Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Linda McNeill - IR

Bill Chiles - President and CEO

Liz Brumley - CFO

Richard Burman - Senior VP of Operations

Mark Duncan - Senior VP of Commercial

Analysts

Darren Hicks - JP Morgan

Ian Zaffino - Oppenheimer & Company

Daniel Burke - Johnson Rice & Company

Chris Gillespie - Simmons & Company

Basili Alukos - Morning Star

Bristow Group, Inc. (BRS) F3Q10 (Qtr End 12/31/09) Earnings Call February 4, 2010 9:00 AM ET

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Bristow Group's Third Quarter Earnings Conference Call. (Operator Instructions). This conference is being recorded today Thursday February 4th, 2010. I would now like to turn the conference over to Linda McNeill, Manager of Investor Relations. Please go ahead Ma'am.

Linda McNeill

Thank you Mitch and good morning. Welcome to Bristow Group's December Quarter Earnings call. I'm Linda McNeill, Investor Relations Manager. And with me on the call are Bill Chiles, President and CEO and Liz Brumley, Chief Financial Officer, Richard Burman, Senior Vice President of Operations, and Mark Duncan, Senior Vice President, Commercial.

We hope you've seen our news release and 10-Q, which were both released last evening. The documents are posted on the Investor Relations section of our Website at www.bristowgroup.com. Please note no earnings guidance will be provided during this call.

Let me remind everyone that during the call, Bristow Group management may make comments that reflect our beliefs, expectations, hopes, intentions or predictions of the future. Additional information concerning these forward-looking statements is contained in Form 10-Q filed with the SEC for the quarter ended December 31, and the Form 10-K filed with the SEC for the fiscal year ended March 31, 2009.

Additionally, to the extent that we discuss non-GAAP measures during the call, please see the investor relations presentation on our website for the calculation of these measures in the GAAP reconciliation.

With that, I would like to turn the call over to Bill. Bill?

Bill Chiles

Thank you, Linda and welcome to all of you on the call. Good morning or good afternoon. We're very pleased with our results, we reported $0.74 and we believe if you exclude the special items we really in the same store at about $0.80. We’re very, very pleased with our results, we’ve been able to continue to reduce our cost during the year and maintain reasonable margins in a very, very, very difficult environment where as you all know the oil service business for the most part is having a pretty tough time.

Although the outlook is very, very positive, one of the good things about our business we don’t have an over built situation where we’ve got a big backlog of equipment coming out of shipyards as you see in the rig and boat business.

The $0.80 or $0.74, how do you look at it compares to $0.63 for the December 08 quarter. If you exclude the $0.69 gain, we realize as result of the sale, the 53 small aircraft last year. And $0.92 for the September 09 quarter the most recent quarter. Operating income came in at $39.7 million for the three months which is a year-over-year increase of 15% if you exclude again the Gulf of Mexico sales of the 53 aircraft.

Versus when you compare to the September quarter operating income was down in part due to the special items that we are going to cover in more detail shortly.

As I said we are generally pleased with the results, we’ve seen some choppiness in our margins and again we have special items that will cover in more detail. But generally when you consider our results against the backdrop of the oil service environment, we believe that it’s we are very pleased with them.

Returning to safety for a minute we had no aviation accidents during the quarter. The last aviation accident we had was a minor accident that happened in our academy, our training academy in the first quarter of this year, this fiscal year excuse me, that was a very minor accident but did turn into, was classified as an accident because it resulted in substantial damage to the aircraft.

With respect to our ground safety we fell back a little bit from the recordable rate of 0.54 through the September quarter to 0.64 this quarter. So we continue to have some minor recordable accidents and some of those are lost work cases but none of them so far have been serious.

And our loss work case rate did increase slightly as well. We did have however two serious incidents in West Africa where we had a control landing in the water with one of your AS332, eurocopter 332 L1s. We are very fortunate that this aircraft landed in the water floats deployed, we recovered all the crew and passengers safely, there were no injuries and the investigation continues as to why the crew had to make a controlled landing.

That aircraft will likely be a total loss because of the salt water incursion into the fuselage. We will have more on that later. In addition we had a tail water strike in Calabar that resulted in no injuries but did have some, caused some damage to the two aircraft involved.

Both of these are classified as of now as incidents, not accidents. But they are very serious and we are treating them as such. Turning for a moment to the macro market don’t have tell you guys much about this we believe that the environment is improving this year this calendar year 2010 which will primarily be our fiscal year 2011 we believe would be an up year for the industry we believe we are out of the recession gross domestic product is up 5.7% for the December quarter which was a big surprise.

