Bristow Group's CEO Hosts Investor Day Conference (Transcript)

| About: Bristow Group (BRS)

Bristow Group Inc. (NYSE:BRS)

Investor Day Conference Call

November 21, 2013 8:30 AM ET


Linda McNeill – Director-Investor Relations

William E. Chiles – President and Chief Executive Officer

Mark B. Duncan – Senior Vice President-Commercial

Eduardo Vaz – President-Líder

Jonathan Baliff – Senior Vice President and Chief Financial Officer

Michael R. McAdoo – Vice President-Strategy and Business Development-Bombardier


J. David Anderson – JPMorgan Securities LLC

Linda McNeill

Good morning. Good morning, everyone, and welcome to our Investor Day this morning. I’m going to start it out with forward-looking statement with Chip Earle, our General Counsel, and he’ll follow that up with a safety briefing.

Chipman Earle

Good morning. Bristow management will make certain forward-looking statements during these presentations that are subject to the risks set forth in our public filings with the SEC. Management from Líder and Bombardier will make certain forward-looking statements during their respective presentations as well that are subject to different fixed wing, airport management and ground handling risks specific to their respective businesses.

Bristow does not undertake any obligation other than as required by law, to update or revise any of our forward-looking statements and we do not endorse or otherwise confirm any forward-looking statements made by Líder or Bombardier management.

And now just a quick safety briefing; there are no fire alarms planned today. If you do hear a fire alarm, the exit – you’ll exit here and then go to the right to Stairwell A. We will then receive directions through the loud speakers, there are no fire wardens. If we are directed, we will go down the stairwell and we will exit 56th Street and then we will make our way to 55th Street, which is where the master point is. Thank you.

Linda McNeill

Thank you, Chip. I’m going to introduce our management team. Bill Chiles, our President and CEO; Mark Duncan, Senior Vice President, Commercial; Eduardo Vaz, President of Líder; and Jonathan Baliff, Senior Vice President and Chief Financial Officer. They are our speakers today. We also have a number of key members in the audience. The two Líder folks if you’ll please stand, Junia Hermont and José Lollato as well as the Bristow management team, if you all could stand please to let everyone know who you are. Thank you. And we have a guest speaker from Bombardier, who will be joining us in the lunch room, which is – will be right next door.

With that, I’ll turn the presentation over to Bill. Thank you.

William E. Chiles

Thank you, Linda, and thank all of you for being here today. Let me go through the – show you a nice picture of Sikorsky S-92. Is anybody at here from Sikorsky? I’d like to refer you there, they are back there, so all of us will be available during the breaks and during the lunch. Certainly the Sikorsky people here are available if you like to ask them any specific questions. But again, welcome and thank you for coming. I know we’re competing with Transocean this morning. So it’s great to have you here.

We’re going to spend today talking about Líder. You’ve heard enough about Bristow. We had Investor Day last May and you heard about our SAR contract then, and somebody asked me, whether we’re going to start having two a year, probably not, but we realized that there’s a lot – there are a lot of questions in your minds about Líder, so we felt it was timely to have this Investor Day today and spend some time.

We’re showing this S-92. This is actually a picture of our six S-92s that fly in the Northern Sheldon Islands out of Scatsta for the Integrated Aviation Consortium up there. One of the things that Bristow has brought to Líder is expertise in operating heavy aircraft and Eduardo is going to talk about that in a little bit. I believe the Líder is up to 10 S-92s operating in Brazil now.

Linda went over what we’re going to talk about today. Mark Duncan is going to spend some time talking about the Brazilian helicopter market in general. Eduardo is going to help you understand Líder and the future market opportunities in Brazil, and then Jonathan is going to give you a run down a lot more detail on the financial impact and how the numbers work within Líder and also how the numbers flow through to Bristow.

One of things very important to us is that we have – in order for us to enter into a joint venture or a partnership, we have to be aligned in terms of our core values and the way we run our businesses and it’s interesting the companies are very similar in a lot of ways, which you’ll see in a minute.

If you look at this profile, Líder is a very significant company in Brazil not that dissimilar from Bristow in a lot of ways. Although, they are obviously more heavily into the fixed wing business than Bristow, but long history, the company was founded in the 1950s. They’ve got a lot of employees like we do; 2,000 employees in Brazil. They are the largest helicopter operator in the country and you’ll see how the market share plays out in the market down there in a minute. You’ve seen this before. Our vision and our mission and our core values are dear – very dear to Bristow and these have been around since this management team started arriving in 2004.

And we run our company based on the core values and the way it works, the vision is our, obviously, the visual of what we want to be and the mission is how we achieve that in the core values of the rules of the road and those are the rules that we don’t ever violate. And then when you look at Líder’s vision and you would think when we put this up here and you’ll see it in your book that, oh, well, Líder just took a look at Bristow’s vision, mission, the core values, and developed the same thing. Not true. Actually, these were developed before we developed ours and it’s amazing when you look at the similarities.

Safety being number one, as you can see, and you can – again, see – look at these in your book, but it’s very refreshing to us that, we share these values and in the seven years that we’ve been in partnership with Líder, when we started leasing aircraft to Líder, in about 2006 and 2007, we never had a disagreement or one issue about how we’re running this business. And a lot of people come to us in these conferences and say well, that the drilling contractors of the both companies are complaining about Brazil and the factor their joint ventures is not working well and – but this is different, because Líder is a well established company in Brazil, been around again as long as Bristow almost and is different than a rig partnership where we actually take our rig into Brazil and we turn it over to the local partner to operate it and that’s flocked with all kinds of issues. And that’s – that creates the problems that all of you in here, most of you in here hear about, so this is different. It’s very, very different than those partnerships.

As you all know, safety is our number core value and Eduardo is going to talk about their safety performances at Líder and it’s just amazing again how many similarities we see between the way Líder runs their business and the way Bristow runs – way we run ours. So there is no real difference between the way we operate. We made – as I said, we started our relationship in 2006-2007, when we started leasing aircraft to Líder and then we actually made our investment in Líder in early 2009, early to mid 2009, and we’ve continued to grow. You’ll hear a lot about that in a little bit. So there’s going to be a lot of talk today, and yesterday, it was – told Jonathan and Mark Duncan that the saying for you yesterday, I read this in The Wall Street Journal, it’s a saying that Abraham Lincoln was famous for, sometimes it’s better to remain silent, be thought a fool than to speak and we’ll move down. So we’re going to speak a lot today and hopefully we don’t turnout to be a bunch of fools.

So thank you very much and I’ll turn it over to Mark Duncan.

Mark B. Duncan

Thanks, Bill. I’m going to talk you about the Brazilian market outlook today and how exciting that is for everyone involved in the Líder company, it really is exciting. I think what you’ll get from this is why Bristow invested in Brazil and in Líder. Let me move through the slides. The picture here is from Líder’s base in Macaé in Brazil, which is the main airport that serves the Campos Basin. We there operate something like 25 helicopters from this base at the moment. So the Brazilian market outlook is very attractive. I’m sure many of you know this, Petrobras, our public company and provide lots of data on their plans. So I’m going to share some of that with you.

For Bristow, looking at the world offshore, deepwater is the largest growth and Brazil is the biggest opportunity for all of us. It’s all in deep and ultra deepwater and that means it’s further from shore. The reserves are already discovered. So this is a play that’s not exploratory in nature, it’s there and it’s developing, dominated by Petrobras as everyone knows, but the international oil companies, many of our biggest customers are in the country as well, and that bring synergy to our relationship with Líder, but the large IOCs have stayed there and many have reinvested in Brazil and are going to be there into the future.

The growth in the market, it’s very strong and it’s underpinned fundamentally by several aspects. Many of these big projects are already in development and progressing, some are planned and they’re well publicized. Rigs are being built today that are no in the market yet, but are coming, multiple rigs, multiple production units, FPSOs, semi-submersible et cetera. Everyone of these has a helideck and needs additional helicopter transportation. The projects in Brazil on a full development forward basis, which means development forward is already fine, the exploration is complete, they are very robust and probably go forward at something like $50 a barrel. So with an oil price above $100, there is – the jobs are not going to be canceled.

Distance from shore, I’m going to show you some slides a little bit later that explains where all this growth is and is new for Brazil. Up until now most of the fields are 100 miles offshore that can be performed by medium sized helicopters. All of the growth that’s coming in the future is 200 miles or more offshore and that requires large heavy helicopters to meet that need. I’ll talk a little bit – the current fleet basically isn’t going to solve the problem for the ultra-deep water, which is what creates the opportunities for us.

I am going to concentrate on the helicopter market, but as Bill mentioned, Líder has a large business in fixed wing aviation. We have a speaker at lunch time from Bombardier, Michael McAdoo, and he is going to explain some of the market there in addition to Eduardo’s comments that will come shortly that will explain that market has some exciting opportunities as well. It’s recovering from the recession now and there is huge growth ahead in the Brazilian market.

So looking on Slide 15, this is exploration and production spending forecasts for new source. So this is new fields, not in place yet. You can see the ramp up in spending there. The exciting thing for Bristow is this is exploration, production, and our OpEx and CapEx. Our services are required in all these areas and you can see the growth. The OpEx, in particular, is exciting for us, because it’s growing and that’s for long-term. It’s going to be there for 20 plus years with all these developments coming.

If I turn to Slide 16, you see here all the Petrobras projects that are coming and the timelines for them. The blue curve is Petrobras’ forecast on the production from these developments as they kick in. We access different information and look at Petrobras and can they achieve what they are proposing. It’s well publicized it’s a huge task to develop all these projects. So we look at – looking at some of these projects, slide to the right, you get the green curve. The message is still all the growth is there.

Also by the way the projects I don’t think include the Libra project, which is well publicized recently with the auction that was done in Brazil and that field alone is going to have something like 10 platforms in it. So that growth isn’t even on that chart. If I turn to Slide 17, we get into some specifics on helicopter demand. I have used here information that Petrobras has made public in Brazil.

So Petrobras logistics for ultra-deep water is a big deal and it’s got a lot of exposure and Petrobras are putting this information out there to show what they are doing to support the logistics for their future oil fields. You can see that they currently transport more than 1 million passengers per year offshore, 120,000 flight hours to do that and 150 flights per day on a normal day, a flight site to do, the SSE on the slide is the south-southeast, which is the Campos since – the Campos Basin on further south into the Santos Basin.

If we go to Slide 18, here you see on the left hand side, you have 2012 passenger movements to each field. The size of the sphere dictates the number of passengers on a volume basis and you can see a lot of flight site to the Campos Basin, which is to the north there and some flight side to the Santos Basin, which is where the pre-salt is and where exploration, drilling and some pre-production is going on. If you look at the chart on the right, which is the forecast for 2020, you can see the huge growth that’s in the Santos Basin, which is related to the pre-salt. So there’s going to be huge increases in volumes there, which is well represented on this chart.

I talked about distance from shore; a very good thing for us from an opportunity perspective is the shape of the coastline in this area. If you note the blue circle is where all the pre-salt fields are. The shape of the coastline, there’s no closer point than Rio de Janeiro. So it has to have large helicopters, because it’s 200 miles and more and that’s where all the future growth is going to come from and this represents it quite well. You need large helicopters, which aren’t in the market to satisfy that demand today. That underpins the growth.

