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Executives

SylvainAllard – President, Chief Executive Officer

Frederick(Rick) Davis – Senior Vice-President, Chief Financial Officer

Analysts

MichaelMills – Beacon Securities

GregMcLeish – Griffiths McBurney & Partners

ChrisBuncic – Cormark Securities

ChrisBlake – Scotia Capital Markets

CameronDoerksen – Versant Partners

CHC HelicopterCorporation (FLI) F2Q08Earnings Call December 12, 2007 10:30 AM ET

Operator

All participants,please stand by. Your conference is ready to begin. Good morning, ladies andgentlemen. Welcome to theCHCHelicopter second quarter results conference call. I would now like to turn the meeting over to Mr. Sylvain Allard,President and Chief Executive Officer, as well as Mr. Rick Davis, Senior Vice-President andChief Financial Officer. Please go ahead, Mr. Allard.

Sylvain Allard

Thank you, Joe.Good morning, everyone, and thank you for joining this conference call. As per thesafe harbour clause, we aregoing to discuss certain subjects that may contain forward-looking information.The companycautions you that actual results could defer materially from those that may be projected in those discussions. Additional detailedinformation concerning anumber of factors that could cause results to defer materially from the information that will be given is readily available in thecompany’s Form20-F annual information formand in otherfilings with U.S. and Canadian security authorities. The company disclaims any intention orobligation to update or revise any forward-looking information, whether as a result of new information, futureevents, or otherwise.

So, as you read in our press release, the fact that the Canadian dollar reached a record high against most currency in thesecond quarter, we reported astrong quarter with a17% increase inrevenue, a15% increase insegment EBITDARR, and a21% increase inoperating income versus thesame period last year. Our revenue climbed by $51 million to $318 million in spite of a $6 million FX headwind.

Our globaloperations segment continues to bethe majordriver inour revenue growth with anincrease inrevenue of 34% to $126 million and anincrease insegment EBITDAR of 16% to $37 million. European operations picked up during the second quarter with a 14% increase in revenue to $150 million and segment EBITDARof $27 million.

Heli-One alsohad a goodsecond quarter with aslight increase inexternal revenue and astrong increase insegment EBITDAR of 18% to $77 million. During the second quarter we added a total of eight new aircraft and weexpect to add anadditional 24 aircraft before theend of fiscal year.

Consistent withprevious quarters, we’ve expenses $2.5 billion in aircraft introduction costs during the quarter primarily relating to the training and pre-deployment leaseand interest costs.

Net earnings forthe secondquarter were $11.4 million or $0.25 perdiluted share; a20% increase from thesame period last year. Several factors impacted net earnings in thequarter compared to last year. Inaddition to the$2.5 billion spent on aircraft introduction costs, aircraft availability andlate delivery issues continued to have negative impact during the second quarter and affected ourresult by $2.2 million for combined impact of more than $0.08 per share.

Another majoritem affecting our quarter was the$7.8 million of foreign exchangelosses, including our financing charges. Ithad aone-time negative impact of $0.13 pershare. Rickwill discuss these effects losses later on thecall.

From the positive side, the anticipated exit of our PBH maintenance programs has reduced our maintenance costs by$3.2 million or $0.05 pershare and improved trade receivable collections allowed us to release a $2.6 million provision or $0.04 per share. When you factor out thesecosts of aircraft introduction and aircraft availability, as well as the non-recurring costs, add back the PBHimpact and provisional reversal, I estimate that our adjusted earnings for the quarter were approximately $0.40 per share.

And now I wouldlike to elaborate on each of thesegments. First, global operations is continuing on its record breaking pacewith a 34%revenue increase to $126 million and anEBITDAR increase of 16% to $37 million excluding FX. The revenue increase was from newaircraft addition, rateincreases on anumber of existing contracts, and theconsolidation of BHSin Brazil.

Flying hoursincreased 15% compared to last year, exceeding the 24,000-hour mark for the year.

Segment EBITDARfor thequarter was $37.3 million; anincrease of $4.7 million over thesame period last year. Themargins have decreased to 29.7% compared to last year, not for operationalreasons, but simply because last year’s figures included a $3.4 million increase in trade receivables provision reversal.We anticipate that therevenue in EBITDARon global ops will continue to climb infuture periods as our focus continues on new opportunities in promising regions like Kazakhstan andSouth East Asia, and as thenew aircraft inBrazil aredeployed in the second half of the year. Global ops is also successful in renegotiating existing contracts at better rates.

Now moving on toEurope. As I mentioned earlier, European revenue increased 14% to $150 million,but segment EBITDAR remained fairly flat at$27 million compared to thesame period last year. Rateincreases on certain new and renewed contracts helped revenue, but several newaircraft were delivered late, which negatively affected our revenue andexpenses. Flight hours inEurope increased by 2,150 hours or 9% inspite of these delays.

The segment EBITDARimpact of thelate deliveries was approximately $2.2 million in thesecond quarter, primarily related to customer penalties and estimated reducedrevenue offset by settlement received during thesecond quarter from OEM as acompensation for service ability and late delivery issues earlier this year.Segment EBITDAR was also negatively impacted during the second quarter by a significant increase in crew costs and crew training as weadded eight new aircraft compared to last year, including four new SikorskyS-92 aircraft. Theaircraft introduction cost$1.3 million during thequarter.

