Bristow Group Inc (VTOL) 2014 Q1 法說會逐字稿

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Era Group Earnings conference call.

All lines have been placed on mute to prevent any background noise.

(Operator Instructions)

Thank you.

CFO, Christopher Bradshaw, you may begin your conference.

Thank you, Stephanie.

Good morning and thank you for joining our conference call today.

I'm here with our CEO, Sten Gustafson; our General Counsel, Shefali Shah; our SVP of Fleet Management, Stuart Stavley; our SVP Domestic, Paul White; our Chief Accounting Officer, Jennifer Whalen; and our VP of Finance, Ben Slusarchuk.

By now you should have a copy of our earnings press release and quarterly report on Form 10-Q for the first year of FY14.

Each of our SEC filings and press releases is available under the Investor Relations link on our website, eragroupinc.com and also on the SEC website: SEC.gov.

If you have not already done so, I would encourage you to access one of those sources to print or view a copy of the presentation slides that accompanied our press release. We will be referring to certain slide numbers during the course of our prepared remarks.

Before starting the call, I would like to note that management may discuss forward-looking statements on this call. These forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements as described in our most recent annual report on Form 10-K, our subsequent quarterly reports on Form 10-Q, and the other filings we make with the SEC.

In addition, we may discuss non-GAAP financial measures during the call, such as adjusted EBITDA. Please see our Earnings Release or the Investor Presentation on our website for the calculation of these measures and the appropriate GAAP reconciliation.

Now I would like to turn the call over to our CEO.

Sten?

Thanks, Chris.

Welcome, everyone, to the call.

In reviewing our quarterly highlights, as our business does have a fair amount of seasonality as you will see is particularly pronounced during our fourth and first quarters, I will compare the first quarter of 2014 versus both the first quarter of 2013 and the fourth quarter of 2013.

As we saw last quarter, this will also highlight the impact of the full return to service of our EC 225s during the quarter. As you may recall, none of our EC 225s were working in the first quarter of 2013, but all of them were earning revenues this entire first quarter.

Turning to our operational highlights for the first quarter on page 5, I will note that we delivered strong operating performance this quarter, resulting in record first-quarter operating revenues of over $79 million, a 17% increase over the prior year's quarter, driven primarily by increased activity in our US Gulf of Mexico operations.

I'm happy to say that our streak of record revenues for each respective quarter continues into 2014, surpassing the first-quarter records set last year.

Net income attributable to Era Group was $4.4 million, relative to $6.7 million from the prior year's quarter, due to a $7.9 million decrease in gains on asset dispositions in this quarter compared to the prior-year's quarter. When you exclude the impact of gains on asset dispositions, you can see that operating income and adjusted EBITDA this quarter increased by 88% and 20%, respectively, relevant to last year's quarter.

In comparing this quarter's results to Q4 2013's results, our operating revenues increased by $3.4 million, or 5%, from Q4 2013, driven by strong results in our Gulf of Mexico operations. Our net income increased by $2.7 million, and our operating income and adjusted EBITDA increased by $0.5 million and $1.8 million dollars, respectively.

In addition to the impact of a $2.4 million increase in gains on asset dispositions compared to Q4 2013, our sequential quarter net income also benefited from a $0.6 million decrease in interest expense, a $0.5 million in income tax expense, and a $1.4 million increase in earnings from equity investments.

Our results are broken out by activity on the next couple of slides, beginning with Oil and Gas on slide 6.

Our Oil and Gas service line currently represents nearly three-quarters of our Business. And our operating revenues from that service line this quarter were $56.6 million, representing a 25% increase from the prior-year's quarter and a 5% increase relative to last quarter.

Most of that, over $49 million, came from our Gulf of Mexico operations. 36% above prior year's quarterly results, reflecting an increase in fleet count; higher rates; and the resumption of operations of our EC 225s.

Relative to Q4 2013, we saw an 8% increase driven primarily by improved charter activity.

In Alaska, we generated operating revenue of $6.2 million, a 22% decrease over the prior-year's quarter, due to lower rates as high rates and other higher other revenues were earned in last year's first quarter from short-term work related to a drill ship running aground. Relative to Q4 2013, we saw a 10% decrease primarily due to lower utilization.

Our International revenues of $1.2 million this quarter, a 23% increase over Q1 2013, came from our contract in Uruguay, which began in late January 2013 and were essentially unchanged from last quarter.

The deepwater rig count in the US Gulf of Mexico has now surpassed pre-moratorium levels and is expected to grow substantially by 2015.

The continued strong permitting environment in the US Gulf of Mexico suggests a continued improvement in the deepwater rig count, especially in light of recent very successful discovery announcements in the lower tertiary.

