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IPO Facts

CHC Group Inc. (NYSE:HELI), the world's largest operator of commercial helicopters, plans to raise $500 million in its upcoming IPO on Friday, January 17th.

The Richmond, Canada-based firm will offer 29.4 million shares at an expected price range of $16-$18 per share. If the IPO can hit the midpoint of that range at $17 per share which we do not expect, HELI would command a market value of $1.3 billion. See S-1 here.

HELI filed on September 19, 2013.
Lead Underwriters: Barclays Capital, J.P. Morgan Securities

Underwriters: BNP Paribas Securities, Cormark Securities Limited, Cowen and Company, HSBC Securities, Raymond James and Associates, RBC Capital Markets, Simmons and Co International, Standard Bank PLC, Tudor, Pickering, Holt & Co Securities, UBS Investment Bank, Wells Fargo Securities.

Summary

CHC Group is the world's largest commercial helicopter operator in terms of revenue, with revenues of $1.7 billion in FY 2013. CHC Group also operates the world's largest fleet of medium and heavy helicopters-a total fleet of 238. The firm is one of only two global commercial helicopter firms that serve the offshore oil and gas industry; the bulk of HELI's business comes from supporting long-distance crew changes for offshore facilities.

HELI's customers include companies such as BP PLC (NYSE:BP) and ConocoPhillips (NYSE:COP). In addition HELI provides search and rescue, emergency medical, and repair services for government agencies, as well as third parties'. The firm's network of 70 bases allows it to maintain operation in some 30 countries.

Valuation

HELI offers the following figures in its S-1 balance sheet for the six months ended October 2013:

Revenue: $858,303,000.00
Net Loss: ($86,964,000.00)
Total Assets: $2,890,030,000.00
Total Liabilities: $2,489,747,000.00
Stockholders' Equity: $407,460,000.00

It should be noted that HELI posted net losses for the past FIVE years. In the three fiscal years ended April 30, 2011, 2012, and 2013, HELI posted losses of $67.1 million, $96.2 million, and $116.5 million, respectively. This is a company knows how to lose a lot of money.

Business

HELI must compete with other helicopter operators. Its chief competitor for its offshore transportation business is PHI Inc. (NYSE:PHI) which has not performed well as a public company stock over the past six months during a nice bull market.

HELI's helicopter repair service also competes with helicopter manufacturers themselves, which perform their own repairs. HELI purchases its repair parts from these same manufacturers, leaving HELI somewhat vulnerable to any disputes with them-although HELI tries to minimize the risk of such a problem through long-term contracts with the manufacturers.

Management

President and CEO William J. Amelio joined HELI in 2010. His base salary in 2013 was $764,475 and his "performance" based bonus award was $1,654,857 which we find excessive given the huge losses that Mr. Amelio accumulated for the shareholders. Also, effective January 1, 2013, other than Mr. Amelio whose base salary had already included a car allowance, the base salaries for other executive officers also include a car allowances.

Mr. Amelio also states on page 18 of his S-1 that; "We may continue to incur net losses in the future and we cannot assure you that we will achieve or sustain profitability, or that we will continue to generate sufficient cash flow and liquidity through access to the capital markets to meet our debt and interest obligations as and when they become due". The risks factors which start with this statement on page 18 go on for twenty more pages and should be read carefully by prospective investors.

Mr. Amelio previously served as the President and CEO of the Lenovo Group and has worked in leadership positions with companies including Dell, NCR and AlliedSignal. He holds a Master's degree in Management from Stanford and B.S. in Chemical engineering from Lehigh University.

What Should Investors Think About Before Investing In This IPO

We are negative on this IPO in the current price range of $16 to $18 and would expect that the company and it's potpourri of underwriters to reduce the price range to get this IPO done. A range of $12 to $14 may be more appropriate in our opinion.

HELI's history of losses is disconcerting, and the firm may not break even soon as it plans to continue acquiring large numbers of helicopters. We are also troubled and don't feel good about the compensation level and the free cars for many management personnel when they are losing so much money for their shareholders.

The firm is deeply indebted as its balance sheets show; the firm listed some $2.5 billion in liabilities on its S-1 filing.

HELI's stock also runs the risk of taking an unexpected plunge as the result of negative publicity surrounding an accident. This is hardly a hypothetical concern. In 2012 a HELI-operated EC225 helicopter was forced to make a controlled water landing in the North Sea, and in 2013, one of the firm's L2 helicopters was involved in an accident that resulted in four fatalities.

Source: CHC Group IPO May Run Into Turbulence And Not Stay Airborne At Proposed Range