European serviceabilityis improving gradually and steadily as we take delivery of the new aircraft. In fact, all thenew aircraft will beon line with Statoil, Maersk, and Total during the third quarter. So Europe has had a much better second half this year.

Althoughoperations began –

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And now forHeli-One. Heli-One’s revenue from external customers increased nicely during the quarter, but these increases wereoffset by theacquisition of BHSas external revenue and PBHrevenue from BHSlast year arenow considered internal revenue consolidation this year. Segment EBITDAR for the quarter was $77 million, an increase of $12 million or 18%.

Segment EBITDARfrom fleet hasincreased just anincrease innumber and value of aircraft inthe fleetcompared to thesame period last year.

Segment EBITDARfrom R&O increased due to segment EBITDAR earned on increased revenue and the estimated impact from the exit of PBH maintenance program.

We are continuing to implement our strategy–

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-- and thereforeconsistent with thestrategy we signed agreements and licences during the second quarter that will provide forthe exitfrom PBHagreements on theSikorsky S-92 and AgustaWestland AW139 helicopters owned and operated by CHC.

As a result of the exit from these agreements, Heli-Onewill receive arefund of pre-paid maintenance estimated at$6.9 million while itincurred PBHmaintenance expense of $4.6 million. Itis estimated that during thesecond quarter thefavourable impact of theexit of these PBHprograms was approximately $3.2 million.

On a year-to-date basis, Heli-Onemaintenance costs areconsistent with costs that would beexpected outside thePBH programas therefund of PBHis nearly equivalent to thePBH paymentover thelast sixmonths.

Let me conclude by saying that I’m verypleased with thequarter. We delivered astrong performance inspite of theforeign exchangehead winds. Theindustry fundamentals have never been better and the growth in revenue that we are experiencing right now should continuefor several years as we expect thedemand for helicopters to exceed supplies.

Industryresearch is still predicting demand for medium and heavy off-shore helicopters in CHC’s market to exceed 250 aircraftbetween now and 2015. Over thenext five years we have and additional 85 new aircraft on order and the option to purchase an additional 30 over the next seven years. Over 50% of thesenew aircraft have already been committed to long-term contracts with ourcustomers and nearly allthe rest ofthem have been allocated to contracts or customers.

On the pricing side, this environment isobviously conducive to much improved rates and we’re continuing to bid successfully for return on capitalemployed of 20% or higher.

I’m also veryexcited about Heli-One’s future. Our expansion in Boundary Bay and the new maintenance agreements with OEMgives us agreat opportunity to improve our margins and expend our third party revenue onnew technology aircraft, making Heli-One atrue one-stop shop on virtually allmedium and heavy helicopters.

I’d like to nowlet Rickbrief you further on our results and financial position.

Frederick (Rick) Davis

Thank you,Sylvain. Before I moveon to adiscussion of additional issues related to thesecond quarter I’d like to point out, as I did in thefirst quarter, that there were anumber of new Canadian accounting standards adapted this year, includingcomprehensive income, financial instruments, and hedges. The adoption of these new standardsunder Canadian GAAP resulted inchanges in thecompany’s accounting and presentation, including transitional documents thathave been recorded inopening retained earnings and opening accumulated other comprehensive earnings.As well, anew consolidated statement of comprehensive earnings has been added to our financialstatements.

The implementationof these new accounting standards did have asignificant impact on financing charges inthe secondquarter inrelation to theamortization of guarantees and theexpense associated with changesin embedded derivatives,which I’ll discuss ina fewminutes.

As disclosed in Note 17 to our second quarterfinancial statements, theadoption of these new standards for Canadian GAAP did result in theidentification of certain foreign currency embedded derivatives that shouldhave been separated from their host contracts under U.S. GAAP in prior periods. Most significantly,2005. As aresult, we have concluded that itis appropriate to restate our U.S. GAAP note and associated disclosures forfiscal ’05 to ’07 inour 2007 annual filings. It’s important to note that these adjustments have noimpact on our Canadian GAAP financial statements as this is a U.S. GAAP note issue only.

And now I wouldlike to discuss anumber of additional issues that impacted thecompany’s net earnings and financial position in thesecond quarter and elaborate on some of theissues Sylvain violated earlier inthe call.

Second quarter,corporate and other costs totalled $4.9 million, which is a decrease of $4.4 million from the second quarter of last year. Thisdecrease is primarily due to a1.5 million reduction instocks 404 costs and a$1.6 million reduction inclaimed reserves on various insured risks inour insurance captive.

One of the most significant items in thequarter is the$7.8 million of foreign exchangelosses included inthefinancing charges. This FX loss primarily consists of, first of all, a $3.4 million loss related to the revaluation of foreign currency cashbalances held inour company’s various subsidiaries. As you know, the company operates in many jurisdictions and as a result has numerous contracts that are not all denominated in thesame currency as thefunctional or reporting currency of each of our subsidiaries. As a result, foreign currency tax balances in our subsidiaries denominated in foreign currencies – mostsignificantly U.S. dollars – arere-valued atperiod-end rates. With theU.S. dollar athistorical lows, asubstantial revaluation was recorded inthe secondquarter.

