UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 1, 2020

BRISTOW GROUP INC.
(Exact name of registrant as specified in its charter)

Delaware
 (State or Other Jurisdiction of Incorporation)
001-35701
 (Commission File Number)
72-1455213
 (I.R.S. Employer
 Identification Number)

3151 Briarpark Drive, Suite 700
Houston, Texas 77042
(Address of principal executive offices) (zip code)

(713) 267-7600
(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):


Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Precommencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Precommencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
VTOL
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 8.01. Other Events.

Bristow Group Inc. is providing the Management’s Discussion and Analysis of Financial Condition and Results of Operations of Bristow Holdings U.S. Inc. (formerly known as Bristow Group Inc.) for the fiscal year ended March 31, 2020 (combined for the financial position and results of operations of Bristow Group Inc. for the five months after October 31, 2019 (the “Bristow Plan of Reorganization Effective Date”) and seven months prior to the Bristow Plan of Reorganization Effective Date) and the twelve months ended March 31, 2019 and 2018., which is filed as Exhibit 99.1 hereto.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit
No.
Description
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Bristow Holdings U.S. Inc. (formerly known as Bristow Group Inc.).


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 1, 2020
BRISTOW GROUP INC.
   
 
By:
/s/ Crystal L. Gordon
 
Name:
Title:
Crystal L. Gordon
SVP, General Counsel

 

Exhibit 99.1

 

Cautionary Statement Regarding Forward-Looking Statements

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, including the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements concern management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters and involve significant known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. All of these forward-looking statements constitute Bristow Group Inc.’s (the “Company”) cautionary statements under the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “expect,” “project,” “intend,” “believe,” “plan,” “target,” “forecast” and similar expressions are intended to identify forward-looking statements. Forward-looking statements speak only as of the date of the document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. Risks that may affect forward-looking statements include, but are not necessarily limited to, those relating to:

 

risks related to the Company’s recently completed Merger, including:

 

the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted relating to the Merger,

 

the costs incurred to consummate the Merger,

 

the possibility that the expected synergies from the Merger will not be realized,

 

difficulties related to the integration of the two companies,

 

disruption from the anticipated Merger making it more difficult to maintain relationships with customers, employees, regulators or suppliers, and

 

the Company’s dependence on, and the cyclical and volatile nature of, offshore oil and gas exploration, development and production activity, and the impact of the coronavirus pandemic (“COVID-19”) and general economic conditions and fluctuations in worldwide prices of, and demand for, oil and natural gas on such activity levels, including instances of below-zero prices in oil futures and concerns of an excess of oil supply for a sustained period and limitations of storage capacity for such excess oil supply;

 

the impact of the COVID-19 pandemic and supply decisions by Saudi Arabia and Russia have resulted in a decrease in the price of and demand for oil, which has caused, and may continue to cause, a decrease in the demand for the Company's services;

 

the Company’s reliance on a limited number of customers and the reduction of its customer base as a result of bankruptcies or consolidation;

 

risks that the Company’s customers reduce or cancel contracted services or tender processes or obtain comparable services through other forms of transportation;

 

the Company’s dependence on United States (“U.S.”) government agency contracts that are subject to budget appropriations;

 

cost savings initiatives implemented by the Company’s customers;

 

risks inherent in operating helicopters;

 

the Company’s ability to maintain an acceptable safety record and level of reliability;

 

 
1
 

 


the impact of increased U.S. and foreign government regulation and legislation, including potential government implemented moratoriums on drilling activities;

 

the impact of a grounding of all or a portion of the Company’s fleet for extended periods of time or indefinitely on the Company’s business, including its operations and ability to service customers, results of operations or financial condition and/or the market value of the affected helicopters;

 

the Company’s ability to successfully expand into other geographic and aviation service markets;

 

risks associated with political instability, governmental action, war, acts of terrorism and changes in the economic condition in any foreign country where the Company does business, which may result in expropriation, nationalization, confiscation or deprivation of the Company’s assets or result in claims of a force majeure situation;

 

the impact of declines in the global economy and financial markets;

 

the impact of fluctuations in foreign currency exchange rates on the Company’s asset values and cost to purchase helicopters, spare parts and related services;

 

risks related to investing in new lines of aviation service without realizing the expected benefits;

 

risks of engaging in competitive processes or expending significant resources for strategic opportunities, with no guaranty of recoupment;

 

the Company’s reliance on a limited number of helicopter manufacturers and suppliers;

 

the Company’s ongoing need to replace aging helicopters;

 

the Company’s reliance on the secondary helicopter market to dispose of used helicopters and parts;

 

information technology related risks;

 

the impact of allocation of risk between the Company and its customers;

 

the liability, legal fees and costs in connection with providing emergency response services;

 

adverse weather conditions and seasonality;

 

risks associated with the Company’s debt structure;

 

the Company’s counterparty credit risk exposure;

 

the impact of operational and financial difficulties of the Company’s joint ventures and partners and the risks associated with identifying and securing joint venture partners when needed;

 

conflict with the other owners of the Company’s non-wholly owned subsidiaries and other equity investees;

 

adverse results of legal proceedings;

 

risks associated with significant increases in fuel costs;

 

the Company’s ability to obtain insurance coverage and the adequacy and availability of such coverage;

 

the possibility of labor problems;

 

the attraction and retention of qualified personnel;

 

restrictions on the amount of foreign ownership of the Company’s common stock; and

 

various other matters and factors, many of which are beyond the Company’s control.

 

  2  

 

 

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on the cover of this prospectus. New risks and uncertainties arise from time to time, and it is impossible for us to predict these matters or how they may affect us. We have included important factors in the section entitled “Risk Factors” in the Company’s joint proxy and consent solicitation statement/prospectus (File No. 333-237557), filed with the United States Securities and Exchange Commission (the “SEC”) on May 5, 2020 (the “Proxy Statement”) which we believe over time, could cause our actual results, performance or achievements to differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements. We have no duty to, and do not intend to, update or revise the forward-looking statements in this MD&A after the date hereof except to the extent required by the federal securities laws. You should consider all risks and uncertainties disclosed in the Proxy Statement and in our filings with the SEC, all of which are accessible on the SEC’s website at www.sec.gov.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations of Bristow Group Inc.

 

This MD&A should be read in conjunction with “Risk Factors” in the Company’s Proxy Statement and the Consolidated Financial Statements of Bristow Holdings U.S. Inc. (formerly known as Bristow Group Inc.) (“Bristow”) for the five months ended March 31, 2020, seven months ended October 31, 2019, the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, and the related notes thereto, incorporated by reference into the Company’s Current Report on Form 8-K filed on June 17, 2020 as Exhibit 99.1 thereto (the “Bristow Financial Statements”). Bristow’s fiscal year ends March 31, and the disclosure provided herein refers to fiscal years based on the end of such period.

 

In the discussion that follows, the term “Combined Fiscal Year 2020” refers to the seven months ended October 31, 2019 and five months ended March 31, 2020, the term “Predecessor Fiscal Year 2019” refers to the twelve months ended March 31, 2019 and the term “Predecessor Fiscal Year 2018” refers to the twelve months ended March 31, 2018. References to “Successor” or “Successor Company” relate to the financial position and results of operations of reorganized Bristow subsequent to October 31, 2019. References to “Predecessor” or “Predecessor Company” relate to the financial position and results of operations of Bristow prior to, and including, October 31, 2019. See Note 2 to the Bristow Financial Statements for further details on the Chapter 11 Cases and the Plan.

 

Executive Overview

 

Merger with Era Group Inc.

 

On June 11, 2020, Era Group Inc. (“Era”) completed the previously announced business combination with Bristow as set forth in the Agreement and Plan of Merger, dated as of January 23, 2020 (as amended on April 22, 2020), among Era, Ruby Redux Merger Sub, Inc. (“Merger Sub”), and Bristow (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Bristow, with Bristow surviving as a wholly owned subsidiary of the Company (the “Merger”).

 

Upon completion of the Merger, the shares of Bristow common stock, par value $0.0001 ("Bristow Common Stock”) that were outstanding immediately prior to the closing of the Merger (including, among other things, shares issued as a result of the conversion of all outstanding shares of Bristow preferred stock, par value $0.0001 (“Bristow Preferred Stock”) and certain shares of Bristow Common Stock held in reserve to settle claims from Bristow’s Bankruptcy) were converted into the right to receive, in the aggregate, a number of shares of Era’s common stock, equal to the product of (i) 77% multiplied by (ii) the quotient of (x) the number of shares of the Era’s common stock outstanding immediately prior to the Merger, calculated on a fully diluted basis, as adjusted for a 1 for 3 reverse stock split completed immediately prior to the Merger, divided by (y) 23% (the “Aggregate Merger Consideration”). Each holder of Bristow Common Stock, other than holders of dissenting shares, received, for each share of Bristow Common Stock, a number of shares of Era’s common stock equal to the Aggregate Merger Consideration divided by the number of shares of Bristow Common Stock outstanding immediately prior to the Merger (including, among others, shares issued as a result of the conversion of Bristow Preferred Stock and any shares underlying Bristow options or restricted stock units) and cash in lieu of fractional shares.

 

In connection with the Merger, Era changed its name to “Bristow Group Inc.”

 

  3  

 

 

As the information in this MD&A is presented as of dates prior to the completion of the Merger, it relates only to Bristow, and not the combined company. For pro forma financial statements of the combined company giving effect to the Merger, refer to the unaudited pro forma condensed combined financial information included as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on June 17, 2020.

 

Emergence from Chapter 11 Bankruptcy

 

On May 11, 2019 (the “Petition Date”), Bristow filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court (the “Chapter 11 Cases”). Bristow’s Chapter 11 Cases were jointly administered under the case styled In re: Bristow Group Inc., et al., Main Case No. 19-32713.