This additional drilling activity bodes well for the future, and we are currently ramping up our tempo to service a number of clients' deepwater projects that are now beginning to move from the drilling to the completion and installation phases, which are personnel intensive.

Let's turn to slide 7 to review other service lines.

Operating revenues this quarter from our Dry-leasing business decreased year over year to $10.9 million, primarily due to some dry leases that have ended since the prior year's quarter. Sequentially, however, we saw only a 6% decrease.

Consistent with our strategy of seeking the highest-available returns for the equipment, those aircraft whose dry leases ended have either returned to go to work here in the US or have been sold.

Revenues from Aeroleo and a customer in India continue to be recognized on a cash receipts basis due to liquidity issues experienced by both customers.

Relative to last year's quarter, we nearly doubled our SAR revenues to $6.2 million with the addition of subscribers and increased activity. Relative to Q4 2013, our revenues increased by 14% due to the higher fixed monthly revenues derived from the addition of a third SAR quick AW 139 to our SAR program for the full quarter.

Revenues of our Air Medical business were $3.1 million, essentially flat relative to last year's quarter and Q4 2013.

Finally, our Flightseeing is a seasonal business, as you can appreciate in Alaska. So it does not contribute anything in the fourth or first quarters in each year.

Our FBO business saw this quarter's revenue increase 24% and 17% relative to last year's quarter and Q4 2013, respectively, due to higher fuel sales.

Turning to slide 8, you will find an updated table of Era's future capital commitments.

We continue to have ten 189s on order, with options for another ten. As a reminder, we are the launch customer in the US for AW 189; and our first three are scheduled to arrive before the end of this year.

Based on the dialogue we are having with our current oil and gas customers due to this increasing activity in the Gulf, as well as our dry leasing customers, we are confident that at least our first four AW 189s will be utilized as soon as they are ready.

In terms of additional heavies, you may recall that we have entered into an agreement with Sikorsky to add the S92 to our fleet. Expanding and diversifying our heavy aircraft fleet offering to enable us to pursue a broader universe of market opportunities in the deepwater.

We have a total of four aircraft on order with options for five more. The first three are scheduled to arrive during 2016.

We continue to add the versatile AW 139 to our fleet, with three arriving during the first quarter and one more aircraft scheduled to arrive before the end of the second quarter.

I would also note that one of the three AW 139s we added is SAR provisioned, meaning that although it is currently outfitted for crew change, we could quickly convert it into a full SAR configuration should the market demand warrant it.

To order a SAR provision AW 139 is typically at least a one year lead time. This has given us further flexibility to address whichever market demand warrants a particular configuration.

With that, I'll turn it over to Chris to go through a more detailed review of our financial results.

Thank you, Sten.

Looking at slide 10, our first-quarter expenses increased on an absolute basis compared to the first quarter of 2013. The growth and revenues outpaced the increase in expenses, resulting in margin expansion between the two periods.

Operating expenses increased $6.5 million, but declined as a percentage of revenues.

As you know, Repairs and Maintenance expenses and Personnel costs are the two largest components of our OpEx. R&M expense increased over $4 million, or 34%, period over period as a result of the timing of repairs and increased PBH expense due to the EC 225 helicopters resuming operations.

Personnel costs increased $1 million, or 6%, due to higher head count related to increased activity, and pay scale and benefit plan adjustments related to a competitive labor market environment.

Administrative and General expenses increased over $2 million, or 24%, primarily due to an increase in personnel; annual pay adjustments; and share-based compensation expense related to changes in senior management and annual incentive equity awards.

Depreciation expense was $400,000, or 3% lower, primarily due to helicopters and related equipment sold since the prior-year quarter.

During Q1 of this year, we sold two helicopters for cash proceeds of $3.6 million, resulting in gains of $2.9 million. In Q1 of last year, we sold or otherwise disposed of six helicopters and related equipment for cash proceeds of $19 million, resulting in gains of $10.8 million.

This $8 million decrease in gains on asset dispositions between the two periods is the reason that EBITDA, operating income, and net income declined. Excluding the impact of gains on asset sales, all three of these profitability metrics increased significantly.

Interest expense decreased $1 million, primarily due to increased capitalized interest related to additional deposits on helicopter orders. Income tax expense decreased by $1 million due to lower pre-tax income in the current quarter, resulting in the decrease in gains on asset dispositions.

Our effective income tax rate was 39% in Q1 2014 compared to 37% in Q1 2013. The difference in the tax rate is a result of non-deductible expenses primarily related to share-based compensation payments.

Earnings from equity investments were little changed from the prior year quarter. Excluding the impact of gains on asset dispositions, adjusted EBITDA increased 20%; and the adjusted EBITDA margin improved to 24%.