As well, asnoted in myopening comments on recently introduced Canadian accounting standards, a foreign exchange loss of $3 million was recordedon embedded derivatives inthe secondquarter. Embedded derivatives exist on contracts when we have a portion of the fixed monthly standing charge paidby our customers ina currencythat is not either thecurrency of thesubsidiary or of our customers. This value is market-to-market under the new accounting standards eachperiod. We arecurrently reviewing these contracts and where it makes economic sense we’ll be working with our customers to make changes to avoid a similar foreign exchange impact in thefuture. There areother FX amounts of financing charges inthe secondquarter, but these two issues aremost significant.

Assuming the recovery of the U.S. dollar, this quarter end holdsfirm and we aresuccessful inrenegotiation of certain customer contracts as previously noted, we will likelysee somesubstantial recovery of these losses inthe thirdquarter.

Equity losses in associated companies were $1.2million in the second quarter compared to $0.1million in the same period last year. The loss this quarter relates to a $1.4 million write-down of an investment in acompany we have aminority interest inthat reported aloss in itsmost recent fiscal year. Our average effect of tax rate on earnings from continuingoperations, excluding falling adjustments, and the enacted tax rate changein the United Kingdom which lead to a $3.1 million recovery in thefirst quarter, was approximately 23.3% on ayear-to-date basis versus 25.4% for thesame period last year.

Now for a quick discussion on liquidity andfinancing activities. Thecompany had unused capacity under its on balance sheet senior credit facilitiesof $73.8 million and cash of $38.6 million for a total of $112 million at October 31, 2007. Also, as noted in our second quarter disclosures, wedid expand anexisting lease facility with theRoyal Bank of Scotland inpartnership with Export Development Canada by $225 million U.S. in thesecond quarter. This expansion combined with other existing aircraft financingfacilities brings thetotal of our unutilized and credit approved lease capacity to approximatelythree –

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-- millioncompared to $41.4 million for thesame period last year. Included inthis amount is cash of $5.3 million provided from non-cash working capital changes primarily related to, first ofall, anincrease intrade receivables of $20.2 million due almost entirely to an increase in activity in thesecond quarter. Increases inA/R due to increase activity was partially offset by a slight reduction in thenumber of day sales and trade receivables, which dropped from 69 days at theend of thefirst quarter this year to 68 days on October 31, 2007. About a year ago that number was 73 days. So we’ve come down about five in thelast 12 months. We’ve still not achieved our targets on day sales andreceivable and seeadditional opportunities to achieve improvements with specific customers.

Otherreceivables increased by $7.6 million, again primarily due to the estimated refunds on prepaidmaintenance, PBHprograms, to theanticipated exit from these programs inthe next 90to 100-day period.

An increase in trade payables of $32.5 million. It’simportant to note that trade payables will bereduced infuture periods as we reduce outstanding balances to various trade suppliers.

Cash used in investing activities was $49.6million for thesecond quarter primarily related to capital asset additions of $48.8 million,which included thepayment for one aircraft, aircraft modification, advances on buildings –including Boundary Bay facility – and spare parts or rotor additions to supporta largerfleet with new aircraft types. These capital asset additions and expenditureson major inspections and deposits were offset by proceeds primarily from the sale and leaseback of one aircraftand thedisposition of four owned aircraft for combined net proceeds of $15 million.Currently thecompany has85 aircraft on order, 24 of which areexpected to delivered intheremainder of fiscal 2008.

As a result of operating in investing activities, total net debt at October 31, 2007, was $747 million,down $18 million from the$765 million atJuly 31, 2007. Keep inmind that the majority of our debt is denominated in U.S. dollars and therefore FX rate changesreduced our reported debt from thefirst quarter by approximately $42 million.

In conclusion, I’dlike to repeat what Sylvain hasalready said, which is that despite thefact that theCanadian dollar reached along-term record high against most currencies – most significantly the U.S. dollar – the company still reported a 17% increase in revenue, a 15% insegment EBITDAR, and a21% increase inoperating income versus thesame period last year. This fact, combined with the modest recovery in thestrength of theU.S. dollar, abuilding of profitability inour European operations, and increased capability in Heli-One will lead to improvedperformance as we movethrough fiscal 2008 and beyond.

This concludes the formal part of our conference call.We’re now available to answer any questions you might have.

Question-and-Answer Session

Operator

Thank you.(Operator Instructions). Thefirst question will befrom Chris Blake with Scotia Capital. Please go ahead.

Chris Blake – Scotia Capital Markets

Good morning,gentlemen.

Sylvain Allard

Good morning,Chris.

Frederick (Rick) Davis

Good morning.

Chris Blake – Scotia Capital Markets

Just a few questions here. I just want totouch on your aircraft costs with respect to late deliveries. You mentioned it was probably $0.08 or $2 million.Could you just provide us with some colour, Sylvain, on what exactly the cause of the aircraft delays are for the manufacturers? Is it more production problems or partsdelays or is there excess demand?

Sylvain Allard

It’s basicallydemand catching up. Theaverage would bearound three months, but ithas a significant impact. The thing is, you stretch your existingfleet because you always anticipate, you plan your plan according to an arrival and if that’s delayed whathappens is you end up compensating with existing, say older technology, like we did in Denmark because we were supposed tohave the3S92s on line. Now thesecond is there and thethird one will bethere in the third quarter. We have the same issues on upgrading those SARaircraft for Statoil. Now they’re on line.