 

On October 8, 2019, the Bankruptcy Court entered the confirmation order, which approved and confirmed Bristow’s Plan of Reorganization (as amended, the “Bristow Plan of Reorganization”). On October 31, 2019 (the “Effective Date”), Bristow satisfied the conditions to effectiveness set forth in the confirmation order and in the Bristow Plan of Reorganization, the Bristow Plan of Reorganization became effective in accordance with its terms, and Bristow emerged from bankruptcy. Further information is set forth in Note 2 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

Fresh-Start Accounting

 

Upon its emergence on the Effective Date, Bristow adopted fresh-start accounting as required by generally accepted accounting principles (“GAAP”). Bristow qualified for fresh-start accounting because (i) the holders of then-outstanding voting shares of the pre-emergence debtor-in-possession received less than 50% of the voting shares of the post-emergence successor entity and (ii) the reorganization value of Bristow’s assets immediately prior to confirmation was less than the post-petition liabilities and allowed claims.

 

As discussed in Note 3 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements, Bristow applied fresh-start accounting as of October 31, 2019. Adopting fresh-start accounting results in a new reporting entity for financial reporting purposes with no beginning retained earnings or deficit. The cancellation of all existing shares outstanding on the Effective Date and issuance of new shares in the reorganized company caused a related change of control under GAAP.

 

As a result of the application of fresh-start accounting, as well as the effects of the implementation of the Bristow Plan of Reorganization, Bristow’s consolidated financial statements subsequent to October 31, 2019, are not comparable with its consolidated financial statements prior to that date.

 

COVID-19 and Decline in Oil Prices

 

On March 31, 2020, Brent crude oil prices closed at $20.51 per barrel, declining from $61.14 per barrel on December 31, 2019. A combination of factors led to this decline, including an increase in low-priced oil from Saudi Arabia supplied into the market coupled with Russia’s position to abstain from participating in the supply reduction agreement with the Organization of the Petroleum Countries and the reduction in demand for oil due to the global coronavirus (COVID-19) pandemic (“COVID-19”).

 

COVID-19 has resulted in a global crisis, with many countries placing restrictions on national and international travel and instituting other measures, including, among other things, reducing or eliminating public gatherings by placing limits on such events, shuttering non-essential stores and services, encouraging voluntary quarantines and imposing involuntary quarantines, in an effort to reduce and slow the spread of COVID-19. The long-term impact of COVID-19 on the global economy is not yet known, but it has had a significant influence on economic activity, and likely will continue to have a significant impact on the global economy in the near-to-medium-term, which in turn can cause volatility in oil and natural gas prices. Financial markets have experienced significant volatility and energy companies have experienced a significant decline in demand and operating results as a result of COVID-19.

 

  4  

 

 

Bristow has implemented several measures at its bases, in conjunction with its customers and based upon guidance from local public health authorities, to help protect employees and customers, including, but not limited to, measures to restrict access to sites, medical screenings/questionnaires prior to all flights, enhanced sanitization of aircraft and equipment, modification of aircraft and special protocols on travel and passenger transport, and is also monitoring developments to modify actions as appropriate. Many of Bristow’s employees are deemed “essential” in the regions in which they operate and are therefore allowed to continue conducting business notwithstanding guidance or orders of general applicability issued by governments requiring businesses to close, persons to shelter in place, borders to close and other actions of that nature. In addition, Bristow has developed and is offering its customers COVID-19 medevac transport in certain regions. Bristow cannot estimate the impact such measures and the reduced demand for oil and gas will have on its financial results at this time; however, the effects could be significant.

 

During the quarter ended March 31, 2020 (Successor), the Australian government implemented significant travel restrictions within Australia and to and from Australia, severely impacting Airnorth operations in addition to the reduction in general aviation activity due to COVID-19 concerns. As a result, Bristow made significant changes to the near-term forecasted Airnorth cash flows, which are considered, along with the future uncertainty of longer-term forecasted cash flows, to be an indicator of impairment for the Airnorth asset group. Bristow estimated future undiscounted cash flows to test the recoverability of the Airnorth asset group, requiring Bristow to use significant unobservable inputs, including assumptions related to projected demand for services and rates. Given the uncertainty of the future forecasted cash flows, Bristow prepared a probability weighted scenario analysis. The analysis resulted in a determination that the Airnorth asset group was recoverable based on the comparison of the undiscounted cash flows to the carrying value of the asset group at March 31, 2020 (Successor). Bristow will continue to monitor the impacts of the COVID-19 global pandemic on Airnorth operations and update this analysis should changes in facts and circumstances indicate a potential lack of recoverability in future periods.

 

Bristow’s Humberside Airport operations were similarly impacted by the COVID-19 global pandemic during the quarter ended March 31, 2020 (Successor). Humberside Airport is an airport located near Humberside, England, which provides airport and related services to global and regional airlines. As a result of COVID-19, a significant customer temporarily suspended flight services into the airport, which was in addition to the decline in general aviation activity being experienced by all airlines and airports globally. Bristow has made significant changes to the near-term forecasted Humberside Airport cash flows, which are considered, along with the future uncertainty of longer-term forecasted cash flows, to be an indicator of impairment for the Humberside Airport asset group. Bristow estimated future undiscounted cash flows to test the recoverability of the Humberside Airport asset group, requiring Bristow to use significant unobservable inputs, including assumptions related to projected demand for services and rates. Given the uncertainty of the future forecasted cash flows, Bristow prepared a probability weighted scenario analysis. The analysis resulted in a determination that the Humberside Airport asset group was recoverable based on the comparison of the undiscounted cash flows to the carrying value of the asset group at March 31, 2020 (Successor). Bristow will continue to monitor the impacts of the COVID-19 global pandemic on the Humberside Airport operations and update this analysis should changes in facts and circumstances indicate a potential lack of recoverability in future periods.

 

Bristow’s oil and gas operations have experienced a reduction in flight hours during the quarter ended March 31, 2020 (Successor) and Bristow expects to continue to experience a reduction in flight hours and aircraft on contract in future periods as a result of the aforementioned global events. As a result, Bristow made changes to the near-term forecasted oil and gas cash flows, which are considered, along with the future uncertainty of longer-term forecasted cash flows, to be an indicator of impairment for Bristow’s oil and gas related property and equipment (the “oil and gas asset group”). Bristow estimated future undiscounted cash flows to test the recoverability of the oil and gas asset group, requiring Bristow to use significant unobservable inputs, including assumptions related to projected demand for services and rates. Given the uncertainty of the future forecasted cash flows, Bristow prepared a scenario analysis providing for several potential estimated impacts in order to ensure the reasonableness of Bristow’s undiscounted cash flow analysis. The analysis resulted in a determination that the oil and gas asset group was recoverable based on the comparison of the undiscounted cash flows to the carrying value of the asset group at March 31, 2020 (Successor). Bristow will continue to monitor the impacts of the COVID-19 global pandemic and changes in the global energy markets on oil and gas operations and update this analysis should changes in facts and circumstances indicate a potential lack of recoverability in future periods.

 

Líder Táxi Aéreo S.A. (“Líder”) indicated it experienced a decline in activity as a result of the aforementioned events and also indicated an expected decline in future business opportunities in its market as a result of the decline in oil prices leading to Bristow’s evaluation of the investment for other-than-temporary impairment. In connection with the Merger, Bristow may be required to dispose of its investment in Líder. This fact indicates Bristow may not be able to hold the investment in Líder for the time period required to experience a recovery in the financial results of Líder necessary to assert there has been no other-than-temporary impairment in the investment at March 31, 2020 (Successor). As a result, Bristow recorded a $9.6 million impairment to its investment in Líder during the quarter ended March 31, 2020 (Successor).

 

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Rejection and Deferral of Purchase of H175s — On May 1, 2019, Bristow entered into an amendment to its agreement with Airbus Helicopters S.A.S. for the purchase of 22 H175 helicopters, which included five aircraft that can be cancelled by Bristow prior to the delivery dates. Pursuant to the amendment, the parties mutually agreed to postpone the delivery dates for such helicopters for 18 months from the previous schedule, with the first three helicopters now scheduled for delivery in the second half of fiscal year 2022. The postponement in deliveries resulted in various amendments to the payment terms under the purchase agreement including the deferral of approximately $110.0 million in capital expenditures scheduled for fiscal years 2019 to 2023 into fiscal years 2024 and beyond. In connection with this amendment, the overall purchase price of these helicopters increased by $18.4 million to account for inflation.

 

On September 30, 2019, Bristow filed a motion with the Bankruptcy Court to approve a settlement agreement with Airbus Helicopters S.A.S. in regards to the rejection of the purchase contract for 22 H175 helicopters. On October 3, 2019, the Bankruptcy Court entered an order approving an agreement with Airbus Helicopters S.A.S. to reject Bristow’s aircraft purchase contract for the 22 H175 helicopters. As a result of the rejection of the purchase contract, Bristow recorded $31.8 million of expense to reorganization items, net included on its consolidated statements of operations for the seven months ended October 31, 2019 (Predecessor).

 

Regional Perspectives

 

Bristow owns an approximate 20% voting interest and a 41.9% economic interest in Líder, a provider of helicopter and executive aviation services in Brazil. Bristow management believes that the Brazilian helicopter services market is important to its long-term strategy because of its concentration and size of its offshore oil reserves. However, the short-term market outlook of Brazil and, specifically, and the semi-public Brazilian oil corporation Petróleo Brasileiro S.A. (“Petrobras”) is uncertain as the price of oil and Petrobras’ restructuring efforts have impacted the helicopter industry. The Brazilian government has revisited the regulations on the oil and gas industry and made significant changes to the Brazilian market meant to stimulate that market. In addition, the Brazilian government is currently reviewing local content requirements, which has led other operators (including international oil companies) to initiate drilling activities. Overall, the long-term Brazilian market outlook has improved with future opportunities for growth, although Líder faces significant competition from a number of global and local helicopter service providers.

