CHC Group (NYSE:HELI), the parent company of CHC Helicopter, reported revenue of $415 million and a net loss of $465 million for its fiscal-2015 third quarter, which ended Jan. 31. Revenue declined 9 percent, largely driven by the impact of currency. Excluding the impact of currency, revenue declined about 2 percent.

The company had an adjusted net loss of $30 million, which excluded the effect of $442 million in special items, including a non-cash charge of $404 million, or $5.00 per share, for the impairment of goodwill. This impairment does not affect operations or cash flow. Adjusted EBITDAR (earnings before interest, taxes, depreciation and amortization and helicopter lease and other costs) excluding special items was $115 million, a decline of 3 percent. Excluding the impact of currency, adjusted EBITDAR excluding special items was up modestly.

INDUSTRY ENVIRONMENT

Oil-and-gas customers are significantly reducing their capital and operating expenses amid sharply lower crude-oil prices, which is affecting demand for both offshore flying services and helicopter maintenance, repair and overhaul (MRO) services.

Karl Fessenden, CHC president and chief executive officer:

“Despite the current uncertainty in the oil-and-gas industry, we believe the long-term demand for CHC’s services – especially transportation to deepwater and ultra-deepwater oil-and-gas production locations, which represents about 80 percent of our flying revenue – will grow. In the short-term, however, we are intensely focused on reducing CHC’s cost structure and improving capital efficiency to match the market environment, while maintaining an absolute commitment to industry-leading safety, availability and reliability.”

Joan Hooper, CHC chief financial officer:

“In the quarter we continued to strengthen the balance sheet and lowered fixed costs. Leverage declined to 4.8x, we retired $235 million of long-term debt, and we ended the quarter with $580 million in liquidity comprised of cash on the balance sheet and undrawn credit facilities.”

BUSINESS SEGMENTS

Helicopter Services (flying)

Revenue of $375 million was down 10 percent, largely driven by the negative impact of currency translation, which contributed 6 points to the decline. However, EBITDAR dollars were flat, reflecting improvement in the EBITDAR margin for flying services. The EBITDAR margin was augmented by new contracts and lower maintenance costs resulting from the company’s global inventory and supply chain initiatives.

Heli-One (MRO)

Heli-One’s third-party revenue, which benefited from gains in both MRO and power-by-the-hour customers, increased 9 percent to $40 million. EBITDAR declined 17 percent due to lower internal revenue.

CLAYTON, DUBILIER & RICE (CD&R) TRANSACTION

As previously announced, during the third quarter CHC completed a private placement of convertible preferred shares to funds managed by CD&R. The total net proceeds from the private placement were $572 million, $463 million of which were received by CHC during the third quarter. The net proceeds are being used to reduce fixed expenses, such as debt and lease costs; strengthen CHC’s financial position; and improve cash flow over time.

In addition, changes were made to the CHC board of directors concurrent with CD&R’s investment:

John Krenicki, a CD&R partner and former president and CEO of GE Energy, joined the board and serves as chairman,
Other changes to the company’s board included the appointment of Nathan Sleeper, a CD&R partner, and Robert Volpe, a CD&R principal, as directors, and
In February, Karl Fessenden, a former executive and nearly 20-year veteran of GE’s Aviation and Energy business segments, was named CHC’s president and chief executive officer and also joined CHC’s board of directors.

DEBT, LIQUIDITY AND LEVERAGE

Through the third quarter, CHC deployed net proceeds from the CD&R transaction to retire $235 million in long term debt: $105 million of senior unsecured notes, as well as an additional $130 million of long term debt through open-market bond repurchases. The retirement of this debt lowers the company’s interest expense by $22 million on an annualized basis. In addition, CHC used proceeds to increase the percentage of owned versus leased aircraft, which, in turn, is expected to lower the company’s lease expense over time.

PREFERRED SHARE DIVIDEND

In the third quarter, GAAP and adjusted earnings per share (EPS) include $11 million or 13 cents of preferred dividends paid in-kind to CD&R. For the full year we expect GAAP and adjusted EPS to reflect preferred share dividends of $24 million.

ABOUT CHC

CHC Helicopter is a leader in enabling customers to go further, do more and come home safely, including oil and gas companies, government search-and-rescue agencies and organizations requiring helicopter maintenance, repair and overhaul services through the Heli-One segment. The company operates more than 230 aircraft in about 30 countries around the world.