Mark Huber is an aviation industry veteran who has worked in the flight training, aircraft sales, aircraft component, and airport development businesses. He has flight time in more than 50 different and diverse aircraft, including helicopters, aerobatic aircraft, vintage warbirds, jet fighters, business jets and turboprops, and transport-category aircraft. He has jumped out of several of these—on purpose—with a parachute. His defense and aviation journalism has been published in a variety of national and international periodicals.

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Mark Huber

Things are about to get rougher in the offshore oil patch. Bristow Group could be headed for restructuring or acquisition. On February 11 the helicopter services company that primarily serves the offshore energy market broadly hinted that its next move could be bankruptcy, barring successful renegotiation with lenders. For the second time in less than a week the company abruptly canceled an analyst conference call, formally ended its attempt to acquire Columbia Helicopters for $560 million, filed notification of late filing of its latest quarterly and nine-month financial results with the U.S. Securities and Exchange Commission (SEC), and admitted “material weakness” in internal controls over financial reporting dating back at least two years.&nbsp;

 


In a statement issued on February 11, Bristow said, “The Company is evaluating whether this material weakness in internal controls over financial reporting resulted in a misstatement in the Company's financial statements included in the Annual Report on [SEC] Form 10-K for the fiscal year ended&nbsp;March 31, 2018&nbsp;and the impact on the financial statements of the Company as of&nbsp;December 31, 2018, including disclosures. The Company is&nbsp;specifically evaluating whether certain debt balances should be reclassified from long-term to short-term in those financial statements, whether related waivers can be obtained from lenders, if necessary, and the resulting impact on the assessment of the Company's ability to continue as a going concern.”

 


The helicopter services company did release “preliminary” financial results that indicated that it lost at least $262.2 million for the nine months ended Dec. 31, 2018, including $85.94 million for the quarter ended on Dec. 31, 2018. The grounding of Bristow’s Airbus Helicopters H225 fleet resulted in charges totaling $96.4 million for the nine-month period, while the impairment of Bristow’s Eastern Airways&nbsp;assets during the same period generated another $20.8 million in losses. The company promised to release revised financial statements by February 19. Those nine month and quarterly losses, if confirmed, are up sharply from the same periods a year ago when the company lost $94.78 million and $8.274 million, respectively.&nbsp;

 


<h2>Columbia Deal Off</h2>

 


In announcing the collapse of the Columbia deal, Bristow chairman Thomas Knudson stated, "The decision to enter into a mutual termination of the purchase agreement was based on a number of developments following the entry into the agreement, which led both Bristow and Columbia to conclude that it was not possible to combine the two companies at this time.” Bristow has paid Columbia a $20 million termination fee. Bristow announced its intention to acquire Columbia in November 2018&nbsp;but revealed a month later that it was having difficulty closing the deal.&nbsp;

 


The Columbia acquisition required Bristow to raise $135 million by issuing senior secured convertible notes secured by common stock in Columbia, contribute $48 million in Bristow balance sheet cash, contribute $77 million in Columbia stockholders equity, and use $360 million in Columbia secured financing. Immediately after the deal was announced, the value of Bristow’s shares dropped by 20 percent to $7.96 per share and continued to decline in the ensuing weeks through the end of December.&nbsp;The proposed Columbia deal also drew the ire of some of Bristow’s larger shareholders including the Global Value Investment Corporation (GVIC), which noted that the deal relied on Bristow to issue up to 33.5 million shares of new stock, a move that could potentially dilute shareholder value by up to 93 percent.&nbsp;

 


Also in the most recent quarter, Bristow lost $14 million for terminating a contract with Sikorsky and another $1.4 million “for impairment of assets held for sale.” Bristow is attempting to recover its $12 million deposit on that contract via litigation.&nbsp;

 


Financial markets reacted as expected to the news, with Bristow’s stock, which already had shed most of its value earlier in the year, falling from $3.08 to $1.12 within 48 hours of the company’s February 11 news. Investors sold millions of shares as Bristow’s market capitalization deteriorated to&nbsp;$43 million. Pursuant to Bristow’s latest stock crash, three separate law firms issued press releases saying that they had launched investigations against the company and its officers on behalf of investors for possible violations of federal securities laws. Those firms include Howard G. Smith of Bensalem, Pennsylvania; Bragar, Engel &amp; Squire&nbsp;of New York; and Block &amp; Leviton of Boston.