 

Bristow’s investment in Líder as of March 31, 2020 (Successor) is $22.0 million. As of March 31, 2020 (Successor), Bristow has no aircraft on lease to Líder. In March 2020 (Successor), Bristow recorded a $9.6 million impairment to its investment in Líder as a result of the aforementioned events and $0.5 million in equity earnings for the three months ended March 31, 2020 (Successor).

 

In addition to uncertainty surrounding future financial performance, currency fluctuations continue to make it difficult to predict the earnings from Bristow’s Líder investment. These currency fluctuations, which primarily do not impact Líder’s cash flow from operations, had a significant negative impact on Líder’s results in recent years, impacting Bristow’s earnings (losses) from unconsolidated affiliates.Earnings (losses) from unconsolidated affiliates, net on Bristow’s consolidated statements of operations, is included in calculating adjusted EBITDA, adjusted net income (loss) and adjusted diluted earnings (loss) per share. In connection with Bristow’s adoption of fresh-start accounting, Bristow has elected to report its equity earnings from Líder on a three-month lag reporting basis.

 

Bristow is subject to competition and the political environment in the countries where Bristow operates. In Nigeria, Bristow has seen an increase in competitive pressure and the application of existing local content regulations that could impact Bristow’s ability to win future work at levels previously anticipated. In order to properly and fully comply with new regulations, Bristow has made a number of key changes to its operating model in Nigeria, while maintaining safety as its number one priority at all times. The objectives of these changes are (a) enhancing the level of continued compliance by each of Bristow Helicopters Nigeria Ltd. (“BHNL”) and Pan African Airlines Nigeria Ltd. (“PAAN”) with local content regulations, (b) the streamlining of Bristow’s operations in Nigeria, including an ongoing consolidation of operations of BHNL and BGI Aviation Technical Services Nigeria Limited (“BATS”) in order to achieve cost savings and efficiencies in Bristow’s operations, and (c) each of BHNL and PAAN committing to continue to apply and use all key Bristow Group standards and policies, including without limitation Bristow’s Target Zero safety program, Code of Business Integrity and Operations Manuals. As a result of these changes, Bristow’s ability to continue to consolidate BHNL and PAAN under the current accounting requirements could change.

 

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Bristow conducts business in various foreign countries, and as such, Bristow’s cash flows and earnings are subject to fluctuations and related risks from changes in foreign currency exchange rates. During the five months ended March 31, 2020 (Successor), the seven months ended October 31, 2019 (Predecessor), the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, Bristow’s primary foreign currency exposure was related to the British pound sterling, the euro, the Australian dollar, the Norwegian kroner and the Nigerian naira and Bristow’s unconsolidated affiliates foreign currency exposure is primarily related to the Brazilian real. For further details on this exposure and the related impact on Bristow’s results of operations, see Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

  7  

 

 

Overview of Operating Results

 

Results for prior years have been adjusted as discussed in Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

Although GAAP requires that Bristow report its operating results for the five months ended March 31, 2020 (Successor) and seven months ended October 31, 2019 (Predecessor) separately, management views the operating results for the fiscal year ended March 31, 2020 by combining the results of the applicable Predecessor and Successor periods (referred to herein in as "Combined Results") because such presentation provides the most meaningful comparison of these results to prior periods.

 

Bristow cannot adequately benchmark the operating results for the five months ended March 31, 2020 (Predecessor) against any of the previous periods reported in its consolidated financial statements without combining it with the seven months ended October 31, 2019 (Successor) and does not believe that reviewing the results of this period in isolation would be useful in identifying any trends in or reaching any conclusions regarding Bristow’s overall operating performance. Management believes that the key performance metrics such as revenue and operating (loss) income for the Successor period when combined with the applicable Predecessor period provides more meaningful comparisons to other periods and are useful in identifying current business trends.] Accordingly, in addition to presenting results of operations as reported in its consolidated financial statements in accordance with GAAP, the table and discussion below also presents Bristow's combined results for the fiscal year ended March 31, 2020.

 

The Combined Results for the fiscal year ended March 31, 2020, represent the sum of the reported amounts for the five months ended March 31, 2020 (Predecessor) and seven months ended October 31, 2019 (Successor). These combined results are not considered to be prepared in accordance with GAAP and have not been prepared as pro forma results under applicable regulations. The Combined Results may not reflect the actual results Bristow would have achieved absent Bristow’s emergence from bankruptcy and may not be indicative of future results.

 

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The following table presents Bristow’s operating results and other statement of operations information for the applicable periods:

  

    Successor     Predecessor           Predecessor    
Favorable
(Unfavorable)
 


Five Months
Ended
March 31,


Seven Months
Ended
October 31,



Combined
Fiscal Year

 
Fiscal Year
Ended
March 31, 



    2020
    2019
    2020
    2019
     
         

(In thousands, except per share

amounts, percentages and flight hours)

 
Gross revenue:                                                
Operating revenue     467,725     $ 722,919       1,190,644     $ 1,307,907     $ (117,263 )     (9.0 )%
Reimbursable revenue     18,038       34,304       52,342       61,755       (9,413 )     (15.2 )%
Total gross revenue     485,763       757,223       1,242,986       1,369,662       (126,676 )     (9.2 )%
                                                 
Operating expense:                                                
Direct cost     370,741       574,216       944,957       1,079,747       134,790       12.5 %
Reimbursable expense     17,683       33,023       50,706       59,482       8,776       14.8 %
Pre-petition restructuring charges           13,476       13,476             (13,476 )     *  
Depreciation and amortization     28,238       70,864       99,102       124,899       25,797       20.7 %
General and administrative     71,413       88,555       159,968       182,113       22,145       12.2 %
Total operating expense     488,075       780,134       1,268,209       1,446,241       178,032       12.3 %
                                                 
Loss on impairment     (9,591 )     (62,101 )     (71,692 )     (117,220 )     45,528       38.8 %
Loss on disposal of assets     (451 )     (3,768 )     (4,219 )     (27,843 )     23,624       84.8 %
Earnings from unconsolidated affiliates, net of losses     7,262       6,589       13,851       4,317       9,534       220.8 %
                                                 
Operating loss     (5,092 )     (82,191 )     (87,283 )     (217,325 )     130,042       59.8 %
                                                 
Interest expense, net     (22,302 )     (127,836 )     (150,138 )     (110,076 )     (40,062 )     (36.4 )%
Reorganization items, net     (7,232 )     (617,973 )     (625,205 )           (625,205 )     *  
Loss on sale of subsidiaries           (55,883 )     (55,883 )           (55,883 )     *  
Change in fair value of preferred stock derivative liability     184,140             184,140             184,140       *

Other expense, net     (9,956 )     (3,501 )     (13,457 )     (8,898 )     (4,559 )     (51.2 )%
     
                                         
Loss before benefit for income taxes     139,558       (887,384 )     (747,826 )     (336,299 )     (411,527 )     (122.4 )%
Benefit for income taxes     (482 )     51,178       50,696       161       50,535       *  
                                                 
Net loss     139,076       (836,206 )     (697,130 )     (336,138 )     (360,992 )     (107.4 )%
Net income attributable to noncontrolling interests     152       (208 )     (56 )     (709 )     653       92.1 %
Net loss attributable to Bristow Group   $ 139,228     $ (836,414 )   $ (697,186 )   $ (336,847 )   $ (360,339 )     (107.0 )%
                                                 
Operating margin (1)     (1.1 )%     (11.4 )%     (7.3 )%     (16.6 )%     9.3 %     56.0 %
Flight hours (2)     51,678       87,000       138,678       162,712       (24,034 )     (14.8 )%
                                                 
Non-GAAP financial measures: (3)                                                
Adjusted EBITDA   $ 45,954     $ 80,721     $ 126,675     $ 92,837     $ 33,838       36.4 %
Adjusted EBITDA margin (1)     9.8 %     11.2 %     10.6 %     7.1 %     3.5 %     49.3 %
Adjusted net loss   $ (21,591 )   $ (39,747 )   $ (61,338 )   $ (112,994 )   $ 51,656       45.7 %

 

  9  

 

 

    Predecessor              
   

Fiscal Years Ended

March 31,

    Favorable  
    2019     2018     (Unfavorable)  
   

(In thousands, except per share

amounts, percentages and flight hours)

 
Gross revenue:                                
Operating revenue   $ 1,307,907     $ 1,373,437     $ (65,530 )     (4.8 )%
Reimbursable revenue     61,755       60,538       1,217       2.0 %
Total gross revenue     1,369,662       1,433,975       (64,313 )     (4.5 )%
                                 
Operating expense:                                
Direct cost     1,079,747       1,123,287       43,540       3.9 %
Reimbursable expense     59,482       59,346       (136 )     (0.2 )%
Depreciation and amortization     124,899       124,042       (857 )     (0.7 )%
General and administrative     182,113       184,987       2,874       1.6 %
Total operating expense     1,446,241       1,491,662       45,421       3.0 %
                                 
Loss on impairment     (117,220 )     (91,400 )     (25,820 )     (28.2 )%
Loss on disposal of assets     (27,843 )     (17,595 )     (10,248 )     (58.2 )%
Earnings from unconsolidated affiliates, net of losses     4,317       18,699       (14,382 )     (76.9 )%
                                 
Operating loss     (217,325 )     (147,983 )     (69,342 )     (46.9 )%
                                 
Interest expense, net     (110,076 )     (77,060 )     (33,016 )     (42.8 )%
Other expense, net     (8,898 )     (2,957 )     (5,941 )     (200.9 )%
                                 
Loss before benefit (provision) for income taxes     (336,299 )     (228,000 )     (108,299 )     (47.5 )%
Benefit for income taxes     161       30,891       (30,730 )     (99.5 )%
                                 
Net loss     (336,138 )     (197,109 )     (139,029 )     (70.5 )%
Net (income) loss attributable to noncontrolling interests     (709 )     2,425       (3,134 )     (129.2 )%
Net loss attributable to Bristow Group   $ (336,847 )   $ (194,684 )   $ (142,163 )     (73.0 )%
                                 
Operating margin (1)     (16.6 )%     (10.8 )%     (5.8 )%     (53.7 )%
Flight hours (2)     162,712       178,329       (15,617 )     (8.8 )%
                                 
Non-GAAP financial measures:(3)                                
Adjusted EBITDA   $ 92,837     $ 106,401     $ (13,564 )     (12.7 )%
Adjusted EBITDA margin (1)     7.1 %     7.7 %     (0.6 )%     (7.8 )%
Adjusted net loss   $ (112,994 )   $ (74,033 )   $ (38,961 )     (52.6 )%

 

 

     *      percentage change too large to be meaningful or not applicable

 

(1) Operating margin is calculated as operating income (loss) divided by operating revenue. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by operating revenue.