And oil seems to have stabilized in a band of around $70 to $80 barrel and natural gas around $5 per Mcf and E&P spending is expected to rebound this year up about 10% based on the estimates we have seen.

And we are seeing the effect in our business some of the big projects that were put on hold last year coming back up and we see quite a few opportunities in the future we continue to grow with company.

The primary drivers of our business continue to be positioning the new aircraft to take advantage of these opportunities as they come up and again as I said we do have continued backlog of opportunities that we’ve got address to the next 12 months to 2 years.

We continue to retire older aircraft however the resale market is a little bit slow we have said on the prior calls that there is demand for the older aircraft it's just very little capital available for people that want to buy them and so we got several deals that are just sitting there on hold and hopefully this will improve in 2010 as well.

Customers are still asking for new aircraft and as I said earlier projects are continuing to move on so that’s good news. So we believe it's up from here price pressure continues as customers try to find ways to cut cost and have reduced the number of aircraft they are flying ever as we have said before we produce that we have resisted that resisted that pressure and so far we have not had the cut prices anywhere in the world earning significant case except to the extent of may be one or two aircraft in the Gulf of Mexico from time-to-time just to keep them flying for a specific day or week or so.

We worked hard on our cost structure this year and we continue to do so as you know we have just gone through reorganization and that reorganization is to continue to reduce our cost and cut out duplication between east and west in the business.

So there will be more to come there. Also looking at ways to improve our overall service internal service by using a shared trip service concept so continuing to push cost down and looking for ways to improve margins and improve our return on capital.

Our overall utilization of the fleet remained unchanged at 92% which is what we record in the September quarter so that really reflects continued weakness in the Gulf of Mexico. We are able to push our utilization up in most markets around the world.

Richard is going to talk little bit about Australia which is another area where we have had a number of aircraft down. So things are getting better and also we are very pleased to announce that we are about to include negotiations on a number of major contract renewals which Richard and Mark will cover in more detail shortly.

Turning to fleet update we delivered six aircraft during the quarter 1, EC225 to Australia, a heavy aircraft 2, AW139, one with the Gulf of Mexico and one is on its way in Nigeria, 2, S-76C++, that are going to Brazil in one EC135 will be deployed, or is deployed in the Gulf of Mexico

As of December 31, we have 11 aircraft on order and 54 options. That will be 11 aircraft, 3 or EC225, 2, S-92s and 6 medium aircraft including 5 Sikorsky S-76s and one more AW139. The 6 medium aircraft will be delivered during this fiscal year of 2010. And we’ve realized $2.4 million in aircraft in gains on aircraft sales involving three aircraft. So with that I will turn it over to Elizabeth Brumley.

Elizabeth Brumley

Thanks Bill. Revenue for the December quarter was $303 million which is an increase of $12 million from the September quarter and this is in despite a 6000 hour decline in flight hours in part the decline in flight hours is stated at the seasonality in the winter months.

Our comparison for this earnings call for the September quarter and that’s being done just in view of all the noise that we had in the December quarter of 2008 with the sale of the Gulf of Mexico assets as well as the purchases of Norway and then all the FX that was going on last year.

So net income was $27.1 million versus $33.7 million for the September quarter and ROCE was at 12% unchanged from the September quarter. Operating income, net income and diluted EPS declined from the September quarter but as Bill mentioned we’ve got some special items impacting those results and so I am going now turn and go through each one of those.

There was an unfavorable impact on the provision for income taxes; it's about $1 million or $0.03 a share. We have been compensation costs associated with the departure of two officers of $1.4 million or $0.04 a share. There is a one off increase in other income due to hedging gains at $2.3 million net of tax or $0.06 a share and then there was $1.6 million charge related to the aircraft incident as Bill mentioned in Nigeria over $0.05 a share.

A little caution on this last item, the way we allocate our insurance risk internally that got mixed with that charge that spread across all the business units. So it's not, you shouldn't factor that completely out of your results in Nigeria.

Without each of these items, EPS was around $0.80 a share. In addition, let me go through a few other highlights reach in the business units. You saw that the Gulf of Mexico was down about a $1 million. That was related to an increase in cost, which Mark Duncan will discuss in some detail later. In Europe, we had $1.8 million higher and that was primarily due to higher contractual escalation and these typically hit us every now and then during the year.

