Bristow's CEO Discusses F3Q2013 Results - Earnings Call Transcript

| About: Bristow Group (BRS)

Bristow Group, Inc. (NYSE:BRS)

F3Q2013 Results Earnings Call

February 5, 2013 10:00 AM ET


Linda McNeill - Director, Investor Relations

Bill Chiles - President and CEO

Jonathan Baliff - Senior Vice President and CFO

Jeremy Akel - Senior Vice President, Global Operations

Mark Duncan - Senior Vice President, Commercial

Brian Allman - Vice President and CAO


Jim Crandell - Dahlman Rose

John Donald - Howard Weil

Jeff Spittel - Global Hunter Securities


Ladies and gentlemen, thank you for standing by. And welcome to the Bristow Group Third Quarter 2013 Earnings Conference Call. During today’s presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for your question. (Operator Instructions)

Today’s conference is being recorded, February 5, 2013. I would now like to turn the conference over to Linda McNeill, Director of Investor Relations. Please go ahead.

Linda McNeill

Thank you, Alicia, and good morning, everyone. Welcome to Bristow Group’s third quarter fiscal year 2013 earnings call. This is Linda McNeill, Director of Investor Relations.

With me on the call are Bill Chiles, President and CEO; Jonathan Baliff, Senior Vice President and CFO; Jeremy Akel, Senior Vice President of Global Operations; Mark Duncan, Senior Vice President, Commercial; and Brian Allman, Vice President and Chief Accounting Officer.

We hope you’ve seen our earnings release, which was issued yesterday afternoon. It is posted in the Investor Relations section of our website at

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

Additionally, to the extent we discuss non-GAAP measures during the call. Please see our earnings release and the Investor Relations presentation on our website for the calculation of these measures and GAAP reconciliations.

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

Bill Chiles

Thank you, Linda, and thanks to all of you for joining our third quarter call ended December 31st. If you want to follow me, turn to slide five, which gives you our operational safety review.

And as all of you know, our commitment to target zero safety is our primary core value and we are working to hard to achieve target zero and we will achieve target zero. Although, we’ve had a tough year this year. Year-to-date, we’ve had three accidents in our commercial flying operations involving single engine helicopters, one involving a fatality, I’m not going to go into detail on this call about those accidents, because we did that on the November call.

But this is unacceptable and every time we have these accidents, we find things that we can do better and we are working really hard to achieve target zero and putting bearers in place to prevent these kinds of accidents from happening in the future.

We are always looking for ways to improve safety and we’ve got to -- get to target zero as quickly as we can. Fortunately, for us these accidents involve single engine helicopters we’ve had a very good record in our twin engine helicopter flying fleet if there is any silver lining.

Please turn to slide six, and I’ll go through the highlights for the quarter. Our global team continues to keep the momentum that we started in the first half of fiscal ‘13. We’ve had solid financial performance this quarter. We are very happy about our performance in spite of some challenges.

Our GAAP earnings per share of $1 increased more than 40% over last years quarter and the adjusted earnings per share of $1.17 increased more than 50% year-over-year. This $1.17 excludes the gain on disposal of assets of $6.1 million and a loss on the early retirement of our 7.5% notes, which we refinanced in October to a much lower interest rate.

Year-to-date cash flow from operations of $203 million increased 5% year-over-year, with the significant improvement in BVA, Bristow value added over fiscal ‘12. Given this year’s year-to-date performance, Bristow is raising our fiscal ‘13 adjusted earnings per share guidance range to $3.60 to $3.85 per share from $3.25 to 3.55, that’s $3.60 to $3.85 will be our current guidance for this fiscal year.

Please turn to slide seven, again, I’ll give you a quick market overview. As you know from following the oil service sector and the MP sector we’re in very strong market. We expect Brent to stay above $100 per barrel even though we will see some volatility.

International markets are strong but also domestically our market strong, this is first time that we see solid performance throughout the world and just about all, if not all areas where we operate.

The Gulf of Mexico is returning, assumed past -- pre-Macondo levels of activity and the North Sea market continues to grow despite some uncertainties around EC225 fleet suspension of operations, which I’ll talk about more in just a minute.