So it’s anywherefrom two and up to and acomplete SAR aircraft we were as high as sixmonths. But it’s acombination of factors, but mostly theline is tight and by thetime you configure itfor thecustomers, which is another, because we take them green as well, so that’s all adding up. Now it’s sort of in theplan, anyway, but itdoes have animpact on your costs. Like, we had abunch of training inthe quarter in Europe because of that as well.

But as you get allthe newaircraft not only areyou missing therevenue, once theaircraft come inyou get the revenue and the training (inaudible) going forward,but it was a very, very busy quarter in Europe on that front because we tookdelivery late. Most of that will becompleted aircraft on contract and training to start too because now the guys are on line. But that was quite evident in Europe that pawn shop (sic). So it’s a combination of all. But the delay is roughly about three monthsright now on deliveries.

Chris Blake – Scotia Capital Markets

How manyaircraft doyou believe, you estimate was delayed and not in operation as a result. You took delivery of eight.Was there –

Sylvain Allard

Well, they were all coming in later than we thought. I mean,basically atthe end of the day.

Frederick (Rick) Davis

Yeah, if youlook at core number in Europe, I know I did speak to the guys just a short time ago and basically most of the problem is created by poor aircraft,which is acombination primarily of 92s coming into themarket. Sonew technology fair equipment as well.

Sylvain Allard

Yeah, the two SAR aircraft also that we had toroll out onStatoil.

Frederick (Rick) Davis

And that’s a little bit about late delivery, butit’s also about thetime ittakes to convert, for example, aSuper Puma from astandard config to aLIMSAR config, limited search and rescue.

Chris Blake – Scotia Capital Markets

What are themanufacturers saying inresponse? Have they ramped up production?

Sylvain Allard

Yes.

Chris Blake – Scotia Capital Markets

What have theytold you guys interms of remedying this issue from occurring longer term?

Sylvain Allard

I think they’rebeefing up as much as they can as well. I mean, everybody’s trying to do thesame thing here. Again, it’s improving. There’s a lot of deliveries happening at thesame time. And don’t forget, it’s not always, not only manufacturers. I’ll giveyou anexample. TheSAR aircraft that we started on with on thesearch and rescue contract with theU.K. We had issues of exporting because of thesophisticated equipment on theaircraft had to besigned off by theU.S. Freight (sic) Department. Soyou can’t blame Sikorsky for that; you gotta go through the paperwork. Because the equipment is so technologically advanced that youneed a signoff. So thatwas for thefirst two, for example, which delayed our training on U.K. SAR and punched up the cost. Now the aircraft are inand working.

But it’s a combination of things, if you knowwhat I’m saying. It’s hard to pinpoint. But certainly on the manufacturer’s side they have rampedup and we areall gettingcommitments that things will getback to on-time delivery again. Like I said, it’s just the activity in theindustry right now that creates alot of these issues.

Chris Blake – Scotia Capital Markets

Very good. Andyou mentioned the(inaudible) market remains very strong. It’s probably fair to assume you’llcontinue to seethe upwardpressure on flying rates. I think thelast quarter you mentioned you were somewhere in therange of 15% to 20% price increase. Hasthat changedat all quarter over quarter or is thatstill consistent with last quarter?

Sylvain Allard

It is very muchconsistent. I think thepricing environment, like I said, is very healthy right now. Obviously on newbids the goforward is 20% or higher on our internal capital and the formula that’s well known to youguys. Also, probably more soininternational markets, theability to go back to customers who ata certainpoint need more capacity than they have on thecurrent contract gives us anopportunity to sit down and renegotiate better terms on existing contracts. So that’s what we’re focused on.Definitely theenvironment right now is as good as I’ve seen.

Chris Blake – Scotia Capital Markets

And just onBoundary Bay. Could you just give us aquick progress report on where that project stands in terms of your inventories, buildingup theinventory necessary to support theoperation, as well as your personnel training? Can you give us an indication of how much (inaudible),can you give us anindication of how much interest you’re receiving from third parties for yourservices?

Sylvain Allard

Oh, I think it’svery clear that from aninventory standpoint we’re using alot of theinventory we already go. Abuild up of inventory will berelated to thenew technology agreements that we sign (i.e. buying spares to support the new technology aircraft). So that’s something that’s going tohappen in the next, say, four to six.

The progress in Boundary Bay, physical move of the admin staff will be around right after Christmas, during the Christmas slowdown, if you will. So administratively we’ll be moved there before, well, in January. And from a fully operational status, we’ll be ready to go probably around Marchbecause we movebasically shop by shop. Obviously thebuild up, theinterest, right now, we’re capacity constraint in many ways on this side of the Atlantic. That’s going to allow usto basically carry on inthe thirdparty and certainly interest inthis business is you gotta establish your capabilities and they will come toyou. There’s no question about it. Sowe’re very confident about it.

Certainly with the new technology agreements that wehave now, it’s agreat opportunity for us to growBoundary Bay.

Chris Blake – Scotia Capital Markets

And just where are you seeing those expressions ofinterest? More sofrom themilitary type of work or is itmore civilian type of work that you’re seeing in terms of Boundary Bay?

Sylvain Allard

Well, again,don’t forget, our new technology itstarts. We gotta gear up for our own sort of requirements. Certainly interestfrom the newtechnology side, because these aircraft arestill fairly new, that’ll come as thefleet starts to accumulate hours. We seeit from all fronts really. It’s hard for me to pinpoint the specific area that’s more activethan theother, but certainly based on theexperience that we have inEurope, themilitary side was thestrongest part of our business inEurope and that might continue on this side. On the, don’t forget, the 92 is primarily still a commercial aircraft as well. So.