Turning to Slide 20. This is Petrobras produced chart. It shows the expected growth in the fleet for Petrobras. This is across all of Brazil and as you can see it moves up to a 190 helicopters from about 120 today. The growth coming in the large helicopter, so that reflects everything I’ve said so far and is exciting for Bristow and Líder. If I go back to the south-southeast fields, again, Petrobras produced this document for the industry. This is to allow Líder and the other helicopter operators there to preplan getting the aircraft available to them and pilots et cetera, so that this demand can be met. And you see the growth there in the south-southeast fields and you notice this – the move to more of the fleet being large aircraft.

The expected growth from Petrobras in the south-southeast fields here relates to – that comes to 73 leased aircraft. So that’s the size of the Petrobras opportunity. That excludes the international companies and any growth they have and it also excludes the potential for Petrobras adding search and rescue helicopters. There is pressure in Brazil to provide the same capabilities they have elsewhere in terms of being able to rescue their personnel who were so far offshore and the coverage from the Brazilian Navy and Coast Guard is insufficient to meet that today. So there could be some exciting growth in SAR in the Brazilian market, which is to come. SAR is obviously a big part of Bristow’s portfolio these days and Brazil is an exciting growth opportunity for that.

If I move to my final slide just to conclude and re-summarize what we’re doing here. Great growth in Brazil; very strong, robust growth. The Campos Basin will continue for the long-term, so it doesn’t decline just because the Santos Basin and the pre-salt is coming, but the pre-salt is just really starting now. It hasn’t really kicked in yet and that’s where all the growth is going to be from 2014 onwards. The current fleet, as I said, can’t do the work, so that’s going to require additional aircraft. Eduardo will talk about Líder’s position in the Brazilian market. If Líder maintains its market share as it currently stands today, they should be looking at trying to access 25 of that lease requirement of 73 aircraft, which is very exciting.

I think we’re going to open up for some questions on any of this information now and then I believe we’re take going to take a short break before Eduardo talks about Líder in some detail.

Question-and-Answer Session

J. David Anderson – JPMorgan Securities LLC

All right. Dave Anderson, JPMorgan. How many large aircraft are in the Brazilian market currently right now?

Mark B. Duncan

We think it’s about 26 large aircraft.

J. David Anderson – JPMorgan Securities LLC

And the projection you are showing here from Petrobras is up to 190, is that basically split 50-50, medium, large?

Mark B. Duncan

It will be by 2020. Today it’s lopsided towards the medium aircraft. There’s about 120 today, so if there is 26 large, there is about 80 or 90 medium.

J. David Anderson – JPMorgan Securities LLC

Okay. And then you showed that slide of the logistics and that’s something we’ve been hearing quite a bit of all the concerns. And helicopters get all the way out to the fringes. Some of things we’ve been hearing about is potentially having like a way stations of like – we’ve heard talk about aircraft carriers being used as a means for the logistics. So how do you think about the logistics going forward will there be hurdles in terms of?

Mark B. Duncan

Yes. Today, the – the large helicopters can get out to field just they are today and then with some auxiliary fuel tanks on board, they can go out to 250, 260 miles on their own trip. Petrobras are looking at what they call offshore logistics hubs or way stations, where the idea might be to use fast ferries out to this platform and a hub-and-spoke type arrangement and then you would fly the helicopter from that out to the field. Transferring people by boat onto the platforms themselves is not really viable today in real offshore weather. So the hub concept could come in Brazil because you need a lot of fuel [indiscernible] in distance, it won’t happen for one field, but it can happen where there is a periphery of fields and of course that applies in Brazil, and we expect that to be something that happens in the future. We don’t think it changes the need for the helicopters themselves, because Aviation Rules requires a helicopter to be able to get back from land. So you have to be able to fly out, not be able to land and go back and have reserves. So you can’t use small helicopters to do this spoke activity, because they still have to return to land, in case it can’t land offshore. That makes sense?

Unidentified Analyst

[Question Inaudible]

Mark B. Duncan

Yes. The mission profiles are such that you have to be able to take off…

Chipman Earle

Repeat the question.

Mark B. Duncan

Sorry. Okay, so the full range of a helicopter is 400 miles, which allows you to do a 200 mile mission was the question. That’s correct. The rules are you have to take off, fly high, not be able to land, fly back to an ultimate point or where you started and then assume you can’t land there and have a 30 minute fuel reserve. So the way the helicopters are today and the performance capabilities that exist today about roughly is 200 miles of without auxiliary tanks and about 250, 260 with auxiliary tanks, on the large aircraft of course.

Unidentified Analyst

Expand on the SAR opportunity [indiscernible]?

Chipman Earle

Repeat the question, [indiscernible]

Unidentified Analyst

Can you expand on the SAR opportunities, really the size and the timing you think?

Mark B. Duncan

We think it’s still under consideration from Petrobras is perfect that the unions are calling for their workforce to be able to be rescued in case there is an event offshore. We expect Petrobras to potentially come with a tender in early 2014. There is probably a two-year lead time on delivery of a SAR aircraft, so you could expect them to go into the market. We think it starts with four aircraft maybe going up to eight, but once they have that requirement, they are then – it starts to expand then the coastline, but you could see something like eight aircraft in total at some point in the future.

Chipman Earle

Any other questions, we’re going to delay the break and go in and let Eduardo start. If you have any other questions right now, we’ll take them and then let Eduardo start his part of the presentation.

Unidentified Analyst


Chipman Earle

Okay. Thank you.

Eduardo Vaz

Good morning, everyone. We were planning to have an introductory – later one? Okay, all right, that’s fine. That’s very good. We’re planning to have a small video here before my presentation, but since we are delaying the break, then we’ll just go straight to the presentation.

I thought it would be a good moment to tell you a little bit of a story that relates to the foundation of the company and the principles that basically brought us today here.

The founder of the company and the majority shareholder is a – was a pilot, is still alive, he is 80 years old, and when he started his aviation career back in the 50s, he was working for an air taxi company in Brazil and all the air taxi companies there had a lot of accidents back then. and one day, he was taking off with a client, a very small aircraft, single agent, like a Cessna 170, and then right after taking off, he felt a big noise – he heard a big noise and then the aircraft started to shake very, very strongly and he didn’t know what was going on, he was able to maneuver the aircraft and come back to that small strip and he was able to land safe.

And then when the exit the aircraft, he went to the front of the airplane to see what was happening, it was a two blade propeller made out of wood and one blade had really completely broken off and he was miracle as able to brought the aircraft basically flying on a single blade only, and then he was trying to see what happened, then very poor practices back in and the mechanic saw a crack in the blade and thought that he could repair the crack by just riveting or bonding a big crack that was almost pass in through, and then from that, he said look, I’m out of here, I’m not going to commit to this type of practices, and said, look, I think the market will pay a premium price if I created a company by myself. I will go to the best airport in town, this field was remotely located and he would say look, I would build a company based on safety principles, on excellency and I think this is what’s basically inspired the company, inspired all our team until today.

So we are very proud to have inherited a very strong safety culture that basically permeates all the levels of the company. So today, 2,000 employees in more than 20 location throughout the big country; Brazil, the territory of Brazil is larger than continental U.S., so it’s really a big challenge for us to be in all remote locations from the south of Brazil to the Amazon region and I think we are here, three of us and it’s just a tip of the iceberg. I believe that we are passionate about our values and I think the company can only continue to produce excellent results if we’re able to maintain the strong culture that started 55 years ago.

As you see, we have the largest fleet of helicopters in Brazil and also the largest fixed wing fleet in operation in our country and we always believed that safety would be what would stand out for clients. And so safety and perfection, I think, goes hand-in-hand, and I think, being very obsessive about continuous improvement has paid off very well for us. Every year, we are awarded the safety premium, don’t know how to call that awards from all the companies that we serve in Brazil, this is what’s recently won by Chevron. So this is very well recognized. We are the number one provider of helicopter transportation for all the international oil companies, and so we are also very proud of continuously receiving these awards.

The program that we have is very similar to Target Zero that Bristow has developed over the years. Ours is called GO SAFE. We have been very, very safe over the years on the fixed wing side. The last fatal accident that we had was in 1980, so almost 35 years without a fatal accident in the fixed wing division. In the helicopter division, we have almost 14 years without a fatal accident. This year, unfortunately, we had a control ditch of a Bell 412 that is being retired in Brazil. So we’re going to see our fleet mix. We still have some 412s and S-76A model and 212s that we’re planning to sell over the next few years.

But our safety record is by far the best in country, well recognized internationally. We enjoy one of the lowest insurance rates in the world, as a result of the best practices that we have down there.

We are very pleased with the relationship that we have with Bristow. As Bill said, it was not by chance that we became partners. We started to work together back in 2006, when I had the pleasure to meet Mark Duncan; was really very in a determined way to wait for us to be ready to be partners with Bristow. We started to have operating leases with them and then finally in a very difficult market time in 2009, they made their investment. And since then I think that the number speaks for themselves. The company really proved a lot over almost 5 years now.

And I think the major advancement that we have was in the heavy helicopter side. Back in 2009 we had zero heavy aircraft and then as part of their capital contribution came an S-92 and since then, we now have 10 helicopters flying there. And also they brought their manager from Australia that was a very experienced pilot, Rod Pulford. He was instrumental in introducing the S-92 to the Brazilian market for us and has been extremely well played out. We never had single issue over the last 4 or 5 years that we have operating S-92.

Our strategy is a little bit different from Bristow in the sense that we started as a fixed-wing operator and we always thought that our best strategy would be to focus, to concentrate in the Brazilian market only. We were not very big to venture out of Brazil. Brazil is the second largest general aviation market outside the U.S., of course we are much smaller than the U.S. but still today we have more than 2000 turbine-powered aircraft. And so we thought that by diversifying a little bit in all general aviation market including utility market for the helicopter would give us more stability in a very unstable economic environment back in the late 50s throughout until the mid-90s where we were able to control inflation, and that has been I think a key element of our strategy.

We believe that there are very interesting synergies among all these business units. Throughout the years, each one in a way added value to the company and of course over the last few years the helicopter division grew much faster given the opportunities there, but we still feel very strong that the strategy gives us a lot of flexibility. For example, hangar space, we are capable of having more than 110 aircraft hangar throughout the country. Availability of skilled labor force, we have on our maintenance division that does not serve the helicopter division but serves our fixed-wing division and third-party customers more than 150 qualified technicians. So in case we have a need for extra hangar space, if in case we have a need for extra labor supply we can always tap the other division, that Líder.

So on top of that, we believe that we are able to maintain our competitiveness in the helicopter division as you know Petrobras is the largest customer. We have an extremely nice relationship with them, but we have to win bids and the bids are won by having the lowest price.

As you see here if we compare 2009 to 2013, the helicopter division grew a lot, but about $20 million of overhead is allocated throughout all the divisions. The helicopter gets about 40% of that, 60% of the rest of the overhead allocation goes to the other divisions which makes us very competitive, given our size, allowing us to have a very well organized company with international standards and when we compare with the smaller competitors there that don’t have a very heavy overhead, but then we have the ability to spread that to several divisions which make us very competitive.

One point that it’s very important to emphasize here, it will be on the aircraft sales side. Back in 2009, we were representing a company that today is called Beechcraft Corporation and we are very enthusiastic about our new partner, Bombardier. We started to be their exclusive dealer for Brazil since now July of this year. We are still maintaining the relationship that we have with Beechcraft. We think that what we had in the past where we were very successful in selling aircraft and then we’ll come into the future with the addition of Bombardier to our portfolio of aircraft sales.

We have a national footprint. Nobody else comes close to our infrastructure. We are located throughout the country in the best locations, in the best airports. I think in each one, we have the best facilities and I think that is a key point also for the future growth not only in the helicopter division, but also into the other general aviation one.