 


Bristow officers potentially targeted in these investigations include outgoing CEO Jonathan Baliff and L. Don Miller, chief financial officer (CFO). Bristow had previously announcement Baliff’s retirement, which&nbsp;was supposed to occur concurrently with closing of the Columbia acquisition. On February 11th, Bristow disclosed the terms of said retirement. They include a monthly consulting fee of $30,000 for four months, a lump sum payment&nbsp;of $1.442 million (an amount equal to twice his base salary), paid health insurance for 36 months, outplacement services for 12 months, unspecified stock awards and cash bonuses, and future stock options in 2019, 2020, and 2021 in consideration of a two-year non-compete clause.&nbsp;

 


Even before Bristow’s latest revelation concerning the “material weaknesses” of its financial reporting, the company had been under fire as early as 2016 for using non-GAAP (generally&nbsp;accepted accounting principles) metrics to explain financial results to investors. Use of the non-GAAP metrics launched potential breach of fiduciary duty claims against the company. Continued downward pressure on the company’s stock price and any adverse&nbsp;finding by the SEC&nbsp;could get Bristow delisted from the New York Stock Exchange (NYSE). The exchange bans the listing of those that trade for less than $1 for 30 consecutive days or ones that fail to comply with “SEC requirements in any material respect.”&nbsp;

 


As Bristow implied in its February 11 statement, its fate is now largely in the hands of its creditors.&nbsp;

 


<h2>Diversification Efforts</h2>

 


To steel itself against the continuing offshore energy downturn, Bristow diversified, but it also took on massive debt. Some of those diversifications, such as the UK SAR contract, produced predictable and solid revenues, but&nbsp;forays into fixed-wing operations and flight training proved disappointing. Bristow acquired a controlling stake in Australia’s Airnorth in 2015 following its acquisition of UK’s Eastern Airways. In 2007 Bristow bought the assets of Titusville, Florida-based Helicopter Adventures for $15 million plus $5 million in debt and via internal growth and acquisitions grew the “Bristow Academy” to three U.S. bases and one in the UK. At one time, the Academy was the world’s largest civil helicopter school, with 75 aircraft and 400 graduates annually. With the downturn, the Academy shrunk to 47 aircraft, and Bristow disposed of it for $1.5 million at the end of 2017 to be paid over four years.

 


The disposal of Bristow Academy came against a backdrop of a $200 million internal cost-cutting and corporate reorganization campaign in 2017 designed to “right size” the company and preserve liquidity. Also in 2017, Bristow borrowed an additional $630 million from a group of lenders that included Lombard North Central, Macquarie Bank Limited, and GE Capital Aviation Services/Milestone. Bristow also issued an additional $143 million in notes. In March 2018, Bristow issued $350 million in 8.75 percent five-year notes. By the end of Fiscal Year 2018, Bristow’s total debt amounted to $1.51 billion borrowed against a fleet with a market value of $2 billion, before the write-down of its fleet of 27 H225s.&nbsp;At the end of 2018, Bristow and its affiliates operated a fleet of 385 aircraft; affiliates operate 108 of those. Of Bristow’s fleet of 228 helicopters, 70 are leased; 16 of its 49 fixed-wing aircraft are leased. Bristow had 26 large helicopters on order and options for four more and 10 aircraft for sale. During Fiscal Years 2016-2018 Bristow posted a net loss of $452 million plus the&nbsp;likely $262 million loss in the first nine months of Fiscal Year 2019. (Bristow’s fiscal year ends March 31.)&nbsp;

 


Meanwhile, Bristow’s revenues fell from $1.858 billion in Fiscal Year 2015 to $1.44 billion in Fiscal Year 2018. And based on the results released February 11, it looks like revenue is continuing on its downward trajectory at $1.002 billion for the first nine months of Fiscal Year 2019.&nbsp;

 


Bristow was founded in 1955 by Alan Bristow to supply helicopter crews to oil companies operating in the Persian Gulf. He led the company until 1985. It expanded into Africa in 1960 and eventually expanded to operating one-third of the helicopter fleet supporting the world’s offshore energy market. U.S.-based Offshore Logistics bought 49 percent of the company in 1996, rebranded the company Bristow Group, and moved headquarters operations to Houston.&nbsp;Current CEO Jonathan Baliff joined Bristow in 2010 and became CEO in 2014. Bristow’s strategy under Baliff was to diversify to be less dependent on oil-and-gas revenues, cut costs, raise cash, and wait for the market to recover. But Baliff, like others, thought the rebound would come sooner rather than later. Meanwhile, Bristow is running out of cash and time.&nbsp;

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