Chris Blake – Scotia Capital Markets

Okay. Justlastly, you’ve mentioned that you’ve got $225 million of initial leasefinancing inplace from EDC and Royal Bank of Scotland. As a result of the recent credit concerns invitingcredit spreads, can you just give asense of how that’s impacted your lending rates or lease rates?

Frederick (Rick) Davis

Yeah, sure. Twoparts to that question: one is interms of capacity or volume. As I said intheconference call, we’ve not had this degree of forward capacity credit approvedand unutilized history of CT, soon that note it’s positive, again, above $360 million approved today unused.

In terms ofpricing, again, to date no upward pressure on pricing. In fact, some of the individual smaller deals we’veclosed in the last 60 days are actually better rates than we’veseen historically.

Why is that?Well, I think ithas a lot to do with the value of a helicopter and the macro on the oil and gas industry in general. But it’s on both counts, in terms of capacity and pricing,they’re both favourable.

Chris Blake – Scotia Capital Markets

Very good.That’s itfor me. Thanks, guys.

Sylvain Allard

Okay. Thanks,Chris.

Operator

Thank you. The next question will be from Greg McLeish of GMP Securities.Please go ahead.

Greg McLeish – Griffiths McBurney & Partners

Good morning,guys. I know you chatted abit about theU.K. SAR contract, theupcoming one, but have there been any changesin the number of bidders or there’s stillfour bidders out there on that contract?

Sylvain Allard

It’s three now.

Greg McLeish – Griffiths McBurney & Partners

And who is –

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-- just droppedout?

Sylvain Allard

Let me try to remember now.

Frederick (Rick) Davis

That would be theAgustaWestland.

Sylvain Allard

Yeah, the AgustaWestland will be aprovider of aircraft but will not bea directbidder.

Greg McLeish – Griffiths McBurney & Partners

Okay. And who’sthe, I mean, it’s you, Bristow, and who’s theother player inthere?

Frederick (Rick) Davis

LockheedMartin/VT.

Greg McLeish – Griffiths McBurney & Partners

Okay. Andsecondly, you mentioned demand for helicopters for 2015 is 250 helicopters. Howdo you breakthat down? Is that new and replacement helicopters or just 250 demand?

Sylvain Allard

It’s a combination of both. What happens islooking at the retirement cycle, a survey was done on aircraft – in fact, if you assume that you retireeverything over 25 years, which is not practical in my view, you would get amuch higher number. This number includes theretirement of medium and heavy of 50% of thefleet that would beover 25 years old, only half theaircraft, and theother would benew demand due to basically number of platforms off shore increasing prettywell allover theplace. This does not include theU.S. market. This is only themarket that CHCoperates.

Frederick (Rick) Davis

And in fact, the world market demand, this is the new technology replacing, well,fulfilling new demand and replacing old technology which retires. So it’s all new technology, plus the world population is greater than the 250 that Sylvain quoted because thatis only in the market that CHC operates.

Sylvain Allard

So it would say, it would be half of those aircraft be retired and the other half would be new demand.

Greg McLeish – Griffiths McBurney & Partners

Yeah, I guess the interesting thing to look at is between you and your majorcompetitor you dominate theworld’s sort of demand there. Soit lookslike thedemand is far out of cheating potential supply even coming on for you guys.

Frederick (Rick) Davis

That’s correct.

Sylvain Allard

Yes. And the adjusting element of that, Greg, is,how quickly can you retire theold fleet? Soto satisfy demand that means that you delay theretirement of old equipment. Right now I just took an assumption that half of the 25 or older, and that could be anaircraft of 30 or 40 years that we keep on until we are able to get thenew equipment.

Frederick (Rick) Davis

That’s why it’svery difficult for us to predict dispositions. We were asked by yourself andothers how many aircraft we dosell and theanswer is, well, we think this, but we’ll always be wrong because the demand will always exceed supply andtherefore we keep older technology longer.

Greg McLeish – Griffiths McBurney & Partners

Okay. And do you guys have any major contracts upfor renewal this year or inthe next 12months?

Frederick (Rick) Davis

I’m thinking no.

Sylvain Allard

Well, you know,there’s anongoing allthese bids, but like, huge contracts, no.

Frederick (Rick) Davis

In general you canexpect, again with afive-year average contract, 20% of your –

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Greg McLeish – Griffiths McBurney & Partners

-- thanks a lot guys. Great quarter.

Sylvain Allard

Okay. Thanks.

Operator

Thank you. The next question will be from Cameron Doerksen of VersantPartners. Please go ahead.

Cameron Doerksen – Versant Partners

Good morning. Iguess aquestion on theU.K. SAR contract, theone that you guys aredoing right now. I guess deferred revenue inthe quarterwas $9 million. Was that allU.K. SAR contract related?

Frederick (Rick) Davis

Yeah, the deferred revenue wouldn’t be that amount, but what we’re doing is,this is aCanadian GAAP thing, but what we dois we have four bases each treated as aseparate facility. For accounting we defer thecost and wedefer therevenue until that facility, that base, is up and operating.

Sylvain Allard

With the new technology.

