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Executives

James Palczynski - ICR, Inc.

Udo Rieder - President and CEO

Charles Ryan - VP and CFO

Analysts

Yair Reiner - Oppenheimer & Co. Inc.

J.B. Groh - D.A. Davidson & Co.

Stephen Levenson - Stifel Nicolaus

Alex Silverman - Special Situations Fund

Erickson Air-Crane Incorporated (EAC) Q4 2012 Earnings Conference Call March 11, 2013 8:30 AM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Erickson Air-Crane Incorporated Fourth Quarter and Fiscal Year 2012 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be open for your questions following the presentation. Please note that this conference is being recorded.

Now, I'd like to turn the conference over to Mr. James Palczynski. Please go ahead, sir.

James Palczynski

Good morning, everyone. Before we begin prepared remarks today, I'd just like to remind you the company's Safe Harbor language.

Information discussed during this conference call might be forward-looking in nature and is subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to differ materially from those in the forward-looking statements, please refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and reports subsequently filed with the Securities and Exchange Commission.

In addition to financial results presented on a GAAP basis today, the company will also be discussing non-GAAP information that it believes is useful in evaluating the company's operating performance. Reconciliations of these non-GAAP measures to the closest GAAP equivalent can be found in the company's earnings press release that was released this morning and was also filed with the SEC under Form 8-K.

A replay of this call can be accessed by dialing or for webcast on the company's website and replay instructions were included in the company's earnings press release this morning. Thank you for your attention to those items.

I'd now like to turn the call over to Udo Rieder, President and Chief Executive Officer of Erickson Air-Crane.

Udo Rieder

Okay. Thank you, James, very much. Thank you all for joining us, especially out here on the West Coast at this early hour. We appreciate your interest and getting up with us. So today, we're going to look back on what was the most successful and most important year in our company's history.

And even more importantly, we're going to lay out the vision for the company and we're going to explain how this anticipated Air Amazonia acquisition that we announced last week will drive incremental growth and value for our shareholders in 2013 and in fact beyond in the years to come. So I'll come back to this transaction in just a moment, but first I'd like to talk about our fourth quarter as well as our full year results.

So fourth quarter; fourth quarter put a great finish on what was a record year for Erickson. Fourth quarter sales were up 27% to 39 million. That was driven primarily by continued strong activity in the U.S. firefighting arena and it includes also new firefighting contracts like San Diego.

Fourth quarter operating income increased approximately 5 million to 2 million compared with a loss in Q4 of 2011. And in fourth quarter, adjusted EBITDA was 5 million which is up about 6 million compared with last year. The fourth quarter net loss of $0.10 per share was in line with our guidance.

Shifting over into this outstanding full year numbers would reflect an extraordinary fire season as well as the near doubling of our infrastructure construction business. That includes also oil and gas. So full year sales were up 18% to 181 million.

In addition to substantial increase in firefighting activity simply due to the intensity of the fire season, our share of firefighting work was also up due to key new contracts, number one, with the US Forest Service and then number two with San Diego Gas and Electric, all in 2012.

So additionally, we've doubled our infrastructure construction business, again as I mentioned earlier, driven by our aerial support services in the oil and gas sector and thanks to our newest customer, South America Repsol. The construction work is part of a strategy [where we got a license] [ph] to diversify our business, drive growth and begin to position ourselves as the leader in aerial support services in South America in the oil and gas business. We're really becoming the go-to guys for oil and gas in South America, especially in the Amazon.

Operating income doubled to over 33 million for the year. Adjusted EBITDA for 2012 was 44 million. That was up 77% versus 2011. And our full year earnings pro forma was $1.56 per share. So needless to say we're very pleased about this. We're pleased about our performance and I really want to thank our employees for their hard work and their dedication that made these results happen. In addition to these outstanding financial and operating performance numbers that I've just shared, we had a very safe year that I'm obviously very happy about.