Helicopters supply remained very tight and obviously, with 225 suspension of operations makes it even tighter. Bristow sees approximately 70 new opportunities for large helicopters around the world in the markets within which we operate. All starting between mid calendar year ‘13 and end of calendar year ‘14. And this excludes any requirement to backfill for the 80 EC225 currently impacted by going -- beyond going suspension, that’s 80 globally, that’s not 80 to Bristow alone, that’s the entire global fleet.

So turn to slide eight, on page eight. Let me give you a quick update on the EC225 suspension of operations. As many of you know on October 22nd there was a controlled ditching in an EC225 helicopter flown by another operator in the North Sea, resulting no injuries great job by the crew getting everyone out into the rafts safely.

As a result U.K. and Norwegian CAAs issued safety directive on October 25th requiring operators to suspend operations of affected aircraft which really include flying over hostile environment. Hostile environment to us is anything offshore anywhere around the world. Since then we have suspended operations almost total 16 Bristow large EC225 aircraft.

In order to minimize or eliminate the impact on our clients we’ve increased utilization of our other aircraft that we had in the region. We’ve also implemented contingency plans designed to return to service previously stored AS332 helicopters, which were not affected by the U.K and Norwegian safety directives.

And we entered into an agreement on November 7th to order 10 additional Sikorsky S-92 large aircraft with options for 16 more. And Bristow along with the other operators will not return to fleet until its safe to do so, we are working with the operators and helicopter to find the root cause, cause of this accident.

Currently no contracts have been canceled. However, in certain instances we are not receiving payment for the monthly standing charges, in a timely manner we are in discussion with our clients regarding these charges.

So far it has not had as you can see a material impact on our financial results for the three months or nine months ending December 31st, but future financial results maybe impacted.

Please turn to slide nine and I’ll focus on Europe, which our largest business unit as you know Europe performed very well during the third quarter despite of the challenges with the 225. Operating revenues increased 16.5% over the prior years quarter and adjusted EBITDAR increased almost 50% over the same period.

EBITDAR margin of 39.5% was over 8% higher than the previous year and 5% higher than the last sequential quarter of 34.6%. The sustainability of margins at this level is depended on number of factors, including the resolution of the 225 matter.

The current restrictions on the EC225 helicopters did not have material impact on results as you can see. And as I just said earlier, we are unable to determine what impact we might see in the future depending on when these helicopters go back into service.

We are one of the final bidders to participating in the tender process for the U.K.’s Department for Transport Search and Rescue helicopter contract. It’s a 10 to 12-year contract with aircraft operation beginning in calendar year 2015. A decision from the Department for Transport on the contract award is expected in April 2013.

Adjusted EBITDAR margins in this business unit are expected to remain in the mid-30’s for the full fiscal -- for the remainder of fiscal ‘13. I want to thank Mike Imlach and his team for working very, very hard to get through this issue with the 225. They’ve done a fantastic job. So Mike kudos to you.

Please turn to slide 10, and I’ll focus on West Africa, operating revenues increased 14.5% year-over-year and 17% sequentially, due to the increase ad hoc flying of aircraft that we are in major maintenance in the second quarter and second, flying under new contracts for better terms.

And adjusted EBITDAR increased due to improved revenue. However, adjusted EBITDAR, margin slightly decreased due to increase in salaries and maintenance expenses in the early part of this quarter.

Looking forward, as we’ve previously discussed, Nigerian market is changing with the new competitor in the region, regardless of increasing -- increasingly active trade unions and changing regulations, Bristow is committed to remain the leader as we have been for almost six years with our highly productive and largely Nigerian work force. We expect fiscal ‘13 adjusted EBITDAR margin to be in the low 30s. And there I want to thank [Dr. Noni] and his team for great work, fantastic effort in West Africa.

Please turn to slide 11, and I’ll focus on North America. With the addition of large aircraft our Gulf of Mexico fleet is better pricing, we are able to increase revenue by almost 40% year-over-year and EBITDAR margin almost doubled from 14.8% in quarter three fiscal ‘12 to 29.1% in quarter three fiscal ‘13, and improved sequentially from 20.7% in quarter two fiscal ‘13.