Australia were very pleased about, that was up $2.9 million we had higher flight activity, higher rates and on new contracts and the Arctic business unit as you typically would expect is down $2.1 million and that's driven entirely by seasonality. The Latin America, it was down $2.6 million, this was due to a reduction in the Mexico earnings results for later were comparable to the previous quarter.

Other international business unit was down $4.9 million versus the September quarter. We lost our air operating certificate in Kazakhstan, so we were no longer operating in this market and little bit more color, the September quarter included a reversal of $2.5 billion related to a bad debt provision, so you had some uptick in the September quarter in addition to the fact that we’ve just got lower activity this quarter and due to the aircraft being grounded.

For the year-to-date Kazakhstan contributed $7.8 million in revenue and $3.7 million in operating income. The eastern hemisphere centralized ops business unit was lower by $2.7 million and this was driven by lower technical services and then in addition we had an inventory charge of 1.1 million. Lastly on FX had a $0.02 favorable impact versus the September quarter and that’s excluding the previously mentioned hedging gains.

And with that I’m going to turn it over to Richard.

Richard Burman

Thanks Liz. I’m just going to go through the eastern hemisphere business units, the operating business units. Starting with Europe, Europe represents 39% of our total revenue this financial year-to-date, we have activity in the UK, Norway and Dutch sectors of the North Sea.

Our overall market share is 37% and that’s broken down to about 37% in Norway and 40% plus in the UK. The quarter we have had in operating margin of 13.4% which is a slight improvement on the September quarter and it results from the impacts of, or the full impacts of cost cutting measures and the recovery of bad debt escalation which has $1.9 million. That’s on the back of slightly decreased line activity resulting from the fact that two customers have reduced the number of aircraft on contract.

As we look forward, we are anticipating their renewal of an existing contract for six heavy aircraft and fixed wing services to five years of fixed term of five years with five, one year options which will yield total revenues in the order by $100 million a year with annual escalations and reimbursable revenues included.

We have also received contract extension from Talisman for five years which also includes annual escalations and that’s for three heavies with one further aircraft as a backup. We anticipate revenues of about $36 million a year from that contract. Elsewhere we are continuing to pursue two multi aircraft contracts in the Southern North Sea and we are expecting to have notification one way or another whether we’ve been successful or not in the next or certainly within the next 30 days I suspect.

As a general comment on the North Sea we are starting to see now early signs of recovery in the exploration activity especially in the Southern North Sea. Operating margins are expected to be between 11% and 14% as we go forward in this business units and moving to Nigeria, Nigeria represents 19% of total revenue for the year-to-date. And its growing, the percentage is growing. The situation Port Harcourt in the Niger Delta areas has remained calm through the quarter or certainly relatively calm by Nigerian standards through the quarter which has helped operational activities and efficiencies.

We were down a positive competitive landscape with one main competitor and a current market share of 75%. Operating margins for this quarter came in at 26% even with an extraordinary inventory provision of $1.8 million for the quarter. Revenue was up for the quarter from $51 million for the September quarter up to $59 million for the December quarter.

Again looking forward we have just taken delivery of 1, 139 and we are expecting a second one to be delivered to Nigeria in March 2010. Most of our major customers continue to look for extensions on current contracts because of problems with the tendering process in Nigeria and we are expecting several those to come through in the next few weeks which will yield revenue impact from Q4 of this fiscal year through to Q2 of the next fiscal year. And we have recently received two new contracts and two new clients in Nigeria, Towtal and Agip which we have worked for many years, 1 for 76 C++ and the other one for heavy a 332L.

We are expecting to build on these awards as we go forward and with that we are expecting to increase the market share potentially to around 80% I would suspect. In Nigeria this continued focus on cost efficiencies and now as result of the two recent aircraft incidence and even greater focus on safety. Nigeria remains on most profitable business unit and operating margins are expected to be in the 26% to 30% range as we go forward.

In Australia Liz had just mentioned this is good story it currently represents 11% of total revenue for the year and operating margins for this quarter was 26% that’s up from the September quarter partly result of high flight hours and revenues.

We got a new management team in there in placed this April 1 and there is been a strong focus on cost reductions or cost management as well as increased activity. So not only have we gained market share and been flying or with actually reduced cost as well and for combined impact which is been excellent.

Flight hours have increased in the December quarter they are up from 27.94 in the September quarter to 3304 in the December quarter. And looking forward exploration activity is starting to pickup and we have had a major contract toward for two major contracts towards one on the North West shell for 2 heavies, 2 EC225s and 2, AW139s it’s a contract for 6 and a half years with four 1 year options for extension beyond that. And then in South East Australia which picks up work for consortium a five year contract with five one year options beyond the S-76A++ and a backup 76 as well.