So as good as these operational results were, we're even more excited about the strategic direction and the progress that we've made. So two years ago, we targeted the oil and gas industry in South America as a way to diversify our business both by market as well as by geography. Our contract with Repsol in Peru delivered substantial revenue growth in 2012 and 2013 will also show organic growth for this sector thanks to the second Peruvian contract with Pacific Rubiales which began in January.

Just as a reminder, Repsol is a $70 billion oil company out of Spain and also I'd add that Pacific Rubiales is the largest independent oil company out of Colombia. So this work is very substantial, it's non-seasonal and it helps to smooth out our cash flow and our earnings performance throughout the year. We're delighted to have such prestigious customers, high quality customers and we're adding more as we speak.

The oil and gas sector, particularly in South America, is an area that we believe will provide us with an opportunity for significant growth over the long term. So our experience in South America and our exceptional operating performance has led us to our Air Amazonia acquisition, which will further accelerate our presence in this market.

Last fall, we announced the non-binding agreement to acquire Air Amazonia and as a reminder, Air Amazonia's HRT air services business they operate helicopters. Just last week we announced that the deal had progressed to a point wherein we now have a binding term sheet. While we originally anticipate closing this in the second half of 2013, I'm really pleased with the progress we're making and now we're working toward closing the deal in the second quarter. And we've disclosed several details of the deal that I'd like to tell you a little more about.

So first, the purchase price for Air Amazonia will be $65 million to $75 million and it includes 14 rotary-wing aircraft. As a reminder, these are all medium lift and passenger transport type aircraft. It includes two hangers and it includes the associated operating infrastructure and equally important, it includes over 100 people. These are pilots and mechanics that are needed to do business in Brazil. Importantly, the deal includes a multiyear contract with HRT for both passenger and cargo transport services to support HRT's oil and gas operations in the Amazon.

Just to give you an idea of the magnitude of their concessions in the Amazon, it's about twice the size of Denmark. It's very substantial. The only way to get in and out is through these helicopter services or very, very slow barge through the river. So we expected annual revenues of about 50 million. This contract provides a lot of visibility and immediately establishes HRT as our anchor client in South America. Like other customers in this space, this would be non-seasonal work and we expect it'll yield EBITDA margins of approximately 25%.

A little bit more about HRT. A strong company, very ambitious, relatively young and now partnered with other substantial customers in the region, like Petrobras as well as Rosneft which will soon own about 55% of the concessions as they're partnering with HRT. So they'll become our customer in this process as well. So serving HRT's needs will require only about half the total capacity of the acquired 14 aircraft.

So this is what we're very excited, creating additional capacity to use for other customers in the region or for that matter pursuits throughout the world. We'll be completely free to move these helicopters anywhere we need the capacity. So we'll be adding passenger transport as well as medium-lift capabilities to complement our current leading position in the heavy-lift capability world.

We have a vision for Erickson as a global multiplatform aviation company and this deal certainly moves us in that direction. We're very proud of our performance in 2012 and we look forward to an even stronger performance in the future as a result of both organic growth initiatives as well as the Air Amazonia acquisition. But at the same time, I want to emphasize here, that we will take decisive steps to grow our business and drive other decisive steps to grow our business as well as to drive value for our shareholders.

So I want to also just, before I hand it over to Chuck, mention that we're off to a very strong start in 2013 driven by very active fire season in Australia. As a reminder, in the South Hemisphere, it's fire season; and then growth in our oil and gas business in South America. Just to give you a little idea here about what's going on in Australia, we've already ceased 120 extension days. These are days that go beyond the normal firefighting contract this year, as well as we've doubled the number of flying hours that we expected versus our budget. So Chuck will add more color around that in just a second.

So with that, I'll turn it over to Chuck to talk about the financials.

Charles Ryan

Thanks, Udo. Thanks everyone for joining us today. First, I'd like to walk you through the fourth quarter results. So revenues for the quarter were up 27.2% rising to 39.1 million, driven by an 84.1% increase in firefighting hours and a 45.5% increase in infrastructure construction hours. Gross margin for the quarter was 26.9%, up 380 basis points.