We are now expanding that infrastructure. We have already one new facility going for – in principal offshore in the coast of São Paulo in the city called Itanhaém. This hangar will be ready by the end of next year and we also should be starting a new construction it will be a are very large hangar at the Rio de Janeiro International Airport and principal batch will be used for general aviation, but we have some discussions going on with Petrobras and we with the air traffic control to see if they could also use that facility for their helicopter transportation needs.

We are very proud of our team. I think we are passionately proud of being part of Líder. And technical training and training in general is very dear to us. We have a very strong program, basically that have repercussions throughout the company, we called our training program Decolar which in Portuguese is to takeoff and basically we have four sub programs in that effort.

First one, as we said earlier, is Go Safe. Then we have another one, which is called Pleasure To Serve and that goes in line to really treat your customer very, very well. The same I think value shared by Bristow here with their customer orientation.

Then we have the third program which is called Knowledge To Win. We believe that you have to know your competition very well and to be able to position yourself in the market, your product and service in the right direction, so that program is constantly update to understand all the details of the competitions, all the market changes that are taking place.

And then the last one is called Route For Development and that is really tailored to leadership skills. For you to you have a highly motivated team, I think leadership throughout the pyramid of the company is essential. So we heavily invest in developing people that have people reporting to them and that goes with training programs inside of the company and outside. We have a program with Bristow of internship. In the past, we had internship programs with the companies that we represent such as Beechcraft Corporation.

They sent their people to Brazil, Rod Pulford is a good example of that, they even heir one of our managers, Leo Mansur that now is working for Bristow in their commercial divisions throughout the world. And we do that and I think on all levels, not only on the operational level, but also now we’re sponsor an MBA program, a full MBA program currently have two employees, one at the University of Michigan in Ann Arbor and another one at the London Business School or Imperial College in London. So we take that very, very seriously, I think the future of the company is really, maintaining the high quality of our staff.

Now that we showed the general aspects of the company, I will go a little bit deeper in each business units. Starting here with our maintenance service, as I said before, the maintenance service is this business unit; their main client is third-party clients, fixed wing and helicopter.

We have a very large captive clientele that we serve in four different locations. The first one it’s in São Paulo; we have the largest facility there. We have a good facility in Rio de Janeiro, another one in our headquarters in Belo Horizonte and then another one up north in the federal capital of the country in Brasília.

We are certified, we are authorized at certain facility for good numbers of OEMs, we are certified by the FAA and from time-to-time, we also provide service to the helicopter division in certain components and certain aspects of their maintenance needs, in case, their own maintenance force is not capable.

We do not have anything like a Power-by-the-Hour program for the helicopter division. they contract direct to this Power-by-the-Hour programs with the OEMs or engine manufacturers and I think this service is very, very important for aircraft sales. Aircraft sales need really to have a strong presence in Brazil to take care of the customer services necessary for dispatchability especially of very an expensive aircraft, very high value aircraft like Bombardier’s Global fleet that it’s above $50 million in cost.

On the aircraft sales, we have been extremely successful in this business. This business does not require capital or I would say a little bit of capital in case of Beechcraft where we have to stock some aircraft, some small ticket items like Baron, Bonanza’s which run between $600 to $1 million.

On the Bombardier side, we are just based on commissions. So we don’t need to have a lot of capital tied to that. We started in this business many, many years ago, in the early 70s, we represented Learjet Corporation and that was a very successful program for us.

We were able to sell between 72 and 94, more than 110 Learjet’s in Brazil. Brazil became the largest market for Learjet, and then for commercial reasons, we started to represent Raytheon Aircraft Corporation, which became Hawker Beechcraft today called Beechcraft Corporation. With Beechcraft for 95 until today, we sold more than 500 aircraft.

So it’s an extremely good market, we don’t have a lot of people involved; our total team here is about 20 people. And it is very important to feed the rest of the business. Generally, when you sell an aircraft, you’re able to have the opportunity to attract customers for your management of aircraft, for your ground handling operations for maintenance. So there is a lot of synergies in this general aviation units and we are very confident that Bombardier will be a big plus for us now going into the future.

On our aircraft chartering and management of the aircraft, this is a very mature business when I talk about our own chartered aircraft. It’s a very competitive market, very difficult for the authorities to control, I think you have a similar situation in Brazil where people that do not have a part 135 operation, we – unofficially charter their airplanes to friends. So having more than 2000 turbine-powered aircraft in a way did not help this business over the last few years.

But we still have a core fleet of about 15 aircrafts, our tension is to gradually reduce that and really to focus more on management of aircraft. By doing that we would not be required to have a lot of capital allocation for buying or fixed-wind airplanes and I think we’ll be able to also have some captive plans because generally when you are managing an aircraft if we have the capability to provide maintenances that person will always have their maintenance done with us and the same time they would exclusive use us on our FPOs throughout the country. So, it’s an area where we believe there will a lot of growth.

There is still a cultural barrier for attracting large volumes of customers in the U.S. this business is very well understood has been in place, I’d say, more than 20 years of the total 2000 aircrafts they are flying in Brazil again, turbine-powered because the total fleet in general aviation is more than 13,000. I would say that we have less than 60 aircraft under management today.

So all of the 2,000 less than 60 are managed by oil companies offering that kind of service. And again there will be more capital requirement, you just charge an administration fee for that and most likely they will allow to charter that aircraft and as we build that capacity we will build a capillarity throughout territory also been able to expand our charter offering throughout the country.

The ground handling unit is a very interesting unit. We require some capital in lump sums not every year. As I said before, it’s very well positioned in the main airports and Brazil. And it’s a very stable cash flow. We have long-term contracts with our clients. All our hangars are currently full. There is more demand than supply, they pay premium prices to stay in those locations, again because of the lack of good infrastructure in Brazil and I say that I mean again I’m not proud of that, but the prices are much more expensive than what you have here in Brazil.

It is a little bit of a barrier for more volumes in general aviation but regardless that we’re still are the second largest aviation market outside Brazil. To give you a flavor for the type of prices that – the service providers charge in the busiest airport in São Paulo, downtown airport of São Paulo called Congonhas Airport, a large aircraft pays about I’d say close to $30,000 a month, just to have the aircraft hangar and that does not include a lot of other service.

So it’s a premium prices that they pay, it’s something that gives us as I said, stability and we have a very bullish in this business not only in Brazil but also to start provided international trip planning service for Brazilian customers and even for international clients that we serve in Brazil eventually we could expand to other locations because as I said, this is not very capital intensive.

Finally arriving at the helicopter division. One thing that is very important to say is that we are not new in the oil business. Actually we were one of the first companies to operate helicopter in Brazil. We started in 1972, so we have a lot of experience. We started that operation in the early 1970s in the Amazon region. It was very, very difficult to operate back then, a lot of problems without any kind of infrastructure in the jungle, so we learned a very hard-learned lesson and we have a – as I said, a very, very deep knowledge to work with Petrobras.

We see a lot of new entrants to the market over the last 10 years, not only in the helicopter business, but in other business related to oil and some of these entrepreneurs or some of the companies that try to enter that market, they got burnt. They got burnt, because they do not understand the clients, they do not understand the requirements, they thought that they could work certain issues after contract, which is not our case at all. So I think one particular point that’s important to understand is that we command a very important market share in Brazil and that has been the case for almost 40 years.

Our fleet is about, I’d say 10.6 years old and going newer. As we retire the old 76A model, 412 and 212 as I said before, we would then shift our efforts toward the large helicopter and eventually maybe super-medium helicopters and I think then the fleet would be going younger than it is.

We are flying about 62,000 hours a year and mainly the – what is driving that is C++ and S-92 models. We are located in basically all the oil basin fields throughout the country with the best as I said, infrastructure to support the operation. Petrobras is very strict in the way that they pay you. So a key factor is to have a very efficient logistic system.

Our maintenance is performed at night shifts. Throughout the day, we are able to work on squats, but the heavy maintenance is gone throughout the night. They don’t give us any allowance; any maintenance allowance for any type of maintenance scheduled or unscheduled and that has been going on for years.

So we are – we have to be extremely efficient. so we work 24 hours a day. Several divisions that support the operations IT, purchasing, we are clear customers seven days a week in four different airport locations. So we have to have a very, very greased machine with our suppliers, so that we provide this dispatchability, which you have seen before improved the even more after Bristow came on board.

We have a very similar prudent approach to our balance sheet and to our aircraft acquisition policy, very similar to Bristow. Over the last few years, we tried to have a better balance between aircraft that we own and aircraft that we have operating lease. We have a very interesting partner with Eximbank. We are by far their best client in Brazil. I think that there is just one operator that started one with like a – almost like a pilot planning thing, but basically we are the only company that has – that enjoys the relationship with Eximbank. And we are, I think very prudent in managing our balance sheet. We are very safe and sound and very strong and well prepared to tackle the opportunities that lie in the future to buy or lease large aircraft.

Now going a little bit about the financials, we’re going to give you a view of the four years since Bristow came onboard will be five years in May next year. So our revenue has been, I’d say very, very good, the revenue growth. All areas are contributing to that, but of course, you’re going to see in a couple of slide, I just forgot that I’m not pointing now to the slide numbers. Sorry about that, Jonathan.

So now on Slide 41, we’re going to show you late on that the helicopter division is really the main driver behind that growth.

The EBITDA growth is even better than revenue growth. As you can see here, especially after the introduction of five S-92 contracts, at the end of last year and early this year that was a big, big addition to our EBITDA generation. So we are forecasting this year to be close to $130 million of EBITDA with an overall margin for the company and that is a combined of all the divisions around 28%. So last year, we had some issues in the first quarter – the first two quarters that impact the overall year EBITDA generation. But this year, we overcame that and we are around $130 million. This is what I was referring to before.

The last – the beginning of last year was very challenging. We had a lot of pre-operational expenses, a lot of fixed costs already added without having the aircraft producing any kind of revenue and then we have also some dispatchability issues in several models during the first two quarters of last year. but then as the year unfolded, the aircraft started then to fly. We resolved some of the issues. Then the last two final quarters of last years also already saw some big improvements.

On the helicopter side, that was, as I said, very instrumental, very key to this growth. We have CAGR of about 26% from fiscal year 2009 and fiscal year 2013. Different from Bristow, we run from January over to December, a normal fiscal year. In that, we are projecting to have about $320 million on the helicopter unit alone, coming from $126 million back in 2009.

Our contracts, generally, I think are a little longer than Bristow. Our contracts tend to be five years, not only for the mediums, but for the large. The largest portion of the contract is based on our fixed standing charges. So even if Petrobras decides to fly less hours, a big portion of the revenue is guaranteed, if the aircraft is available.

and of course, because we know that we tend to price it accordingly, so that the majority of the profitability is kept under the fixed portion of the contract. The contract is also very well craft to have a natural hedge. So a lot of the dollar cost is associated with dollar revenue. So that again, takes away from us the need to go into the market to do any financial hedging, which is very good for us. That has some accounting impact that Jonathan will brief you later on.

I think that we were – we are very well positioned to be able to continue to grow in this market, to maintain our leadership position in this market, not only with Petrobras, but also with the other IOCs.

We know that we have a big concentration of our revenues in Petrobras, but we are by far the dominant player. and so it should stand out. Of course, some of you may say, well, but you have a concentrated risk in Petrobras, but that has been our case since 1970s.

