HNZ announces USTransCom contract extension

HNZ announces USTransCom contract extension

5-Nov-2013 Source: HNZ

HNZ Group Inc. (TSX: HNZ.A, HNZ.B) (“HNZ Group”), an international provider of helicopter transportation and related support services, announced today that the United StatesTransportation Command (“USTRANSCOM”) has exercised contract and option extensions, subject to funding, to extend its two outstanding contracts for work in Afghanistan involving the movement of supplies and passengers for the U.S. Department of Defense.

The first contract, previously announced on December 22, 2008, involves the provision by HNZ Group of three fully crewed and supported Bell 212 (B212) medium category helicopters. The final of four one-year renewal periods expires on November 30, 2013 and USTRANSCOM has exercised a discretionary additional extension of the contract. Management believes the discretionary additional extension period will end early in the first quarter of 2014. Total revenue to HNZ Group for the additional extension period, assuming that expected hours are flown, would be approximately $6 million.

The second contract, previously announced on October 1, 2010, involves the provision by HNZ Group of two fully crewed and supported Sikorsky S-61 (S61) heavy category helicopters and four B212s. The second of four one-year renewal periods expired on October 31, 2013. USTRANSCOM has exercised an additional one-year renewal option to extend the contract with a reduced number of aircraft until October 31, 2014. The contract has not been extended with respect to two of the four B212s and the two S61s are expected to be released early during the first quarter of 2014, with the result that only two B212s are expected to be flown until the end of the renewal term on October 31, 2014. Total revenue to HNZ Group for the renewal period, assuming that expected hours are flown, would be approximately $22 million.  Total revenue from this contract was originally disclosed as in excess of $360 million, assuming all option periods to June 30, 2016 were exercised and expected hours were flown. Given the reduction in aircraft and flying hours  announced in connection with the renewal of the contract, total revenue from the contract is expected to be approximately $190 million to $200 million, approximately $152 million of which has already been earned as of June 30, 2013.

Both USTRANSCOM contracts are denominated in U.S. dollars, are comprised of a fixed monthly rate and variable hourly revenue components and are subject to funding and to customer requirements. The level of profitability of the USTRANSCOM contracts reflects the greater level of effort and financial and operational risks of operating helicopter transportation services in Afghanistan.

As a result of the reduced future cash flows from the USTRANSCOM contracts in Afghanistan, HNZ Group is in the process of completing an interim goodwill impairment test for its third quarter ended September 30, 2013. HNZ Group expects that these events will result in the recognition of a non-cash goodwill impairment charge during the quarter ended September 30, 2013 with respect to its Canadian Helicopters operations in Canada, including Afghanistan (and not HNZ Group’s HNZ Global helicopter transportation services in the Southern Hemisphere or its repair and maintenance services provided under the Heli-Welders or Nampa Valley Helicopters brands). Please refer to the interim consolidated financial statements and Management’s Discussion and Analysis for the third quarter of 2013 expected to be filed on or about November 12, 2013.

HNZ Group’s President and CEO, Don Wall, said: “As we have indicated over the past year, our Afghanistan support contract will be winding down in 2014. The troop withdrawal and overall reduced activities is resulting in a reduced contractor support requirement for USTRANSCOM. While we are disappointed that we did not get the entire fleet complement for the larger contract extended through 2014, we are pleased to have received the renewal to the extent we have, and truly believe that it is as a result of having provided an exceptionally high level of service since 2009. As we conclude this project in 2014, we will do so having acquired Helicopters New Zealand, Nampa Valley Helicopters and Heli-Welders and, ignoring any significant expansionary capital expenditures, expect to have net cash in bank at its conclusion. While we will look for redeployment options for the fleet currently in Afghanistan, we continue to seek expansion opportunities both organically and through acquisition with particular emphasis on Southeast Asia and regions of Africa. My management team and I continue to remain optimistic about our existing business and new opportunities.”

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