SG&A expenses for the quarter were 9 million, a margin improvement of nearly 12 percentage points, driven largely by one-time events in the fourth quarter of 2011 that we described in our press release. I know that there were approximately 240,000 of acquisition-related expenses during the fourth quarter of '12, which we're including it in add-back to adjusted EBITDA for reporting and management purposes.

Operating income was 1.5 million in the quarter, 5.1 million higher than in the fourth quarter of 2011. And adjusted EBITDA was 4.5 million, 6.2 million higher than in the fourth quarter of 201. So as expected, these results include the benefit of our purchase for the San Diego Aircrane during the quarter.

As we described in our last earnings call, the P&L benefits include the acceleration of deferred revenues associated with yearly contract termination as a result of the transaction resulting in approximately 5.7 million of revenue and 6.3 million of gross profit reported in our MRO segment, which translates to a pro forma of $0.39 per share.

I also want to update you on the situation of our Greek receivable from 2011. The Greek Government has taken the position that we had permanent establishment in 2010 and 2011 under our prior contract with the Hellenic Fire Brigade. Though we dispute this position and have engaged the help of our IRS's [competent] authority, the Hellenic Fire Brigade has presented some [penniless] amounts due until this matter is resolved with the Greek tax authorities.

Therefore, for our reported financials, we treated such issue as an uncertain tax position and we recorded the tax liability for estimated taxes that will be due to the Greek Government for 2010 and 2011 and have recorded a corresponding tax asset for amounts we would recognize for deferred tax credits in the future against our taxable income. In addition, in the fourth quarter of '12, we recorded approximately $800,000 for estimated tax penalties and interest associated with this matter.

Now I'd like to just quickly walk through the highlights of our full year results. Revenues for the year were up 18.4% over 2011, rising to 180.8 million. As you know, this was an extraordinary year for firefighting which drove our performance but we also experienced significant growth in our infrastructure construction business which nearly doubled in 2012.

Gross margin for the year was 34%, up 420 basis points over 2011. Operating expenses for the year were 28 million, a margin improvement of over 340 basis points driven mostly by cost control and leverage on the growth, despite bearing the additional cost of being a public company.

Full year operating income doubled rising to 33.4 million and adjusted EBITDA was 44.5 million, up 77.4% versus the 2011 total of 25.1 million. Pro forma earnings per share were also excellent of $1.56 at the top end of our guidance range we communicated last November.

Now I'd like to walk you through and update you on the renewal of our credit agreement. We announced last week that we have received firm and binding commitments for a credit agreement that accommodates the liquidity needs in the business and the financing of the Air Amazonia deal. This credit facility will total 165 million consisting with 115 million term loan and a revolving credit facility of up to 50 million. The facility bears interest ranging from LIBOR plus 3.25% to 4.5% tied to a senior leverage ratio. The credit agreement is required to be closed by April 15.

For year-over-year comparison for our (inaudible), I suggest you consider using a normalized view of our 2012 results which exclude the net $0.34 EPS benefit of the San Diego Gas and Electric Aircrane purchase and the Greek tax issue. In this view, we would have reported revenues of 175.1 million, adjusted EBITDA of 39 million and pro forma adjusted EPS of $1.22.

At this point in the year, as you know from our experience in 2012, we still have relatively limited visibility on the full year. Of course, there can be year-over-year variability on the fire season and now there will be some moving pieces associated with the HRT transaction including transaction-related and integration expenses. That having being said, we expect to grow our business modestly compared with the normalized 2012 level that I just described, which excludes again the SGD&E transaction and the Greek receivable impacts.

Once we're closed on Air Amazonia, we would or we should have improved visibility on the moving pieces and should be in a much better position to update you more precisely on our expected full year results for the combined business. I'll add that while there are still a few weeks to go, we have had strong first quarter -- a strong first quarter thus far as we have mentioned and expect to see growth versus last year both on sales and EBITDA. As you may have seen in the news, the Australia fire season has been extremely strong and we have experienced one of the heavy seasons in the last decade.