Slide 11 highlights the key variances between Q1 2014 and Q4 2013.

Operating expenses were 10% higher, primarily due to an increase in R&M expenses related to the timing of repairs and an increase in PBH expense. G&A expenses were $800,000, or 7% higher, primarily due to the acceleration of share-based compensation expense related to changes in senior management.

Gains on asset dispositions were $2.4 million higher in Q1 compared to Q4, which drove the increase in operating income and EBITDA. Interest expense decreased $600,000, primarily due to increased capitalized interest related to additional deposits on helicopter orders.

Income tax expense decreased by $0.5 million, due to evaluation allowance recognized in Q4 2013 related to certain state NOLs.

Income from equity investments was a $0.5 million in Q1, which represents a $1.4 million improvement relative to the $900,000 of losses from equity investments in Q4 2013. Both Dart and Lake Palma contributed positive equity earnings in the current quarter compared to losses for both joint ventures in Q4 2013.

As Sten mentioned earlier, the improvement in equity earnings and a decrease in income tax expense and interest expense helped drive the $2.7 million sequential increase in net income.

Adjusted EBITDA increased 9% in the current quarter. If you exclude the impact of gains on asset dispositions, adjusted EBITDA decreased 3%. And the adjusted EBITDA margin decreased from 26% in Q4 2013 to 24% in Q1 of this year. The sequential decline in margins is primarily due to the increase in R&M expense noted above.

Turning to slide 12, we amended and upsized our revolving credit facility at the end of the March, which expanded our borrowing capacity from $200 million to $300 million; increased our operational flexibility via improvements made to the collateral requirements; reduced our borrowing costs; and streamlined the financial covenants. As of March 31, we had cash balances and escrow deposits of over $25 million and total debt of $285 million.

At quarter end, our total liquidity was approximately $267 million. Our total debt to adjusted EBITDA ratio was 3.1 times. And our interest coverage ratio was over 5 times. And our total debt to total cap was 39%.

We believe our current cash balances, future cash flow from operations, and access to borrowings under our revolving credit facility will be sufficient to fund our current capital commitments. And we plan to maintain the financial flexibility to capitalize on growth opportunities as they arise.

Slide 13 depicts Era's net asset value, which primarily consists of the fair market value of our helicopter fleet.

As usual, we have shown the NAV per share both with, at $33.5, and without, at $43.70, to defer tax liability so that investors can make their own determination of how much, if any, the NAV calculations should be burdened by the current amount of this liability. The $0.50 increase in NAV per share from Q4 is primarily due to cash flow generated by the Company.

Slide 16 in the appendix shows the calculations used to derive our NAV per share.

I would remind you that this calculation only includes the helicopters that we own. It does not include any value for leased-in or managed helicopters we operate.

With that, I'll turn it back to Sten for concluding remarks.

Thanks, Chris.

Once again, I want to thank everyone on the call for joining us this morning.

With that, I would like to go ahead and open the line up for questions.

Operator, could you please open up the line.

(Operator Instructions)

We will pause for just a moment to compile a Q&A roster. And your first question comes from Jeff Spittel with Clarkson Capital Markets. Your line is open.

Hey guys.

Morning.

Maybe if we could start off on the pricing outlook. You know, it certainly sounds like market conditions are pretty good in the Gulf of Mexico. I know you have some new helicopter deliveries coming in. Is there any reason we wouldn't see sort of a similar uptick in the Lase rate, or the implied Lase rate in the second as we saw last year?

We don't provide guidance on that. I would definitely say that we're seeing continued tightness. In terms of the construct of our contracts are not spot in the sense where you see real time rate inflection. You see them; we adjust them for the existing contracts on an annual basis. Not only on rates, but there's other things that we may not have been able to charge for in the past that we may be able to charge for in the future.

I would say, certainly by comparison, if you look at for instance, the ad hoc rates that we're able to achieve relative to just a year ago, well above 20% above where we saw that. Now, whether it continues on that pace, we will see. But certainly we're continuing to see tightness.

Okay. And I guess the swing factors around that in the Gulf of Mexico aren't necessarily rig departures and rig additions, as much as just what is going on in the development front which sounds like you're pretty optimistic about it.

Yes I mean again if you look at what we serve in terms of our fleet, you're looking at 75%, 80% of what we address is production related, so therefore, much more stability. Obviously today's drilling is tomorrow's production. But, you know, again, we're seeing rigs continue to arrive in the gulf.

Certainly Anadarko our largest customer, you know, they had their investor presentation just in the last week or so. And they've got eight rigs running with two more coming. That's just on the drilling side. They, obviously, have got a lot of work going on, the installation of their mega projects there in the deep water.

