Caverton Helicopters’ crisis deepens

By OBINNA EZUGWU

When in March, 2022, Lagos based Caverton Offshore Support Group Plc, the parent company of Caverton Helicopters Limited, released its unaudited 2021 financial results, recording a whooping N4.3 billion loss after tax, compared to profit after tax of N1.1 billion in 2020, it attributed the development to Covid-19, which it said, caused significant reduction in activities by International and Local Oil and Gas companies who are its major clients.

Mr. Bode Makanjuola, Caverton’s Chief Executive Officer, had noted that the loss “was caused by the significant reduction in revenue due to several mitigating factors because of the Covid pandemic which resulted in drop in oil production and net foreign exchange loss due to Naira devaluation against the dollar. As a result of this our direct costs increased significantly in 2021.”

But that seemed quite odd, given that 2020, when it recorded the somewhat positive N1.1 billion profit was the peak pandemic year when lock downs and movement restrictions hobbled businesses. Perhaps the 2020 result, which was a 74% drop from the N4.35 billion profit reported in 2019, its best year to date – up from the N3.80 billion it recorded in 2018 – was understandable, given the impact of Covid-19.

But 2021, which saw things get significantly worse, may not have been all down to Covid. Indeed, a deeper look at that year’s results showed that the losses were due to significant rise in its cost of sales, the direct cost of doing business.

For instance, in 2021 consumables gulped N12.2 billion out of the N24 billion incurred in total cost of sales compared to 2020 with N6.4 billion and N18.5 billion, respectively.

Consumables, according to the company include aircraft spare parts, aviation fuels, freight and courier services protocol and immigrations etc. Another cost component that recorded a rise were foreign exchange losses and higher finance cost adding N8.5 billion to finance cost compared to just N6.3 billion a year earlier

Unfortunately, it could not pass on this cost to its customers most of whom may have locked in price by paying for service upfront. Revenues topped N34 billion just N2.6 billion higher than a year earlier. This was not enough to cushion the spike in expenses. The worst hit was its core business, Helicopter Services where it lost N5.8 billion. And this is where the real problem is.

No doubt, recent months have been turbulent for Nigeria’s aviation sector, with jet A1 crisis – which was largely triggered by war in Ukraine – worsened by the devaluation of the naira, delivering huge blow to operators in the sector. As it stands, the survival of many operators, according to Sukhjinder Mann, CEO, Dana Air, is seriously threatened.

“Airlines are already overstretched and it will be difficult to survive the next few months,” said Mann last week. “The jet A1 crisis in the aviation sector will take up to a year to resolve, and we believe that before then, some airlines will drop.”

The Dana boss was highlighting the already well-known crisis in the industry, and Caverton Helicopters which provides aviation services to mostly companies in the country’s oil industry is not immune to the challenges.

However, the firm appears to have a slightly deeper problem, which industry watchers have attributed to poor management, a development that has seen it lose key contracts with oil majors such as Shell and Chevron in recent months, even as it has suffered exodus of key pilots to rival, better run firms.

Aviation sources say Caverton has, in the past few months, lost about 20 of its best pilots to an apparently healthier industry rival, OAS Helicopters, which is reported to have recently won Exxon Mobil aviation contract.

OAS, offering better salary packages, industry sources say, has been able to poach most of Caverton’s best hands who had hitherto been owed several months of salary arrears by the struggling firm, whose CEO, Makanjuola is said to belong to the political camp of Akinwunmi Ambode, former governor of Lagos State.

A top aviation source said the company is run like family business with little regard to basic rules of corporate governance, a scenario said to have dampened staff morale.

Attempts to reach the company for comments on the issues were unsuccessful.

Caverton Helicopters was first in the news for the wrong reasons in 2019 when one of its choppers conveying Yemi Osibanjo, Nigeria’s vice president, crashed in Kogi State; what was perhaps the early signs that things were going amiss.

