We will receive net proceeds from the sale of shares of common stock in this
offering of approximately $31.9 million, based on the initial public offering
price of $8.00 per share, after deducting underwriting discounts and
commissions and estimated offering expenses. We intend to use the net proceeds
of this offering to pay down indebtedness under our revolving credit facility,
which will increase the amounts available for future borrowing under this
facility and will, in our view, increase the likelihood of our compliance with
the financial covenants under our Credit Agreement on an ongoing basis and
improve our ability to refinance our senior credit facilities.
As of December 31, 2011, our total indebtedness, excluding letters of credit,
was $130.6 million, consisting of $51.8 million borrowed under our revolving
credit facility, $55.3 million borrowed under our term loan facility and $23.5
million borrowed under our unsecured subordinated promissory notes. At December
31, 2011, we had maximum availability for borrowings under our revolving credit
facility of approximately $13.4 million.
At December 31, 2011, the interest rate on borrowings under our revolving
credit facility, which terminates on June 24, 2013, was 3.61%, which was
calculated based on the prime rate as quoted by Wells Fargo. As of December 31,
2011, there was $51.8 million outstanding under our revolving credit facility,
not including letters of credit. Amounts under our revolving credit facility
were borrowed within the prior year and used to refinance our prior senior debt
and second lien debt and for general working capital purposes.
We compete with several other heavy-lift helicopter operators in one or more of
our markets. We believe our fleet of 17 owned and operating Aircranes is the
largest commercial fleet of helicopters in the world capable of carrying loads
of up to 25,000 pounds.
The following table presents our primary competitors in the commercial heavy-
lift market.
Total
Heavy-lift
Helicopters
Competitor Competitor's Services Operated(1)
Helicopter Transport Services • Aerial services and support to 14 (2)
the petroleum, forestry, and
mining industries; aerial fire
suppression, aerial construction,
air ambulance, electronic news
gathering, executive transport,
motion pictures
Columbia Helicopters • Heavy-lift aerial services, 22 (3)
including construction, oil rig
moves, oil rig support, timber
removal, firefighting, disaster
recovery
• Maintenance, overhaul, and
repair services
Siller Brothers • Aerial firefighting, construction, 6 (4)
timber harvesting, hydroseeding
(1) For purposes of this chart, heavy-lift helicopters are defined as having
an external load capacity of 10,000 pounds or more.
(2) Consists of ten CH-54A/B, one S-64E, and three S-61/N aircraft.
(3) Consists of six Columbia 234 and sixteen Columbia 107 aircraft.
(4) Consists of two S-64E, one CH-54A, and three S-61/N aircraft.
In a more general sense, we compete with other airborne solutions, including
fixed-wing firefighting operators, and with a variety of ground-based
alternatives. Competition is generally on the basis of appropriateness of the
solution, cost, reliability, and environmental impact. For some missions, such
as the transportation of the "Statue of Freedom" from the U.S. Capitol or
other precision placement of heavy loads, the Aircrane's precision and heavy-
lift capabilities often make it the preferred choice. For other missions, such
as firefighting, the Aircrane competes against other aircraft and ground-based
solutions and is often one in an array of resources used by a customer.
On a platform basis, we believe our closest competitor is the Columbia 234
"Chinook" helicopter, the Type Certificate for which is owned by Columbia
Helicopters. A number of military helicopters could, if made available for
civilian use, be deployed in operations similar to those that we undertake and
have significantly greater lift capacity and range.
internal loads. The
Aircrane is also the only commercial heavy-lift helicopter with a rear load-
facing cockpit, combining an unobstructed view and complete aircraft control
for precision lift and load placement capabilities.
We own and operate a fleet of 17 Aircranes, which we use to support a wide
variety of government and commercial customers worldwide across a broad range
of aerial services, including firefighting, timber harvesting, infrastructure
construction, and crewing. We refer to this segment of our business as Aerial
Services. We also manufacture Aircranes and related components for sale to
government and commercial customers and provide aftermarket support and
maintenance, repair, and overhaul services for the Aircrane and other aircraft.