Makes sense. I guess the last one for me, with regard to Mexico, I know big picture you have international expansion plans on the horizon. With the new protocols down there from a regulatory standpoint, is that one of the more attractive and fertile markets given how close you are to it?

It certainly -- exactly. Geographically speaking, to continue down the gulf, if you will, believe me, it has our full attention. We have been following the events there. Personally, coming from energy investment banking, it seems like the reform of Pemex and the opening of that market has been perpetually a manana issue. It has always been discussed, but it was always going to be some day, so I was pleasantly surprised to see that it does appears to be moving forward.

We are staying close to that situation; obviously you would need to partner with a Mexican operator. And so that's also a market that we are evaluating the various players there. And, again, looking at that situation, I think judging by our discussions with some of the US operators who are likely candidates to move in there, I think the view is, is that realistically that may be off in the future a little bit before it actually, you know, rigs start moving in there and people go to work.

Sure. Makes sense. Nicely done this quarter. Thanks for the time, guys.

Thank you.

Your next question comes from the Steve O'Hara with Sidoti.

Good morning.

How are you?

Good. The question I have is, in terms of your current order book, I mean do you see that as being sufficient? What is your appetite for maybe adding to that, based on the opportunities you're seeing? And then also on the pilot side, what's your ability to scale up the pilot base? Has that improved or, you know, lessened in the last, you know, six months or so?

Sure. I mean, looking at our order book, in terms of being able to satisfy the needs of our clients, it's something that we try to build in as much flexibility as possible so that if we see the opportunities and they actually look like they are come to fruition, we can pull the trigger on these aircraft. We can exercise options in terms of, if you want to think about it as surge capacity. But we also have a flexibility, you will see on that slide, to be able to walk away from some of these contracts should the demand not pan out the way we hoped in the future.

And so I think based on what we see, because again these are contracts necessarily, particularly in the deep water, that don't pop up overnight where suddenly you are going to need three heavies in the next three months and you wouldn't have known that. You have a fair amount of lead time. So based on what we see, we have built that book in order to address that.

Now, as you move towards mediums, for instance like 139s, I think there's still enough flexibility in the system that if you really needed two or three or so forth, you know, within a six-month time period, especially given the very strong relationship we have with the Augusta Westland, I think we have that ability to access that should we need them, even though they're not technically in the order book. Ultimately, as I've said before, with the leasing companies who have taken up a number of speculative positions and based on what we're seeing, are frankly sitting on a few. If we really needed it, if there was a situation where it was very key client who needed something in a time frame that we wouldn't be able to service it with acquiring an aircraft, we could access the leasing market if we really needed to.

Okay. And just --

I'm sorry. Your other part of the question, on the pilot side.

Yes.

It is also something that we manage and we focus on; obviously we have our own training center. So we're constantly getting people through there to make sure that we have adequately trained pilots to satisfy the need. We have not seen any issues there yet, but again, that's something that we watch very closely. Referring back to as I said earlier, the fact that these are contracts that don't really pop up overnight that you do have a bit of lead time on them. You know, so far we've always been able to manage to make sure that we have sufficient and well-trained pilots to service those needs as they come up.

Okay. Thank you. And then just in terms of the -- I know you have the Sikorsky's on order, and they are going to start delivering in 2016. How do you see the makeup of the fleet going forward? Do you see it scaling more in number basis, more towards the heavy? Do you think you'll be more concentrated in mediums going forward, where do you see that? Then I was just wondering, I didn't hear anything on AroLio or India. I'm just wondering what the impact was there in terms of the quarter.

Sure. I'll take the fleet mix question and then I will pass the baton happily to Chris to discuss AroLio and India. (laughter) On the fleet mix discussion, it's something which we're constantly trying to strike the right balance.

Obviously you've got the -- the metaphor I always use is on one end of the spectrum you've got Southwest Airlines, which is the paradigm of efficiency because you have one type of aircraft. It's extraordinary in terms of your pilots, and your mechanics, and your parts, and inventory, and so forth, that's all extremely efficient, but that is not realistic in our market. Obviously we serve different missions, so you need different aircraft.

On the other end of the spectrum, you have Hertz where you have every car imaginable. So obviously we're trying to strike the right balance to where you have the fleet that can service your client's needs. You have the flexibility to service their various missions. But, obviously, at some point if you have really too many, or just a few couple here, three there various variances, then it becomes inefficient. We're perpetually trying to strike the right balance.

You will see us and have seen us exit out of some variance as we reach a point where there's two or three left and it doesn't really warrant keeping them. I think going forward what I would say is the market will really dictate that. We certainly don't have a bogey in mind if the mix will always be X to Y in terms of medium to heavy. It's where the market dictates it.