Frederick (Rick) Davis

With the new technology. So for example, in October you heard Sylvain mentionthat our first base, which is Stornoway, became operational early October withtwo S-92s. Now inOctober we’re starting to recognize therevenue costs and contribution from that. It’s very small because it’s only onemonth. Two months later Sumburagh will come up with two S-92s and so on and so on. So every two months we come up withanother base and by theend of theyear we’re basically done. I think we got one more aircraft to fly in May of 2008 and then all aircraft are flying and all aircraft are generating revenue and contribution.But before that time we’ll actually have some deferred net costs on our balancesheet.

Cameron Doerksen – Versant Partners

Okay. And the timeline on, I guess, this contractbeing fully operational, if I recall correctly it was January ’08 and now you’re sayingQ1 ’09. Is that really just, you know, is that the case, first off, and secondly isthat mainly because of OEM delays indelivering thehelicopters?

Sylvain Allard

No, this one actuallywe did start theaircraft on time.

Frederick (Rick) Davis

No, we haven’tyet. Thevast majority of allaircraft, sixof the sevenaircraft will beflying by the30th. I think we always said we’d befully functional by theend of this fiscal year. Which we will be. I think there’s one aircraft thatstarts acouple weeks after that. But theessentially allaircraft will generate about 20 million pounds sterling of revenue a year, so each base is about 5 million poundsor $10 million CAD. Soif you model that you’ll end up with theright rollin.

Sylvain Allard

What will happenon thedeliveries, Cameron, is theaircraft, we have to commence our training ina muchquicker period inorder to start on time.

Frederick (Rick) Davis

Cameron, I thinkthe $9million probably came from our cash flowdiscussions inour MDA which talk about theprogramming, which is not thesame as free operating expenses. Deferred revenue we actually sold some aircraftand did recognize revenue because thesales transaction wasn’t actually complete. Sothat’s acompletely different issue.

Cameron Doerksen – Versant Partners

Okay, I justwanted to clarify that. Okay. That makes sense.

The, right down in the– I guess theimage is pretty small, but right down intheinvestment intheassociated company that ran through theequity earnings line, can you just give us thedetails on what that actually is?

Frederick (Rick) Davis

Yeah, we have a minority interest in asubsidiary and we account for that on acost basisbecause we don’t –

Sylvain Allard

It’s basicallyone of our foreign subs that we operate through.

Cameron Doerksen – Versant Partners

Okay.

Sylvain Allard

And they’realways fairly sort of on theprofit line quite thin. We felt itwas the bestapproach conservatively to not have anequity investment because ithasn’t made any money. It’s one of those vehicles we use, type of thing.

Frederick (Rick) Davis

Yeah, we hadobviously aninvestment, sothey reported aloss and we wrote down our investment. That’s all.

Cameron Doerksen – Versant Partners

Okay. Iunderstand. You received some compensation from the OEMs. Do you expect to receive any more forsome of thedelays?

Sylvain Allard

It’s hard toquantify that. Basically it’s part of anongoing discussion on several fronts. And as you know, by contract you’re notreally, we don’t have anything firmed up inour contracts. Soit’s really basically based on demonstrating thecosts. So Ican’t make any prediction on that. I think sofar we’re obviously satisfied with what we got. But on a go-forward, as the delivery improve I don’t see this becoming a factor in terms of more recovery.

--- Break in Recording

-- you see we’re watching Kazakhstan veryclosely. We’ve come close to anagreement now with theconsortia. That’s avery bigmarket, as you know. Not alloff shore, but there’s 13 varying barrels of oil in Kazakhstan and we got a pretty good position now, we’ve gotpartnership established, we’re operating acouple of M3s and thebig pictureis if this thing goes ahead theway it’s planned we could belooking atprobably eight or nineheavies.

A big area, the other one, is Southeast Asia. Fleetrenewal areas like, you know, Malaysia, we seesome activity picking nicely now inAustralia. Infact, capacity inAustralia is anissue. I wish I had more aircraft inthere. Soit’s very robust. There’s no question about it. In fact, this is why some of the shorter term areas, like we had in Africa, we decided to just, you know,these contracts not renew and redeploy thefleet inareas where we seethe demandand get muchhigher rates, you know?

Cameron Doerksen – Versant Partners

Okay.

Sylvain Allard

And Brazil,obviously with thenew discovery, we’re watching that. It’s not going to happen tomorrow, butcertainly thebigdiscovery inBrazil and with our position we’re very, you know, all very excited about this, but again,this is several years down theroad. And itbasically just supports thewhole thesis on this demand that we’re anticipating.

Cameron Doerksen – Versant Partners

Great. That’s all I had. Thanks very much.

Sylvain Allard

Okay, Cam.

Operator

Thank you. The next question will be from Chris Buncic of CormarkSecurities.

Chris Buncic – Cormark Securities

Oh, hi. Goodmorning. I just have acouple questions about your operating leases and some of the costs associated. So what percentage of the total leases that you’ve got now are atfixed interest rates?

Frederick (Rick) Davis

About 55% to60%.

Chris Buncic – Cormark Securities

And can youprovide mewith any kind of like ablended lease rateon those?

Frederick (Rick) Davis

Yup. It would be LIBOR with a spread of 150 to 170 at this point.

Sylvain Allard

Plus depreciation.