 

(2) Excludes flight hours from Bristow Academy, Inc. (“Bristow Academy”) and unconsolidated affiliates. Includes flight hours from fixed wing operations in the U.K., Nigeria and Australia totaling 5,232 and 10,281 for the five months ended March 31, 2020 (Successor) and the seven months ended October 31, 2019 (Predecessor), respectively, and 35,773 and 43,192 for fiscal years 2019 and 2018, respectively.

 

  10  

 

 

(3) These financial measures have not been prepared in accordance with GAAP and have not been audited or reviewed by Bristow’s independent registered public accounting firm. Adjusted EBITDA is calculated by taking Bristow’s net income (loss) and adjusting for interest expense, depreciation and amortization, benefit (provision) for income taxes, gain (loss) on disposal of assets and any special items during the reported periods. See further discussion of Bristow’s use of the adjusted EBITDA metric below. Adjusted net income (loss) and adjusted diluted earnings (loss) per share are each adjusted for gain (loss) on disposal of assets and any special items during the reported periods. As discussed below, management believes these non-GAAP financial measures provide meaningful supplemental information regarding Bristow’s results of operations. A description of the adjustments to and reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures is as follows:

  

    Successor     Predecessor           Predecessor  
    Five Months
Ended
March 31,
    Seven Months
Ended
October 31,
    Combined
Fiscal Year
   
Fiscal Year Ended March 31,
 
    2020     2019     2020     2019     2018  
          (In thousands, except per share amounts)  
Net loss   $ 139,076     $ (836,206 )   $ (697,130 )   $ (336,138 )   $ (197,109 )
Loss on disposal of assets     451       3,768       4,219       27,843       17,595  
Special items (i)     (145,257 )     764,815       619,558       162,894       115,027  
Depreciation and amortization     28,238       70,864       99,102       124,899       124,042  
Interest expense     22,964       128,658       151,622       113,500       77,737  
Provision (benefit) for income taxes     482       (51,178 )     (50,696 )     (161 )     (30,891 )
Adjusted EBITDA   $ 45,954     $ 80,721     $ 126,675     $ 92,837     $ 106,401  
                                         
Benefit (provision) for income tax   $ (482 )   $ 51,178     $ 50,696     $ 161     $ 30,891  
Tax benefit on loss on disposal of assets     1,223       (1,426 )     (203 )     (5,430 )     42,943  
Tax provision (benefit) on special items     (17,236 )     (46,884 )     (64,120 )     38,546       (58,016 )
Adjusted benefit for income tax   $ (16,495 )   $ 2,868     $ (13,627 )   $ 33,277     $ 15,818  
                                         
Effective tax rate (ii)     0.3 %     5.8 %     6.8 %     %     13.5 %
Adjusted effective tax rate (ii)     *       6.8 %     (28.6 )%     22.9 %     17.1 %
                                         
Net loss attributable to Bristow Group   $ 139,228     $ (836,414 )   $ (697,186 )   $ (336,847 )   $ (194,684 )
Loss on disposal of assets (iii)     1,674       2,342       4,016       22,413       60,538  
Special items (i) (iii)     (162,493 )     794,325       631,832       201,440       60,113  
Adjusted net loss   $ (21,591 )   $ (39,747 )   $ (61,338 )   $ (112,994 )   $ (74,033 )

 

 

(i) See information about special items under “Combined Fiscal Year 2020 Compared to Predecessor Fiscal Year 2019” and “Predecessor Fiscal Year 2019 Compared to Predecessor Fiscal Year 2018” below.

 

(ii) Effective tax rate is calculated by dividing benefit (provision) for income tax by pretax net income. Adjusted effective tax rate is calculated by dividing adjusted benefit (provision) for income tax by adjusted pretax net income (loss). Tax expense (benefit) on loss on disposal of asset and tax expense (benefit) on special items is calculated using the statutory rate of the entity recording the loss on disposal of asset or special item.

 

(iii) These amounts are presented after applying the appropriate tax effect to each item.

 

*     percentage change too large to be meaningful or not applicable

 

  11  

 

 

Management believes that adjusted EBITDA, adjusted benefit for income taxes, adjusted net loss and adjusted diluted loss per share (collectively, the “Non-GAAP measures”) provide relevant and useful information, which is widely used by analysts, investors and competitors in Bristow’s industry as well as by Bristow’s management in assessing both consolidated and regional performance.

 

Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing transactions and income taxes. Adjusted EBITDA should not be considered a measure of discretionary cash available to us for investing in the growth of Bristow’s business.

 

As prescribed by the SEC, when adjusted EBITDA is discussed in reference to performance on a consolidated basis, the most directly comparable GAAP financial measure to adjusted EBITDA is net income (loss). Management does not analyze interest expense and income taxes on a regional level; therefore, the most directly comparable GAAP financial measure to adjusted EBITDA when performance is discussed on a regional level is operating income (loss).

 

Adjusted net loss and adjusted diluted loss per share present Bristow’s consolidated results excluding asset dispositions and special items that do not reflect the ordinary earnings of Bristow’s operations. Adjusted benefit for income taxes excludes the tax impact of these items. Bristow’s management believes that these measures are useful supplemental measures because net loss and adjusted diluted loss per share include asset disposition effects and special items and benefit for income taxes include the tax impact of these items, and inclusion of these items does not reflect the ongoing operational earnings of Bristow’s business.

 

The Non-GAAP measures are not calculated or presented in accordance with GAAP and other companies in Bristow’s industry may calculate these measures differently than we do. As a result, these financial measures have limitations as analytical and comparative tools and you should not consider these measures in isolation, or as a substitute for analysis of Bristow’s results as reported under GAAP. In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove to be inaccurate. In addition, in evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Bristow’s presentation of the Non-GAAP measures should not be construed as an inference that Bristow’s future results will be unaffected by unusual or special items.

 

Some of the additional limitations of adjusted EBITDA are:

 

Adjusted EBITDA does not reflect Bristow’s current or future cash requirements for capital expenditures;

 

Adjusted EBITDA does not reflect changes in, or cash requirements for, Bristow’s working capital needs;

 

Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on Bristow’s debts; and

 

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements.

 

  12  

 

 

The following table presents region adjusted EBITDA and adjusted EBITDA margin discussed in “— Region Operating Results,” and consolidated adjusted EBITDA and adjusted EBITDA margin for the Combined Fiscal Year 2020, Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018:

 

    Successor     Predecessor           Predecessor  
    Five Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year Ended March 31,  
    2020     2019     2020     2019     2018  
          (In thousands, except percentages)  
Adjusted EBITDA:                                        
Europe Caspian   $ 43,622     $ 49,186     $ 92,808     $ 74,924     $ 81,503  
Africa     14,812       27,198       42,010       29,285       52,419  
Americas     26,301       31,054       57,355       32,267       41,984  
Asia Pacific     (6,022 )     3,867       (2,155 )     (4,874 )     (1,424 )
Corporate and other     (32,759 )     (30,584 )     (63,343 )     (38,765 )     (68,081 )
Consolidated adjusted EBITDA   $ 45,954     $ 80,721     $ 126,675     $ 92,837     $ 106,401  
                                         
Adjusted EBITDA margin:                                        
Europe Caspian     16.0 %     12.0 %     13.6 %     9.8 %     10.6 %
Africa     21.7 %     25.3 %     23.9 %     18.7 %     27.3 %
Americas     26.4 %     22.2 %     24.0 %     14.6 %     18.6 %
Asia Pacific     (20.0 )%     5.6 %     (2.2 )%     (2.8 )%     (0.7 )%
Consolidated adjusted EBITDA margin     9.8 %     11.2 %     10.6 %     7.1 %     7.7 %

 

The following table presents reconciliation of adjusted EBITDA by region and adjusted EBITDA margin and rent expense by region:

 

    Five Months Ended March 31, 2020 (Successor)  
    Europe
Caspian
    Africa     Americas     Asia Pacific     Corporate
and other
    Loss on
disposal of
assets
    Total  
    (In thousands, except percentages)  
Operating income (loss)   $ 19,334     $ 10,154     $ 9,762     $ (6,921 )   $ (36,970 )   $ (451 )   $ (5,092 )
Depreciation and amortization expense     14,898       2,274       4,168       3,836       3,062               28,238  
Interest income     180       3       10       22       447               662  
Other income (expense), net     (1,511 )     1,075       (315 )     (3,577 )     (5,628 )             (9,956 )
Special items and loss on disposal of assets     10,721       1,306       12,676       618       6,330       451       32,102  
Adjusted EBITDA   $ 43,622     $ 14,812     $ 26,301     $ (6,022 )   $ (32,759 )   $     $ 45,954  
                                                         
Adjusted EBITDA margin     16.0 %     21.7 %     26.4 %     (20.0 )%                     9.8 %
                                                         
Rent expense   $ 33,148     $ 5,056     $ 7,067     $ 4,058     $ 732             $ 50,061  

 

  13  

 

 