Additionally, we're [enjoying] improved seasonality in our revenues as we grow our infrastructure construction business. We expect revenues of approximately 33 million in the quarter compared with 28 million in 2012, again depending on timing and adjusted EBITDA between 2 million and 3 million excluding any transaction-related expenses compared with a roughly breakeven first quarter in 2012.

I'm going to conclude my comments by providing you some high level perspective on the combined company. So pro forma 2012 revenue would be approximately 230 million with the Air Amazonia acquisition, again only considering the contract we've negotiated with HRT. Addition revenues from other customers served from the unused capacity of the fleet would be on top of this.

Consolidated pro forma EBITDA margins will be higher as Air Amazonia runs its strong levels of profitability. Our diversification by region and our end used market would be significantly increased and a seasonality of our revenues will be reduced with less reliance on our third quarter.

Beyond the financial impact, our capabilities would be much broader. We would go from a fleet of Aircranes to operating a fleet of four different types of aircraft capable of wider variety of admissions. This is a number of benefits for us including providing us with sufficient critical mass to support an expanded long-term MRO opportunity and to increase utilization of our Central Point manufacturing facility in Oregon.

We're very excited about our position for a good year in 2013 during which we believe we can grow and diversify the business organically and through the Air Amazonia acquisition and create both short and long-term value for our shareholders.

So thank you all. Operator, we're now ready to take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will hear first from Yair Reiner with Oppenheimer.

Yair Reiner - Oppenheimer & Co. Inc.

Thank you very much. So a first question on the services business, I just want to get a sense of what the margin there would be if we exclude the credits from -- the deferred revenue from SDG&E, and what the puts and takes are?

Charles Ryan

Sure. So you're saying if you take out SDG&E for 2012, Yair, here?

Yair Reiner - Oppenheimer & Co. Inc.

Just for the fourth quarter, it looks like if without the deferred revenue benefit, it looks like -- if I'm looking at it correctly that margins would have been close to breakeven in terms of gross profit. I just want to make sure I'm looking at that correctly?

Charles Ryan

No, I don't think so, Yair. Just on services, we're looking basically still in the mid 30s for GP.

Yair Reiner - Oppenheimer & Co. Inc.

So, can you then help us work through the mechanics of how we exclude the deferred revenue and how that 39 and benefit flows to the P&L? In other words, is it a benefit to revenues without an associated COGS?

Charles Ryan

Yeah. So the entire amount of San Diego was basically -- the revenue adjustment came right down into profitability because there was no cost offset. It was deferred revenues. We're able to recognize those revenues and from a cost standpoint, there were no additional cost to recognize.

Yair Reiner - Oppenheimer & Co. Inc.

So I'm just looking at the aerial services, you reported 31 million. Does that include the 5.5 million or so deferred revenues? So is the right way to look at the business ex the deferred revenue as being roughly 25 million, 26 million?

Charles Ryan

Yeah, the SDG&E impact was about 5.7 million. So you deduct 5.7 million off of the total consolidated revenue for the fourth quarter. So our total revenue for the fourth quarter was 39, including MRO. And then you take 5.7 off of that, we get a net of about 33 million.

Yair Reiner - Oppenheimer & Co. Inc.

Okay. Then the COGS would stay the same?

Charles Ryan

The COGS would stay the same and basically you'd come down to a GP of about 4.2 million which was about 13%.

Yair Reiner - Oppenheimer & Co. Inc.

Got it. And then was the deferred revenue just in aerial services part or did it also help lift MRO manufacturing?

Charles Ryan

No. All the deferred revenue is booked in our MRO segment because it was a Power by the Hour contract which we book keep down in MRO.

Yair Reiner - Oppenheimer & Co. Inc.

Okay, I got it. And then the related question, the PP&E in the quarter was a little bit lower than I expected. I thought that the payment for SDG&E aircraft was 22 million and your total PP&E for the quarter was less than that. Is there still payments that are outstanding for next year?