And finally, I think all these efforts are in the helicopter division again, specifically staying off very, very well. We are, then with a CAGR of about 40% from that fiscal year 2009 to now our projection in fiscal year 2013. We have a very, I think again, healthy, very strong EBITDA margin around 36% in the helicopter division itself. And again, that is part of our culture. We are a very cost conscious.

So our vision throughout 55 years really improved a lot, so you see a lot of efforts on the dispatchability side, you see a lot of effort on the logistic side throughout the company, not only in the helicopter division, which gives – which allow us to remain competitive and enjoy all the economies of scales, enjoy all our strong balance sheet, our ability to tap very good cost of capital outside of Brazil and I think that gives us a lot of advantage, a lot of barriers for people to really try to take away our position in the market.

We continue to maintain to be very disciplined in our strategy. We, as I tried to explain here, we’ll continue to focus on our synergies, mainly in the Brazilian market. We will look selected at opportunities outside of the Brazilian market. We will rely on our synergies. We will rely on our partnership with Bristow.

There are some practical events that may give us some additional revenue generation with the World Cup and the Olympics going on in 2014 and 2016 respectively. Bombardier, we are very pleased, very honored to have them in our portfolio of business.

I think the aircraft sales that’s in the past was so important to us. We’ll come back strongly, and I think that the oil business in Brazil as Mark said, is very, very important for our future growth and I believe that with Bristow, we are more than ever well prepared to continue to be an important and dominant player in that market.

Thank you very much. Now, if you have any questions, please feel free.

Question-and-Answer Session

Unidentified Company Representative

We have time for few questions right now. We’re going to have another opportunity for questions after Jonathan’s presentation, but if you have a question now, feel free before the break. Anthony?

Unidentified Analyst

You’ve highlighted the significant increase in EBITDAR from fiscal year 2012 to fiscal year 2013. How much of that would you say is the operational efficiencies that you’ve been able to recognize versus an increase in putting more aircraft to work versus increases in pricing that you’ve been able to recognize?

Unidentified Company Representative

I think that you’ve touched in very key points. So the last one, on pricing, our first contracts on S-92 with Petrobras was basically almost during the tough years of 2009, very competitive timing at that point in time throughout the world, you didn’t have a lot of demand for heavy aircraft. and so definitely, that was a very, very big impact. Our prices today compared to the first heavy prices, I would say they are about 50% more, so that by itself, it’s a big improvement, it is a big cause of that drive. Also there is always an economies of scale, so we started with three aircraft.

Now when we have 10 aircraft and remember of the 10, eight started to really be operational this year. We have now two aircraft as backups. We don’t need two aircraft as backup, one backup, I think it will be enough, but so we have another one there that will make us almost 100% dispatchable. But we really proved and we’ve really had a learning curve on the S-92.

We worked very closely with Sikorsky. so in trying to design the right inventory there to train our mechanics and even our pilots, I think, went down on a learning curve. So the dispatchability is fundamental to your EBITDAR generation, because the way the Petrobras operates, they literally measure you hour-by-hour. They have a team of people there and they want a perfect aircraft.

So if there is something there, anything that they say, look, the aircraft is not good. they will not fly and they will not pay you a penny. So you have to be almost perfectionist. And so it will cost us about $30,000. The margin of contribution for heavy machine is about $30,000 a day. So we are able really to strike a lot of efficiencies out of that and again, we are very, very cost conscious. Throughout the company, we are very, very picky and through the years, we were able also to improve and take out a lot of inefficiencies.

For example, airplane tickets; we have a lot of pilots, they work 15 days on, 15 days off. So we try to buy the cheapest available tickets. How you do that? Buy in advance. So we try to buy like 60 days in advance, we establish the shift; we establish the locations, so that we buy that, we block hotels, rooms. So all the details throughout the company, when you then add that up, well, then you arrived to the margins that we are having today.

Unidentified Analyst

Just follow – I mean follow-on the question just, before my presentation, one of the things that we get out of all of our partnerships, but particularly, with Líder and the teams that their technology in many ways, really what we’re trying to achieve with our operational efficiencies and we’ve talked to you guys about in the third quarter of our earnings, we’ll talk about some of the operating efficiencies, we’re trying to drive through technology and other things that what we’ve talked about. Líder in many ways is ahead of us, in these – they have a fantastic information technology group with long leadership. and so in many ways, we’re learning from them on a number of things that we can do both in the cockpit, but also in – from an operational efficiency standpoint.

Unidentified Company Representative

If I may just comment before going to you about the IT technology, I think that is also very, very important for us. We make a – we made a decision back in the late 90s at that point in time, our revenues and our profitability was much smaller than it is today. And it was a very expensive decision, but we decided to go to Oracle. And then we built that Oracle platform and customized that through all the divisions.

So today, we have absolutely control on every step of the way, on the work orders with all the parts with all the parts including to have today, iPads inside the cabin where it’s seamless. So the pilots don’t have basically any paperwork. So that goes directly to payroll for technical control, everything, then is electronically conducted.

So almost like a paperless, what they call the flight bags, you just have that one iPad. So we are very, very bullish and continue to develop on our IT efforts. We have again, detailed control of the dispatchability. So we have screens in my office, Junia’s office, in Lollato’s office that he is responsible for the logistics. Each aircraft we know when the aircraft is available, it’s not available, you click, you drill down all the details. So we’ll live that everyday. And I think that is key again, to the margin that you see.

Unidentified Analyst

Yes. Just trying to understand from a progression perspective, the EBITDAR move in Q2 versus Q3 in 2013, because it seems like revenues were on a consolidated basis, not all that much different, but it seems like the EBITDAR in Q3 maybe what negatively impacted it and Q2 it’s possibly…

Unidentified Company Representative

Of this year.

Unidentified Analyst

Of this year.

Unidentified Company Representative


Unidentified Company Representative

In the beginning of the year, we had some events specially on aircraft sales that did not repeat on Q3. And now there are also impacts on our dispatchability of aircraft in Q3. So I would basically, the main drivers behind those numbers are dispatchability and then again, some technical issues, some parts availability with Sikorsky in aircraft sales that cannot be smoothly distributed throughout the year.

Unidentified Analyst

Quick question here, can you talk a little bit about Hawker and its bankruptcy and just the impact on that part of your business and then also my assumption is Embraer has probably become a more potent competitor over the past few years and just how your strategy of competition in the fixed wing business against them, please?

Unidentified Company Representative

I think it’s a very good question. Certainly, as you saw in the numbers there if you compare the amount of money that we made in 2009, compared to what we are making today, there was a big, big impact, a big reduction and certainly, that was heavily influenced by their financial situation. They just came earlier this year out of their Chapter 11. they are owned today by the distressed buyers of their debt. and I believe that again, it’s public that eventually there will be sold that in a way, they discontinued their jet manufacturing. so they are not fairly any jet product anymore. They just sell the reciprocating engines that Baron and Bonanzas and the turboprop, their king airline.

That line specifically does not compete with Embraer, but in a way that impaired us to sell more jet products. and then we thought that we couldn’t just be with each craft. Our strategy was to have a portfolio of products and a wide range of products to offer to the market and I think Bombardier at the same time was not very happy with their local partner there, so there was a – I think a perfect match, they need a better partner specifically to compete with Embraer, because as you said, Embraer in the jet market is extremely aggressive. They even have some; I would say subsidies from the Brazilian government in terms of a local finance, so the government basically allows them to tap the NDS Finance in dollar at a subsidized rate.

I think the OEMs tried – are still trying to lobby OECD rules and regulations are even going to the trade agreements, so that the Brazilians stop doing that, but they do that in a way that I think circumvent these things. So I think our strategy is to align with the best jet manufacturer with Bombardier. They have a well established presence in Brazil. We helped in the past with Learjet, but it’s not going to be an easy competition. So Embraer all the other manufacturers are there Gasol, Gulfstream I think are very, very aggressive there. But I believe that we can offer certain things that Embraer cannot offer.

So we can be like a one full stop service. So we could not only sell the aircraft, but we can manage the aircraft, we can provide ground handling, we can provide pilots to them. So I think we – the package that we offer is the strategy that we have against Embraer together with the quality, the reliability, the brand recognition that Bombardier’s brings to the market.

So I think this is what we see for the jet future and for Beechcraft, it’s still good business. We are selling less, I think their image in a way is – has not recovered from their financial impact, but eventually, there will be soul and hopefully, the new owners will start to reinvest and bring back some product obsolescence to bring novelties to the market that will allow us to sell more at a better margins in the future.

Unidentified Company Representative

That means we have Bombardier presenting after lunch in which they’ll talk a little bit about their overall company and product line, but then they’ll focus also specifically on one of their exciting markets to Brazil. So stay for lunch.

Unidentified Company Representative

And food will be good?

Unidentified Company Representative

Yes, of course.

Michael R. McAdoo

Great. Well, again, thank you all for coming. For us at Bristow, it’s both a pleasure and honor to be with our partners at Líder and I think you’ve really gotten a real excellent flavor from Eduardo and his team about why more than six, seven years ago, we went into our partnership together and I think on behalf of Mark and Bill and the whole Bristow team, it’s more than just the financials. I mean, that’s the one thing I would say to introduce my section. It’s more than just financials. The financials are the outcome of the work Líder has done over the last 55 years. It should give you a sense and a comfort about the sustainability of the financials, but it’s really about that commitment to operational excellence and safety and then the commercial discipline that the teams have been able to show.

So for me and on behalf of the team, we’re going to show the financials and how they get to you, our U.S. public shareholders and other partners on our finances, but again, the emphasis is on the – on this operational excellence. As part of that, one thing I want to talk about is Bristow is very committed to our commitment to safety. It’s our number one core value, but one of the tenants of safety always is transparency, right? Transparency is the key to safety.

If you’re not honest with yourself, if you’re not honest with the statistics and the numbers and everything you do, it’s hard to get better and that’s really one of the things we’re going to talk about in my section. It’s how does the operational and commercial excellence that Líder brings, how does it translate into Bristow? How do you we look at internally? And that’s one of the things we’re going to talk about, because it is complicated. We’re not going to tell you it’s not. But one of the things that you’re going to get at today is that this is a bit of a benchmark setting; from today forward, we’re going to give you a lot more information about Líder, because you can see it’s an important part of the overall industry safety improvement, it’s also an important part of our operational excellence and financial improvement, and this year is a perfect example to explain how it kind of works.

With that I’m on Page 50, now for those on the webcast, please go to Page 51. In many ways, one of the beauties of this partnership, but one of the reasons it gets complicated is because of the nature that we want Líder to control their destiny. It’s a Brazilian company serving mostly a Brazilian client and so the shareholder base both reflects the nature of that operational excellence that Líder brings to table, but also some regulatory issues in which you have ownership restrictions for a U.S. public company, but Bristow is okay with that.

In fact, we encourage this and have similar structures around the world. The difference with Líder is that structure causes us to have the financial performance displayed to you through our U.S. GAAP accounting as an equity earnings, okay. So our equity and earnings, which is what represents the 42.5% equity is an outcome of all good stuff, right. It’s all good. And you’ve seen now two hours of all that good stuff; market, commercial, safety, operational excellence.

So the financials, which again, we don’t want to say they are not important, but we need to explain how we look at these financials both within U.S. GAAP and then outside of U.S. GAAP. A little housekeeping that we hadn’t talked about before; one, all of this is fiscal year for Líder. It’s a Líder presentation, so we stick with their fiscal year. So everything you’re going to see here is a December 31 fiscal year-end. Even our financials are December 31 just for simplicity. Second, I’m going to point you something, so I don’t have to ask question or answer questions about it. On Page 25, there is a very long footnote that talks about foreign exchange assumptions made. I’ll let you guys look at that in your own leisure, but again, that backs all of the U.S. dollar denominated representations we’re making in this presentation.