Necessarily the further and further you go off shore simply the mission requires heavies. So, I would say that you will see a mix of both, and we' let the market determine what generates the highest returns, and that's where we will always go.

Thanks and on the dry leasing question related to cash collections from both AroLio and India. On a year-over-year basis, we actually collected about $1 million more in cash and thus recognized revenue from AroLio and our customer in India relative to Q1 of 2013. The vast majority of that improvement year-over-year was related to India.

On a sequential quarter basis, the cash collections from Brazil and India were down nominally from Q4 2013 to Q1 of 2014. As you know, we will continue to recognize revenues from those two customers on a cash receipts basis due to liquidity issues until such time as the collectibility can be reasonably assured.

On AroLio, from on a bigger picture stand point, as you know, we were pleased to announce earlier this year that we have signed definitive agreements that would contemplate the transfer of our local partner's interest in AroLio to a new partner who is an unaffiliated Brazilian national permitted to control the operations under the local regulatory regime in Brazil. That transaction is expected to close the second half of this year and is subject to customary closing conditions.

We are -- we continue to be optimistic long-term on the Brazilian market, given the level of activity likely to be undertaken by international oil and gas companies, as well as the upcoming Petrobras tenders and we feel that the change in partners will put us in a position to have more flexibility to capitalize on those opportunities going forward.

Okay. Thank you very much.

And your next question comes from Adam Ritzer with Pressprich. Your line is open.

Good morning. How are you?

Hi, Adam.

Just a couple questions. I know, Sten, you were talking slightly fast. I couldn't listen to everything you said in your initial comments. Could you repeat or if you didn't say, could you give us the guidance on when you have new aircraft being delivered in 2014? What is the specific schedule?

Okay. So -- so what has happened in terms of the AW 139s, we had three arrive, and as you know it takes a little while from when they arrive to when they actually go in service? Three arrived this quarter. We will have one more arrive in second quarter.

So I think you can safely assume by the time you're you know kind of getting into the third quarter, you will have all of them essentially up and running. The 189s will arrive starting in the fall. By the end of the year, you will have all three arriving. Again, arriving and then once they're fully kitted out and ready to go out will probably ideally be in a position to start earning revenue in the very first quarter of next year.

Okay. So just to repeat, the way I'm looking at it, you should have four 139s in service for the second half?

Yes.

And then three 189s in service for 2015?

Correct. Yes. And then there will be two more that arrive in 2015. Stu, do you remember when those, well I guess when they arrive on-site, not necessarily when they start working? Spread though out the year, I think it's like June or September or something like that. It's spread throughout the year.

Second quarter and third quarter.

Yes. Second quarter and third quarter next year is when the additional two show up.

Okay. Thanks.

Basically, it goes 3, 2, 3, 2, is how it works, from 14 to 15 to 16 to 17.

Okay. That makes sense. Can you also talk a little bit, I noticed in the queue there was some an Airbus settlement on the EC 225.

Yes.

Okay. Can you -- is there more details on that? Is it a cash settlement? It looked like it was a --

It's a credit -- yes. It's how the OEMs often do it. You know, because it's truly, frankly it's truly cash to us, although it's not necessarily cash to them. But the way it works is a credit, so basically it's a credit that can be used for really anything that we purchase from them, whether its service, whether its parts, aircraft, et cetera, it can being used for anything.

As you can appreciate, we are bound by confidentiality provisions of the settlement. We are restricted in what we can say about it. Suffice it to say is what will happen is, you will see it get reflected over time, I think, in the next sort of 6 to 10 quarters, just roughly speaking. Because you know how much we use from them it depends on how much we get or how much gets applied.

And so therefore, you know, you will see it impact our overall cost of sales as those discounts, if and when they're applied. And that's where you will see it hit and see it over the next 6 to 10 quarters, is our best guess.

Okay and could you give maybe a little more color on the previous question regarding Brazil? I know you're optimistic long-term. Can you talk a little bit about your new partner if that new partner is helping and you also mentioned a Petrobras tender? Can you be more specific on how that tender works?

Yes. Our partner, it's a person who actually has a long relationship with some of the senior folks at Sikorsky, so it's very much a known entity to the family, if you will. This person is very well regarded, well placed person within Brazil and the energy industry. So we are hopeful that that will be helpful as we go forward.

Certainly someone who will be supportive and constructive, which is the most important thing going forward in the process. And the tender, to be honest, has slid a little bit. There's some tenders that have been coming up for a while that, there's a heavy tender coming up, which was supposed to have procured by now, but has been moving to the right.