The revenue increase by success of our management team led by Danny Holder in containing costs of this market translated into significant improvement in all of our financial metrics this quarter.

This was the first quarter that included the $8.2 million in dry leased revenue from investment in Cougar helicopters in Canada. Dry leased is when provide the helicopter without maintenance and pilot support. That is why dry leased has a lower lease rate but higher margin than a full service operation.

With Gulf of Mexico activity returning to pre-Macondo levels and additional rigs entering the market demand for more medium and large helicopter, larger aircraft exist. Recently announced license block awards in Nova Scotia and the Hebron development Newfoundland also provides growth opportunities in Atlantic Canada. We expect adjusted EBITDAR margins to be in the mid 20s of this full fiscal year. Again, thanks to Danny Holder and his team for great job.

Please turn to slide 12, I’ll focus on Australia. Australia experienced an increase in year-over-year revenue, primarily due to the 34% increase in flight activity. Sequentially, operating revenue increased 8.1% from $38.4 million to $41.6 million.

Adjusted EBITDAR and adjusted EBITDAR margin also improved due to this increase in revenue while operating costs were controlled. Although we operate three EC225 in this region that are affected by CAA Authority -- Civil Aviation Authority restriction. We continue to service clients and generate revenue with other in-region aircraft.

The Sikorsky S-92 is being introduced in our Australian operations which until now operated only EC225 and 332 heavies. We anticipate higher training costs as those aircraft arrived in fiscal ‘14 and two S-92s have already been contracted due to impacts, excuse me, starting in early 2014.

Additional opportunities for large aircraft occur as new developments progress often Northwest shelf and the Southern Australian pipe. The adjusted EBITDAR margin is expected to be around mid-to-high 20s for the fourth year, driven by improved contract terms and higher aircraft utilization. Thanks to Allan Blake and his glittering array of talent in Australia for the great work.

I’ll switch -- I’ll turn to slide 13 and I’ll switch to the other international business unit, led by Duncan Moore. Operating revenue decreased due to the end of short-term contracts in a number of countries but stayed flat sequentially.

Adjusted EBITDAR margin increased from 47.8% in quarter three fiscal ‘12 to 55.7% in quarter three fiscal ‘13 due to the increased earnings from Lider in Brazil to $4.2 million in the current quarter from a $400,000 loss in the same quarter last year. Brazil continues to represent significant part of our positive growth outlook.

As expected, Lider is performing better in the second half of fiscal year ‘13 as new aircraft begin operating is evidenced by higher equity earnings. Lider’s calendar year EBITDAR was approximately $33 million in 2009 and in 2012 was approximately $50 million.

Lider operates only S-92s in this market, but Brazil has 12 EC225s affected by the current suspension. And this could impact the medium and large aircraft tenders in process. For the full fiscal ‘13, we expect our other international business unit adjusted EBITDAR margin to remain in the high forties.

Before I turn the call over, I would like to thank John Cloggie for his tremendous leadership of our Central Operations Unit. The central ops which is really our internal MRO business, they handle our major repair and overhaul and supply chain.

The central ops business unit touches all the other business units throughout the globe and they really impact our cost and the operation of our aircraft around the world. So they do a great job to contribute to the meaningful financial performance for this quarter and other quarters as well. So I went to thank John for his great work and his fantastic team.

Let me say one of the thing before we move on. We have to give credit to everybody out in the field that are working where rubber meets the road, flying and maintaining our helicopters, or working in the offices, that’s why this performance happens.

We get all the credit at this level for great quarterly performance or annual performance but what really happens is these people out in the field are doing a great job for us every single day. So I want to thank all of them for this performance as well.

With that, I’ll turn the call over to Jonathan to review the financial performance. Jon?

Jonathan Baliff

So let’s review some of the financial highlights for this quarter. Please turn to slide 15. Our adjusted EPS was $1.17 excluding special items and asset disposition effects, which is a 54% increase over last year’s $0.76. Remember the $1.17 includes the negative $0.02 impact related to the ATPs bankruptcy.