    Seven Months Ended October 31, 2019 (Predecessor)  
    Europe
Caspian
    Africa     Americas     Asia Pacific     Corporate
and other
    Loss on
disposal of
assets
    Total  
    (In thousands, except percentages)  
Operating income (loss)   $ 26,143     $ 17,255     $ 13,391     $ (33,653 )   $ (101,559 )   $ (3,768 )   $ (82,191 )
Depreciation and amortization expense     28,155       10,829       16,654       7,463       7,763               70,864  
Interest income     84       18       2       27       691               822  
Other income (expense), net     (7,465 )     (904 )     1,007       (587 )     4,448               (3,501 )
Special items and loss on disposal of assets     2,269                   30,617       58,073       3,768       94,727  
Adjusted EBITDA   $ 49,186     $ 27,198     $ 31,054     $ 3,867     $ (30,584 )   $     $ 80,721  
                                                         
Adjusted EBITDA margin     12.0 %     25.3 %     22.2 %     5.6 %                     11.2 %
                                                         
Rent expense   $ 63,059     $ 7,523     $ 9,482     $ 18,075     $ 3,404             $ 101,543  

 

    Fiscal Year Ended March 31, 2019 (Predecessor)  
    Europe
Caspian
    Africa     Americas     Asia Pacific     Corporate
and other
    Loss on
disposal of
assets
    Total  
    (In thousands, except percentages)  
Operating income (loss)   $ 12,874     $ 13,499     $ 3,530     $ (23,645 )   $ (195,740 )   $ (27,843 )   $ (217,325 )
Depreciation and amortization expense     50,737       16,113       28,300       16,735       13,014               124,899  
Interest income     104       4       3       86       3,227               3,424  
Other income (expense), net     (10,851 )     (331 )     176       (4,340 )     6,448               (8,898 )
Special items and loss on disposal of assets     22,060             258       6,290       134,286       27,843       190,737  
Adjusted EBITDA   $ 74,924     $ 29,285     $ 32,267     $ (4,874 )   $ (38,765 )   $     $ 92,837  
                                                         
Adjusted EBITDA margin     9.8 %     18.7 %     14.6 %     (2.8 )%                     7.1 %
                                                         
Rent expense   $ 122,282     $ 9,657     $ 23,122     $ 31,040     $ 6,215             $ 192,316  

 

    Fiscal Year Ended March 31, 2018 (Predecessor)  
    Europe
Caspian
    Africa     Americas     Asia Pacific     Corporate
and other
    Loss on
disposal of
assets
    Total  
    (In thousands, except percentages)  
Operating income (loss)   $ 22,624     $ 32,326     $ (72,083 )   $ (24,290 )   $ (88,965 )   $ (17,595 )   $ (147,983 )
Depreciation and amortization expense     48,854       13,705       27,468       19,695       14,320               124,042  
Interest income     17       90       107       89       374               677  
Other income (expense), net     3,603       (1,720 )     434       (795 )     (4,479 )             (2,957 )
Special items and loss on disposal of assets     6,405       8,018       86,058       3,877       10,669       17,595       132,622  
Adjusted EBITDA   $ 81,503     $ 52,419     $ 41,984     $ (1,424 )   $ (68,081 )   $     $ 106,401  
                                                         
Adjusted EBITDA margin     10.6 %     27.3 %     18.6 %     (0.7 )%                     7.7 %
                                                         
Rent expense   $ 134,158     $ 8,557     $ 24,920     $ 32,908     $ 8,148             $ 208,691  

 

  14  

 

 

Combined Fiscal Year 2020 Compared to Predecessor Fiscal Year 2019

 

Operating revenue from external customers by line of service was as follows:

 

    Successor     Predecessor           Predecessor        
    Five Months
Ended
March 31,
    Seven Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year
Ended
March 31,
    Favorable
(Unfavorable)
 
    2020     2019     2020     2019      
          (In thousands, except percentages)  
Oil and gas services   $ 341,044     $ 521,369     $ 862,413     $ 877,938     $ (15,525 )     (1.8 )%
U.K. SAR services   $ 90,575       128,436       219,011       232,722       (13,711 )     (5.9 )%
Fixed wing services   $ 35,731       72,720       108,451       195,412       (86,961 )     (44.5 )%
Corporate and other   $ 375       394       769       1,835       (1,066 )     (58.1 )%
Total operating revenue   $ 467,725     $ 722,919     $ 1,190,644     $ 1,307,907     $ (117,263 )     (9.0 )%

 

The year-over-year decrease in operating revenue was primarily driven by a decrease of $87.0 million in fixed wing services revenue in Bristow’s Europe Caspian region as a result of the sale of Eastern Airways International Limited (“Eastern Airways”) on May 10, 2019 and a decrease of $13.7 million in U.K. search and rescue (“SAR”) services revenue. The decrease in the U.K. SAR services revenue in the Combined Fiscal Year 2020 is primarily due to a one-time benefit of $7.6 million in original equipment manufacturers (“OEM”) cost recoveries recognized in the Predecessor Fiscal Year 2019 and unfavorable changes in the British pound sterling versus U.S. dollar foreign currency exchange rate from the Predecessor Fiscal Year 2019 to the Combined Fiscal Year 2020. Oil and gas revenue improvements from the Predecessor Fiscal Year 2019 in the Africa, America and Europe Caspian regions primarily due to increases in activity were more than offset by a decrease in the Asia Pacific region primarily due to fewer customer contracts yielding a decrease in activity and unfavorable changes in foreign currency rates. Included within the Favorable (Unfavorable) change presented above, revenue decreased by $33.4 million in the Combined Fiscal Year 2020 compared to the Predecessor Fiscal Year 2019 due to unfavorable changes in foreign currency exchange rates, primarily related to the depreciation of the British pound sterling and Australian dollar versus the U.S. dollar.

 

For the Combined Fiscal Year 2020, Bristow reported a net loss of $697.2 million compared to a net loss of $336.8 million for the Predecessor Fiscal Year 2019. The year-over-year change in net loss was primarily driven by the following special items for the Combined Fiscal Year 2020:

 

Organizational restructuring costs of $643.4 million ($592.7 million net of tax), including the following:

 

Fresh-start accounting adjustments loss of $686.1 million ($573.6 million net of tax) recorded in reorganization expense, net on the consolidated statements of operations to allocate Bristow’s Reorganization Value to its individual assets and liabilities based on their estimated fair values. See Note 3 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements;

 

Reorganization professional fees and other of $99.7 million ($87.8 million net of tax), including $13.5 million of prepetition professional fees included in prepetition restructuring charges on the consolidated statements of operations and $86.2 million of post-petition professional fees included in reorganization items, net, on the consolidated statements of operations including professional fees and other transaction costs of $62.2 million, success fees of $14.0 million for advisors, payment of executive key employee incentive plan of $3.4 million, directors and officers policy prepaid asset write-off of $3.3 million and cancellation of Predecessor equity of $3.3 million;

 

Debt related expenses of $48.3 million ($39.2 million net of tax) included in reorganization items, net, on the consolidated statements of operations, including $30.2 million related to discount write-off and $2.3 million related to deferred financing fees write-off related to the 4½% Convertible Senior Notes that were extinguished under the Chapter 11 Cases, $4.1 million for fees incurred related to Bristow’s $150 million Super-priority Secured Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”) funded in August 2019 and satisfied upon emergence, $1.7 million related to discount write-off and $7.3 million related to deferred financing fees write-off related to the 8.75% Senior Secured Notes, $0.6 million incurred for fees related to the DIP Credit Agreement and $2.2 million incurred for fees related to the asset-backed revolving credit facility entered into on April 17, 2018, by two of Bristow’s subsidiaries (the “ABL Facility”);

 

  15  

 

 

Settlement charges of $31.8 million ($25.1 million net of tax) included in reorganization items, net on the consolidated statements of operations relating to the rejection during the Chapter 11 Cases of Bristow’s aircraft purchase contract for 22 H175 helicopters with Airbus;

 

Lease termination costs of $30.2 million ($23.9 million net of tax) included in reorganization items, net, on the consolidated statements of operations relating to the rejection of ten aircraft leases rejected in June 2019 including nine S-76C+s and one S-76D;

 

Severance costs of $4.8 million ($4.8 million net of tax) included in direct costs and general and administrative expense on the consolidated statements of operations;

 

Corporate lease termination costs of $2.8 million ($2.2 million net of tax) included in reorganization items, net, on the consolidated statements of operations including $1.7 million for write-off of corporate lease leasehold improvements;

 

Professional fees related to fresh-start accounting of $6.5 million ($5.1 million net of tax) included in reorganization items, net, on the consolidated statements of operations;

 

Trustee fees of $0.7 million ($0.7 million net of tax) included in reorganization items, net, on the consolidated statements of operations; partially offset by

 

Gain on settlement of liabilities subject to compromise of $265.6 million ($167.7 million net of tax) recorded in reorganization, net on the consolidated statements of operations primarily related to the extinguishment of Bristow’s 6¼% Senior Notes due 2022 (the “6¼% Senior Notes due 2022”) and Bristow’s 4½% Convertible Senior Notes due 2023 (the “4½% Convertible Senior Notes due 2023”). See Note 3 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements; and

 

A benefit of $1.9 million ($1.9 million net of tax) included in direct cost on the consolidated statements of operations, resulting from an adjustment to the allowed claim associated with Bristow’s return of four H225 model aircraft in May 2019;

 

Loss on impairment of $71.7 million ($62.9 million net of tax) included in loss on impairment on the consolidated statements of operations resulting from:

 

a $42.0 million impairment of H225 aircraft;

 

a $17.5 million impairment of Airnorth goodwill;

 

a $9.6 million impairment of Líder; and

 

a $2.6 million impairment of Bristow’s investment in Sky Future Partners Limited (“Sky Future Partners”);

 