We've been in dialogue with Petrobras, as have the other operators with them. They have not actually set the date yet. I believe the medium tenders, they have not set that either. But it's just a matter of both looking at existing contracts when they finish and then looking at future work and knowing, then, obviously between the two of those, you will have upcoming tenders. At the moment, no specific dates have been set.

Okay. So it's almost like you said about Mexico. It's almost manana with them.

This one is hopefully a little bit, I'm not sure what the Portuguese word for tomorrow is, but this one is definitely coming, it's just a matter of I think given all the, some of the turmoil at Petrabras that it has caused things to move to the right a little bit. But again, we've got for our 189s; we have some 189s on a previous tender that we'd won that they will begin to go to work. They kind of phase in over time beginning in roughly October, November time frame and then going in through the middle of next year, is when they start to phase in.

Got it. I have one more question, if you could bear with me.

Yes.

I guess if you look at the, you know, some of the companies in the deep and ultra deep drilling space, those stocks have been pretty poor performers over the last, oh, six to nine months. Not that I'm an expert, but I guess it's because you're starting to see some weakness in day rates. Can you talk a little bit about, you know, the cost of a helicopter, you know, day rate versus the overall cost of a deep and ultra deep rig?

Can you also maybe talk a little bit if you're seeing any pressure on pricing because those guys are getting lower rates and maybe you can explain how, hopefully you guys are somewhat immune to that even though the stock seem to be trading as a group. I thought that would be helpful.

Sure. Let me start with the fact that, you know, what you're seeing in terms of the pressure on the day rates from the drillers is just, is as occurs in every segment of the oil field services is simply supply and demand. You have had a number of rig that's were ordered some years ago that are now, there's quite a wave of them hitting right now at the moment, right at a time where some of the traditional sources of demand for the deep water, things like West Africa and things like Brazil, those areas are getting pushed a little bit to the right. They're not going away.

It's that it's a simple timing issue. That when you have a wave of new builds all arriving right at the same, some of these projects get moved to the right. The oil companies won't miss the opportunity to go ahead and seize upon that disconnect and try to push rates down. Obviously, across the board, whether it's drilling rigs, or coil tubing, or drilling mud, I mean just any piece of the equation has been moving up and to the right, given the tempo of activity here in the last couple of years.

Certainly the oil companies, as I said, will jump on an opportunity to push back when they can. So, you have seen a little bit of that. I wouldn't be surprised at that gets rebalanced have the pendulum start swinging back the other way. But as you know the stock market doesn't look necessarily all that far ahead, and certainly are currently looking at some of the new rig placements and where those rates are. Therefore, we have moved that down, and as you correctly noted, that the sector tends to more or less move in tandem, so that when one large group like the drillers gets hit, it will take the overall sector down.

If you think about what we serve, again about 75% to 80% of it is production. It is obviously not immune, but certainly is not as volatile as the front end of the equation, which is on the seismic and the drilling side. So we -- I can only speak to what we see and what we deal with every day. And that's just the fact that, again our clients are extremely active.

As I noted earlier, for instance Anadarko being our largest customer, the Lucius spar installation is underway. They have a flotilla out there with over 500 berths on it. That's going to be out there for the next number of years. As soon as that gets done, then they're going to be moving into the Heidelberg installation, and they have Shenandoah after that. As I've said they have eight rigs working with two more on the way.

So, you know, we don't want to kind of whistle past the graveyard and just assume none of this applies to us. But I would say there is a fair amount of disconnect, in terms of what is happening to the pricing environment for the off-shore drillers and what we deal with.

Okay. So what is -- what is a day rate on a helicopter these days for a medium heavy helicopter out to a deep water rig?

It varies. It depends on the length of the contract and there's basically -- we don't give out that information as you might imagine. But I would definitely say it's been -- continues to be strong. And like I said, it's been going up year-over-year.

And, again, we see between the activity, our clients are telling us, and, again, with deep water projects, these are things that don't pop up overnight. There is a lot of long-term planning so you have a fair amount of visibility. We still feel confident about the overall environment.

Okay. I'll get off. I appreciate your handling all of my questions. Thanks a lot.

Thanks.

(Operator Instructions)

Your next question coming from Kathryn O'Connor with Deutsche Bank. Your line is open.

Hi, Kathryn.

Hey, how are you? I wanted to ask some follow-ups on the previous questions. In terms of you talked about the other lease companies out there having I think what sounded like some excess units that you might be able to use in case you see increased demand that you can address with the current order book. Can you speak a little bit about how many units you think there are from the different players out there, or give some color on that?