Operational and commercial performance in Europe, Australia, West Africa and North America drove much of this improvement partially offset by our other international business unit. Overall, financial exchange movements had a positive impact of $0.07, primarily due to the impact of the Reais, U.S. dollar rate on our equity earnings from Lider.

Remember, we continue to focus on EBITDAR as a result of our leasing financing strategy. Q3 adjusted EBITDAR was $109.2 million, which is a 34% improvement from Q3 FY’12 driven primarily by growth in operating revenue in Europe, North America and Australia in addition to excellent cost control. Additionally, Cougar contributed $8.2 million of adjusted EBITDAR in operations and $5.6 million in corporate and other.

Please turn to slide 16. For the nine-months ended December 31, 2012, our adjusted EPS was $2.77, excluding special items and asset-disposition effects, which is a 44% improvement over last year’s $1.93. And this adjusted EPS would have been $2.84, excluding the ATP impact in our North American business unit.

This marked improvement year-to-date is driven by revenue growth across all business units, excluding other international as Bill spoke about in the previous pages, combined with cost control in the face of inflationary pressures, currently being confronted by many new oilfield service sector.

Year-to-date adjusted EBITDAR was $278 million, which is a 26.3% improvement from FY’12 driven primarily by growth in operating revenues in Europe, Australia and North America. Additionally, adjusted EBITDA margin improved from 27.6% to 31.5% this quarter.

Please turn to slide 17. This slide shows our LACE rate and the continuous increasing led by new technology aircraft and improved utilization. LACE aircraft or large aircraft equivalent increased sequentially by ‘12 in the third quarter while LACE rate decreased from $8.95 million per LACE aircraft in Q2 ‘13 to $8.49 million in the current quarter.

The NABU LACE aircraft increased or North American business units LACE increased and NABU LACE rate decreased are both attributed to the recent investment in Cougar helicopters. Cougar increased our LACE by eight large aircrafts while decreasing our NABU LACE rate from $7.11 million in Q2 FY’13 to $5.84 million in Q3 FY’13.

In lower LACE rate, it’s typical of aircraft that are dry leased as in the case of Cougar. We have a similar situation in our other international business unit where the LACE rate is lower when compared to other business units because much of the revenue comes from just the capital value of our services, for example, with Lider.

Please turn to slide 18. Bristow value added or BVA continues to improve year-over-year. The enhanced focus on returns above our capital charge has been successful again this quarter. The third quarter FY’13 BVA currently stands at a positive $9.5 million compared to the $1.1 million of BVA at the end of Q3 FY’12.

This is a year-over-year improvement of $8.5 million as shown on the chart above and is our third consecutive positive BVA quarter from an absolute perspective. It is important to note that FY’13 marks the first year with three positive consecutive quarters of BVA. If we look to BVA by business unit, Australia and Europe were the primary drivers for this year improvement.

Please turn to slide 19. BVA leads to a focus on cash and cash both from operations and the third quarter increased by 5% to $203 million from a $194 million in the same period last year. Our focus on BVA has also resulted in better management of our working capital. This has led to a cash position of $232 million at the end of the third quarter.

And when compared with the available borrowing capacity under our credit facilities resulted in total liquidity of $431 million as of December 31, 2012. It is important to note that liquidity is after paying for significant portion of S-92s which we have currently put under contract. Our liquidity also benefited from a number of financing activities associated with the refinancing of our 7.5% notes which also meaningfully lower our cost effect.

Please turn to slide 20. Bristow proactively positioned itself in the right market with growing secular demand for our services. This has dramatically improved our company’s cash flow during the past number of years but we also enjoyed a growing asset value that is unique in the oilfield services space.

Our net asset value abbreviated NAV is primarily made up of our fleet of modern helicopters. It is important to note three things when comparing our NAV to other members in the oilfield service space or in the helicopter services sector as a whole.

One, our fleet value is resilient and the assets are fungible as there are many uses for these helicopters after serving an offshore capacity. Two, our average fleet age is young and almost 11 years after a concerted effort to modernize between 2006 and 2010. And three, our NAV represents aircraft that are predominantly owned as a leased aircraft are still and will always be a smaller percentage of our overall fleet.

