PHI Inc.: Not Married To Oil

| About: PHI, Inc. (PHII)

Summary

PHII focal point for investors should be on the stability of the air medical segment with the optionality of oil price recovery.

There are resource conversion opportunities for PHII's oil & gas fleet if recovery takes longer than anticipated.

PHII's air medical segment has provided stability for the company.

Introduction

Since its incorporation in 1949, PHI (PHII, PHIIK) has served the offshore drillers in the Gulf of Mexico in their endeavors of oil and gas exploration, development, and production. Their principal business has historically been in the safe transportation of personnel to and from offshore drilling rigs. In 1997, PHI expanded their operations into the air medical transportation industry, where they provided transportation for hospitals and emergency services. They currently operate a fleet of 267 helicopters - 161 in the oil and gas segment and 106 in the air medical segment.

Current Business

Here is a quick view of PHI's revenue and profit for the past 6 years (until oil prices decided to jump off a cliff):

Revenues

(in millions)

2009

2010

2011

2012

2013

2014

Oil&Gas

$316MM

$345MM

$355MM

$424MM

$489MM

$516MM

Air Medical

$160MM

$160MM

$171MM

$211MM

$277MM

$300MM

Technical

$10MM

$11MM

$12MM

$11MM

$89MM

$19MM

Profit

(in thousands)

2009

2010

2011

2012

2013

2014

Oil&Gas

$3,636

$4,594

$3,506

$60,378

$91,745

$100,615

Air Medical

$6,484

$4,987

$5,198

$27,904

$37,129

$46,838

Technical

$51

$31

$53

$2,981

$1,339

$4,141

PHI Inc has largely been misunderstood. Yes, their exposure to the oil & gas industry is high: 62% of 2014 revenues came from oil & gas. However, if their oil & gas division fell off the face of this planet tomorrow, PHI would still be looking at an air medical transportation business (~40% of 2014 revenues) that has been continuously growing for the past 6 years - with the added benefit of industry stability. If we take a look at PHI's stock chart, it appears to be falling in line with the oil prices in general:

PHII Chart

PHII data by YCharts

Exploring the options

Let's liquidate the oil & gas fleet for a second, and then throw away that cash to see what we have left: We still have an air medical transportation segment delivering double-digit million dollar profits. Let's call it $30MM in profits. Subtract another $10M for unallocated SG&A expenses and we are at $20MM. At the current price, PHI is at about 15x earnings.

Now, let's come back to reality and say we never liquidated any of the oil & gas fleet and oil prices remained where they are today for another few years. What are some levers that PHI can pull? They can basically do what they are doing right now: maintain their oil and gas fleet the best they can and move some of the helicopters over to the air medical segment as needed. Here's a blurb from PHI's Q3 2015 10-Q filing in regards to the air medical segment fleet:

"The number of aircraft in the segment at September 30, 2015 was 106 compared to 101 at September 30, 2014. Since September 30, 2014, we added six medium aircraft to our Air Medical segment. Changes in customer-owned aircraft and transfers between segments account for the remainder. "

PHI moved some of their helicopters from the oil and gas segment to the air medical segment in the past quarter. This validates that whether the helicopters serve oil & gas customers or the medical industry, they are still helicopters: a mode of transportation. While it would benefit PHI greatly if oil prices picked back up and offshore rigs started flooding the Gulf of Mexico again, it isn't the end of the world if oil prices remained depressed for the next few years.

Summary

The point I wanted to make clear is this: PHI has options. They are not married to the oil industry. Frankly, even through the slump in oil prices, they have remained profitable. PHI can focus on fleet utilization in the oil and gas segment while oil prices are low and start looking at geographical expansion of the air medical segment - making good use of the underutilized oil and gas helicopters.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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