Contingent beneficial conversion feature expense of $56.9 million ($56.9 million net of tax) recorded in interest expense on the consolidated statements of operations resulting from conversion features in the Predecessor’s financing facility under the DIP Credit Agreement (the “DIP Facility”) triggered upon emergence from Chapter 11;

 

Loss on sale of subsidiaries of $55.9 million ($55.9 million net of tax) included in loss on sale of subsidiaries on the consolidated statements of operations, resulting from the sale of Eastern Airways, Bristow Helicopters Leasing Limited (“BHLL”) and Aviashelf Aviation Co. (“Aviashelf”);

 

DIP claims liability expense of $15.0 million ($15.0 million net of tax) recorded in interest expense on the consolidated statements of operations;

 

  16  

 

 

H225 lease return costs of $10.8 million ($10.8 million net of tax) included in direct cost on the consolidated statements of operations, resulting from costs associated with Bristow’s return of four H225 model aircraft in May 2019 including $4.3 million paid in lease return costs in the Combined Fiscal Year 2020 and $10.6 million in future rent and return costs, partially offset by the write-off of $6.0 million of deferred credits for OEM settlements that were being recognized over the remaining life of the leases;

 

Maintenance expense of $15.5 million ($14.9 million net of tax) for the non-cash amortization of power-by-the-hour (“PBH”) contract intangible assets during the five months ended March 31, 2020 (Successor) as a result of fresh-start accounting included in direct costs on the consolidated statement of operations;

 

Financing fees of $2.6 million ($2.4 million net of tax) included in interest expense on the consolidated statements of operations related to the DIP Credit Agreement;

 

Write-off of a portion of deferred financing fees and discount of $1.9 million ($1.5 million net of tax) included in interest expense on the consolidated statements of operations related to a portion of Bristow’s 8.75% Senior Secured Notes which were purchased in a tender offer in September 2019;

 

Transaction costs incurred as a result of the then-pending Merger of $6.3 million ($5.0 million net of tax) recorded in general and administrative expense on the consolidated statements of operations;

 

Fair value of preferred stock derivative liability of $184.1 million ($184.1 million net of tax) included in fair value of preferred stock derivative liability on the consolidated statements of operations; and

 

Non-cash tax benefit of $1.9 million from a reduction in the valuation allowances on deferred tax assets.

 

Additionally, Bristow realized a loss on disposal of assets of $4.2 million ($4.0 million net of tax) during the Combined Fiscal Year 2020 from the sale or disposal of eight aircraft and other equipment.

 

The Predecessor Fiscal Year 2019 results benefited from the impact of $17.6 million of OEM cost recoveries realized in the Predecessor Fiscal Year 2019 that resulted in a one-time benefit of $7.6 million in U.K. SAR operating revenue as discussed above, a $6.9 million reduction in rent expense and a $3.1 million reduction in direct cost.

 

Excluding the special items and the loss on disposal of assets discussed above, adjusted net loss was $61.3 million for the Combined Fiscal Year 2020. These adjusted results compare to adjusted net loss of $113.0 million for the Predecessor Fiscal Year 2019. Additionally, adjusted EBITDA improved to $126.7 million in the Combined Fiscal Year 2020 from $92.8 million in the Predecessor Fiscal Year 2019. The benefit from the OEM cost recoveries described above is included within adjusted net income and adjusted EBITDA in the Predecessor Fiscal Year 2019.

 

Adjusted EBITDA and adjusted net loss benefited from a decrease in salaries and benefits, rent and general and administrative expense, an increase in earnings from unconsolidated affiliates and the sale of Eastern Airways compared to the Predecessor Fiscal Year 2019. These items were partially offset by OEM cost recoveries realized in the Predecessor Fiscal Year 2019 that did not recur in the Combined Fiscal Year 2020 and an unfavorable impact of changes in foreign exchange rates.

 

  17  

 

 

The table below presents the year-over-year impact of changes in foreign currency exchange rates.

 

    Successor     Predecessor           Predecessor        
    Five Months
Ended
March 31,
    Seven Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year
Ended March 31,
    Favorable
(Unfavorable)
 
 
    2020     2019     2020     2019      
          (in thousands)  
Revenue impact                                   $ (33,432 )
Operating expense impact                                     32,957  
Year-over-year income statement translation                                     (475 )
                                         
Transaction losses included in other income (expense), net   $ (11,577 )   $ (1,327 )   $ (12,904 )   $ (5,163 )     (7,741 )
Líder foreign exchange impact included in earnings from unconsolidated affiliates (1)     (115 )     (1,123 )     (1,238 )     (4,163 )     2,925  
Total   $ (11,692 )   $ (2,450 )   $ (14,142 )   $ (9,326 )     (4,816 )
                                         
Pre-tax income statement impact                                     (5,291 )
Less: Foreign exchange impact on depreciation and amortization and interest expense                                     (284 )
Adjusted EBITDA impact                                   $ (5,575 )
                                         
Net income impact (tax affected)                                   $ (4,034 )

 

(1) In connection with Bristow’s adoption of fresh-start accounting, Bristow has elected to report its equity earnings from Líder on a three-month lag reporting basis. Bristow began recording equity earnings from Líder during the quarter ended March 31, 2020. As such there was no impact from foreign currency exchange rates for the two months ended December 31, 2019.

 

The most significant foreign currency exchange rate impacts related to a $7.7 million increase in transaction losses in the Combined Fiscal Year 2020 compared to the Predecessor Fiscal Year 2019 and a $0.5 million unfavorable impact from changes in foreign currency exchange rates in the Combined Fiscal Year 2020 primarily driven by the impact of the depreciating British pound sterling on the translation of Bristow’s results in the Europe Caspian region. During the Combined Fiscal Year 2020, such depreciation from the Predecessor Fiscal Year 2019 translated into lower U.S. dollar earnings for reporting purposes because a majority of Bristow’s revenue in the Europe Caspian region was contracted in British pound sterling. Partially offsetting these unfavorable items was a $2.9 million decrease in the unfavorable impact of foreign currency exchange rates from Bristow’s investment in Líder in Brazil.

 

Direct costs decreased 12.5%, or $134.8 million, year-over-year primarily due to a $93.3 million decrease due to the sale of Eastern Airways on May 10, 2019 (Predecessor), a $25.6 million decrease in lease costs primarily due to the return of leased aircraft and reduction in lease rates as a result of the Chapter 11 Cases and a $20.9 million decrease in salaries and benefits primarily due to a reduction in headcount as a result of fewer customer contracts driving lower activity in Bristow’s Asia Pacific region and a decrease in fuel costs of $8.2 million, partially offset by a $17.2 million increase in maintenance expense primarily due to the amortization of PBH contract intangible assets during the five months ended March 31, 2020 (Successor) as a result of fresh-start accounting.

 

Reimbursable expense decreased 14.8%, or $8.8 million, primarily due to fewer customer contracts resulting in a decrease in activity in Bristow’s Asia Pacific region, partially offset by an increase in activity in Bristow’s Americas region.

 

Prepetition restructuring charges include professional fees incurred prior to May 11, 2019 related to Bristow’s Chapter 11 Cases.

 

Depreciation and amortization expense decreased to $99.1 million for Combined Fiscal Year 2020 compared to $124.9 million for the Predecessor Fiscal Year 2019. The decrease in depreciation and amortization expense is primarily due to the sale of Eastern Airways in May 2019 and lower depreciation for the five months ended March 31, 2020 (Successor) as a result of the revaluation of assets in connection with the adoption of fresh-start accounting. Bristow recorded all property and equipment at fair value upon emergence and made certain changes to its depreciation policy. For further details, see “Critical Accounting Policies and Estimates” in the Bristow Financial Statements.

 

  18  

 

 

General and administrative expense decreased 12.2%, or $22.1 million, in the Combined Fiscal Year 2020, as compared to the Predecessor Fiscal Year 2019 primarily due to a $32.8 million decrease in transaction costs related to the termination of the Columbia Helicopters, Inc. (“Columbia”) acquisition agreement (the “Columbia Transaction”), including payment of a $20 million termination fee in February 2019, and a $10.3 million decrease due to the sale of Eastern Airways in May 2019, partially offset by an increase of $21.0 million related to salaries and benefits due to an increase in short-term incentive compensation in the Combined Fiscal Year 2020.

 

Loss on impairment for the Combined Fiscal Year 2020 includes impairment charges of $42.0 million for H225 aircraft, $17.5 million for Airnorth goodwill, $9.6 million for Bristow’s investment in Líder and $2.6 million for Bristow’s investment in Sky Future Partners. Loss on impairment for the Predecessor Fiscal Year 2019 includes impairment charges of $87.5 million for H225 aircraft, $8.9 million for H225 inventory, and $20.8 million for Eastern Airways assets, including $17.5 million for aircraft and equipment, $3.0 million for intangible assets and $0.3 million for inventory. For further details, see Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

Loss on disposal of assets decreased $23.6 million to a loss of $4.2 million for the Combined Fiscal Year 2020 from a loss of $27.8 million for the Predecessor Fiscal Year 2019. The loss on disposal of assets in the Combined Fiscal Year 2020 included a loss of $4.2 million from the sale or disposal of eight aircraft and other equipment. During the Predecessor Fiscal Year 2019, the loss on disposal of assets included $14.7 million of contract termination costs for an aircraft purchase contract that was terminated and aircraft options that were cancelled, $8.1 million for impairment of assets held for sale and a loss of $5.0 million from the sale or disposal of aircraft and other equipment.

 

Earnings from unconsolidated affiliates, net of losses, increased $9.5 million to earnings of $13.9 million for the Combined Fiscal Year 2020 from earnings of $4.3 million in the Predecessor Fiscal Year 2019. This improvement primarily resulted from a $6.3 million increase in earnings from Bristow’s investment in Cougar Helicopters Inc. (“Cougar”) in Canada for the Combined Fiscal Year 2020 due to an increase in activity and a $2.1 million decrease in losses from Bristow’s investment in Líder primarily due to lower unfavorable impact of changes in foreign currency exchange rates. As permitted by fresh-start accounting, Bristow elected to transition to lag reporting for reporting the equity earnings of its investment in Líder upon emergence from Chapter 11. Líder equity earnings are reported on a lag basis of three months consistent with Bristow’s historical practice for recording equity earnings from Cougar.