We refer to this segment of our business as Aircraft Manufacturing and
Maintenance, Repair, and Overhaul ("Manufacturing / MRO"). As part of our
Manufacturing / MRO segment, we also offer cost per hour ("CPH") contracts
pursuant to which we provide components and expendable supplies for a
customer's aircraft at a fixed cost per flight hour. We believe CPH contracts
help our customers better predict and manage their maintenance costs. In 2010,
our Aerial Services and Manufacturing / MRO segments generated revenues of
$105.7 million and $12.5 million, respectively, and in 2011, our Aerial
Services and Manufacturing / MRO segments generated revenues of $138.6 million
and $14.1 million, respectively. In 2010, we had a net loss attributable to
Erickson Air-Crane of $8.3 million, and in 2011, we had net income attributable
to Erickson Air-Crane of $15.9 million.
We own the Type and Production Certificates for the Aircrane, granting us
exclusive design, manufacturing, and related rights for the aircraft and
original equipment manufacturer ("OEM") components. We invest in new
technologies and proprietary solutions with a goal of increasing our market
share and entering new markets. We have made more than 350 design improvements
to the Aircrane since acquiring the Type Certificate and we have developed
Aircrane accessories that enhance our aerial operations, such as our
firefighting tank system and snorkel, timber "heli harvester," and anti-
rotation device and hoist.
We have manufactured 33 Aircranes for our own fleet and for our customers in
several countries worldwide. To date, we have sold and delivered nine
Aircranes, including our first sale to a commercial customer in 2009 (subject
to the purchaser's right to resell the aircraft to us on July 31, 2013, which
was an important term to the purchaser when the sale agreement was negotiated).
We believe we are the only fully integrated developer, manufacturer, operator,
and provider of aftermarket parts and services for a precision heavy-lift
helicopter platform, and that there are significant growth opportunities for
our business. For example, we believe population growth and deconcentration,
which increases the size and breadth of communities that must be protected from
wildfires, will lead to increased government spending on rapid response, heavy-
lift firefighting solutions such as the Aircrane.
There is, however, no guarantee that growth will occur in the markets we serve
or that we will be able to take advantage of growth opportunities.
We target long-term contract opportunities and had a total backlog of $212.8
million as of February 29, 2012, of which $128.0 million was from signed
contracts and $84.8 million was from anticipated exercises of customer
extension options (including $54.3 million from multi-year annual customer
extension options). We had a total backlog of $298.9 million as of February
28, 2011, of which $176.4 million was from signed contracts and $122.5 million
was from anticipated exercises of customer extension options (including $22.6
million from multi-year annual customer extension options). No sales of
Aircranes were associated with our backlog as of February 29, 2012 or February
28, 2011. We define long-term contracts as contracts of six months or more, to
distinguish them from our contracts related to a specific task for a customer,
which are generally short-term engagements. We include anticipated exercises
of customer extension options in our backlog when our prior operating history,
including past exercises of extension options by such customers and the other
circumstances specific to the particular contract, causes us to conclude that
the exercise of such extension option is likely. We expect that approximately
$123.8 million of the backlog will not be filled in 2012. There is no
guarantee, however, that any customer will exercise its extension options or
that any contracts will be renewed or extended.
Our Aerial Services operations are seasonal and tend to peak in June through
October and tend to be at a low point in January through April. As a result of
this seasonality, we have historically generated higher revenue in our third
quarter as compared to other quarters, and received the majority of our cash in
the second half of the calendar year. We had cash used in operations of $8.4
million for the year ended December 31, 2010 and $20.7 million for the year
ended December 31, 2011. Cash used in operations included an increase in
inventory and work in process of approximately $26.7 million and $25.7 million
for the years ended December 31, 2010 and 2011, respectively. A significant
portion of this increase was attributable to the manufacture of two Aircranes
during 2010 and 2011 that are currently held in inventory. We expect to have a
significant decrease in the amount of cash used for inventory in 2012 as
compared to the amounts used in 2010 and 2011 and, to a lesser extent, savings
resulting from our reduction-in-force in November 2011. As a result, we believe
that our cash flows from operations, together with cash on hand and the
availability of our revolving credit facility, will provide us with sufficient
liquidity to operate our business for the foreseeable future. However, there is
no guarantee that we will have sufficient liquidity, and our significant debt
service obligations could adversely affect our financial condition and impair
our ability to grow and operate our business and comply in 2012 with the
financial covenants under the credit agreement dated June 24, 2010 by and among
us, Wells Fargo Bank, National Association ("Wells Fargo"), Keybank National
Association, Bank of the West, Bank of America, N.A., and Union Bank, N.A. (as
amended, the "Credit Agreement").
We are headquartered at 5550 SW Macadam Avenue, Suite 200, Portland, Oregon
97239, our phone number is (503) 505-5800, and our website address is
www.ericksonaircrane.com.
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