Charles Ryan

No. So we paid 22, you break it off into pieces basically, so about -- I think about 17 of that hit CapEx. Basically the other piece was some recognition for the relief of the Power by the Hour, some inventory and some miscellaneous tooling and whatnot? So it was kind of broken up between -- the breakdown of 22 million in total.

Yair Reiner - Oppenheimer & Co. Inc.

Understood. Thank you. I have more questions, but I'll get back in the queue. Thanks.

Charles Ryan

Okay, Yair.

Udo Rieder

Thanks, Yair.

Operator

We will hear next from J.B. Groh with D.A. Davidson.

J.B. Groh - D.A. Davidson & Co.

Hi, guys. Thanks for taking my call and congratulations on the year. I just had a question on the hours relative to the revenue number I have around this math subtracting out the San Diego. Can you comment sort of on pricing and revenue per hour?

Charles Ryan

So when you say pricing, J.B., can you help me a little bit?

J.B. Groh - D.A. Davidson & Co.

Well, yeah, I mean, I guess we're kind of looking at the sort of revenue per hour and I guess that's somewhat of a proxy for pricing, but I guess the mix between the different aerial services businesses would have a big impact on that. I'm just curious as to how that trended over time?

Charles Ryan

So our pricing -- as you know, when we have a year like we had, where we fly a lot in 2012. We're earning the hourly rate on firefighting basically, right? So I think you get a little bit diluted on price per hour because you're flying a lot of hours but churning a lot more absolute revenue. But from a pricing standpoint, there is really no -- there hasn't really been much change in our business. I mean we're earning and enjoying kind of the same level of pricing that we did for the past couple of years. But again, when you fly that's a good thing. So, am I hitting on what you're…?

J.B. Groh - D.A. Davidson & Co.

Yeah, that's helpful. And then on…

Charles Ryan

I just want to mention also on the oil and gas, so again the oil and gas is year around, right? So from that standpoint and we fly actively on that. So you're going to drive some pricing power from the year round effective oil and gas also when you look at price per hour. To be honest, we don't really drive the business that way. We drive it as far as looking at what we're earning on a daily basis without flying and then flying activity obviously is then enhanced with that.

J.B. Groh - D.A. Davidson & Co.

Yeah, that's real helpful. From a housekeeping standpoint, the acquisition-related cost those are showing up in G&A?

Charles Ryan

They are.

J.B. Groh - D.A. Davidson & Co.

And then lastly, kind of when you think about 2013 seasonality, what sort of thoughts you have there; I mean obviously the firefighting part of its difficult, but in the other segments?

Charles Ryan

Again, our seasonality is improving, right, because we've got -- for 2013, we're going to have two, possibly three aircraft full time in South America in oil and gas. Fourth quarter is still getting the largest by far but it's getting to be much more balanced percent by quarter. So you still think of the first quarter as being the lightest, the second quarter being the next lightest, the third being the strongest and the fourth kind of being in between. But it's starting to round out less and less as far as seasonal because of the year around contracts that we're enjoying.

J.B. Groh - D.A. Davidson & Co.

Then in that context, can you kind of talk about the -- can we call it the white space in your schedule versus how you've been in the past?

Charles Ryan

Yeah. So white space is -- we're not running 19 Aircranes in 2013 and I got to tell you, there isn't a lot of white space. I mean we've got in the first quarter, we run some white space because we have what's in demand right now are F models and we've got to think about six going to seven Fs in 2013. The E models do have a little bit of white space and we try to fill those with the [stock] [ph], construction work and things like that. But we're pretty -- going from second quarter to the middle of the fourth, we're pretty fully utilized on our aircraft. So it's really just trying to get the right timing with our customers, making sure their projects fit our white space and matching them off. But we're -- other than the first quarter, I would say we're pretty much fully utilized on the aircraft.

