter 11, they have no choice. CHC are protected and they will have to take their goods back.

With regards to buy back, the market is flooded with unused helicopters with supply far outstripping demand. The leasing companies have a couple of choices, receive the airframes back under chapter 11 and receive no payment at all or sell the airframe at a discounted market value price and get shot of it? If they go down the 1st path, they may have a helicopter sitting, depreciating for years until there is demand to re-lease it on. If they go down the 2nd path, they cut their losses, sign over ownership of the aircraft and get cash in the bank. CHC will have the upper hand where as currently the leasing companies have had all the control. It completely turns the tables and should allow CHC to come out of Chapter 11 stronger and leaner than ever before.