Chris Buncic – Cormark Securities

Okay. So I guess for the 55% to 60%, to what degree does the term of the fixed match the term of the lease period?

Frederick (Rick) Davis

Our typicallease terms areseven to eight years and our typical contract with customer third-party oil andgas would be between, it’s roughly five years at this point in time, but generally they have fiveyear plus two one-year renewals. Sothey’re not far off being matched atthis point intime.

Chris Buncic – Cormark Securities

Okay. All right. That’s great. Thanks verymuch.

Sylvain Allard

Thanks, Chris.

Operator

Thank you. The next question will be from Michael Mills of BeaconSecurities. Please go ahead.

Michael Mills – Beacon Securities

Good morning,guys.

Frederick (Rick) Davis

Hi, Mike.

Michael Mills – Beacon Securities

Just wonderinghow confident you arethat the 24aircraft on order will actually bereceived on time by theend of this year.

---Laughter

Sylvain Allard

That’s for the display, our plan sort of includes a bit of, how can I say, a buffer. Because they’re catching up,but it’s not happening as quickly as I would like to see. But some of theseaircraft, for example, we already know inthe deliveryschedule. We know when they’re going to arrive now, but it’s later than we hadanticipated, say, 12 months ago. Sowe know they’re going to beslipping alittle bit, but not from thedate. I think that thedate that we got right now is agood one. But they slip from what I thought, say, 12 months ago.

Michael Mills – Beacon Securities

And in terms of your conversations withcustomers, obviously they’re aware of thesituation, but arethey pressing you on thematter or how arethose discussions going?

Sylvain Allard

Well, obviouslythey’re agitated about what’s happening inthe industryand they’d rather have theaircraft on time, I can tell you right now. But there’s a lot of pressure on us and we’reobviously pushing now ourselves to make sure that everything is – The thing is, we deliver the service, it’s just that they’recarrying on with theexisting aircraft for acouple months, sometimes, three, sometimes three or four months with the aircraft they already, the older technology aircraft waitingfor the newone to arrive. So, and for us, theincentive is to put theaircraft as soon as we can because you getbetter rates and they getbetter service.

Michael Mills – Beacon Securities

All right. I’m justmoving over to theACMreceivable. Itseems to benothing else growing. Is there any progress intrying to collect agood chunk of that?

Sylvain Allard

We put an awful lot of pressure now on all our customers to collect. This isobviously aconstant area. Thething, what you seein the ACM, don’t forget, the business in Nigeria is also growing, but we’vebeen collecting regularly out of there, but obviously it’s a large amount because just the size of the business we’ve got in Nigeria is very, very significant.

Michael Mills – Beacon Securities

Yeah. Okay. Andon the GNAfront, arewe kind of atanappropriate run ratenow or this quarter was around $5.4 million. Is that a good run rate?

Frederick (Rick) Davis

No.

Sylvain Allard

I wish it was a run rate.

Frederick (Rick) Davis

It is except for the $1.6 million we talked about andthat is theinsurance adjustment because, yeah, if you add that back then you’re closer to a good run rate.

Michael Mills – Beacon Securities

Okay. Thank you.

Frederick (Rick) Davis

Okay.

Operator

Thank you. As a reminder, if you have a question please press *1 at this time. The next question will be from David Newman of National BankFinancial. Please go ahead.

David Newman – National Bank Financial

Good morning,gentlemen.

Sylvain Allard

Hi, David.

David Newman – National Bank Financial

How are you?

Sylvain Allard

We’re prettygood.

David Newman – National Bank Financial

Good. Just in terms of the penalty in foregone high-rate revenues. Howmuch, what percent of that was covered off by this payment from the OEMs and how much was that actualpayment?

Sylvain Allard

I’d rather, I’lltell you what, these things area little bitsensitive about on theamounts and how itis because these things aresome things that we dowith certain manufacturers and I don’t want to give you a number on that one. But all I can tell you is that it was pertaining to prior period, aswell.

Frederick (Rick) Davis

Yeah, we justwant to stay away from it, David.

David Newman – National Bank Financial

Okay. Okay, butgoing forward, how doyou protect yourselves from asimilar situation. Obviously you’ve got avery robust delivery schedule. Is itthrough contract specifications with your customers? Are you looking for further recoveryfrom theOEMs? How doyou handle this going forward because obviously the delays, etcetera, and I think the expectation would be give more of the OEMs are that that could recur, right?

Sylvain Allard

It could and, youknow what, Dave, when theproduction line is sold out for two and ahalf years, you know, what I’m saying to is that it’s a tough argument when you buy newaircraft. They’re ina verystrong position. They’ve got ahuge demand ahead of them and I’m doing my best to get thebest terms and conditions on deliveries. But historically, delivery contracts are not subject to penalties.

David Newman – National Bank Financial

Yeah.

Sylvain Allard

And we’re tryingto exclude those delivery delays now with our own customers.

David Newman – National Bank Financial

Right. Right.

Sylvain Allard

So we don’t get caught in themiddle. Ideally you would have to have thesupply chainaccountable for everything they doand beperfect. SoI think, let’s put itthis way, I think thewhole industry understands now, areworking hard toward improving because it’s not, it’s in everyone’s best interest to deliveron time. They want to sell theaircraft as soon as we can, as soon as they can, we’re going to put it on contract as soon as we can. But Ithink it’s fair to saythat as more and more areentering themarket I would propose to you that it’s going to get better and better.