Udo Rieder

Yeah, I'll add a little bit more color to that as well. We measure our white space in terms of the overall aircraft utilization for the year. And you may recall, we've talked about that in the past and past years being sort of 55% and then upward to 60%, 65%. Now for this year, we're pushing sort of upper 60% which has driven us to what Chuck mentioned here, adding another Aircrane to the fleet and that will happen here shortly because we brought out a capacity. So that's all good news and that will also drive, we mentioned earlier about pricing, that will drive pricing as well. We can command higher prices because quite frankly we have more options for the aircraft than we have in the past. So it's all positive news for us.

J.B. Groh - D.A. Davidson & Co.

Great. Thank you very much.

Operator

(Operator Instructions). We'll hear next from Steve Levenson with Stifel.

Stephen Levenson - Stifel Nicolaus

Thanks. Good morning, everybody.

Udo Rieder

Hi. Good morning, Steve.

Stephen Levenson - Stifel Nicolaus

Udo, you mentioned that additional Aircrane. I guess that's the one that you've got in the hanger under construction. Can you tell us about how much more investment you'll have to make to complete it?

Udo Rieder

Yeah, Steve, it's going to come out at the end of this month. So it's virtually complete. So, it's in minimal investment. We've been pushing it through for most of the first quarter, obviously. So that's going to come into service and immediately go on contract.

Stephen Levenson - Stifel Nicolaus

Okay, immediately, I'm sorry, you said?

Udo Rieder

Well, at the end of the first quarter, yes.

Stephen Levenson - Stifel Nicolaus

Okay, great. Thank you. Second item is the Air Amazonia fleet, do you plan to be (inaudible) as it is or are you going to shift things around, possibly sell any of those units that are destined -- from the S61, for example?

Udo Rieder

Yeah, Steve, so they have -- in their mind, they have 14 aircraft, seven of those are S61s, five are Bell 212s and two are Eurocopter A350s. And the model that we have set up with Air Amazonia allows us to flex the -- and allows them to flex the gauge of the equipment and the number of aircraft depending on their needs. So, for example, this first year, they're going to be flying just 1,000 of kilometers of seismic.

So the mix will be greater number of, let's say, A350s and 212s. Then in the out years, there'll be greater number -- there'll be more drilling and therefore greater numbers of S61. So we'll flex the fleet however they need it to be flexed. By the way that also includes the ability to add Aircranes in there as needed and when needed and work that that will happen as well at some point for laying pipeline and then doing greater weight drilling rigs, et cetera.

So going into this year, we've spent that we'll utilize probably five or six of their aircraft for their needs and then we'll immediately get to work, as Chuck mentioned earlier, to put the other aircraft work in other parts of South America and the likelihood there is we're just seeing strong demand in Peru, very strong demand in Peru. And then other opportunities as they become available in Brazil with customers like Petrobras.

Stephen Levenson - Stifel Nicolaus

Okay. Thanks. Last one is, are there plans to begin construction of any more S64s after this latest one is complete?

Udo Rieder

Yeah, we don't have immediate plans, Steve, but we're definitely open to doing that. We're trying not to sort of get ahead of things for us in terms of sort of matching the cash with the needs. But as soon as we can see that the demand is there, absolutely we'll get right to work and we'll build more as required. Just as a reminder, we're the only company who have the exclusive right to build cranes. So as there is more demand, we can respond and we will respond as required.

Stephen Levenson - Stifel Nicolaus

Okay. And just one balance sheet question. There was an increase in -- forgive me, I just want to characterize it correctly, Aircrane support parts, is that due to some investment in the last unit?

Charles Ryan

Yeah. The Aircranes being built up and then you'll see that relieved and coming out of inventory and going down in capital. Also, we entered a new, as Udo mentioned, Pacific Rubiales, a second customer in Peru for oil and gas here on and I know we had to pump up inventory a little bit for (inaudible) support in that contract. And then also our season, our normal season starts. As you know, we beef up for the strong quarters ahead of us, Steve, so we tend to grow inventory this time of year.

Stephen Levenson - Stifel Nicolaus

Good enough. Thank you very much.

Udo Rieder

All right. Thanks, Steve.

Operator

We will hear next from Alex Silverman with Special Situations Fund.