The red line in the chart below shows the almost 20% growth in our NAV per share during the past two years. And given that NAV is net of all of our debt included the -- including the imputed lease debt, this growth takes our prudent balance sheet management into account.

Now, during the past two years, we also introduced BVA, a difficult task master that constantly measures our ability to earn better return on this growing asset base. Historically, Bristow’s stock price generally illustrated in between its book value per share as shown on the blue line and it’s NAV per share shown on the red line.

Management believes that our successful combination of growth, prudent balance sheet management, BVA discipline together with the success, our commercial team climb promise to provide at a superior service has led to its consistent result that is being recognized with our share price breaking through the current $53.60 NAV per share since the beginning of calendar year 2013.

Please turn to slide 21. Today, we are raising annual adjusted EPS guidance to $3.60 to $3.85 per share for the $3.25 to $3.55 per share which excludes the impact of aircraft sales in special items. As you saw in the previous pages and in Bill’s discussion, the company continues to grow and generate serious cash flow for you, our shareholders. This improvement is a testament to the dedication and consistency of over 400,000 employees’ efforts worldwide.

Demonstrating this improvement to give a balance return on your capital, our Board authorized a $0.20 dividend for this quarter, the eight times since initiating the dividend almost two years ago.

Please turn to slide 22. Bristow initiated our annual adjusted EPS guidance range in May of 2011 for our full fiscal year. During the year, we update the street on the annual guidance with a view to narrow the range as the year unfolds, which is what we are doing now.

Historically, Bristow’s five year adjusted annual EPS is shown on the chart on the right has benefitted from the industry shift to deeper water exploration and production. Bristow’s historic EPS has shown real resiliency in the economic downturns, with no absolute declines year-over-year even in the phase of the financial crisis during our fiscal year 2009.

Today, in order to provide a perspective on Bristow’s financial performance beyond the full year, management is initiating guidance concerning our long-term average, adjusted EPS growth rate of 10% to 15% per year.

This 10% to 15% range is above our historical adjusted EPS growth rate given management’s perspectives on opportunities and confidence in our operational excellence initiatives. This long-term guidance is not meant to be updated every quarter and reflects what Bristow can achieve annual on average during the next three to five years.

With that, I will turn the call back over to Bill to make some final comments before we open the line for Q&A.

Bill Chiles

Thanks, Jonathan. I want to conclude by saying that even though we are having a rough year from a safety perspective, we still have business unit that’s out there that are achieving Target Zero in many parts of our operation. I want to give them credit for that, great work from them.

We are going continue to work hard to achieve Target Zero and we will. As Jonathan said, we anticipate continued improvement in our revenue and our results through new contract awards across all business units, so the outlook is very strong. However, year-over-year EBITDAR and BVA demonstrate the strength of our business model and what BVA has done to improve our performance, especially with the investment in Cougar.

Our improving balance sheet -- our prudent balance sheet management allows us to respond and successfully manage through industry challenges such as the recent EC225 suspension of operations.

Thank you for being on the call and operator, we’ll open it up for questions now. Thank you very much.

Question-and-Answer Session


Thank you. (Operator Instructions) And our first question comes from the line of Jim Crandell with Dahlman Rose. Please go ahead.

Jim Crandell - Dahlman Rose

Good morning, everyone and very nice quarter.

Bill Chiles

Thanks, Jim.

Jonathan Baliff

Thanks, Jim.

Jim Crandell - Dahlman Rose

Bill, can you go into a little bit more detail on the super improvement suspension in the North Sea? What is your understanding of where the investigation is, when could it be lifted?

And secondly, can you talk a little bit in more granularity, about the impact on the financials losing the full contracts, still getting most of the monthly charges but bringing in other aircraft to take their place?

Bill Chiles

Yeah. Let me respond to the first part of the question and then I’m going to turn it over to Mark Duncan on the second part of your question. Your copter has recently said they expect our places to resume late this spring. We are all being pretty measured about that ramp say because we are limited to what we can say about the regulators.

We are working hard. We’ve hard several meetings with our competitors, our customers and the flying public recently and we feel -- we feel very confident that we will come up with an interim way to safely fly the helicopters pending possible redesign of the shaft that’s cracking.