Let’s go on to Page 52. Okay, first, again to get to this idea of operational conversional excellence and their growth translated to financial performance, and the way that we look at them internally is through our already discussed with many of you in this room; LACE, Large AirCraft Equivalent, and LACE rates. So everything we’re going to say is based on Líder, but it’s how we look at Líder’s performance and can now describe this to you. You’ve never seen this before, right. We’ve never talked about Líder’s Large AirCraft Equivalent number and their LACE rates, but internally, we’ve been talking about this for years.

So what do you see? You see that both their LACE and their LACE rate has been growing. Their LACE rate has been growing almost 16.7% on a CAGR basis, but their LACE also has been growing almost 8.5%. So this is a company that’s been able to do what Bristow hasn’t done. Bristow has grown our LACE rate a lot, IR pricing and utilization, but our Large AirCraft Equivalent over this time period has mostly remained flat; one, because we’re still undergoing a transformation of taking older aircraft, older larger aircraft out of the system and new aircraft in. As you can see, a lot of that growth in their financial performance is based on Líder’s ability to both grow their fleet, but also have the pricing discipline on the revenue side to get better pricing on those heavy aircraft as represented by their LACE rate.

If we go on to Page 53, this is reflected, again, very similar to how Bristow represents ourselves to you, we look at this for Líder as an equity owner and also a partner with Líder. Their net fair market value of their assets, which is mostly their helicopters and fixed wing aircraft, have gone up significantly in the last two years. And as you can see on Page 53, they’ve got a book value of roughly $220 million, but their fleet is significantly more valued.

If you look at it on the way that we look at ourselves, when you look at the fair market value of their fleet, which is very easy to value, there is a liquid market for fixed wing and also ruddering machines. And in fact, Líder has been going through a lot of the same transformation that we had, they just did it a little bit earlier than us of getting new aircraft in and older aircraft out, but this page represents all the, again, operational and commercial excellence of getting this new fleet in, of almost doubling their fair market value over the last three years. This is not easy, right? This is very stressful on a company to be able to double this. We haven’t done it, right? Our fair market value of our fleet has gone from about $1.5 billion to currently $2 billion. They’ve doubled theirs in the last really two years and they’ve done it also very importantly in a financially prudent way, maintaining high levels of liquidity, maintaining very conservative balance sheet.

Let’s talk about the cash flow, let’s talk about the financial performance on 54. Eduardo did a great job of really decomposing that into the different business units, because right now, this is all you guys have ever seen, right? Until Eduardo spoke for about an hour and a half, we only got really two numbers and really even we only got kind of one number. We got that number of roughly $19.8 million of equity in earnings, so that’s the red bar on Page 54. 54, we’re showing you a forecast for what we think that will be, but you can see also the historic red bar of just the equity in earnings. The one thing on this page that’s important is we do get other earnings from our partner, in which, we lease them aircraft, we’re a lessor to them, a partner and a lessor, and as part of that, we do get a lot of the blue bar.

Now, these are all numbers you already see, these are all part of our consolidated financials, so the blue bar EBITDAR of aircrafts leased to Líder, these are consolidated into our financials. So you can see that’s been growing quite a lot. We’ve seen a CAGR of more than 20% over the last four years just on the lease piece of them. But that said, equity in earnings that you have not had a lot of transparency in and although that’s been growing significantly 200% over the last four years, why is it growing, this is what the rest of the presentation we’ll talk about. So as much as I’d to talk about the leased aircraft, Eduardo did a good job already of talking about how we as a lessor and a partner to them, how that works.

So we’re going to focus the rest of the presentation on just the red bar, talking about what it means and then how do we look at it internally, how do we look at, for example, that red bar, how do you decompose that into Bristow value added, how do you decompose that into their EBITDAR, and most importantly, how do you describe this as their future growth happens and what the value of this is within Bristow totally.

Going on to Page 55, just from a financial standpoint, not operational, not commercial, just from a pure financial standpoint, this page represents why we’re having an Analyst Day today, right. We already had an Analyst Day on SAR, right. We would have loved to had a Líder Analyst Day before that, but we’ve been busy. And the point I’m making is that the tremendous amount of growth that Líder has been seeing over the last two, three years, you’ve been able to see it, but you’ve only been able to see it in that red bar. That red bar is less than 20% of the total EBITDAR growth of the company. So up until this point, we’ve been talking to you about the great financial performances of Líder, but we’ve never disclosed, at least, in the U.S. public markets, we’ve never disclosed the green bars.

For those on the webcast, the green bars represent the actual consolidated, but just on Líder’s accounts, their EBITDAR. Remember, because of the structure, because we want Líder to control its destiny, because we’re a 42.5% equity owner, we don’t consolidate that $129.2 million, right. We don’t consolidate their revenue. We get it through the equity in earnings. Doesn’t mean that we don’t have access to it, it doesn’t mean that we don’t with Mark and other senior managers, work with Líder as part of their governance, but we don’t consolidate it. It’s not represented on our financial statements and what I’m saying is starting today, we’re going to start giving you this type of data, we’re going to give you this in a U.S. dollar denominated EBITDAR, so you can understand it the way that we do internally.

Now, why is the red bar so much less than the green bar, right? Why is the equity in earnings so much less than the EBITDAR? And it’s pretty simple, one, the red bar, equity earnings is earnings, it’s net income, it’s after interest, depreciation and rental, so by its nature, we own 42.5% of an income stream that is already taking account of the leverage impacts.

Now, the issue is as we disclose this to you, you just only add red bar, the $19.8 million to our EBITDAR, so all you put is that for simple reason we’ve never given you anything else, right. We’ve never given you the $129.2 million or last year, the $70.5 million. You can get it, you’d have to speak really good Portuguese, you’d have to get some Brazilians down and go into the SEC equivalent in Brazil, but you can get it. We’re going to make it easy. We’re going to give you that information from now on.

But you can see there is a second impact that I’ll talk about in a second, it’s not just EBITDAR versus net income, there is another impact, which is foreign exchange, and again, a lot of the foreign exchange issues and a lot of the things that creates issues from a disclosure standpoint is actually coming from a good thing, right? What is the good thing concerning the equity and earnings from a foreign exchange standpoint? Well, Eduardo talked about it. They get their contract primarily with Petrobras, but others in dollar and Brazilian Reais. That allows them to naturally hedge the cash flow of that business. It takes a lot of risk out of that business, but fortunately or unfortunately and this is not to be critical of U.S. GAAP, we could spend hours talking about that, it’s really about – to talk about what it is, it’s just is what it is. It sets up a derivative inside our equity in earnings. Because the contract is denominated in both, U.S. GAAP will treat it as a mark to market derivative.

Now, we have lots of people here today, who can talk to you guys about that. It’s in the appendix and there is a lot of discussion about how we do equity in earnings for derivative accounting and so I would encourage you to talk to them today for those here, but we’ll also have in the future anybody who wants to talk about the specifics what’s in that appendix, but you can see the Brazilian Reais on Page 56 has been fairly volatile. Volatility has come down a lot over the last three to four years, but it’s been volatile and it creates a mark to market derivative inside the equity in earnings and that’s on Page 57.

You can see on Page 57, that foreign exchange impact that again reduces the amount of dollars that you see in the equity in earnings. Let’s just give you an example. In FY12 as represented on Page 57, what you saw last year or two years ago in FY12 was $7.9 million of equity in earnings, but that included a negative mark to market of $3.7 million.

So normally we would have shown $11.6 million, but it’s been reduced, because of the nature of a contract that is structured for a good reason to reduce the risk of volatility for Líder. It just – it’s represented in the equity in earnings as a negative, and you can see, every year, we’ve had that negative. It’s gone down a little bit as the volatility, but this is not something that we can predict very easily, right. This doesn’t just deal with the spot exchange rate. It deals with the foreign exchange rate in their contracts and it makes it just a little bit volatile. It’s not meant to be critical. It just is what it is.

So how do we look at it? How do we then say to ourselves, well, if it’s volatile, we can’t predict it and it’s represented to you guys just through that number, what do we do internally? How does Bristow look at it as in essence of shareholder? Well, we look at it the same way that we look at ourselves. Page 58, Líder is the only subsidiary or partner that we have that we do full Bristow value added evaluations of.

Internally, we get their numbers, we work with them and we do an evaluation of what their value added is, and again, I don’t have the time to talk about Bristow value added, but it’s simple. How many dollars do you earn above your cost of capital? Our cost of capital or what we call as our capital charge is 10.5%. We do the same thing for Líder, and for Líder, we don’t just look at what it is absolutely, we look at how much they are earning every year as an improvement. That’s how we care about them as a shareholder. We want to see it improve every single year.

And so, although, we do look at the equity earnings and we think about it and run lots of simulations to understand how we can predict it better for you, we primarily look at Líder on a Bristow value added basis. Over the last, let’s say, three years including year-to-date September, you’ve seen a significant increase in their value add from 2012 to 2013 and it’s based on all the operational, safety, commercial discipline that we’ve already talked about. But it’s particularly important for them, because they’ve been able to do this in a market that actually is quite competitive, right. If you really look at it, they’ve got lots of competitors as Eduardo talked about.

And particularly this year, you’ve seen quarter-by-quarter a significant jump in their BVA. For the most part, Líder has been neutral. They’ve been earning their capital charge, which is impressive, because again, they’ve doubled the fair market value of their fleet from roughly $220 million to over $400 million. So that’s a lot of capital. That’s over $225 million of capital, just to give a nod to Transocean, who is currently on their investor call that would be equivalent of Transocean investing $50 billion in a year and a half. And so just to give you a sense of the scale of what Líder has been able to achieve.

If you go to Page 60 – I’m sorry, 59, they’ve been able to achieve this by also sticking to a number of the tenants, which were similar to ours from financial prudency standpoint. We talk about our investment thesis for Bristow as having three legs to a stool. The first is secular growth dealing with offshore transport.

I would even go further for Líder, saying they have another leg to the stool, which is the secular demand of Brazilian executive aircraft. But the second leg of our stool has always been prudent balance sheet management, because you could achieve a lot of BVA by just leveraging your company, right. But they basically stay to the same similar metrics, slightly different, but similar metrics to us and you can see on Page 59 that their adjusted debt to equity, where we try to stay in and around 80% to 90%, they are in and round 100%. And from our standpoint, when we look at the overall market for helicopter services, this is easily the strongest balance sheet in the country.

Now, they are slightly higher than us, but one of the important things that you need to understand is that we are part of their credit capital structure too. We’re not just an equity holder, we also hold their leases. Roughly about 25% of their leases are with Bristow and so we’re part of their credit capital structure. Roughly a third of their adjusted debt is with us, right.

And so that brings down, if you assume that we’re a partnership, that would bring down that adjusted debt to equity to something close to 70%, which again is very prudent in this marketplace. Their peers are significantly higher than this. They are both significantly higher from the standpoint of the quantum and the amount of debt that they have, but as importantly, and in fact, maybe most importantly, Líder is like Bristow. We like owning the asset, right. We are on a strategy of leasing going from roughly 22% today to roughly 30%.