Alex Silverman - Special Situations Fund

Good morning.

Udo Rieder

Good morning, Alex.

Alex Silverman - Special Situations Fund

The 45 million to 50 million of revenue for HRT on an annual basis assumes what kind of fleet utilization of their fleet?

Charles Ryan

Just depending on the year, it assumes less than half of the existing fleet. So, call it somewhere between five and seven aircraft generally. And again that changes depending on their needs. Near term, it will be more seismic which drives certain gauge of equipment. And in the out years, it will be drilling which means bigger equipment. So about half of their fleet is assumed in that $45 million to $50 million number.

Alex Silverman - Special Situations Fund

Okay. And if you were to bring in, in Aircrane that is not part of that 45 to 50?

Charles Ryan

That's right. That's not. That would be an addition too.

Alex Silverman - Special Situations Fund

Okay. What are your assumptions in terms of getting a 135 license?

Udo Rieder

Yeah, that is in work as we speak. And depending on the responsiveness of the Brazilian regulatory agencies, it could be a matter of months we're expecting on the outside -- on the outside, it would be later this year. But we're hopeful that it would be a matter of months.

Alex Silverman - Special Situations Fund

And you do not need it for working with HRT, is that correct?

Udo Rieder

That's right. We've structured a new deal with them that allowed us to accelerate this acquisition and allows us to fly under their operating certificate for them. And then that's not a problem. We've worked through all the keeps on that and they've agreed and liked the idea and that's what accelerated the signing last week. Then as soon as we branch out to other customers, that's when we'll need the 135. And again, it's progressing very well and we've got a 135 partner identified. We're going to acquire the 135 and again, I hope it's just a matter of a few months here.

Alex Silverman - Special Situations Fund

Okay, great. And just jump around, the hours -- you have a monthly rate plus an hourly contract for the three different airframes. Do hours start immediately or are there some baked into the monthly fee?

Udo Rieder

No, there's no hours baked into the -- you're talking on HRT I assume, right?

Alex Silverman - Special Situations Fund

I'm sorry. Yes, on HRT?

Udo Rieder

Yeah, there's no hours baked into the monthly fee or the daily rate. And yeah, once we initiate the contract -- they're flying today, so I mean it's not like -- the operations ongoing. So it would be all about enjoying the daily rate plus flying according to their current operational forecast.

Charles Ryan

Just a little color around that. The way this works in South America and the Amazon in Brazil is the government gives them access to concessions and in fact requires them to have active concessions which mean they have to fly X number of thousands of kilometers of seismic and they have to have X number of drilling sites as well, otherwise they incur penalties. And so they're heavily dependent on us to ensure that that seismic activity can happen and that drilling can happen. And again, their partner (inaudible) is today about a 45% owner in these concessions. So they will be our customer de facto with this contract and that in the near term here will rise to 55%. So they'll become the majority customer in the very near term as well.

Alex Silverman - Special Situations Fund

Okay. Would you expect to put some of the additional HRT aircraft into service on long-term contracts or in near term, do you expect those to be hired on a spot basis?

Udo Rieder

I think where we'll put it is, we've been holding off on some opportunities because we've just not had the helicopters. So we already have opportunities targeted and we're helpful that they will be on longer term contracts. And the likelihood is that that would be within the oil and gas industry and also likelihood geography wise is that that will be in Peru to start with. Again, with these other big customers of ours like Repsol, Pacific Rubiales and then others that we're working with. And then back to Brazil, again there's a strong -- there's already a strong partnership between HRT and Petrobras and so those discussions are underway as well. The only limited factor will be in the Part 135 frame.

Alex Silverman - Special Situations Fund

That's right. One last question. Udo, I think you were quoted on Bloomberg maybe, I don't know, correctly or incorrectly about possibly working with HRT in the Namibia?