We can’t say that for sure. We are confident though that if the regulators require redesign of the shaft, which could take up to year and a half, we will find a way to safely fly these helicopters through very rigorous inspection and increased terms of health usage and monitoring system over site.

So we are looking at probably late spring early summer. That’s what we believe that’s what’s in our numbers -- internal numbers. So with that, I will let Mark Duncan respond to the -- how the customers reacting?

Mark Duncan

Yeah. Jim, it’s Mark. The customer situation -- for Bristow, this is a major impact in the in the North Sea and a limited impact in some of our international operations but it is a global problem. The customer are working with us very closely and supporting our ongoing efforts with together helicopter back and services Bill described, but also to continue to support us by continuing to pay some of the MSC charges.

As we bring in additional aircraft into the market to supplement the lack of EC225 capacity, the supply-demand situation in that regard is providing higher rates for those replacement aircraft, and you can see that reflected in the quarter’s results and that will continue to be the case as we move forward through the next two quarters probably at least.

Bristow’s position to bring more capacity to the market as the year progresses and the S-92 order that we made allows us to start bringing aircraft in from the middle of this year all the way through until 2014, either to supplement and back fill for 225s or actually to provide additional revenue for us because the opportunities out there are significant regardless of the 225s being suspended or otherwise, so quite a positive outlook for us.

Jim Crandell - Dahlman Rose

Okay. And, Mark, just to clarify as our no operators flying, Super Puma is now anywhere in the world.

Mark Duncan

The 225 is one version of the Super Puma. So the other versions of Super Pumas are being flown and those are some of the aircraft that we brought back into service.

The 225s are -- we estimate roughly 80 aircrafts are suspended worldwide. There are 225s being flying over a land by many military and governments. And in their oil and gas business, we believe there is something like 17 225s being flown in Vietnam and China under the aviation authorities they have chosen not to follow the U.K. and Norway where the CAAs have actually suspended operations. So you actually have been prevented from flying.

Interestingly, the oil and gas that we have, the majority of them being in a group called the OGP, which is oil and gas producers for them. They have adopted to follow the U.K. and Norwegian’s CAAs restrictions wherever it is in the world, whenever they are flying open water.

Jim Crandell - Dahlman Rose

Okay. And Michael or Bill, this is a follow-up. I think, Bill, the last time we spoke you were looking for this search and rescue contract to be awarded February, March. Do you think that is that still your timetable and does it still look like it will be awarded in two different pieces for the north and the south?

Bill Chiles

Jim, DfT has updated it schedule from the DfT for award to happen in April -- mid-April. So that’s the current schedule. It is being proposed or bid in three different pieces of one, which is the northern basis involving heavy aircraft. Block 2, which is a southern basis involving a heavy medium motor, light heavy if you want it call it that which is the AgustaWestland189 and then Block III, which is the combination of the two. We have no indication where this has headed but from the DfT. So we are just following the procedures and moving along through the process.

Jim Crandell - Dahlman Rose

Okay. Great. Thank you very much.

Bill Chiles

Thank you, Jim.


Thank you. Our next question comes from the line of John Donald with Howard Weil. Please go ahead.

John Donald - Howard Weil

Good morning, guys.

Bill Chiles

Good morning, John.

John Donald - Howard Weil

Little further clarification on Europe if you would. You talked about some of the customers starting to maybe hold some of these fixed payments. I was wondering if you could maybe help us understand better. Are these customers, are you having -- is this part of the decrease in flight hours that we saw sequentially here?

Is that having an impact, is it guys who were missing out on opportunities to keep guys going back and forth to their operations or is there is something else driving that and maybe you can give us sort of a magnitude of what those charges maybe as we kind of think about our model going forward?

Mark Duncan

It’s Mark Duncan. I will take that question. The flight hours aren’t dying because of the restriction on the 225s. So for, Bristow, in Europe which I think is where you ask the question. We had 12 aircraft, the majority of which we are flying before the incident. A couple of them were avail as backups to the others that were flying.

So they are not flying, so in November we were severely restricted but we drove back into the fleet, different aircraft types up to 10 more aircraft that are now flying in Europe and that’s getting us back up on the flight hours.