They, when most of their peers are well above 70% leased aircraft, most of their peers have to get their aircraft through leasing; they are less than 35%. And so again, this gets to a sense of what their prudent balance sheet management philosophy looks like. The third leg of their stool is similar to ours, which is balanced return, right, which is why they hold a lot of liquidity. They have a lot of cash, right, we do too. We’re holding $600 million of liquidity. They are holding about $100 million of liquidity, both to take into account, any bad things that could happen in that market, but as importantly to take advantage of growth and again providing us a balanced return, because they have been able to give us a decent amount of cash over the last number of years.

So again, it’s a similar thesis. We are an investor, we are a partner of theirs, you indirectly are a partner and an investor in them, and you should just get a lot of comfort that the three legs of the stool that have had yielded a significant TSR for us over the last two years. It’s something that we think about when we’re an investor in them.

So then get to the question that most of you have been asking me for the last – and Linda and Mark, what is Líder worth? This page is not meant and we’re on Page 60; Page 60 is not meant to tell you that Líder is undervalued in our stock. It is, but that’s not what this page is about. This page is about what we’re going to deliver to you in the future as far as information, so you can do the math yourself, right. We’re doing the math now and we’re seeing some undervaluation, but in the future, it could be overvalued, I don’t know, right? I mean, it’s a market where things are valued every day, but we think this is the best way to value it. It’s just our piece of the 42.5%. We’re not talking about the leases that we get to do with them, which are valued as part of our consolidation, but internally, we look at Líder, we take their EBITDAR, let’s do for example their trailing 12 months EBITDAR, roughly $120 million, and then we just apply a multiple to it similar to our multiple.

So on Page 60, now that we’re going to give you more information, you’ll have their EBITDAR. You can then put a multiple on their EBITDAR and then once you actually look at that EBITDAR and then take into account their debt, which will give you $2 million, you’ll be able to see what their equity is worth and then multiply it times 42.5%.

For us today, that’s little bit more than $10 a share. If you did it the way that you can only do it over the last two to three years and which you have to look at their equity in earnings and remember their equity in earnings has been growing significantly faster than the EBITDAR. So you could use that if you want. The issue is you’re just – you’re not able to pull enough levers of the valuation metrics. You’re going to use only what the U.S. accounting gets to you and if you use that based on a 9.2 multiple with EBITDAR, you’ll get roughly $5, a little bit more than $5 a share.

We’re not saying we don’t look at that internally, but when we look at Líder, we primarily look at it using the bottom information. For example, for this bottom information, we’re going to give you BVA in the future. You could value Líder on a BVA basis and then apply 42.5% for our ownership. Either way, we just think it’s a lot better for you to value Líder as a business that operates in Brazil in partnership with us with information that would allow you to understand them completely, and that’s what, in many ways, the financial part of this is about. The operational commercial, we think is more important, because it talks about their sustainability and their alignment with us, but this just gives you a sense of how the financial piece of it works also.

To wrap up on Page 61. In the future, really starting in FY15 and just to be very specific, we’re giving you enough information now to take you the next six months, right. We’ve given you a decent amount of even forecast information for Líder. So starting in FY15, we’re going to give you historical information based on their EBITDAR, their BVA, their leverage; so that you can do the type of evaluation of their business that we do internally. It adds to the transparency, it lets you understand the growth, you can then do your own models based on LACE and LACE rate, and again, it’s more completely describes their financial performance, which mirrors their operational commercial performance.

Today, if you do that, you would come up with a valuation of Líder of around – a little bit more than $400 million for our 42.5% piece. Again, their standalone and BVA improvement, if you want to use that and look at that information, we’ll be able to give you enough information for you to do it on your own in the future. But just to wrap up the at least Líder portion and Bristow portion for this, you’ve seen alignment of the two that are really based on some fundamental issues that are independent of financial. It’s almost ethical and moral determination to make the entire industry safer.

Second, you see that their operational and commercial discipline and efficiency in certain ways, in certain really important ways, leads us, they’re ahead of us, right? They’ll be able to do things we haven’t done, right, or we are in the process of doing. I think third, you see that we’re going to give you more financial information to match up with the excellent operational and commercial performance.

And then finally, although I can’t say we’re going to do a Líder Investment Day every year or not. Linda, we’re not going to do one every year. We do want to have Líder be a part of our story on a little bit more current basis, I mean we’ll give you information on our earnings calls. But in the future, you might see Eduardo or some of his team join us for a conference, if it’s convenient for them. They have a business to run, but what we’re committing to you today is a little bit more intent to create some transparency, so that this important region is really important growth region, but more importantly this important partner is part of your story and that you can tell it in a clear way, but more importantly, in a way that honors their excellent results.

With that, I’ll take questions. Thank you very much.

Question-and-Answer Session

Unidentified Analyst

Hi, two quick questions. Can you talk about the BVA there, when you look at the numbers, is there any difference between their operation, the BVA they get on their helicopter operations versus the fixed-wings is there a large discrepancy there, or maybe even qualitative, can you talk about that? And then secondly, do you know how they use BVA in terms of their internal compensation if at all?

Unidentified Company Representative

I’ll answer the first one and I’ll let Eduardo answer the second one. I anticipated that question or we anticipated that question. So on page 63, we talk about their calculation of BVA. What we would say is Líder very similar to the operational and commercial discussion that we already had. Líder is a different business than ours. And in many ways, the last three years has represented Líder in a way that’s more like Bristow, a lot of their BVA was coming from the helicopter operations, but a goodly number of their businesses especially their – their aircraft sales have very little capital associated with it. And therefore, I don’t want to be so specific, but a lot of the dollars of EBITDAR that they would generate in that business unit will fall directly to BVA, there is no capital charge associated with a commission on a very large Bombardier aircraft that they help to sell and they help maintain.

So in that business, we’re very excited for their future, that business has not really financially performed in last three or four years, most because of the financial crisis, which affected Brazil similar to the rest of the world. In the future, that business could generate a lot more BVA than anything that we have, given that we don’t have a business line like that. Their other businesses are very similar. Very, very similar, helicopter operations, most of its new aircraft, most of the capital charge deals with how you manage the working capital receivables et cetera. I’ll let Eduardo talk about compensation.

Unidentified Company Representative

I think we are…

Eduardo Vaz

Is it working here?

Unidentified Company Representative

I think I got folks in them.

Eduardo Vaz

I think we are very well aligned with BVA, but not exactly like BVA. We understand the concept, I think in the future or in the near future, we may even adopt it internally at Líder but our compensation is more related to return on equity and of course, to calculate return on equity, we have our weighted average cost of capital and then our variable compensation package only starts to kick in, if we are above that weighted average, which is basically the concept of BVA.

Unidentified Company Representative

If you wait one second…

Unidentified Analyst

On page 52, you went through the LACE rate calculation for Líder. Are there any differences in terms of the way that Líder calculates LACE? Does that include fixed-wing aircraft as well, or is that strictly just on helicopters?

Unidentified Company Representative

Because LACE and LACE rate are very particular to the economics of helicopters that you can compare in our regions, you can compare us to pervious years. This calculation that we use is virtually identical. Bristow takes out training helicopters, takes out fixed–wings, so we own fixed-wing too, we fly some fixed-wing operations, takes out our training academy for example. So the answer is yes and all the things that we talked about that are not as big adjustments for us, but are bigger adjustments for Líder, because of the fixed-wing operation, we take into account when we look at these numbers.

Unidentified Analyst

I think it’s very important on the LACE rates here to not confuse what’s happening, because with the addition of a heavy aircraft, Líder’s got so many medium aircraft and they are not adding heavies, the average LACE rate is going to increase with every heavy that’s ordered because the pricing on the heavy is just significantly higher than the medium aircraft their historically. In Brazil, in particularly the bids to Petrobras, it’s an open – it’s a sealed bid, but the results are made public. So the pricing is quite well known in the market and the actual rates that are achieved on these heavy helicopters today are much higher than LACE rate represented here and they are more equivalent to our European business unit. So as I like forward you should build on mind.

Unidentified Analyst

That goes along with my question I had. As we move towards the national progression of our higher LACE rate with the larger aircraft’s coming in. Can you speak to what you have experienced from an organic price increases on the past and what we should expect from that business in the future?

Unidentified Company Representative

Are you talking about the Bristow or for Líder?

Unidentified Analyst

The Líder.

Unidentified Company Representative

Well, as we said earlier, it’s a very competitive environment. It will depend on a lot of factors. Of course Petrobras tries to manage their business to keep them also very cost conscious. I believe that overall the demand in the world for heavy aircraft are significantly increased over the last few years and I think that the fact that our prices of last year went up significantly is a reflection of that. So as long as the worldwide demand is continuously to be strong, I think you’re going to see the same in Brazil.

Its difficult to predict what’s going to happen if the prices will be x percent more than it is today. But what we see today is the demand in the world is really there is a very correlation effect to the prices in Brazil. I don’t know if I answered you question.

Unidentified Company Representative

Let me put up a from Bristow’s standpoint as we see the rest of the world market, what we publically say is on the renewals in fiscal year 2014 and 2013. We have seen between 10% and 30% better pricing as those aircraft renew. Okay that’s what we publically already said. When we talk about the 30% we usually mention Líder, we say Líder has been able to enjoy renewals and their overall fleet of 30%. And today you actually a heard new disclosure that they’ve been able to enjoy on the large aircraft in particular increased pricing of 50% over those older, that’s when you see the LACE rates in FY 2010 of 4.6.

Unidentified Company Representative

If I could just add that up, our first contracts for the S-92s will be renewed basically by the end of next year because the contract the five year period will finish mid 2015. So that will be the first time that we are basically we’re going to rebid for that initial one. The contracts that we got there 50% price increase were addition to the fleet. So in that particular situation as Jonathan said, we really expect the prices of these, we have three aircraft to significantly go up to match not only the current last ones that we bid, but the prices in the future.

Unidentified Analyst

The percentage of the least aircraft….

Unidentified Analyst

Whose talking I can’t see you.

Unidentified Company Representative

Hi, john. Sorry about that John.

Unidentified Analyst

That’s okay. So the percentage of the leased aircraft and the Líder fleets a little bit ahead of even the target for Bristow and I was wondering if there is a similar target for the overall percentage of leased aircraft is as Líder grows over the future and also how is Bristow planning on participating that into lessor side of the business as well.

Unidentified Company Representative

Let Eduardo answer that.

Eduardo Vaz

Well, I think there is no defined target number for the percentage of aircraft leased or percentage of aircraft that we will buy. That will be most likely be driven by the amount of opportunities that we have at any point in time. So if Petrobras comes out with enormous bid for example for 15, 20 aircraft most likely we would not only need to go because we wouldn’t have all the positions already aligned with the OEMs, but then also we would have to resort to our partners because Bristow has their own fleet planning and we will try then to have a balance numbers to try to take as much of that opportunity as possible. And then of course that will still be aligned with the availability of pilots, with hangar space. So you have to go down to the operational details and that will basically define the amount. So you’re going to see some fluctuations. We maybe below, maybe higher in proportions of aircraft that we own and lease, based on all those conditions at any given time.

Unidentified Company Representative

I’ll answer it for Bristow and it will help you also maybe understand what context for Líder is leasing from us. So Bristow is at 22% LACE leased. We’re going, as we publicly disclosed, we’re saying we’re going to be going to 30% to 35% really on the back of an excellent leasing market combined with most of our peers are very highly leased already. So the market is turning towards us as an investment grade secured rating. It helps them in creating – letting them or lessors create a diversified portfolio and they’ve been very underexposed to Bristow these past 20 years.