As we go forward we expect operating margins in Australia to stay in the 18% to 22% range. Other international business units which only represents 5% of the total revenue for the company very small business unit in the one up places like Kazakhstan, India, Sakhalin, Ghana, Libya those places very sensitive emerging to individual contracts because of the scale of the business and as this mentioned the margins at this position have dropped significantly for quarter-on-quarter largely because the situation Kazakhstan and which Liz has already referenced.

And as the general comments around the eastern hemisphere general we have had steady performance in Europe with increased share and better performance in Nigeria and Australia. Our quality of service remains high with on-time departure rates in the mid 90% and we have continued to focus on cost and excellent performance near over receivable with DSOs currently or sitting at 56 days at the end of the December which was the best result we have had ever suspect.

We have a strong management team in place and strong all round performance. Another thing I should mention is that in the North Sea there is a new licensing round about to take place so they missed one in fact recently so there has been a gap and it’s the biggest one ever announced so certainly on that something on that we expect to see further growth in activity in that area or in that business unit especially with improving tax concessions or tax provisions provided by the government and with that I will conclude and pass it on to Mark Duncan.

Mark Duncan

Thank you Richard. I would like to just comment on the Gulf of Mexico market and Latin America market. So let me start with the Gulf of Mexico. Gulf of Mexico still represents 15% of our revenues year-to-date in 2010 and operating margin in this quarter was down 11% versus 13% from September.

As Liz mentioned there were a number of one off items that affected this reduction. These included costs associated with the insurance provisions from the Nigerian incident as we said its spread across the business units. Unexpected costs together with an increase in medical costs in particular really to our benefits plan that was unexpected or unusual in the quarter.

Operationally we also had training costs associated with the introduction of our first 139 medium helicopters into the Gulf of Mexico. So those one off costs affected the quarter. Without those effects we would have been closer to the September quarter operating margin. Looking forward the 139 I mentioned is starting on contract next week with a major customer in the Gulf of Mexico, that’s very positive news.

We also see several new contracts so we have confirmed start ups. These contracts haven’t yet started but we have confirmed start ups that will progress through the next three to six months which should improve our utilization. We are seeing also in this market increased enquiries for new technology, heavy helicopters and that's a positive sign that the depot our market continuing to increase.

And moving on to Latin America. Latin America represents 7% of your U.S. got revenues year-to-date in 2010. Of course, the business is much bigger than that with the on consolidated revenues of our joint venture partners being significant, so this is a significant business for the company.

Hopefully, in margin in this business unit is 25%. We had a decrease in flight hours in Mexico and Trinidad in particular this quarter, but we also had from previous years we exited some of the dry wells business that was contributing errors and that’s also a fact out here that we choose to exit the markets in Bolivia, Columbia and Peru.

In Brazil, Leader we had a $1.8 million equity in earnings for the quarter, which is in line. We await in Brazil the outcome of two major tenders with Petrobras and we expect that to resolve itself in the next 30 days or so.

In Mexico, as Liz mentioned we had some equity losses that are result of higher costs in the quarter, but that the market there is continuing to be okay volume wise. We did start and use S-76A++ during the quarter associated with depot or seismic work which I think is showing that the Mexican market will go into deep water in the next couple of years.

In Trinidad, we continued to be challenged activity wise that we have combated this with significant cost reductions we have been a bit aggressive our reduction at force to the order of 20% which has helped us salvage our margins in that market. We do await the funding of SAR project that’s already awarded, the contract will start once the funding is in place has been delayed slightly by the credit markets that we expect up to move in the next quarter. Operating margins in Latin America is still expected to be between 25% and 30%.

With that I'll turn back to Liz for a recap.

Liz Brumley

Okay. And just to mention a few other items cash at the end of the quarter was 107 million and we still have a $107 million and we still have a $100 million undrawn revolver. For the December quarter net cash provided from operations with $69 million year-to-date we are at $163 million. Net cash used for investing activities year-to-date was $354 million and that includes $236 million for aircraft and related equipments.

Cash on hand in forecasted cash from operations and aircraft sales are expected to be accurate to fund the remaining $117 million for aircraft currently on order. The effective tax rate of 17% for the December quarter was unusually low; it was impacted by a favorable mix towards earnings outside the United States. For the full year, for fiscal year 2010 we expect the tax rate to be between 22 and 24%.