 

Interest expense, net, increased 36.4%, or $40.1 million, in the Combined Fiscal Year 2020 compared to the Predecessor Fiscal Year 2019 primarily due to $56.9 million non-cash interest expense related to the beneficial conversion feature in the DIP Facility recorded in the Combined Fiscal Year 2020 and $15.0 million of non-cash interest expense related the DIP equitization consent fee recorded in the Combined Fiscal Year 2020, partially offset by lower interest expense of $28.1 million on the 6¼% Senior Notes due 2022 and 4½% Convertible Senior Notes due 2023 as the unsecured debt was classified as liabilities subject to compromise on the Petition Date upon the filing of the Chapter 11 Cases and Bristow stopped accruing interest expense and $13.7 million less interest expense on Bristow’s 8.75% Senior Secured Notes, which were paid off during the Combined Fiscal Year 2020. Interest income was $1.9 million lower in the Combined Fiscal Year 2020 primarily due to a decrease in cash and cash invested at lower rates. Also, capitalized interest was $2.3 million lower in the Combined Fiscal Year 2020 as Bristow no longer has any aircraft progress payments in construction in progress. For further details on debt, see Notes 2 and 7 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

  19  

 

 

Reorganization items, net represent amounts incurred directly resulting from the Chapter 11 Cases and consists of the following items:

 

    Successor     Predecessor  
   

Five Months Ended

March 31, 2020

    Seven Months Ended
October 31, 2019
 
Fresh-start accounting adjustments loss (1)   $     $ 686,116  
Gain on settlement of liabilities subject to compromise (2)           (265,591 )
Reorganization professional fees and other (3)     7,232       86,210  
Debt related expenses (4)           48,328  
H175 Settlement (5)           31,830  
Lease rejection costs (6)           30,221  
Corporate lease termination (7)           2,805  
H225 lease return (8)           (1,946 )
    $ 7,232     $ 617,973  

 

 

(1) Fresh-start accounting adjustments to allocate Bristow’s Reorganization Value to its individual assets based on their estimated fair values. See Note 3 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements for further details.

 

(2) Gain on settlement of liabilities subject to compromise primarily related to the extinguishment of the 6¼% Senior Notes due 2022 and 4½% Convertible Senior Notes due 2023. See Note 3 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements for further details.

 

(3) Reorganization professional fees and other for the five months ended March 31, 2020 (Successor) includes professional fees and other transaction costs of $7.2 million. Reorganization professional fees and other for the seven months ended October 31, 2019 (Predecessor) includes professional fees and other transaction costs of $61.2 million, success fees of $14.0 million for advisors, payment of executive key employee incentive plan of $3.4 million, directors and officers policy prepaid asset write-off of $3.3 million and cancellation of Predecessor equity of $4.3 million.

 

(4) Debt related expenses includes $30.2 million related to discount write-off and $2.3 million related to deferred financing fees write-off related to the 4½% Convertible Senior Notes that were extinguished under the Chapter 11 Cases, $4.1 million for fees incurred related to Bristow’s $150 million DIP Credit Agreement funded in August 2019 and satisfied upon emergence, $1.7 million related to discount write-off and $7.3 million related to deferred financing fees write-off related to the 8.75% Senior Secured Notes, $0.6 million incurred for fees related to the DIP Credit Agreement and $2.2 million incurred for fees related to the ABL Facility.

 

(5) Relates to the rejection of Bristow’s aircraft purchase contract for the 22 H175 helicopters.

 

(6) Relates to ten aircraft leases rejected in June 2019 including nine S-76C+s and one S-76D.

 

(7) Includes $1.1 million for corporate lease costs and $1.7 million for write-off of corporate lease leasehold improvements.

 

(8) Relates to adjustment of the allowed claim for the Milestone Omnibus Agreement.

 

Loss on sale of subsidiaries includes a $46.9 million loss on the sale of Eastern Airways and $9.0 million loss on the sale of Aviashelf and BHLL recorded in the seven months ended October 31, 2019 (Predecessor). For further details, see Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

For further details on other income (expense), net and income tax expense, see “— Region Operating Results — Other Income (Expense), Net” and “— Region Operating Results — Taxes” below.

 

  20  

 

 

As discussed above, Bristow’s results for the Combined Fiscal Year 2020 were impacted by special items and the loss on disposal of assets. The items noted in the Combined Fiscal Year 2020 and the Predecessor Fiscal Year 2019 have been identified as special items as they are not considered by management to be part of Bristow’s ongoing operations when assessing and measuring the operational and financial performance of the organization. The impact of these items on adjusted EBITDA and adjusted net loss is as follows:

  

    Successor  
   

Five Months Ended

March 31, 2020

 
    Adjusted
EBITDA
   

Adjusted

Net Loss

 
    (In thousands)  
Change in fair value of preferred stock derivative liability   $ 184,140     $ 184,140  
PBH contract intangible assets amortization     (15,502 )     (14,854 )
Loss on impairment     (9,591 )     (9,591 )
Organizational restructuring costs     (7,460 )     502  
Transaction costs     (6,330 )     (5,001 )
Tax Items           7,297  
Total special items   $ 145,257     $ 162,493  

 

    Predecessor  
   

Seven Months Ended

October 31, 2019

 
    Adjusted
EBITDA
   

Adjusted

Net Loss

 
    (In thousands)  
Organizational restructuring costs   $ (635,987 )   $ (593,221 )
Loss on impairment     (62,101 )     (53,276 )
Loss on sale of subsidiaries     (55,883 )     (55,883 )
H225 Lease Return     (10,844 )     (10,844 )
Contingent beneficial conversion feature           (56,870 )
DIP claims liability           (15,000 )
DIP financing fee write-off           (2,350 )
Early extinguishment of debt           (1,499 )
Tax Items           (5,382 )
Total special items   $ (764,815 )   $ (794,325 )

 

    Predecessor  
   

Fiscal Year Ended

March 31, 2019

 
    Adjusted
EBITDA
   

Adjusted

Net Loss

 
    (In thousands)  
Loss on impairment   $ 117,220     $ 101,105  
Transaction cost     32,800       25,912  
Organizational restructuring costs     11,897       10,984  
CEO retirement cost     977       772  
Tax items           62,667  
Total special items   $ 162,894     $ 201,440  

 

  21  

 

 

Predecessor Fiscal Year 2019 Compared to Predecessor Fiscal Year 2018

 

Operating revenue from external customers by line of service was as follows:

 

   

Fiscal Year Ended

March 31,

    Favorable  
    2019     2018     (Unfavorable)  
    (In thousands, except percentages)  
Oil and gas services   $ 877,938     $ 936,475     $ (58,537 )     (6.3 )%
U.K. SAR services     232,722       222,965       9,757       4.4
%
Fixed wing services     195,412       209,719       (14,307 )     (6.8 )%
Corporate and other     1,835       4,278       (2,443 )     (57.1 )%
Total operating revenue   $ 1,307,907     $ 1,373,437     $ (65,530 )     (4.8 )%

 

Bristow reported a net loss of $336.8 million and $194.7 million for the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively. The year-over-year increase in net loss was primarily driven by a decrease in revenue, higher interest expense, lower benefit for income taxes, increased loss due to impairment and disposal of assets, lower earnings from unconsolidated affiliates and increased other expense, partially offset by lower direct cost and general and administrative expense.

 

Revenue decreased 4.5%, or $64.3 million, year-over-year, primarily driven by a decrease in oil and gas services and fixed wing services. Bristow’s oil and gas services experienced declines in its Africa region, Asia Pacific region, U.K. operations within its Europe Caspian region and Canada operations within its Americas region. Bristow’s fixed wing services experienced declines at Eastern Airways and Airnorth. The decreases in oil and gas services and fixed wing services were partially offset by an increase in U.K. SAR services revenue primarily due to a one-time benefit of $7.6 million in OEM cost recoveries recognized in the Predecessor Fiscal Year 2019. See further discussion of operating revenue by region under “— Region Operating Results.” In addition to operational impacts, revenue was negatively affected by $17.2 million in the Predecessor Fiscal Year 2019 compared to the Predecessor Fiscal Year 2018 due to changes in foreign currency exchange rates. On May 10, 2019, Bristow sold Eastern Airways. See Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

Interest expense, net, increased 42.8%, or $33.0 million, year-over-year primarily due to an increase in borrowings and an increase in amortization of debt discount, partially offset by an increase in interest income as a result of an increase in cash and cash invested at higher rates. Additionally, during the Predecessor Fiscal Year 2018, Bristow wrote-off $3.0 million of deferred financing fees related to the early extinguishment of debt, which did not recur in the Predecessor Fiscal Year 2019.

 

Benefit for income taxes decreased $30.7 million year-over-year primarily due to valuation allowances on deferred tax assets in the Predecessor Fiscal Year 2019 compared to benefits related to the revaluation of net deferred tax liabilities to a lower tax rate as a result of the U.S. Tax Cuts and Jobs Act (the “Act”), partially offset by the impact of the one-time transition tax on the repatriation of foreign earnings under the Act in the Predecessor Fiscal Year 2018.

 

Loss on impairment for the Predecessor Fiscal Year 2019 includes $87.5 million and $8.9 million impairments of H225 aircraft and inventory, respectively, and $20.8 million impairment of Eastern Airways assets, including $17.5 million, $3.0 million and $0.3 million for aircraft and equipment, intangible assets and inventory, respectively. Loss on impairment for the Predecessor Fiscal Year 2018 includes an $85.7 million impairment of Bristow’s investment in Líder and $5.7 million of inventory impairments.