It's, it's -- well, first of all, yes, we don't have that specific information. I think it's always a little bit difficult to tell because they, of course, are in discussions with multiple people and providing proposals for upcoming bids and so forth. So it's a little bit nebulous to try to get your arms around exactly how many might be available. We have a rough idea of their order book of what they have coming in when. But what has actually been booked is a little bit more difficult to assess, Because, obviously, none of these guys are public yet, although I think one or two might be becoming public in the next year or two.

Anyway, this would be obviously for a one-off situation. I wouldn't say this is they have that spare capacity, if you needed five of a particular kind of aircraft you could get it overnight. But if you really needed one or two, I think the capacity is probably roughly there.

Okay. Thanks. And then for the, for the S92s, you were talking about mix before and saying that you get different equipment for different missions. Can you just talk a little bit about why you picked up the S92s, sort of which geographic region you were looking at to use those assets.

To be honest, it's not necessarily that a particular model is better suited for a particular geographic area. The reality is that if you think of it in terms of how many people you can take and how far you take them and plot that on a graph, what you will see is that at the moment, you really just have the 92 and the 225 that can service that kind of mission in terms of taking a lot of people a long way.

When the 189 arrives, they won't have the same capacity both in terms of people or distance, but it will be closer than for instance you see with the 139s. So the 92s and 225s are pretty similar, in terms of their overall capability. But I would tell you that based on dialogue with our clients, the way that I always describe it, in some ways some people are Ford people and some people are Chevy people. They have their own preferences, and you can show them statistics all day long but they have their preference as to which one they like. And the fact of the matter is you will find some people who are absolute believers in the 92 and you will have some people who are absolute believers in the 225 and some people that are agnostic.

So the thought was, both in terms of being able to service a broader marketm but also to, frankly, what we saw here with the 225, having diversification in terms of model that occasionally these various models may have an issue. If you're all in on only one type and you draw the short straw that happens to be your model that has an issuem as we saw with the 225, you're going to be in a bit of a pinch.

So we -- it's both addressing market need and also to show for all risk diversification. I would say it's not -- we didn't, we didn't get them with a view of well if we wanted to get into X market, we needed that kind of an aircraft. It's more of, again, broadening the offering and diversification.

Right. So with that in mind should we expect further diversification, because, obviously, we've seen in the past issues with Augusta Westland models and the 139 and you know you had ECT 225 problem. Are you just going to continue to round out the portfolio of assets and fill in some Sikorskys?

Well, you are sort of faced with a fairly limited universe once you get to the higher specifications. Again with the heavies, at the moment there truly are just two, the 92s and 225s. Then you this kind of new category which will be coming in, which is the AW189 and then Eurocopter has their version of EC 175. And then a few years from now here you will see the Bell 525 come in, as well.

We have the 189 because it's really just an extension of the 139. And based on a number of other aspects we decided that was the better route to go. I would say we will still evaluate the EC 175 in the future to see if that also the same thing, so we're not all in on one category, but we will see how that plays out. Then when you get to the mediuns, obviously, same thing you have a fairly limited group of aircrafts, essentially the 139s and the 76Ds. So, we at the moment are happy with the 139s. But we will evaluate that. As I mentioned earlier, you are always trying to strike the right balance of diversification, breadth of customer offering, but not kind of overdoing it and having too many variance which would create inefficiencies.

Okay. And then just a question -- I appreciate that you can't say much on the EC 225 settlement, but you say it will benefit the OpEx in the next 6 to 10 quarters. When you have some those credits, are you going to call them out during the earnings call and let us know when you have those benefits rolling through the numbers?

Yes. Yes. It's just the fact that we can't, we can't, necessarily it will just depend on how much we use and when we use it. And since we, you now that will vary, there's so much variability related to that we can't really get into much detail about it. So there -- but when it occurs, yes, you will see it. It will basically be in the MD&A discussion as to why this quarter is different from last quarter et cetera.

Okay perfect, that would be helpful, so I'm glad to hear that. And then on Brazil, when you're talking about the upcoming tenders, do you, do you have a sense of what your market share is in Brazil and just in general, do you think that when these tenders come up, you will sort of, is it safe to make the assumption that you will continue to have a similar market share.

Yes. Chris, I don't know if you want to touch that.

Yes Kathryn, if you look at the operators in Brazil, the largest one currently is Lear, which is the [versatile] company. They have, these are just rough numbers that I'm going to give you. Roughly 60 plus machines in the country.

Next is an operator named Omni which has now about 55 machines. And then just below that would be BHS, which is a CHC company which has a number of helicopters in the low 50s in country. As you know, we currently have 12 helicopters working in Brazil. We are the next largest behind those three.