Currently we are receiving some tax benefits under TIPRO, these are scheduled to expire our March 31, 2010 and was extended by congress and extension has have however n the house and its being considered in the senate and this is also part of Obama’s proposal on tax legislation. So there is a good chance that those benefit and we are enjoying now under TIPRA will continue. However without the benefit the effective tax rate for the full fiscal year 2010 would expect to be around 32%. Now we are going to get it in fiscal year 2010 but just to give you an indicator as to what kind of impact this would have going forward and that’s where will find the tax rate would have been 32%. And with that I am going to turn it over to Bill for some concluding remarks.

Bill Chiles

Thanks Liz a couple of comments. Richard already mentioned the new licensing round in RC. It seems like about the time we feel the North Sea going to start waning in terms of activity something like this happens and it’s a little early to really predict the effect the licensing round will have but it certainly will lead to improved exporter activity in the next few years. So we are cautiously excited about that. The other news of note that you are all aware of is the deep gas well that was drilled in 15 feet of water by McMoRan which is an offset to the Exxon Black Beard well whereby the McMoRan Group found significant hydro-carbon at 28,000 feet.

It's getting a lot of discussion in Gulf of Mexico is this indicator of new life on the shelf is way early to tell because of as you all know there’s been a paradigm shift in the gas market in North America with the all the resource plays and the fact that natural gas is now moving from a shortage to abundance of natural gas at least for the next year or so. So the Gulf of Mexico could see a resurgence of activity depending on how the economics work on these deep wells but it’s a very difficult high temperature, high temperature, high pressure burn very dawning and we are certainly not putting a lot of value on it for the next 3 to 5 years, but just an interesting item to keep your eye on for the entire service sector.

Again I’d like to say that we are pleased with the quarter and thanks to all of you for calling in and we are now ready to answer questions. So will turn it back over to the operator. Thank you very much.

Question-and-Answer Session

Operator

Thank you Sir, and ladies and gentlemen we will now begin the question and answer session. [Operator Instruction]. And our first question comes from the line of Darren Hicks with JP Morgan. Go ahead please

Darren Hicks - JP Morgan

Although flight hours have remained relatively healthy in Europe operating margins have remain low relative to recent history and even though we are noting 11% to 14% margin outlook going forward. Do you think the modest sequential uptake and margins this quarter is sign that 2Q was a bottom for Europe specifically?

Richard Burman

I passing that one to me its Richard yeah possibly it's a bit difficult to gauge, we for us as a company we integrated Norsk last year so we are now feeling the full impact of that I think personally we have still got some ways to go on cost reductions in that business units specifically. So I think with that available to us and the possible resurgence of activity through the licensing round that yeah we could see an uptick certainly I don’t see it getting worse to what it is at the moment and I do see it turning around here.

Darren Hicks - JP Morgan

One more follow up you mentioned the weakness in the US Gulf of Mexico has continued to process but do you have any specific update on your ability to maintain the stable pricing there and a the few instance where you said that you had to do some price cutting can you give us an indication of how modest or dramatic those cuts were?

Mark Duncan

The general rule we have applying in the Gulf of Mexico is that we haven’t cut price. Bill mentioned he have done it very sporadically where people have called for Ad hawk flights and we have taken the flight to earn additional revenue rather than sitting on the ground but that’s very, very minor. To the large extent prices have held okay. We haven’t managed the in last year to get any annual price increases which we normally would have but we were seeing that moving in the current environment and we will be open to increase prices moving forward.

Operator

And our next question comes from the line of Ian Zaffino with Oppenheimer & Company.

Ian Zaffino – Oppenheimer & Company

This is about the third quarter and how well think you have put a pretty good numbers, it really broke a streak of not so good numbers before and I know that you had gone through systems you have gone through rest of the company is there anything you could specifically point to that reiterate or changed that’s why took this excellent rich string of a good results?

Bill Chiles

Let me start off and then let anyone else weigh in. We are going to that period where we missed earnings, we missed estimates, we had a lot of volatility in FX that was coming through on the revenue and cost side but also coming through on our maintenance side where we buy car by the hour from in nose to tail powered by the helicopter from for example in euros. So we’ve worked hard in the last year to try to neutralize our FX exposure and we will continue to work on that.

As we know that kind of volatility drives you guys crazy and we are looking at all the things, all the one offs that we seem to continue to have, I believe you’ve seen FX has been less volatile so that’s helped a lot but we are also looking at ways to change our contracts around whether they are denominated more in US dollars to the extent pull up in the local currency to the extent we have local costs and then US dollars for the rest of the contract revenue.

