What does an emergency air medical transport company have to
gain from buying a helicopter tour operator?
Mike Allen, president ofAir Methods (
), the largest provider of air medical transport services in the
U.S., can tell you all about it.
In December, Air Methods closed on the $44 million-in-cash
purchase of Sundance Helicopters, a helicopter tour operator
focused mostly on Grand Canyon sightseeing.
Sundance, which posted $52.3 million in sales in its last
fiscal year, also provides helicopters to support firefighting,
natural resource agency operations, vertical lifts, aerial
photography, news gathering, and aerial surveying.
Sundance brought a lot of value to Air Methods, Allen says. On
the financial front, management knew it would be accretive to
earnings, he says.
But with Sundance operating in a niche area, management also
knew it wasn't going to be a multibillion dollar industry, Allen
"We didn't do the deal to have a tremendous growth story
outside of air medical transport," said Allen. "It was more of an
opportunistic deal where we analyzed it on the basis of the
The deal's greatest value and the biggest draw for Air Methods
was the opportunity to bring more pilots and mechanics onboard.
The pool of highly skilled people doing these jobs is not as
robust as it once was, says Allen, and recruitment is a
Having an air transport company like Sundance in the mix gives
Air Methods an opportunity to take young pilots and mechanics,
cultivate them in a less complex operation at Sundance and then
put them on a career path that leads to its air medical
operations, he adds.
The buy brings other benefits. It modestly diversifies Air
Methods' revenue stream with a new private pay segment, said
William Blair & Co. analyst Ryan Daniels via email.
Another benefit is Sundance and Air Methods operate some of
the same helicopters. Sundance has a fleet of 22 helicopters
consisting of Eurocopter AS350s and EC130s. Air Methods uses both
of these airframes in its fleet of more than 400 helicopters,
most of which are Eurocopter and Bell Helicopter products. While
most of the fleet consists of helicopters, it also operates
Daniels says since both companies use the same type of
helicopter, the pilots at Sundance can accumulate some of the
2,000 flight hours necessary to do air medical transport.
Prior to the Sundance deal, Air Methods' most recent buy came
in August 2011, when it closed on the $200 million purchase of
Air Holdings Corp. and its subsidiaries, including Omniflight
Omniflight provides air medical transport services throughout
the U.S. under both the community-based and hospital-based
service delivery models. It uses a fleet of roughly 100
helicopters and fixed-wing aircraft.
Allen says the purchase of Omniflight was very
It expanded Air Methods' market presence, especially in the
Southwest, he says.
"It was a tremendously accretive deal for us," he said.
In 2012, Air Methods was able to drive growth in its core
business and show accretion from the Omniflight deal, he adds,
without giving more details.
Seeking Smaller Companies
In terms of future buys, Allen says Air Methods is always
looking for acquisition opportunities in the air medical space.
Its focus for growth for the next three to five years is
continued acquisitions of smaller companies in the field.
But, he adds, making more buys in the tourism space isn't a
part of the company's long-range strategic plan.
Daniels says Air Methods could look at foreign acquisitions or
acquisitions in the ground ambulance space.
Air Methods is faring handsomely with its current lineup.
Third-quarter earnings rose 44% to 75 cents a share. Revenue
increased 20% to $221.3 million.
Analysts polled by Thomson Reuters expect fourth-quarter
earnings to rise 38% to 44 cents share. They forecast full-year
earnings will rise 88% to $2.28 a share. They see a 4% rise in
Among the growth drivers is the preferred provider agreement
it has with acute care hospital operators Community Health
) to provide air medical transport services to CHS-affiliated
hospitals, says Daniels. He says that's helping Air Methods'
organic growth. Air Methods also has solid price power, he adds,
and it's opening new bases.
Air Methods provides air medical emergency transport services
under two service delivery models, community-based services and
Its hospital-based services provide hospital clients with
medically equipped helicopters and airplanes that are based
usually at hospitals. Under a typical operating agreement, it
earns 78% of its revenue from a fixed monthly fee and 22% from an
hourly flight fee from the hospital.
Its community-based services provide medical care, aircraft
operation and maintenance, 24-hour communications and dispatch,
and medical billing and collection. Its aircraft are based
typically at fire stations, airports or hospitals. Revenue from
this arm consists of flight fees billed directly to patients,
their insurers or governmental agencies.
Allen says the environment for its business is "stable."
"I'm optimistic about where we're heading," he said.
ObamaCare Lift Expected
On the health care regulatory front, Daniels says the Patient
Protection and Affordable Care Act -- ObamaCare -- is very
helpful for Air Methods.
The act mandates that all Americans maintain a minimum level
of health care coverage. To meet that objective, it expands
Medicaid coverage, provides federal subsidies to assist
low-income individuals when they obtain health insurance and
establishes insurance exchanges through which individuals and
small employers can purchase health insurance.
Today, roughly 12% to 13% of patient transports are uninsured,
from which Air Methods collects very little, if anything, says
"As individuals gain more insurance coverage, the uninsured
rate at Air Methods should drop, and the company will then be
paid for transports which previously drove little, if any
revenue," he adds. "All in all, we believe Air Methods is one of
the companies best positioned to benefit from the health care
reform. This, plus continued core business growth, positions the
company quite well for future success and growth, in our