Filing Context
Important identity discrepancy: The supplied filing is Era Group Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2016, not a Bristow Group Inc. filing. Investors should verify the issuer and accession number before relying on this summary.
Era Group operates helicopters primarily for offshore oil and gas transportation, with additional search and rescue, air medical, utility, flightseeing and dry-leasing activities. Results are seasonal, with generally stronger Gulf of Mexico and Alaska activity during the spring and summer.
Financial Highlights
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Operating revenue | $63.4 million, versus $70.7 million | $125.9 million, versus $138.2 million |
| Operating income (loss) | $(3.5) million, versus $8.5 million | $(4.3) million, versus $14.4 million |
| Net income (loss) | $(4.5) million, versus $11.1 million | $(8.5) million, versus $10.9 million |
| Net income (loss) attributable to Era | $1.9 million, versus $11.3 million | $(1.9) million, versus $11.3 million |
| Operating margin | (5.5%), versus 12.1% | (3.4%), versus 10.4% |
| Operating cash flow | Not separately provided | $28.6 million, versus $20.7 million |
Six-month operating costs increased to $134.5 million from $126.9 million. Operating expenses rose primarily because of the consolidation of Aeróleo, higher repairs and maintenance costs and reduced vendor credits. Administrative and general expense declined to $17.4 million from $20.5 million, while depreciation and amortization increased to $25.5 million from $23.0 million.
At June 30, 2016, cash and cash equivalents were $39.2 million, compared with $14.4 million at December 31, 2015. Total debt, including current debt, was $254.5 million on a carrying-value basis, compared with $267.0 million at year-end. Total assets were $994.8 million and total equity was $471.8 million.
Six-month investing cash flow was $1.8 million, reflecting $5.1 million of capital expenditures and $5.9 million of proceeds from asset dispositions. Financing cash flow was $(6.1) million, including $9.1 million of debt payments, $7.0 million of revolver borrowings and $4.3 million spent to repurchase senior notes. The company reported $170.4 million of additional borrowing capacity under its revolving credit facility, subject to covenants and other conditions.
Material Changes Versus the Prior Comparable Period
- Revenue declined 10.4% for the quarter and 8.8% for the six-month period, driven mainly by lower U.S. Gulf of Mexico and Alaska oil and gas activity, lower utilization and fewer helicopters under contract.
- International revenue increased substantially because Aeróleo was consolidated beginning October 1, 2015, and because of a new Suriname contract. Aeróleo contributed $6.5 million of second-quarter revenue and $14.0 million for the six-month period, but also generated losses.
- Dry-leasing revenue fell $9.4 million in the quarter and $17.4 million year to date, including impacts from Aeróleo consolidation, expired contracts and a customer bankruptcy.
- The prior-year periods benefited from a $12.9 million gain on the sale of the FBO business. That gain did not recur in 2016.
- Interest expense increased to $8.9 million for the six-month period from $6.4 million, primarily because the company no longer capitalized interest on helicopter deposits.
- The company repurchased $5.0 million principal amount of its 7.750% senior notes and recorded a $0.5 million gain on extinguishment.
- Aeróleo-related capital contributions resulted in a $6.3 million loss attributable to the noncontrolling interest and reduced debt owed to the partner.
Outlook, Risks and Unusual Items
Management reported continuing excess capacity in medium and heavy helicopters, reflecting the oil and gas downturn that began in late 2014. The company is pursuing fleet-management initiatives, competitive bids and new projects to improve utilization, but warned that unsuccessful efforts could reduce utilization and financial results in 2016 and later periods. No formal financial guidance was provided.
Operations of the company’s nine H225 helicopters were suspended following a fatal April 2016 accident involving that model operated by a competitor. The net book value of the H225 helicopters and related parts and equipment was $164.5 million. Management did not expect a material near-term effect but could not determine the duration of the suspension, future customer acceptance or potential effects on residual values.
A competitor’s Chapter 11 bankruptcy and the potential return or abandonment of up to 100 helicopters could increase industry supply, pressure helicopter rates and reduce secondary-market values. H225 and AW139 helicopters represented approximately 57% of the net book value of the fleet.
Unfunded helicopter-related capital commitments totaled $152.7 million, including $39.4 million payable during the remainder of 2016 and the balance through 2018. Approximately $125.8 million, including deposits on unexercised options, could be terminated subject to aggregate liquidated damages of $3.0 million. The commitments include seven AW189, two S92 and five AW169 helicopters.
The company is contesting several Brazilian tax and related assessments, including approximately $7.1 million of municipal assessments, $2.2 million relating to Aeróleo tax credits, $2.5 million of social security contributions and $0.4 million of remaining value-added-tax penalties. Management states that outcomes cannot be determined but does not expect material effects. It had deposited $7.1 million into court-controlled escrow and fully reserved those amounts.
Key risks include dependence on volatile offshore oil and gas activity, customer concentration and cancellations, helicopter safety and grounding events, regulatory and political risks, foreign-exchange exposure, competition, secondary-market values, debt covenants, joint-venture performance, litigation and seasonality.
Investor Verification Checklist
- Confirm that the intended issuer is Era Group Inc., not Bristow Group Inc., and verify the filing’s accession details.
- Assess whether the H225 suspension could cause impairment or materially reduce fleet utilization and residual values.
- Review the $152.7 million of unfunded capital commitments against expected utilization, operating cash flow and available revolver capacity.
- Evaluate covenant headroom and refinancing risk for the $254.5 million carrying value of debt, including the $90.0 million revolver balance and $144.8 million of senior notes outstanding at face value.
- Separate recurring operating performance from nonrecurring items, especially the prior-year $12.9 million FBO gain, asset-disposition gains and Aeróleo consolidation effects.
- Monitor Brazilian tax disputes, escrowed funds and the financial condition of Aeróleo and other noncontrolling interests.
- Review customer concentration, contract termination provisions and exposure to continued weakness in offshore oil and gas markets.