I would say the one thing that we noticed, we recognized and went through our planning process early part of this past calendar year leading up to the beginning of our current fiscal year on April 1 we went through our planning process we were very surprised by the down draft we saw in the Gulf of Mexico and other markets around the world and I have to get credit to our mainly our Gulf of Mexico business units but also some of the positive things going on in Nigeria and Australia to really react and the North Sea really has happened, that’s the most dramatic change is the Gulf of Mexico and that’s the reason I like that.

Those guys were able to jump in there and cut their costs dramatically to match up to the level of activity that we saw developing going forward. So it's been a major effort all year to match up our cost with our expected revenue and the fact that we’ve been able to do that fairly flexibly is been helpful and people have been holding on because of legacy issues.

The new reorganization hopefully will take us, and we believe will take us to the next step. It allows to cut out the duplication from east and west to continue to work on this cost, cost issue and through developing our shared services concept where we're going to have shared services, 20 finance and accounting, IT and human resources where we cut out a lot of that duplication.

For example, we might have someone in every group of people, in every country doing accounts receivable, accounts payable. We're looking at how we centralize all of that globally at least in one or two locations, so we continue to cut those cost out. In addition we're continued to look at our operating cost and see what we can approve there. That's a little bit more difficult because we replaced with 2.5% to 3.5% per year labor increase for the non-union employees and 6% to 7% for the union employees.

So it's a never ending battle, but it has been lots, we've done a lot of work this year and hopefully it will continue to produce dividends.

Ian Zaffino – Oppenheimer & Company

And then the other question will be, I know you have good curtails, some of the additional aircraft acquisitions and purchases, part of that was due to the capital markets and the uncertain capital environment, is there anything what we need to see improve other than the credit market to resume, are you looking to increase returns to your existing fleet before you add incremental aircraft, or is it just truly a matter of just the current capital environment, and then may be the outlook for demand with the uncertainly from the markets?

Bill Chiles

We're resisting continuing to add new equipment without making sure that we're getting the higher returns that we expected. We are going to be focusing more on getting returns of off our existing fleet by working on the numerator and the denominator, numerator by findings ways as I just went through ways to improve our cost structure but also on the denominator to get rid of out idle aircraft that we never planned to put back into service or find some other useful, so that effort is going on and also work hard on our capital structure reduce our cost to capital which right now harbor is around the 11% to 12%.

We believe we can do better if improving our capital structure and not going out and raising $300 million or $400 million two years in advance before we buy aircraft. I don’t think you’ll see that happening much in the future where you have got, we’ll be generating cash flow internally and we have other upturn this to finance otherwise as suppose to running out for the capital markets, the public capital markets every time. So, it’s an effort to move our margins or increase the spread the 29 cost capital in our margins.

We will continue to grow the lot there are lot of opportunities out there where we are going to be very selective about and how do rate those opportunities go after the loans and have the highest possibility of winning and then the highest return on capital.

Operator

Thank you, and our next question comes from the line of Daniel Burke with Johnson Rice & Company. Go ahead please.

Daniel Burke - Johnson Rice & Company

I wanted to return to Europe margin value, I think I heard 11% to 14% and recognize the consolidation of region operation to play the part there but how do you end up at the lower end of that range, what has to happen? And I was wondering if you could maybe also address in the answer how you feel about the pricing on the two large European renewals that should be rolling through I guess as this year advances.

Bill Chiles

Okay. I will switch it. I will answer the second part of that question first Dan if it's okay. The Tunnels man contract is actually an extension to the existing contract which we won about five years ago. So its part of the existing pricing regime and it's just the ongoing basis. So there is effectively no change in what we are achieving from that contract. So that’s relatively flat. The other one is healthy margins and will actually produce a slightly better return for us as we go forward and which is more optimistic. And if that goes full term that will be worth a billion dollars to us over 10 years if it goes full term. So that’s slightly positive. Remind me of the first part of the question Dan again.

Daniel Burke - Johnson Rice & Company

Yeah sure. The first part of the question was just in terms of thinking about that range of expectations 11 to 14% you know what puts you down closer to the 11% side, is that if you don’t see some renewals come through if you can’t get the cost down it seems like that would be even accounting for the consolidation impacts over the last couple of years, a little lower than we’ve seen recently.

Bill Chiles

Okay that’s fine. I think what’s happened certainly in the last quarter we are talking about a couple of operators in particular have dropped their aircraft and the expectation is that they will be picked up again fairly soon even on both same contract in fact. So we left with the dilemma thereby so we manage to whether to release pilots for instance or whether to retain them and since the downturn is, the down tick in activities is relatively short and over defined period I think we made a decision to keep them to carry them as we go forward. So we are building a little bit of incremental cost in there.