It’s not getting us right back to where we need to be and our customers are helping us by giving money to the minimum levels offshore, so that there are only moving the minimum amount among the people that they can. On the payment side, the customers are obviously not getting service, so they don’t really want to pay for something that they are not getting.

We haven’t gone into contractual discussions with them. But on a contractual basis, we are very confident that our contracts provide us to be paid. We were actually beyond that with the customers and working in harmony with them where they are supporting us, so that we’ve attained the ability to put the 225s back in service as soon as, we can find a way to fly them safely when the CAA lift the restrictions on flight and so that’s part of the decision process with our customers.

We are in ongoing dialog with them and I think as long as the future looks like the aircraft comes back by the summer time the clients will continue to pay. If it becomes a long-term issue I think there will be a different discussion with the customers and we’ll be dealing with at that time. Although, as I mentioned, we are -- we do have the ability to take new aircrafts into the fleet to replace those if it does will be on this summer.

John Donald - Howard Weil

Okay. And then, I mean, clearly the cost came down quiet a bit in your business unit here sequentially. I take it that’s from just having lower activity levels overall then in the higher rates given you the kind of that consistent revenue? I mean, as we think about the EC225 potentially going back to work? Are there going to be any kind of related start up cost or negative impacts there from cost perspective from as we look ahead in the Europe segment as well?

Jeremy Akel

Why don’t I take that one, John, as far as the cost, our concern for this quarter. There were number of cost and cost control that we had in Europe, some of this dealing with the fixed costs more than kind of variable cost if you were kind of getting that dealing with flying. Obviously, we did a very good job of minimizing any variable costs as the aircraft were down and then as we actually moved aircraft in the place which can be expensive, but we did a good job, and Mike -- Mike seem were great there.

But there were also other fixed cost as Bill told, you guys, our -- we are not happy with our safety record, but a lot of the safety issues with had from an aviation standpoint have been with our small aircraft.

The large and medium fleet has actually done knock on with pretty well this year, and that has tendency to reduce some of the fixed costs on a lot of the back office, like insurance and other things like that. You’ve seen some of that impact in this quarter. And so that what you’re seeing in Europe, since Europe flies the largest percentage of large aircraft in our fleet.

I think the second question is if the 225s come back, are there any startup costs or anything of that nature? One other thing I think we are doing and I’m sure all the operators doing as the 225s have been down and not flying we keep them a maintain and do all of our routine maintenance.

But we are also able to do a lot of our multi hour major maintenance with the aircraft down and that actually helps us once the aircraft go back and fly, because then we can have all those aircraft available as appose to maybe one or two doing their major checks. So we’re trying to be smart about this downtime with the aircraft in doing a lot of the major maintenance upfront in advance of them coming back to service.

Jonathan Baliff

Let me just add one more thing, John, the fact that we own 225 and S-92 simulators in Aberdeen has helped us well to convert 225 pilots back to 332s and then we’ll convert them back to 225, in converting some of them over less flying S-92s, so that’s been helpful.

John Donald - Howard Weil

Okay. Great.

Bill Chiles

Thanks, sorry.

John Donald - Howard Weil

Go ahead. That’s fine.

Bill Chiles

We did allude to some costs putting S-92s to work. We are seeing some shifting of some of our clients demand to the 92 in certain markets specifically Australia, there are costs associated with introducing the new aircraft into a region and so those costs much of which we are working with our clients to defray those costs to Bristow being part of the overall service carried on. But there are cost associated with new entrance and we were alluding to that for FY ‘14 mostly.

John Donald - Howard Weil

Okay. Great. Thank you very much for the details.

Bill Chiles



Thank you. (Operator instruction) And our next question comes from the line of Jeff Spittel with Global Hunter Securities. Please go ahead.

Jeff Spittel - Global Hunter Securities

Thanks. Good morning, everybody.

Bill Chiles

Good morning, Jeff.

Jonathan Baliff

Good morning, Jeff.

