Helicopter operator CHC has been ordered by the UK’s competition watchdog to sell off its newly-acquired Babcock North Sea business.
The Competition and Markets Authority (CMA) has completed its long-running investigation into the CHC takeover of the Babcock helicopter segment.
CHC acquired Babcock’s UK, Denmark and Australia operations last year – this ruling means it will have to divest the UK arm.
Despite protestations from CHC, the authority has stuck to its guns saying that the deal will “significantly reduce rivalry” in the North Sea helicopter market.
It has ordered CHC “to sell the UK oil and gas offshore helicopter services business it bought from Babcock” in September last year.
Chair of the inquiry, Kip Meek, said the sale “will support competition in future tenders for these important services”.
CHC said: “We are disappointed by the CMA’s decision. The CMA has fundamentally failed to understand the vital need for consolidation in what is a highly challenging market environment. With that said, we are looking forward to integrating the Australia and Denmark business at the appropriate time.
“We will be analysing the CMA’s Final Report in more detail before deciding on next steps. In the meantime, our operation continues as usual with a continued focus on delivery of safe and efficient services to our customers. ”
The US-based operator, one of four in the North Sea oil and gas market, has long argued that pressures following two downturns have had a dramatic impact on the aviation sector, with unsustainable pricing for contracts.
Therefore, it has argued repeatedly that the deal would not threaten competition standards, including in a 32-page treatise published in April criticising the CMA’s initial findings.
It had, however, suggested a partial sale of the UK business in order to overcome the competition hurdles for the wider deal.
CHC said it has had interest from third parties “all of whom appear to have genuine interest” in entering the UK oil and gas helicopter market.
Other main players in the market are CHC’s US rival Bristow and NHV of Belgium but a new entrant seems to be the only option ahead for the Babcock business.
“Back to where we were a couple of years ago”
Steve Robertson, director of Air & Sea Analytics, said this latest development could deal a blow to the market and the CMA itself.
“(This is) back to where we were a couple of years ago. Babcock had a hard time selling the business in the first place and now it will be a struggle to find a party that can (a) achieve similar cost savings whilst (b) avoiding the same issues CHC had with the CMA.
“If CHC couldn’t get it past the CMA then I can’t see how Bristow or NHV would. That means a new entrant which isn’t going to get any benefit of integrating two existing businesses on the airfield.
“The CMA will look very inept if the end result of this is two operators on the airfield.”
CHC has argued in its case to the CMA that continued unsustainable contract prices could see further companies seeking to leave the market.
An industry source commented: “The CMA seems to have worked really hard to protect what they concluded was the David of the Oil and Gas Industry from the Goliath of ‘Big Chopper.”
Babcock employs around 500 people in its helicopter business, with its primary base in Aberdeen, while CHC’s Aberdeen business covers around 300 people.
Mr Meek of the CMA said: “Offshore oil and gas are important industries for the UK, and helicopter companies play a vital role in transporting workers safely to and from oil rigs. While the industry faces commercial challenges, UK customers continue to spend hundreds of millions of pounds on offshore helicopter services each year. Competition is vital to avoid higher prices or poorer quality, problems that ultimately increase costs to UK consumers.
“The sale of Babcock’s UK oil and gas offshore helicopter services business will support competition in future tenders for these important services.”