So that certainly explain some of the down tick recently not Norway is slightly diluted to us in the North Sea but as I said earlier I think there is further opportunities that to optimize the way we manage the business in that business unit potential any way. We done some things already but we are very cautious about the Norway and not trying and consciously we are not trying to which was an extremely good operation run by North before its get over, did that help?

Daniel Burke - Johnson Rice & Company

Yeah that’s very helpful I think it's useful, if I could then maybe question about one other market could you guys maybe expand a little bit on Mexico it looks like maybe there is a little bit of restructuring efforts there we took a little bit of a bigger piece of ruder wing is there can you talk about what’s going on to the next market in terms of your how you participate there?

Bill Chiles

We participate there with our long term partner Heliservicio we’ve had ongoing discussions with Heliservicio and our partners majority of that entity and we have changed their ownership structure to our benefit to change our risk exposure to that market the activity levels are high but it's extremely competitive control the pricing so we have decided to change our risk profile in that market and that’s resulted in the restructuring that we did in previous quarters on in fact in this quarter itself and I think that’s explain in the 10-Q that’s basically it’s a strong market we will look at it based on what returns we can achieve in the future market as it grows the optimistic this is entering into the depreciation water and the change to different type of helicopter.

Elizabeth Brumley

Daniel just to add that broader wing is the entity to who owns the aircraft and leases in so it's got a lot of flexibility in terms of whether it continues to operate in that market or not. Now we are 99% of it so our view is that while increasing our ownership interest in that unit we are essentially buying up the remaining ownership of those aircraft.

Daniel Burke - Johnson Rice & Company

It sounds like its pretty binary but any thought on what the effective tax-rate we should us for fiscal year '11 looks like?

Elizabeth Brumley

I mean as you said its binary, if the temporary legislation passes and we continue to get that extension then we will continue to realize the benefits of this lower tax-rate to something in the large 20% range, I know the 17% right this quarter was a bit of a surprise what happens is if we have a shift in the market, then in a sense you are playing catch up for previous quarters as well in the current quarter end. I mean that that is the proper to account for that does make the quarter in standalone basis look odd. So my best advice Daniel is just to watch what they are going in the center to see if they passed a separate extension to you will be they will be able to tell.

Operator

Thank you and our next question comes from the line of Chris Gillespie with Simmons & Company. Go ahead please.

Chris Gillespie - Simmons & Company

Quickly on our Australia I was wondering if you could expand a little bit margins were pretty good in the quarter 26% you expect margins to be in the 18% to 22%, can you just expand a little bit on the variation there.

Richard Burman

We’ve just been talking about that actually Chris. I think we are being a little cautious perhaps in our look forward projections. We are seeing significant improvement over the last three to four years in Australia you know compounded by the most recent improvement since April 1 with the new management in place. And so it hasn’t taken us by surprise but we’ve worked very hard to achieve what we have. I think we are just being a little bit cautious that we’ve got 75% market share now with 70% I think it is in Australia at the moment. So as we looking forward where we are not being, we don’t want to be over confident, I think that’s what I would like to say, certainly there’s no intent to change dramatically.

Elizabeth Brumley

Yeah and if you look back for the first quarter the June quarter and the September quarter I mean we had a 22% margin there.

Bill Chiles

Yeah I think this tends to be a very good quarter for us traditionally because of seasonal activity as well I think that practice commends us. I think next quarter is down somewhat we are projecting it to be down somewhat certainly.

Chris Gillespie - Simmons & Company

And then thinking more broadly about the fleet do you have any aircraft on contract which are close to expiration or have recently expired that have not been renewed.

Mark Duncan

Not that I am aware of. Everything we’ve had, particularly the mediums and heavies have rolled over.

Richard Burman

Yes certainly in eastern hemisphere I don’t remember any second last twelve months on that basis because of performance and quality of service and what are we retain to be retraining workers as we go on.

Elizabeth Brumley

It is that oil contract in Burgin that we’ve redeploy that --

Bill Chiles

That's right. That was one way to we've lost two heavies in Burgin effective January 1, but in fact that going to be redeployed to the same clients out of Stavanger February 15th, so in a sense we maintained continuity there as well.

Mark Duncan

Jack, the only thing I was going to say is that we've had as we said previously we have customers that find ways to, they have six aircraft under contract that had to have the flexibility to reduce the number of aircraft and this is for example what happens, what we've seen happening in Trinidad where BP is reduced the number of aircraft, they are flying so that has some effect on our numbers particularly at places like Trinidad.