David Newman – National Bank Financial

Okay. And do you, in your contract specification are you getting into a situation now where you can kind ofmaybe not getdinged with penalties by having aflexible start? How doyou work that?

Sylvain Allard

I think rightnow what is happening, David, is that I seecustomers, large customers, purposely putting extra capacity on the contract so they don’t have any issues. I thinkwhat themarket realizes is where ina patch youhave enough aircraft to satisfy more than thedemand that was there is gone. And sonow you got bigcustomers anticipating that, hey, helicopters are helicopters. What they want isservice at the end of the day. The regime that they have. And it’sprimarily aEuropean phenomenon where they want thedelivery, they want you to take off on every flight within 15 minutes. Verydemanding. And that’s what they want atthe end of the day. They don’t want penalty.They’re putting penalty because they want theservice. Sonow they’re saying if we put extra capacity that’s what we want at theend. Solet’s put itthis way, when you have extra capacity that was never an issue. When capacity’s tight it becomes an issue for everybody and everybody’slooking for anappropriate solution. Atthe end of the day things are improving, there’s no question aboutit.

David Newman – National Bank Financial

And the OEM production lines, are they cranking this up? Are they adding capacity? Are they expanding their productionfootprint? What arethey doing to try to getrealigned with thedemand that they’re seeing?

Sylvain Allard

I think you’reseeing on allfronts. I know that AgustaWestland now hasa newproduction facility on this side of theAtlantic. On theABW139. I know Sikorsky hasramped up theS-76 to about, I’d say, 36 to 40, probably 38 aircraft now a year. The 92 is still at about, say, 20 to 24, I think it’s,let’s saytwo a month.And they will, what they’re saying is they will ramp it up. But it’s a very slow process. I mean, the lead time on major components isstill avery, you know, ittakes a long time to get agear box.

David Newman – National Bank Financial

Yeah, for sure.And on apositive front, I mean, obviously you’ve got some big wins here on the in-sourcing from thosepower-by-the-hour contracts. Doyou guys have any guidance on what you might seein terms of a run rateon savings on operating margins on in-sourcing those?

Sylvain Allard

Actually, like Isaid in myprepared statement there that if you look atthe six months run rate of cost and maintenance it would be equivalent to, it’s the same as if we hadn’t been on PBH for the sixmonths. Because what we paid inPBH paymentsduring the six months is roughly equivalent to the refund.

David Newman – National Bank Financial

Okay.

Sylvain Allard

So the savings in thefirst few years is substantial because basically you’re covered by warranty.

David Newman – National Bank Financial

Right.

Sylvain Allard

So if you look at allthe newaircraft then use anormalized, say, inEurope you’d belooking at 1,500or 1,800 hours ayear, say. These aircraft, you’ve got agood idea of what themaintenance costs would be, you know that it’s over $1,000, probably $1,200 an hour.

David Newman – National Bank Financial

Yeah.

Sylvain Allard

And during the first couple of years you’ve gotvery light maintenance because most of itis covered. Right, infact, thefirst five years. Until you getto the firstremoval of components and overhaul where you would get arun ratethen historically, as you know, our maintenance costs internally we manage tomake 20% to 25% margins on that maintenance. That would be –

Frederick (Rick) Davis

So even when youreach steady states, David, you still save. Of course the costof that would bethe capitalthat you need to invest interms of facilities, spare parts, and –

David Newman – National Bank Financial

How you save the margin.

Frederick (Rick) Davis

-- technology.But you get the margin. Even long term, steady state, and it takes a longtime to getthere when you add as many new aircraft as we are adding to our fleet.

David Newman – National Bank Financial

Okay. Very good.And on a corporateside, you really, I mean, you saw asignificant drop inyour corporate costs. Obviously thestocks topped. Itlooks like it’s sustainable. This reduction inclaims reserves, could that possibly reverse and increase again? How does thatwork?

Frederick (Rick) Davis

That’s always a little bumpy, so if you’re trying to normalize it’sFC&A or corporate costs you would take that out.

David Newman – National Bank Financial

Okay. And lastquestion. On theU.K. search and rescue you’ve got January 30th coming up. What’s the next major milestone after that?

Sylvain Allard

They will reviewthis as, I hate to sayindicative. I mean, it’s aserious bidwe’re putting together, but it’s not theend of it.

Frederick (Rick) Davis

That bid will drive a down selection process which will end,I think, mid-2008. Sowe’ll go from three to two and then three-quarters later we’ll be likely, and it could be spring or summer of 2009 when a decision is made.

Sylvain Allard

If they stick tothe scheduleit will be mid-09 calendar.

David Newman – National Bank Financial

That’s all.Thanks, gentlemen, and I think it’s been agood quarter and itlooks like you’re seeing aturn here. Is that your view?

Sylvain Allard

Absolutely.

David Newman – National Bank Financial

Excellent. Thankyou.

Operator

Thank you. Thereare nofurther questions registered atthis time, soI’d like to return themeeting back to Mr. Allard.

Sylvain Allard

Gentlemen, thisis the timeof the year,so I wishyou all a Merry – What’s? Happy Holidays I guessnow is theproper term. So, and aHappy New Year and stay tuned for next year. Thank you.

Operator

Thank you. The conference has concluded. You may disconnect yourtelephone lines. We thank you very much for your participation.

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