UK watchdog raises concerns about helicopter deal

The UK's Competition and Markets Authority (CMA) has raised concerns about the recent acquisition of UK aerospace firm Babcock International's offshore oil and gas aviation business by rival CHC Helicopter, saying the deal could lead to more expensive and lower-quality transportation services for North Sea companies.

CHC Helicopter bought Babcock Offshore for £10mn ($13mn) in September, expanding its fleet by around 30 aircraft across the UK, Denmark and Australia. CHC and Babcock are two of the four major players in the UK's offshore oil and gas transportation sector alongside Bristow and NHV. The quartet cornered around 97pc of the market last year, according to NHV, with CHC and Babcock commanding a combined market share of over 50pc.

Previous tender data show significant competitive interaction between the four, particularly CHC and Babcock, according to the CMA. It said a majority of customers have expressed concerns about reduced competition and that while Bristow and NHV do provide some constraint, it is not enough, given the level of concentration in the market. CHC has itself raised concerns in the past about the potential for competitors to bid below market rates to win tenders and increase market share. But NHV pledged today to keep rates sustainable, rather than follow a "race to the bottom" mentality.

CHC said it looks forward to "working with the CMA to complete the review process". In the meantime, it said the Babcock business will continue to be held separately and operate independently. The CMA has given CHC five working days to submit proposals to address its concerns. "CHC is eager to integrate the Babcock business at the appropriate time and believes this transaction will open opportunities both in existing markets like Australia and the North Sea, and in new areas," the firm said.

Consolidation in the offshore transportation sector follows last year's pandemic-driven oil price slump, which triggered a steep slowdown in North Sea oil and gas spending. Lobby group Oil and Gas UK (OGUK) estimates that the UK oil and gas industry spent 23pc less in 2020 than the year before, a fall of £3.4bn. As companies responded to last year's dramatic price collapse, they reduced offshore personnel levels by a fifth, according to OGUK.

Oil prices have since rebounded, increasing demand for helicopters to ferry workers to North Sea rigs and platforms. According to Civil Aviation Authority data, demand for offshore helicopter transportation in the UK was about 25pc higher in July this year than the same period of 2020. Furthermore, the Oil and Gas Authority (OGA), the UK's upstream regulator, forecasts higher spending in the North Sea next year, including a rise in exploration and appraisal expenditure to £500mn, up from £370mn this year and £320mn in 2020.

By Hannah Adler, Lizzy Lancaster and Matthew Neason