Operator

(Operator Instructions). And our next question comes from the line of Basili Alukos with Morning Star. Go ahead please

Basili Alukos - Morning Star

I had a question about pricing and I know this is something that you've been trying to do for the past couple of years which is to maintain pricing and increase, and you've shown charge showing the price of boils increased and the rate that Bristow has received haven’t kept up with the increase, and I'm just wondering at, you've mentioned some of your customers have tried to reduce prices, but you're really trying to hold the line firm, and I'm just wondering at what point the decision to keep prices firm or try to increase them pushes some of your customers away, and maybe makes them rethink potentially creating their own flying or looking at a company like Tidewater mentioned on their recent call that they don't expect their industry to recover until next calendar year

Bill Chiles

Let me address the Tidewater issue, Tidewater is dealing something of I mentioned beginning of the call that an influx of new vessels are coming into the market this year which is causing quite a bit pressure on their results, same things happening in the rig business not only shallow water but deep water or shelf the deep water. We are not seeing the pressure and Richard mentioned one thing on the call or Liz may have mentioned that we had an escalation or one contract to the North Sea as an example.

We don’t have any escalations around the world that I know of, that weren't honored by the customer so we have that price increases that are built into the contract to protect our margins. So, I believe the last of the first party of question which I’ll address last is when are we going to see a point where we feel like we can push prices again and we’ll possibly drop customers away. That’s very difficult for us to predict although if the opportunities that we see out there, they have continue to develop, this could happen in this fiscal year where we will have the ability to push pricing in certain areas around the world and we don’t want to do that at the expense of loosing customer. So, go ahead Richard you want to.

Richard Burman

Well I’ll just want add a couple of points, I think with the recent to spade of actions in the industry, they are certainly great awareness amongst operators and customers, safety is paramount importance and obviously that's our number one core value, so our safety record is valued by customers in environment in a full of corporate governance. I’d also say the relationships we maintained with all our major clients are pretty closed to be honest and in situations where we’ve reviewed request a price reductions we’ve tried to do it as amicably and professionally as possible while maintaining those good relationships and that’s helped I would say. In some cases that has actually built respect and relationship through that process. So I don’t see any negatives at all actually. I think it’s a difficult process and it’s a sensitive process to go through but we’ve credited to manage it quite well to be frank.

Basili Alukos - Morning Star

Okay I appreciate the color on both of those fronts I guess the point to be bring in the tight order like you said there’s an increase of rig as well as both but just viewing kind of ships as a substitute to flying and I was wondering at what point the increase in flying using helicopter versus become so onerous or so much more expensive to a customer that they may then decide to shift over using a boat?

Bill Chiles

Well this only really applies to areas where we have benign environments like the US Gulf of Mexico and may be West Africa where the distances are not that great. We haven’t seen in the past people have been talking about this for years, customers really believe that the safest way to transport people offshore is by helicopters: one of the big challenges using boats is the transfer of the personnel from the deck of a boat up to the deck of a rig. No one has come up with any major breakthroughs to make that process safer.

So that’s the difficulty and particularly in the Harrier Sea state when the seas get over about three to four feet it becomes more and more difficult. The customers are more safety conscious. Also the crews generally end up increasing turn over significantly crews are forced to ride boats with more longer than three or four hours. So we’ve seen no pressure as a matter of fact I cannot remember in my time here at Bristow 5.5 years were customers ever mention to me that if we don’t reduce the prices they are going to start using boats. If in the shallow water Gulf of Mexico there are a lot of quick changes done boats but level is always been fairly constant anybody want to make another comment.

Richard Burman

Well I was going to say in certain parts of the world the unions have such strength as well carrying passengers by boats won't work the unions won't tolerate it they got used to helicopters and there is be so much push back in the unions in Norway for instance in Australia I suspect it just wouldn’t happen.

Operator

We have no further questions at this time I'd like to turn the conference back over to management. For any closing statements.

Bill Chiles

Okay thank you very much, Operator, and thanks to all of you that joining call today, we look forward to seeing you next quarter, stay dry stay warm and have a great first quarter of 2010 and go thanks. Thanks you.

Operator

And ladies and gentlemen this concludes the Bristow Group’s Third Quarter Earnings Conference Call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Bristow Group, Inc. F3Q10 (Qtr End 12/31/09) Earnings Call Transcript
This Transcript
All Transcripts