When we look at our regional partners or when we look at different regions, we do see the fluctuations that Eduardo is talking about. So for example, in the Gulf of Mexico, we have a much higher amount of leased aircraft it’s approaching 50-50. In Europe, because the mount of significant tenders we’ve done to take advantage of the lease market and also a better financing market, we’ve done a higher amount of leasing there also. There are other markets where we’ve done lower amounts. And so a lot of it is mixed with the commercial dynamic.

The only thing I would say to add to Eduardo from a Líder and Bristow, we like the residual value. We like owning these aircraft, not just from the standpoint of operational flexibility because I’ll say most of our lessors, many who are in this room will tell you and they will tell you this. We get a lot of flexibility within our leases. So, but we do like to own the residual value because we feel that’s part of the investment thesis also. And so I know Líder shares that desire to have that residual value to own aircraft. Its part of they’re also – they maintain them and do other things with it.

Unidentified Company Representative

Just to add to Jonathan, we really feel very comfortable with these residual values, not only over the last few years, but if you take a historical look at the residual values of our helicopters, they have been very strong. So we still have old 212s and 412s that we can sell at a very good profit margin and I think this is the same today for the 76C+ and even on the S-92s. If you go and see their fair market value and go back to your acquisition price, the values hold very, very much.

Unidentified Analyst

Just a quick question on comparing Page 55 versus 57. Just trying to understand the red bars on 55 and then the red bars on 57. It seems like in 2011 there were the same in 2013 I understand that the first page of the forecast, the second is not. I’m just trying to make sure that those are – what’s the difference basically?

Unidentified Company Representative

Other than a possible analytical transposition there we’re going to have to get back to you on that one. It’s roughly in the same ballpark. I would say that the 57 number, which is meant to be the 7.9 is net, might have netted some other thing out. So Peter, the best thing I could say is plus or minus a couple of million we’ll get back to you and see if there was a transposition there.

Unidentified Company Representative

I think on 55, it’s forecast for the entire year under red bar.

Unidentified Analyst

Yes, it was really on fiscal year slide 12.

Unidentified Company Representative

Slide 12, the difference being 9.08 and 7.9. So

Unidentified Analyst


Unidentified Company Representative

Let’s get back to you on that one Peter. But remember we care about that green bar now Peter. Look at the green bar.

Unidentified Company Representative

Yes, yes.

Unidentified Analyst

Jonathan, just a closer look on the accounting perspective for Líder.

Unidentified Company Representative

Yes, go ahead.

Unidentified Analyst

You don’t lease helicopters from Bristow to Líder. I’m assuming those still flow through as revenue as part of other international…

Unidentified Company Representative

That’s correct.

Unidentified Analyst

And is there any FX, is the same FX impact or is that a cleaner hedge given U.S. GAAP accounting.

Unidentified Company Representative

You don’t have the embedded derivative accounting for those mostly because those are on leases in the nature of how we do our lease FX, doesn’t create the embedded derivative. So I’d like to use, whenever I talk about accounting clean, not clean, but let’s just say that it’s got different accounting that is a little bit more easier to understand, because of the consolidation, but you’re on to the right thing. There is somebody back there. Go ahead, Anthony.

Unidentified Analyst

The red bar, green bar question.

Unidentified Company Representative


Unidentified Analyst

So as you think about the future growth of the equity and earnings component as well as the lease component flowing through in terms of aircraft that you’re leasing to Líder. What’s the – from a balance sheet management perspective, how do you think that the fleet grows from the Líder perspective over the next several years in terms of the aircraft that you’re leasing, versus the aircraft that Líder’s purchasing directly?

Unidentified Company Representative

The way I would look at is a – compared to the equity earnings, is that I’m going to ask a clarifying question, Anthony. are you asking more about the leasing or you asking about the – how best the red bar will bode?

Unidentified Analyst

So I guess the question is more in terms of, as Líder is adding additional aircrafts of the fleet, are they doing that by purchasing aircraft? Are they doing that by Bristow purchasing aircraft and then leasing the aircraft into Líder?

Unidentified Company Representative

I think that’s probably more of a market.

Unidentified Company Representative

It’s actually a combination of both, Anthony, because we sit down with Líder and Petrobras bids on predictable. so this either going to come to bid, this core or ends up being two quarters later, and the delivery date automatically moves.

So after then of access to positions on the production line, so Líder have their own orders and options that far less than Bristow does. so we sit down together and we look at what our available positions are and theirs and not – that will dictate their ability to buy aircraft or their ability to access our aircraft through leasing. And then what Bristow does is, it looks at that Brazil opportunity and says what’s the alternative opportunity somewhere else in the world, and we’ll pick the best one for Bristow. and so if we can deploy the aircraft and make more internationally outside Brazil we will and if you go enough, we’ll lease into Líder and when we do that the lease rates are governed by transferred pricing et cetera and we look at the lease rate plus the equity earnings when we’re doing our evaluations on certain to pricing. So we look at both the red bar and the green bar for Líder and that will – sorry for us. Does that make sense?

Unidentified Analyst

Yes. I do want to clarify something there is not on question two, but you’re saying at the – we do care about the red bar in one very specific instance, in many instances, because obviously, we do and we continued at accurate, monitor financials, but that red bar does play into our earnings guidance. So we think about what that red bar would be, for example, as we think about guidance for FY 2015, we think about how that will grow and even I would say is, because of the leverage aspects of it, because it is a levered number and how you guys understand that, that should grow faster just by the nature of financial leverage, even though Líder uses prudent levels of leverage in operating leases and Exim, financing et cetera.

It’s going to grow faster and you’ve seen that here, right. you’ve seen very impressive growth on page 55 in their EBITDAR, but you’ve seen even though the red bar, the equity and earnings is much lower, it’s growing faster. We do care about it, we think about it.

Any other questions, one think, I would maybe end with is that we have a number of executives from Bristow here today are Chief Accounting Officer, our head of Financial Planning. and so they’re here if you do especially at lunch want to talk to them about in the appendix, we do have some information about how the embedded derivative works and how they stepped-up depreciation, these are exciting topics that might need further discussion and then in the future obviously, their good answer.

Chipman Earle

There is Michael’s presentation on here. Let me introduce Michael R. McAdoo, a long-term Bombardier executive. Mike – Michael is currently serving as Vice President of Strategy and International Business Development supporting the Bombardier Aerospace President, Guy Hachey. He is responsible for Group Level Strategy and Business Development for Bombardier Aerospace as well as the select high-impact initiative related to Bombardier’s international expansion. Since joining Bombardier in 2001, he has held a number of senior leadership positions in a wide range of functions, including services, manufacturing and strategy.

From 1995 to 2001, Michael was Manager with the Boston Consulting Group of Canada, where he worked in a broad range of industries for clients in the NAFTA area in Europe and was based in Toronto, Canada and Monterrey, Mexico. Michael holds a Masters in International Affairs and a Masters in Journalism from Columbia University. He received a BA from Queen's University in 1986 and was a visiting undergraduate at Harvard University from 1985 to 1986. He is fluent in French and Spanish.

Please join me in welcoming Michael R. McAdoo.

Michael R. McAdoo

Great. Well, thanks very much. This presentation is actually daunting on many levels. First of all, I know I’ve been standing between you and lunch and further access to the Bristow and Líder executives. Secondly, I am presenting to folks that know a lot about Brazil and the Brazilian market and so I’ll try to make this pretty straightforward. We will start with a brief overview of Bombardier. I know many of you have known us and covered us and invested in us over the years. Others who perhaps are meeting us for the first time, so just level set of information on the company, I’ll start with that and then I’ll talk a little bit about the Brazilian market both from a business aircraft perspective, which is where we’re initially partnering with Líder, but also from a commercial aircraft perspective, because I think there are some things going on in the aviation market in Brazil, which are interesting, I think, which will set the tone for the future growth in our industry and then I’ll spend a few minutes on our partnership and what it means for us.

This basically just says that we have a lot of lawyers in the organization, so I’ll skip over that. So Bombardier, when you look at us from a North American perspective people really see us an aerospace company, but in fact globally, we’re based on two businesses of about equal size. We’re the number one manufacturer of rail – passenger rail transportation equipment and that business is headquartered in Berlin, Germany, which is where the largest market is within the EU, of course. And you’ll see that both businesses are about equal size and revenues in terms of firm order backlog, employees and these are really the two pillars of our company and we see these businesses as fitting very well together.

I won’t come back to the rail side of the house, but I’ll just mention that we’re also very active in Brazil. We’ve just opened last year a new manufacturing facility in Hortolândia, which is our world center of excellence for monorail technology. We’ve won a multi $100 million contract for the São Paulo monorail extension and we see monorail as an excellent technology for Brazil, where you have a number of cities that have grown more quickly than their transportation systems and monorail allows you to minimize infrastructure costs and navigate around existing buildings and other obstacles rather than the expensive technology around metros and other types of commuter rail. So we’re very interested in the Brazilian market for rail transportation. We have several hundred employees there and that looks like a growth story for us going forward not just for Brazil, but for the whole market.

When you look at the aerospace business now, it’s about an $8.6 billion revenue business. Right now, about half of that is in business aircraft and you’ll see commercial aircraft and services are the next two businesses, but when I talk about our portfolio, you’re going to see that the commercial aircraft business overtime has a very strong growth story around our investment in the CSeries aircraft, so you’ll see that comeback into balance overtime as we complete our investment in new products.

The services business is also very important. It’s one of the areas in which we’re partnering with Líder and that’s a business that’s growing faster than the rest and provides an attractive level of returns for us. In terms of our product families, this is the business aircraft. So we are the world’s number one manufacturer of business aircraft, either from a revenue perspective or from a unit perspective, obviously, there is mix that comes into that. And we really are centered around three product family. So the Learjet product line of course one of the most famous brands in the industry and we have four models there, we just recently certified Learjet 75, which will start delivering in the next period of time. Of course, the Challenger family, very important stalwart for us and continued investment there with the Challenger 350. And of course, the Global product line literally the highest-end business aircraft in the marketplace.

Now the question came up before about how we’re competing or not with Embraer, which is of course, based in Brazil. And we really see Embraer in the smaller end of the Learjet segment. Their current product portfolio what they have in development is relay starting there. It’s a logical strategy for them to start there and obviously over time they’ll try grow, but for now, we’re seeing them there. We’re not seeing them in the Challenger segment and the global segment and these will be important segments in future growth story and business aviation in Brazil, both from a sales perspective and of course, from an aircraft support and maintenance perspective. I should also just mention the Global 7000 and 8000; I’ve got more information, but two new products to extend that Global family.

From a Learjet perspective, we’re working as we speak on the Learjet 85. So this will be the largest and fastest Learjet every built. It will have transcontinental capability in North America, which translates into trans-Brazilian capability in Brazil, very important. And it will be the first business jet built primarily with composite materials certified by the FAA under part 25 and we’re planning to fly this aircraft in the next few weeks for the first time you can see it there on the ramp as the first test aircraft recently photographed in which at Arkansas. I mentioned the two new global products, this will incorporate a number of improvements we’ve made with the global family over time, we’ll also be improving the current volume of the wing, the range, a new engine. And these will be the longest range aircraft available in the business aircraft market.

So we’ve got a healthy order level for these, already a healthy level of firm orders and the development program is preceding. so this will make the Global family now having four different aircraft with different mission requirements and we think will keep us very competitive in our segment.

I’ll just briefly mention the commercial aircraft product, so we three families there, the Q-Series turboprop, the CRJ regional jets and the C-Series. And I should mention that again from a Embraer perspective, we’ve really been focused on competing with them in the RJ segment. They’ve just announced a stretch of their aircraft, which brings them partway into the C-Series segment and they currently don’t have a turboprop.