We feel like we have a good opportunity in the upcoming tenders not just because of the market opportunities themselves, but also the fact that AroLio in Brazil does have a very strong brand and a good reputation. For example, Petrabras has a rating system, an audit that they do each year. And they use the results of that rating in a formula when the tenders come out that gets applied and AroLio actually earned the highest rating in the latest Petron rating in Brazil, which puts us in a position such that, for example, if we were in a tie or even slightly above in terms of the rate we are offering in a given tender, we could actually win that tender even if someone underbid us because of our rating as the, as having the best rating in Brazil with Petrabras.

Okay. That's helpful. Thank you.

And then going back to something that you said at the beginning of the call. I think you were talking about global Mexico demand and you're talking about moving from drilling and completion to the installation phases of several of these larger projects. Can you just give us more color on how that changes the helicopter needs; I know it's more intensive with people? Can you just give us more color on that overall process and then how much of a difference we're seeing in drilling versus installation? And then moving to development, where we are in that spectrum on a mix basis in the gulf and if that is going to sort of accelerate growth in your mind?

I would say, again, in terms of the overall mix, it's still the vast majority is on the production side. What I would say is as you move from the drilling to the installation side, what you then have is a bit of a, you know, a double impact if you will, of not only moving the people for instance again, let's just use Anadarko as an example with the installation of Lucius.

They have got the flotilla out there where are you're moving employees, but then also you have the people actually doing the installation, you have got the technepes and side pins of the world and so we end up doing a lot of ad hoc work for them. Because they're not there for a year or more, they don't -- it doesn't make sense for them economically to enter into a longer term contract so really just do ad hoc work.

That is obviously very attractive for us. And that, so I said not only do you have the people from Anadarko, but then you have all of the folks working on the construction side. And then eventually when that moves into -- when it's fully installed and moves into production phase, the number of people involved will go down, but then they will be on there for the next number of quite of few years.

So, it gives you a bit of a long tail of value there. In terms of overall mix, I still think I guess in terms of our overall percentage, I would think of that, you know still think of 75%, 80% coming from the production side. And then the other aspect, again, remember we're the exclusive provider for BestSeat as they do the inspection, so when all the drilling occurs, when installation occurs, et cetera, then you're moving the best inspectors back and forth as well.

Okay. Perfect. Can you give us an idea of what you're seeing on a region by region basis across the globe in terms of just developments on the need for helicopters? And then also just speak to whether or not -- I think at some point we talked about the possibility that your SAR business could extend internationally as we saw a lot more discoveries in Africa. Can you give an update on that?

Yes. Again, across the world, off shore deep water, particularly in places like Brazil like off of Africa and the North Sea continues to be quite active. So, you don't really have any areas of weakness, for instance, where you might see any aircraft move from one area to the other. It all remains quite active.

There are a number of relatively nascent areas that are starting up. For instance, East Africa and even off South Africa. But frankly we're seeing a number of areas around the world that are literally, you're at the seismic phase. There's been no work done.

There is no existing incumbent, because there was no existing market, so there's a number of those areas as well so you're not necessarily displacing someone. You're actually just coming in for the very first time.

I would say in terms, I don't know what else we're able to address on that.

Okay.

Sure. On a regional basis, Kathryn, in some of the prior presentations we've had a map which shows the growth and the number of floating drilling rigs and the growth and the number of deep water production platforms equipped with helicopters or helipads broken down by regions. That's all pulled from third party information, so it's publicly available. You can reference that, not only the growth this year but also in 2015.

I would point you in that direction for some more detail around Sten's comments, and one of the things you will see from that is that the Gulf of Mexico really is growing as fast, if not faster, than any other deep water market in the world today. Followed by southeast Asia with quite a bit of growth and then we have talked about the number of tenders that we expect in Brazil later this year and into next.

Okay. Great. And then last one for me, the credit facility, I know you said you increased it for the possibility of having more flexibility. What do you -- is there anything that you would envision M&A-wise that you could use that revolver for that you would be willing to buy? And then with that in mind, where are you willing to push leverage to?

Sure. Certainly the increase in the capacity available to us under revolver does provide us with a lot of optionality for opportunities whether those be organic via new equipment orders or strategic via potential acquisitions. As we have said in the past, we are looking at a number of opportunities in international markets that would put us into areas of the world where we may not currently operate, operating with customers who we don't currently fly for. So we continue to evaluate those.

As by matter of policy, we don't comment on any one particular opportunity. But the credit facility would provide us nice optionality to be able to fund those when they do arise.

Great. Thanks. That's it for me.

Thank you.

There are no further questions in the queue at this time. I will turn the call back over to the presenters.

Great. Again, thanks everyone for joining us this quarter. We look forward to speaking with you next quarter.

This concludes today's conference call. You may now disconnect.