Jeff Spittel - Global Hunter Securities

As we take a look at the EBITDAR margin roadmap preliminary for fiscal year ‘14 independent of the 225 issues and something that you just cited or maybe some startup cost on S-92 going into this markets. Is there anything else out there that would suggest that maybe the full year margin run rate for ‘13 isn’t sustainable as we go into ‘14?

Jonathan Baliff

Well, Jeff, we don’t usually talk about our EBITDAR margins in the full year until we give specific full-year guidance, which we haven’t done yet. So nice try, let me see if I can help you a little bit.

A lot of the margin improvement although Europe, you can see sequentially did do a great job. If you really look at some of the fundamental margin improvement in our business, a lot of it comes out of our North American business unit and the addition of those eight S-92s in Atlantic Canada with Cougar.

That really does improve our margins and is part of our overall business going forward. And we also believe that the Gulf for Mexico which is recovered, as you know, has a high fixed cost of doing business and you recover that really through flight hours more then you do in MSCs monthly standing charges in other parts of the world. We believe that in the near term even in the medium three or five years, we believe that’s recovered everything being equal.

So I will give you some sense that for FY’14 and beyond and that’s where we get to this long term adjusted average EPS growth rate of 10% to 15%. I will tell you obviously that has taken the Cougar acquisition into account with that shift in those margins specifically because of North America.

Jeff Spittel - Global Hunter Securities


Jonathan Baliff

And all we say is just stay tuned.

Bill Chiles

Let me -- we’re going safe. Jeff, we’ve mentioned in the past, I think in the last call that we have a lot of really firm, good strong contracts we’ve entered into recently. [IMPEX] is one of these that are going to be starting up in the next couple of years. So, your question is kind of asking is there some landmine out there that we’re not thinking about.

There is nothing right now that we can see beyond the 225 issue. Supply demand is really tightening and that bodes well. Now, obviously, what maybe looking at there is some major upset in commodity pricing that we’re not really seeing right now. So does that answer your question?

Jeff Spittel - Global Hunter Securities

Absolutely. That’s very helpful. I appreciate it.

Jonathan Baliff

I’m going to take this a little further just because I’ve got Mark Duncan here and we have a lot of our employees on the phone. If anything I would say we’re balanced a little bit to the upside, okay.

Jeff Spittel - Global Hunter Securities


Jonathan Baliff

We’ve got the liquidity. We’ve been able to order this aircraft to take a long-term risk on 225 off the table. So I think hopefully you’re gaining a level of confidence from the management team and I don’t won’t that to be lost because we also are trying to manage this company for the upside too.

Jeff Spittel - Global Hunter Securities

Excellent. Okay. And then maybe turning to the Gulf of Mexico, you mentioned things really firming up there. Cadence and permitting certain looking pretty promising. In what inning, do you think we are in terms of the development in production-related works starting really kick back in as opposed to the influx in points that we envision over the next six to 12 months?

Mark Duncan

It’s Mark. I’ll take that question. In the Gulf of Mexico, the deepwater area is kicking off. Several of the major oil companies are actually although their drill rigs coming in, they are not for exploration only. They actually do development drilling which is part of the construction of the field. So some of these wells are actually in fields that are known and are actually for production with subsea tiebacks et cetera.

So a lot of the activity is actually already in the production or development area rather than exploration. Our next S-92 being delivered is going into the Gulf of Mexico in July of this year and several of our customers who we work for in the long term in the Gulf of Mexico have got major deep water development activity and hook up in commissioning activities going on through the next financial year.

Jeff Spittel - Global Hunter Securities

All right. Thanks very much and congratulations on a great quarter.

Jonathan Baliff

Thank you very much, Jeff.


(Operator instruction) And I’m showing no further question in the queue. At this time, I’d like to turn the conference back to management for final remarks.

Bill Chiles

Okay. Thank you very much Operator and thanks to all of you for joining us today and have a great weekend. And those of you that are out in Vail for the CS conference, we will see here over the next couple of days. Thank you very much.


Ladies and gentlemen, this concludes our conference for today. Thank you for your participation, 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 All other use is prohibited.


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

About this article:

Tagged: , Air Services, Other,
Error in this transcript? Let us know.
Contact us to add your company to our coverage or use transcripts in your business.
Learn more about Seeking Alpha transcripts here.