Udo Rieder

Yeah, that's right. So one thing we have not talked about and since you opened it up here, I will talk about that a little bit. Again, excited about this partnership with HRT. They also have drilling going on off the shore of Namibia which is on the Western Coast of Africa. And they have -- they currently have providers out there. As this relationship between us and HRT strengthens, I think other opportunities will come up and that could obviously be one of those kind of opportunities. So we're excited about that as well.

Alex Silverman - Special Situations Fund

Great. Thank you, guys. Appreciate it.

Operator

Next, we have a follow-up question from Yair Reiner with Oppenheimer.

Yair Reiner - Oppenheimer & Co. Inc.

Great. Thank you. First on the debt, you said that the new credit agreement is for LIBOR plus 3.25 to 4.5. Is that right?

Charles Ryan

Yes, Yair.

Yair Reiner - Oppenheimer & Co. Inc.

And what's the LIBOR floor on that?

Charles Ryan

There is no LIBOR floor.

Yair Reiner - Oppenheimer & Co. Inc.

No floor, okay. And then you said it but I missed it. How many Aircranes do you have currently operational?

Udo Rieder

This year, we're going to be operating 19.

Yair Reiner - Oppenheimer & Co. Inc.

Okay, so you're going to be 18 going 19. And then how much do you -- if I look at where you were exiting 2012, how much did you still need to invest in that 19th aircraft to get it up in operational?

Charles Ryan

When you said exiting 2012, yeah, so…

Yair Reiner - Oppenheimer & Co. Inc.

Yeah. If I look at what you had done on that aircraft exiting last year and obviously there's been two and a half months since then. If I look at where you were two and a half months ago, how much did you still have to invest in that aircraft to get it where you can go out and generate revenue on it?

Charles Ryan

Yeah, I'd say about 2 million to 3 million.

Yair Reiner - Oppenheimer & Co. Inc.

Okay. And then can you talk about the level of [spares] inventory you're getting from HRT and whether there's any incremental investment you need to make in terms of that infrastructure there?

Charles Ryan

There's definitely incremental investment that we'll need to make. I mean we're getting -- we're buying the company, so we're getting all the inventory. They have two hangers, as Udo mentioned. But we've done a lot of due diligence as you can imagine and we've been over there and we've expected all the aircraft and the entire operation. So to maintain the service levels that we're used to maintaining in Erickson, we definitely have commenced ourselves. We're going to even invest some level of new inventory. They kind of give them a shot in the arm basically. There is a worldwide show in the S61 part, so we're going to be addressing that also (inaudible) want to speak to that. But we've got that all factored in. We factored that in when we did our due diligence on HRT.

Yair Reiner - Oppenheimer & Co. Inc.

Great. Thank you.

Charles Ryan

Okay.

Operator

With no further questions in the queue at this time, I'd like to turn the call over to Udo Rieder, CEO, for any additional or closing remarks.

Udo Rieder

Okay. Thank you very much, operator. Thank you all again for joining us. I hope the enthusiasm that we're expressing here over the phone is coming through loud and clear. We are excited about what we're doing. We're excited about first just the organic growth opportunities that we have with our Aircranes and we are excited that we are the only company that can build more Aircranes. We're the only company that can very quickly ramp up the heavy-lift capacity that we see is in strong demand here.

We're excited about expanding into new geographies, again like we've talked about South America being the most immediate but let's not forget India is out there and China is out there, equally important maybe not quite as urgent but certainly equally important. We're just also very excited about expanding into the medium-lift capacity and the passenger transport arena which we've missed out on opportunities over the past years.

We're pretty frustrated that we haven't been able to take advantage of those and now with this acquisition of Air Amazonia, we're able to do that and we're going to diversify our business very substantially. We've had a dependency on firefighting that's been in sort of the 50% range. That's dropping dramatically and we can see in the out years with some of the things that we have planned that those numbers could be sort of being cut in half. More like a quarter of our business will be seasonally dependent and that's very exciting as well.

So we like our prospects. We're very energized. We've got the team here ready to go and we look forward to working with all you going forward as well. So thank you again for your time.

Operator

That does conclude the call. We would like to thank everyone for their participation today.

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