Bristow Group Earnings Call Insights: Selling & Leasing Aircraft, Capital Spending

On Thursday, Bristow Group, Inc. (NYSE:BRS) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Selling & Leasing Aircraft

Anthony Sibilia – Credit Suisse: It’s actually Anthony Sibilia for Greg this morning. I was just wondering if you guys could talk a little bit about who the potential buyers are for the aircraft that you guys are selling and leasing back? I guess what demand looks like for additional aircraft for them to purchase?

William E. Chiles – President and CEO: Yeah. I’m going to let Jonathan answer that. You’re referring to our leasing.

Jonathan E. Baliff – SVP and CFO: Yeah. Just to clarify the question and it’s a good one. Are you referring to who we do…

Anthony Sibilia – Credit Suisse: Yeah. Those are the ones that you guys are selling and then leasing back?

Jonathan E. Baliff – SVP and CFO: Right. Well, I would break them into three categories and as I’ve said before, there are numerous new participants in the market. But the first participant is what I would call you traditional bank or corporate finance staff that are trying to manage in many ways their tax position. So, many investment banks, but also commercial banks and there are also a number of other participants out there, very large corporate are willing to purchase these aircrafts and then lease them back to us as part of in their way a way to manage their tax position. The second participant are many of the banks, and what I would say who have leasing arms and these are either banks or non-financial institutions that are looking to lease and have been long time participants in the fixed wing aircraft market and many of them are also rotary wing helicopter lessors. The third element is really some of the newer participants in the market and a number of these participants are really interested in the residual value of the helicopter space and being able to manage that for what is in essence a separate investor class. Many of these newer participants are sponsored by large funds, but also pension funds and they get a lot of their money in order to manage residual value long-term, not so different than what Bristow does. Remember we will still own more of our aircraft than we lease and we like that exposure to the residual value as we manage the cash flow of our ongoing business. That being said, if we can do a cheaper – somebody else taking some of that residual value and providing a lot of that cash flow upfront to our investors and provide us ability to grow our business, we will take advantage of that. That market for that third participant has become very attractive to us.

Anthony Sibilia – Credit Suisse: Just one other question following up on that. What kind of drives your decision in selecting kind of which aircraft to sell and then lease back? I know in the press release, you talked about that are few that were sold this quarter were under construction, could you kind of just give a little bit more color that?

Jonathan E. Baliff – SVP and CFO: Sure. What we are trying to do under our prudent balance sheet philosophy is really manage this lease portfolio a little bit like how you would prudently manage a debt portfolio. In that, we want to have diversification of lessors, we want to have diversification of terms, especially how long the leases go out, we want to have some diversification of allowing us to recapture some of the residual value at some future date. So, all of these are really about diversifying the portfolio across our geographies. You see from the material that we’re providing to you guys on the leases that do have a lot of leases right now in North America because that market was particularly strong, and we had aircraft, especially our newer aircraft to particularly favorable from a low-cost to capital standpoint, so you’re going to see its due to lot of the newer aircraft as a way to manage our capital efficiency and they are also the most attractive assets in the eyes of many these lessors.

Capital Spending

Kirk Ludtke – CRT Capital Group LLC: I was wondering if you quantify to somewhere – and I have missed it, I apologize, but I was wondering if you could put the order book and the options into longer term view of where your capital speeding is going.

Brian J. Allman – VP and Chief Accounting Officer: We do provide a sense of really the capital that goes in under, and especially now that you have a 10-K with even more fulsome disclosure, you’ll see that commitments table outlines both the options and the commitments for our capital spend from 2013 through 2016 and thereafter. I can point you out which page once we actually disclose it, but this is a chart that we’ve shown very extensively. We’re one of the few companies that does give this level of detail on exactly how much capital is going out and so from our standpoint, if I can answer specific questions about that, but I’m trying to give you a standpoint of where the documents — what you’re asking is in also in the appendix of our presentation on Page 31. We do give a sense of the order book for which aircraft and generally where they are going, but that’s a little bit more shorter term because it doesn’t necessarily take into account all the options which are — we just don’t provide all the level of detail that we do for the specific order book. Does that help?

Kirk Ludtke – CRT Capital Group LLC: Yeah, it does. I appreciate and I guess I’ll double back to the 10-K, but it looks like pretty much there is and I think it’s pretty clear in your presentation that there is shift not only at Bristow, but in the industry toward larger, more sophisticated aircraft and I guess what are your plans for the smaller aircraft, I guess they are outlined on Slide 28. Is there a market for that or can you give us any color as to what your plans are and what those maybe worth?

William E. Chiles – President and CEO: Sure, I’m going to let Jeremy Akel answer that question.

Jeremy Akel – SVP, Operations: Yeah, Kirk the single-engine aircrafts are primarily in our Gulf of Mexico operation and there is continued demand for them although in the long-term as you just mentioned the shift in the industry is towards the larger aircraft and we’ve recognize that. So, from our standpoint, we are going to be looking closely at managing the supply demand relationship in the Gulf with respect to the single-engine aircraft and looking at the appropriate time to exit in a systematic way, though it’s fleet types.

William E. Chiles – President and CEO: Let me add a little more color to that too, Jeremy. The Gulf of Mexico is an interest place, because now we are seeing companies go back on the shelf and they are looking for liquids again. So, although we’ve always looked at the shallow water shelf, the shelf from the Gulf of Mexico is a gas market. It is starting to see a new life and the liquids looking for liquid. So, these small aircraft may have ever future beyond what we thought a few years ago. If you look at where we think the market is going, it pretty much matches up with the retirement of those aircraft anyway. We also operate 10 single-engine aircraft in Nigeria for Chevron, primarily for Chevron and they work these various short routes offshore and in the (indiscernible). So there are places around that we see the small aircraft continuing to operate. I will mention that we have not had an accident of the single-engine aircraft since 2007, knock on wood. So, we believe that with the right intervention and the right oversight and training, we can fly this single-engine aircraft just as safely as other aircraft is as the multi-engine aircraft. Does that help, Kirk?