The exit of competent hands have yet caused the company more troubles. There are more worrying safety issues, which allegedly prompted Shell Petroleum Development Company, its major client, to suspend it’s multimillion dollars contract with Caverton until its team is satisfied that the company is back in good financial state, sources said.

Beset by lack of flying manpower, sources say the few pilots are being overstretched, made to fly long hours in attempt to meet demand.

In May this year, another aircraft belonging to the firm crashed in eastern Cameroon, while flying from Yaounde Nsimalen Airport to Belabo, killing the pilot, Adzuayi Ewuga, second daughter of a former Minister of State, Federal Capital Territory, Senator Solomon Ewuga and 10 passengers on board, all of whom were oil industry workers.

“Their remaining pilots are overstretched,” said an aviation source who craved anonymity. “Sometimes they have to fly more than the recommended 8 hours a day. In fact, much more than that.”

In his comments on the 2021 financial year results, Makanjuola, the company’s CEO, had, while expressing confidence that its fortunes would improve, highlighted particularly a ‘lucrative’ contract it had recently signed with Chevron, while also noting that the group was exploring other opportunities beyond the oil and gas sector.

The CEO has stated that, “notwithstanding the loss reported in 2021, Caverton has robust reserves to accommodate this loss and a bulk of the reported loss is a one time charge on our accounts which arose from high start-up costs of our most recent helicopter contract with Chevron.”

According to him, “to further boost revenues, the Group has been exploring further opportunities within and outside the oil and gas sector. In addition to growing our market share in the oil and gas logistics sector, our primary focus for the year will be on third party training and maintenance.

“Our Maintenance Repair and Overhaul (MRO) facility and our Caverton Aviation Training Centre (CATC), both in Lagos, officially commenced business operation in the 2nd half of 2021.

“Prospects for training and maintenance is extremely positive as we are in advanced contract negotiations with a number of government and private institutions across Sub-Saharan Africa.”

However, things have not gone as planned. Last month, it emerged that the company has lost the contract with Chevron to rival Bristow Helicopter, a development sources said, was yet due to its poor maintenance culture for its helicopters, amongst others.

Chevron, it was learnt, had at some point opted to take over the responsibility for the maintenance of the helicopters which Caverton uses to fly its personnel to oilfields and onshore, not trusting the firm’s capacity to do so.

In a statement announcing the decision to terminate the contract last month, titled “Termination of Caverton’s Contracts,” Chevron stated, “This is to bring to the notice of the entire workforce that with effect from May 7, 2022, the contract held by Caverton Helicopters Limited for the provision of aircraft services for both the JV and DW operations have been terminated. Chevron is currently working on securing an alternative service, and this will be communicated soon.”

Yet, the poor maintenance issue made it impossible for Caverton to meet up with demands, such as conveying Chevron personnel to requested locations, resulting into the latter contracting Bristow.

The contract lost to Bristow meant another blow to Caverton’s financial capability, having secured about $17 million to finance the Chevron contract, according to documents filed with the Nigerian Exchange Limited (NGX).

Caverton investors have also been exiting their funds in the company. It has lost 8% of the stock’s value from May 26th to date, with persistent sell off resulting to shareholders’ investment in the firm dwindling significantly.

Caverton closed its last trading day (Friday, June 24, 2022) at 1.05 NGN per share on the NGX. It began the year with a share price of 1.72 NGN but has since lost 39% of that price valuation, ranking it 155th on the NGX in terms of year-to-date performance.

The bearish run has wiped off nearly N2 billion from Caverton’s market capitalisation, which now stands at N3.51 billion as of Friday, June 24.

Meanwhile, the company’s revenue for the first quarter of 2022 came in at N7.951 billion, down from N8.160 billion it recorded in the first quarter of 2021, which may be an indication that 2022 may not see much improvement from the unimpressive 2021 numbers.

Despite the revenue drop, however, the firm recorded a 17.59% rise in profit to N611.9 million.