CMA probes Babcock's £10m sale of oil and gas helicopter business

The UK’s competition watchdog is to probe defence and engineering giant Babcock International Group Plc’s £10m sale of its oil and gas aviation business.

The Competition and Markets Authority (CMA) said it will assess whether the deal might cause a substantial lessening of competition in the UK. The sale saw helicopter services specialist CHC Group LLC acquire a business that ferries crew to offshore oil platforms by helicopter.

But the CMA will now look at whether the deal may have broken the law on mergers and reduced competition in the market and is calling for any “interested party” to comment on the transaction by October 7, 2021.

The CMA said: “The Competition and Markets Authority is considering whether it is or may be the case that this transaction has resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.”

Babcock made the disposal in early September as it continues to work on a “turnaround plan” to tackle financial losses. It came just weeks after Babcock, which operates the huge dockyards at Devonport in Plymouth and Rosyth in Scotland, sold marine division business Frazer-Nash Consultancy to KBR, an American engineering giant, for £293m. And it was shortly followed by Babcock offloading its stake in aviation services company AirTanker Holdings Ltd for £126m.

The helicopter business at the centre of the CHC deal was part of Babcock's Aviation sector, providing offshore oil and gas crew transportation services in the UK, Denmark and Australia.

It is headquartered in Aberdeen, Scotland, and employs more than 500 people and operates about 30 aircraft across its three locations.

For the year ending March 31, 2021, it had revenue of £154m, a loss before tax of £2m and underlying operating profit of £2m. As of March 31, 2021, it had gross assets of £256m, net assets excluding cash of £21m and net lease liabilities of £142m.

The sale was part of Babcock's targeted disposal programme, which aims to generate at least £400m. Proceeds from this transaction will be used to reduce the company’s net debt. In July 2021, Babcock reported a £1.64bn operating loss for the year, and net debt – although falling – lay at £1.4bn.

In August 2021 Babcock sold Frazer-Nash Consultancy to KBR, an American engineering giant, marking the end of a 14-year partnership between Babcock and the Surrey-based engineering and technology consultancy which sprung out of classic carmaker Frazer-Nash.

The consultancy, which works on submarine design and naval weaponry among other roles, was part of Babcock's Marine sector, which is centred around its operation in Devonport.

It employs about 900 people working in the healthcare, energy, defence and transport sectors and has nine UK sites, including at the Millfields in Plymouth.

In September, Babcock entered into a definitive agreement with Equitix Investment Management Ltd for the sale of its 15.4% shareholding in AirTanker Holdings, an asset joint venture with Airbus, Thales and Rolls-Royce which also sold its stock in AirTanker Holdings, for £189m , to Equitix.

AirTanker Holdings owns 14 A330 Voyager aircraft which support air-to-air refuelling, air transport and ancillary services for the UK Ministry of Defence. Babcock retains its 23.5% shareholding in AirTanker Services Limited, which operates these aircraft. AirTanker Holdings is part of Babcock's Aviation sector and is accounted for by Babcock as an associate. The deal is expected to complete by the end of this financial year, and is subject to regulatory approvals given the industry AirTanker Holdings operates in. There is no merger control condition. Remaining AirTanker shareholders have pre-emption rights over the Babcock shares.