And when we talk about the Brazilian regional aviation industry, you’ll see that in a few slides that turboprops are going to be very important part of the solution and in that segment, we actually compete with ATR, which is the European competitor. So we think there’s a big potential for the Q-Series in Brazil. And we think the C-Series is well over time given its particular performance characteristics will be great for the Brazilian market.

And just before I leave the page, CRJ, if you look back a decade, I think people sometimes keep old paradigms in their head. But a decade ago, we were two competitors in the RJ segment and when you look at the game theory dynamics of that it’s a zero-sum game essentially.

We would win a campaign that by definition, they would lose. If you look at that space today, there is actually many competitors. So we have the Superjet from Russia, from the United Aircraft Company, which is now in revenue service both in Russia and also in Meixco with Interjet. You have the Chinese ARJ21, which is in development in China by the COMAC, Commercial Aircraft Company of China. You have the Mitsubishi RJ, which is in development by Mitsubishi of Japan and you have ourselves, an Embraer with your product line.

So there are now five competitors and that completely changes the dynamic, because it’s possible for both of us to lose at the same time. And Eduardo mentioned the OECD rules around aircraft financing. Well, I can tell you that when those rules were rewritten a couple of years ago, we actually, as Canada and Brazil had very aligned positions in those versus some of the new entrants and some of the incumbents in the larger space.

So I think the reality as we compete like hell, but the – this notion of a zero-sum game is really longer present, it’s much more of a traditional multiplayer segment. So looking into Brazil now, I’ll talk a little bit about the Brazilian economy as we see it and this is really from a macro perspective, and I’ll talk about how the market looks. So just from a worldwide perspective, this is commercial aircraft and I should specify commercial aircraft from 20 to 149 seats.

So we don’t include the larger 737 and A320 family segment, but we don’t include the twin-aisle aircraft. This is really the segments in which we compete and the point here is that Latin America overall is actually the second largest if you will, emerging market after Greater China. and you can see that Europe has actually fallen now to third place, as a marketplace for these segments of the aircraft, but we’re looking at about 13,000 units over the next 20 years and this is from our publicly available market forecast.

Now when you look at Latin American economy, the Brazil folks will know this, but when you sit in North America and look down, I think you sometimes can lose perspective on just the way these economies break down. so we like to display them this way, which really shows you the per capita income, up the vertical axis, that’s very important from a commercial aircraft perspective, because there is a correlation between growing per capita income and commercial aviation activity, as people become wealthy enough to travel.

And then of course, the horizontal axis of the total population, so the area becomes the actual quantity of GDP. And so Brazil is actually just under a third of the GDP of the whole region. And even more interesting, I think I don’t know the slide, but if you were to double-click on Brazil, the State of São Paulo is 33% of Brazilian GDP. So the State of São Paulo, a third of a third is 16 and two thirds of the entire economy from the Rio Grande da Serra and I think you can miss that perspective sitting in Canada and United States as some of us do.

Of course, the other big player is Mexico and we’re very present there with the significant manufacturing operations. but you’ll see that as Brazil moves up the per capita GDP curve, there will be an increasing demand for passenger air travel, which is very important for our commercial business.

And just in terms of how that – how that’s playing out, you’ll see here significant increase in the Brazilian middle class over the past decade or so, significant reduction in long-term poverty rates. And of course, the global visibility, I think there is another backstory in this left-hand side of the chart, which is the – and there is a study by BCG actually that points this out, but 74% of the GDP growth in Brazil from 2001 to 2011 was from increased labor force participation.

So these middle class people are joining the economy. it’s causing GDP to grow, but only 26% of GDP growth in Brazil was based on productivity improvements. And if you compare that to Mexico, the other large economy, about 60% of Mexican GDP growth over the same period was through productivity improvement.

So I think Brazil economically has a productivity challenge that needs to work, but there are still many more tens of millions of people that can literally join, essentially the formal workforce and become part of this growing middle class. And then from a global visibility perspective, you’ve got two major events, which is driving a lot of investment and infrastructure, not just for the facilities themselves, but associated infrastructure with that.

And this I think also will create some punctual demand for the services that ourselves and Líder offers. So for example, we’re working today as Bombardier with making sure that we’ve got the right number of field service representatives, technicians, additional parts underground, because many of our worldwide clients will bring their aircraft to Brazil for these events. And they’ll expect a level of service, so this was mentioned in earlier presentation, but it’s very important and this will be good I think not just from a visibility perspective, but from a business opportunity perspective for us to serve our customers.

I mentioned infrastructure, it’s a huge challenge in Brazil. I think Eduardo mentioned this, but there are many, many of the major airports that are seriously congested. There has been an underinvestment in infrastructure versus what we’ve seen in terms of population and GDP growth. And there are a lot of capacity constraints at the – at lot of the major airports particularly São Paulo, if you’ve ever been there, it’s a really terrible place to change airplanes. I think Latin Trade magazine rated that really as the worst airport in Latin America.

So there’s a lot of work being done there, but that leads to these consequences of focus on larger aircraft to maximize slot availability and there has been a – of course, a chronic underinvestment in the smaller cities. The good news in this is that the Brazilian government is aware of this. And so what the President Dilma has done, she has actually reorganized about two years ago, the whole management of civil aviation and she has created a special secretariat.

And in Brazil, they have an agency called Casa Civil, which is the – basically the Personnel Department of the President. It’s a bit like the NSC or the NEC or USTR here in the United States, where these things report directly to the President. And so she has got some senior leaders, some folks that she’s brought in from the private sector that are appointed to try to get their arms around this problem. And they’ve actually identified up to 270 airports, you see on the left hand side of the page for significant investment and infrastructure.

They’ll of course, be targeting that to a much more number of airports. They have set aside over 7 billion reais, which depending on exchange rates, which we discussed, was about US$3.5 billion. And so a number of these airports or smaller number will be selected for a targeted investment in infrastructure. And at the same time, they’re looking at basically a subsidy program to encourage more point-to-point commercial service. And so they’re really targeting cities around the 50,000 population market and there’s a program underway to support airlines doing these operations.

Now before you think this is kind of crazy, there’s actually a similar program in the U.S., there’s a similar program in Russia. This is done in different places in the world to try to stimulate demand for regional connectivity, which of course, will help also with regional economic development.

And you can see in United States, as we brought regional jets into the market as Embraer bought Regional Jets. What happened, just in a 15-year period from 1995 to 2009, this is looking at 20 to 29 seat aircrafts, really the classical RJ and turboprop segment, but you can see the dramatic explosion and I have a similar chart for Europe and it’s a same story about five years later. But basically, this is what you’re going to see I think in Brazil as you look forward over the next 10 to 15 years.

Turning now to the business aircraft segment similar story, Latin America is the huge part of the world demand for business aircraft. You can see here that obviously, Europe remains an important market, China. Russia is still a very strong market for business aircraft and we’ve done very well there. And you’ll see 24,000 units being delivered there.

When you look at a business jet penetration or look at this, or come out this from two different angles. This chart just shows the penetration of business aircraft per 100 billion of real GDP. So this is one measure, but of course, real GDP is growing. So you’ll see some different CAGRs on this, but you can see that Brazil has been growing in the last decade or so, quicker than the rest of Latin America and of course, much quicker than the U.S. in Canada in terms of the established markets.

So there is a growth story there that has been going on and will continue to go on and that’s reflected of course, as GDP has grown by 6% translates into a 9% CAGR in terms of the total fleet of business aircraft basically growing from about 200 aircraft to 500 aircraft over that similar period, so that’s what we’ve seen in the recent past, Líder has been part of that growth for some other OEMs.

But going forward, we can be part of that growth together and when you look at where we are today from an installed base perspective and these numbers don’t entirely match with what Eduardo presented, because again, I’m showing where Bombardier have aircraft. So this is basically a Learjet’s and up, I don’t have the turboprop aircrafts and the other fleet types in there. So is it really business jets and you can see the Bombardier has about a quarter of the Brazilian installed base, we are behind Cessna in this particular case.

But when you look going forward, there will be about 800 deliveries in Brazil over the next 20 years. So a significant number of aircraft and when I look at the worldwide market share, Bombardier business aircraft typically hovers between about 30% and 40% long-term average, lately, we’ve been more between 35% and 40% of the total market for business aircraft and we have no reason to believe that in Brazil, we can repeat that performance.

So we’re planning to get between 30% and 40% of those 800 units working with our partners at Líder. So this is a huge opportunity for new aircraft sales. So I think you’ll see that 9% or 10% that Eduardo showed of Líder’s revenue being an aircraft sales, we want that to be a much bigger number with our partnership with them and I think you’ll see there’s some associated services, be it aircraft management, be it maintenance and so on that will give a long tail of annuity revenue at a good profit margin for Líder in that business.

So really this is a collaboration we’re very happy to restart. As Eduardo mentioned, Learjet’s relationship with Líder goes back to the 1970s. Of course, we acquired Learjet in the early 90s, so we did work with Líder, a number of our senior executives remember and know the senior executives with Líder. In fact, Eduardo and I were talking about a dinner he had with our Chairman about 50 years ago and our Chairman is still our Chairman today. So there’s a lot of personal relationships there, but there’s also a lot of I think cultural alignment.

In terms of Bombardier, if you look at our manufacturing excellence system, the number one lever is always safety and we start every single meeting in the company, including on the executive committee with the discussion of safety, was anybody hurt in the organization. are there any incidents in our factories, are there any safety incidents with our aircraft.

Every single meeting starts with that. And then we run through the other metrics of the system. So there’s a great alignment around safety, there’s a great alignment around operational excellence. And obviously, from a service perspective, they have a brilliant facility and a number of facilities in fact around Brazil. They’re currently authorized as a Learjet service center; we’re working with them to get them the certification, the tools and equipment to service the Challenger and global aircraft.

So going forward, we think there’s a great growth story between ourselves and the Líder organization. That’s my last slide.

Unidentified Company Representative

We will take one or two questions if there are any, Michael?

Michael R. McAdoo

Well, I will be around over the lunch if you wanted to approach me on something specific and Yann Martel [ph] is here from our Investor Relations department presenting questions on the company as an investment. Thank you very much.

Unidentified Company Representative

Few housekeeping items before we break for lunch and break from the webcast. First, again, I want to thank everybody on behalf of Bristow and Líder for coming out today. I know you guys are all busy, there’s lot going on in the market as we come to most of your fiscal year-end and wish you guys a very safe and happy, mostly safe, but happy holiday season as we go into the winter.

The second thing, I do want to thank the two, I guess founders of our feast to executives who help create this, Linda, can you raise your hand, everybody knows Linda McNeill and Leila McKinney, our two heads, Director and Manager in Investor Relations. So I want to thank them personally, well run and excellent.

And then finally, we do have lunch for all of you and just as an added incentive to stay, there is a raffle, in which you can receive a Líder aircraft, right. Linda, a Líder aircraft helicopter, 76 or a 92, Bombardier, we’re doing it, no Bombardier, okay. So next one, we’ll do Bombardier aircraft, but I do want to echo Michael, we also are very excited about the new partnership, because again, even though we don’t do fixed wing as a great percentage of our company, we think that it adds a lot of value and stability to Líder’s business and therefore partnership with Bristow that we add if you want it be successful with Líder and therefore with us.

With that, I close our events for today and look forward to talking to you at lunch and then in the future. Thank you, again.

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