Helicopter Operator Era Group To Take Flight From SEACOR Holdings On January 31

We try to cover every spinoff, but sometimes we just don’t get to them or they fall through the cracks. In the case of SEACOR Holdings'(CKH) upcoming spinoff of Era Group(ERA), we missed it until recently, but caught it prior to its upcoming ex dividend and distribution dates.  Era Group crept up on us because it was originally intended to be an IPO, and it was only when the IPO was scrapped that the company elected to spin it off to shareholders. Of course, it only mentioned this in an 8-K filed October 1.

SEACOR is a gem of a company that we were surprised to encounter. Though its market cap is still under $2 billion, the company’s performance through last year met or exceeded Berkshire Hathaway’s(BRKB) over 5, 10 and 19 year periods, as we learned from an excellent writeup at The Brooklyn Investor. The company is “a global provider of equipment and services primarily supporting the offshore oil and gas and marine transportation industries.”

We were surprised to discover the existence of Vertical Magazine, which bills itself as “The Pulse of The Helicopter Industry.” Our surprise increased when we found the detailed profile they had recently published about the new Era Group.  The 64 year old Era, it seems, is the oldest commercial helicopter operator in the United States. The company was last independent in 1967 when it was sold to the Rowan Companies(RDC), which sold it to SEACOR in 2004. Since then, SEACOR has acquired other helicopter operators and rolled them in, and spent liberally on new aircraft. Presumably, this is the motivation behind the spin- to exit a capital intensive business and allow that business to use its own equity for acquisitions.

Era has filed an information statement on the spin, with full details. The company owns 153 helicopters with an average age of 11 years. Revenues were $202 million for the first nine months of 2012, up from $196 million in the year-earlier period. Unfortunately, net income for the period declined from $5.4 million to $686,000. It looks like much of the margin decline was a result of operating difficulties leading to an impairment charge at Aeroleo, a Brazilian operator in which the company owns a 50% economic interest and a 20% voting interest.  The company believes that the issue will be resolved by a recent contract signing.

For instance, there have been three recent accidents involving the Eurocopter EC225 helicopter that have resulted in complete losses of the helicopters. One of the helicopters was under contract-lease from us to one of our customers, while the other two were owned and operated by parties unrelated to us. In response to these accidents, major global operators have indefinitely suspended EC225 operations. We are still earning a majority of the revenues associated with our EC225 helicopters; however, we are not collecting hourly revenues, since the helicopters are not flying. To the extent the EC225 helicopter operations remain suspended for a prolonged period of time, our results of operations could be adversely affected.

Our Brazilian joint venture, Aeróleo, also experienced operating difficulties due to an incident with an AW139 operated by a competitor. In July 2011, Aeróleo received notice that it was successful in its bid to place four AW139 helicopters on contract with Petrobras Brazil and in turn entered into contract-leases with us for the helicopters and mobilized them to Brazil. In August 2011, Petrobras Brazil cancelled the award and, as a result, these four AW139 helicopters under contract-lease to Aeróleo were idle from August 2011 until late November 2012. Due to resulting liquidity issues experienced by Aeróleo, as of September 30, 2012, we had deferred the recognition of $7.7 million of revenues owed to us by Aeróleo and, together with our partner, contributed $9.2 million of shareholder debt to Aeróleo to enable it to continue operations. In November 2012, in response to an emergency tender issued by Petrobras Brazil as a result of the above noted suspension of use of EC225 helicopters, Aeróleo executed contracts with Petrobras Brazil and it began utilizing these four AW139 helicopters.  Aeroleo contract-leases three EC225 helicopters from us which are in turn on contract with Petrobras Brazil.  Although Petrobras Brazil continues to satisfy its obligation to Aeróleo under these EC225 contracts, it requires additional helicopters to support their operations while the EC225 helicopters are not operating.  We expect that Aeróleo’s operating difficulties will be resolved as a result of the execution of these contracts with Petrobras Brazil, although no assurance can be given that these difficulties will be resolved.

Besides this spin, SEACOR has been quite busy, selling off other assets, and distributing a $5 per share special dividend. The terms of this spinoff are fairly straightforward. On January 31, 2013, shareholders of record at the close of trading on January 24, 2013 will receive 1 share of ERA Group for each share of SEACOR that they own, which will trade under the ticker ERA. The transaction is expected to be tax free. Beginning on or around January 22, both ERA and CKH will begin to trade on a when issued basis, while CKH will also continue to trade regular way until January 31.

Disclosure: The author holds no position in any stock mentioned.



2 thoughts on “Helicopter Operator Era Group To Take Flight From SEACOR Holdings On January 31

  1. Eclecticvalue

    This will be loaded with a lot of long term debt. Maybe if there is a lot of pressure selling. I think it would be worth to get in.

  2. $60mm annualized EBITDA, $70mm normalized EBITDA
    Market cap: $400mm (at $20.00 per share)
    Net Debt: $277mm
    EV: $677mm
    EV/EBITDA: ~10.0x
    EV/Helicopter: $4.5mm
    Net debt/EBITDA: ~4.5x

    2009-2011 cumulative free cash: ~($200mm)

    What am i missing here? A massive spike in price and volume due to oil and gas demand? there are other less risky way to play that…

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