 

Loss on disposal of assets increased $10.2 million to a loss of $27.8 million for the Predecessor Fiscal Year 2019 from a loss of $17.6 million for the Predecessor Fiscal Year 2018. The loss on disposal of assets in the Predecessor Fiscal Year 2019 included $14.7 million of contract termination costs for an aircraft purchase contract that was terminated and aircraft options that were cancelled, $8.1 million for impairment of assets held for sale and a loss of $5.0 million from the sale or disposal of aircraft and other equipment. The loss on disposal of assets in the Predecessor Fiscal Year 2018 included impairment charges of $8.7 million related to assets held for sale, a loss of $1.7 million from the sale or disposal of aircraft and other equipment and a $7.2 million impairment and loss on disposal related to the Bristow Academy sale.

 

  22  

 

 

Earnings from unconsolidated affiliates, net of losses, decreased $14.4 million to earnings of $4.3 million for the Predecessor Fiscal Year 2019 from earnings of $18.7 million in the Predecessor Fiscal Year 2018. The decrease primarily resulted from losses from Bristow’s investment in Líder of $2.1 million for the Predecessor Fiscal Year 2019 compared to earnings of $7.2 million in the Predecessor Fiscal Year 2018 primarily due to a decline in activity and an unfavorable impact of foreign currency exchange rates. Bristow’s earnings from Líder in the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018 were reduced by the unfavorable impact of foreign currency exchange rate changes of $4.2 million and $2.0 million, respectively. Also, Bristow’s earnings from its investment in Cougar decreased $5.0 million from the Predecessor Fiscal Year 2019 to the Predecessor Fiscal Year 2018 due to a decline in activity.

 

Direct cost decreased 3.9%, or $43.5 million, year-over-year, primarily due to a $41.3 million reduction in salaries and benefits from lower headcount across all regions as a result of organizational restructuring efforts and a $15.5 million decrease in rent expense from the return of leased aircraft, partially offset by a $9.9 million increase in fuel primarily resulting from an increase in fuel prices and a $3.4 million increase in various other direct costs.

 

General and administrative expense decreased 1.6%, or $2.9 million, year-over-year, primarily due to a $25.0 million decrease in compensation expense (primarily due to decreases of $14.8 million in short-term and long-term incentive compensation costs and $7.6 million and $2.6 million in severance costs and salaries and benefits, respectively, due to a reduction in headcount across all regions from organizational restructuring efforts) and an $11.0 million decrease in information technology, travel, training and various other expenses. These decreases were mostly offset by a $13.1 million increase in professional fees incurred in the Predecessor Fiscal Year 2019 for the Columbia Transaction and related financing transactions and a $20.0 million termination fee in connection with the Columbia Transaction paid in February 2019.

 

Other expense, net increased $5.9 million primarily due to higher foreign currency transaction losses and an increase in pension related costs in the Predecessor Fiscal Year 2019. For further details on other income (expense), net, see “— Region Operating Results — Other Income (Expense), Net,” below.

 

The Predecessor Fiscal Year 2019 results benefited from the realization of $18.9 million of OEM cost recoveries realized as a one-time benefit of $7.6 million in U.K. SAR operating revenue, a $7.9 million reduction in rent expense (included in direct cost) and a $3.4 million reduction in direct cost. The Predecessor Fiscal Year 2018 benefited from a reduction in rent expense of $16.6 million included in direct costs related to OEM cost recoveries. For further details, see Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements.

 

The net loss for the Predecessor Fiscal Year 2019 was significantly impacted by the following special items:

 

Loss on impairment totaling $117.2 million ($101.1 million net of tax) including:

 

$87.5 million and $8.9 million impairments of H225 aircraft and inventory, respectively; and

 

$20.8 million impairment of Eastern Airways assets, including $17.5 million, $3.0 million and $0.3 million for aircraft and equipment, intangible assets and inventory, respectively;

 

Non-cash tax expense of $62.7 million including $51.0 million from valuation allowances on deferred tax assets and $11.6 million from the Act;

 

Transaction costs of $32.8 million ($25.9 million net of tax) included in general and administrative expense, resulting from the Columbia Transaction and related financing transactions, including a $20.0 million termination fee paid in February 2019;

 

Organizational restructuring costs of $11.9 million ($11.0 million net of tax) included in direct cost and general and administrative expense, resulting from separation programs across Bristow’s global organization designed to increase efficiency and reduce costs; and

 

CEO retirement costs of $1.0 million ($0.8 million net of tax) included in general and administrative expense.

 

  23  

 

 

Excluding the special items described above and the loss on disposal of assets, adjusted net loss was $113.0 million for the Predecessor Fiscal Year 2019. These adjusted results compare to adjusted net loss of $74.0 million for the Predecessor Fiscal Year 2018. Adjusted EBITDA decreased to $92.8 million in the Predecessor Fiscal Year 2019 from $106.4 million in the Predecessor Fiscal Year 2018.

 

The year-over-year change in adjusted EBITDA was primarily driven by the decline in oil and gas revenue and lower earnings from unconsolidated affiliates in the Predecessor Fiscal Year 2019, partially offset by a decrease in direct costs and general and administrative expense. The year-over-year change in adjusted net loss was impacted by the same items that impacted adjusted EBITDA as well as higher interest expense, partially offset by a more favorable adjusted effective tax rate in the Predecessor Fiscal Year 2019.

 

The table below presents the year-over-year impact of changes in foreign currency exchange rates.

 

    Predecessor        
    Fiscal Years Ended March 31,     Favorable  
    2019     2018     (Unfavorable)  
    (in thousands)  
Revenue impact                   $ (17,233 )
Operating expense impact                     22,847  
Year-over-year income statement translation                     5,614  
                         
Transaction losses included in other income (expense), net   $ (5,163 )   $ (2,580 )     (2,583 )
Líder foreign exchange impact included in earnings from unconsolidated affiliates     (4,163 )     (1,956 )     (2,207 )
Total   $ (9,326 )   $ (4,536 )     (4,790 )
                         
Pre-tax income statement impact                     824  
Less: Foreign exchange impact on depreciation and amortization and interest expense                     146  
Adjusted EBITDA impact                   $ 970  
                         
Net income impact (tax affected)                   $ 1,134  

 

As discussed above, Bristow’s results for the Predecessor Fiscal Year 2019 were impacted by a number of special items. In the Predecessor Fiscal Year 2018, special items that impacted Bristow’s results included organizational restructuring costs, loss on impairment (investment in unconsolidated affiliates and inventory), early extinguishment of debt and tax items. The items noted in the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018 have been identified as special items as they are not considered by management to be part of ongoing operations when assessing and measuring the operational and financial performance of Bristow. The impact of these items on adjusted EBITDA and adjusted net loss is as follows:

 

   

Fiscal Year Ended

March 31, 2018

 
    Adjusted
EBITDA
   

Adjusted

Net Loss

 
    (In thousands)  
Loss on impairment   $ 91,400     $ 63,222  
Organizational restructuring costs     23,627       17,633  
Early extinguishment of debt           2,123  
Tax items           (22,865 )
Total special items   $ 115,027     $ 60,113  

 

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Region Operating Results

 

The following tables set forth certain operating information for the regions comprising Bristow’s industrial aviation services segment. Intercompany lease revenue and expense are eliminated from Bristow’s segment reporting, and depreciation expense of aircraft is presented in the region that operates the aircraft.

 

Set forth below is a discussion of the operations of Bristow’s regions. Bristow’s consolidated results are discussed under “— Overview of Operating Results” above.

 

Europe Caspian

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year Ended
March 31,
    2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Operating revenue   $ 271,992     $ 409,830     $ 681,822     $ 764,496     $ 765,412     $ (82,674 )     (10.8 )%   $ (916 )     (0.1 )%
Operating income   $ 19,334     $ 26,143     $ 45,477     $ 12,874     $ 22,624     $ 32,603       253.2 %   $ (9,750 )     (43.1 )%
Operating margin     7.1 %     6.4 %     6.7 %     1.7 %     3.0 %     5.0 %     294.1 %     (1.3 )%     (43.3 )%
Adjusted EBITDA   $ 43,622     $ 49,186     $ 92,808     $ 74,924     $ 81,503     $ 17,884       23.9 %   $ (6,579 )     (8.1 )%
Adjusted EBITDA margin     16.0 %     12.0 %     13.6 %     9.8 %     10.6 %     3.8 %     38.8 %     (0.8 )%     (7.5 )%
Rent expense   $ 33,148     $ 63,059     $ 96,207     $ 122,282     $ 134,158     $ 26,075       21.3 %   $ 11,876       8.9 %
Loss on impairment   $     $     $     $ 20,801     $ 4,525     $ 20,801       100.0 %   $ (16,276 )     *  

 

The Europe Caspian region comprises operations and affiliates in Europe, including oil and gas operations in the U.K. and Norway, public sector SAR operations in the U.K. and operations in Turkmenistan. Prior to the sale of Eastern Airways on May 10, 2019 (Predecessor), Bristow had fixed wing operations in the Europe Caspian region.

 

Combined Fiscal Year 2020 Compared to Predecessor Fiscal Year 2019

 

The decrease in operating revenue in the Combined Fiscal Year 2020 primarily resulted from a decrease of $90.2 million for fixed wing services revenue due to the sale of Eastern Airways on May 10, 2019, and a decrease of $13.7 million for U.K. SAR revenue. The decrease in U.K. SAR revenue was primarily due to a one-time benefit of $7.6 million in OEM cost recoveries recognized in the Predecessor Fiscal Year 2019 and unfavorable changes in the British pound sterling versus U.S. dollar foreign currency exchange rate from the Predecessor Fiscal Year 2019 to the Combined Fiscal Year 2020. These decreases were partially offset by a $21.2 million increase in U.K. and Norway oil and gas services primarily due to an increase in activity and new contracts in the Combined Fiscal Year 2020. Additionally, revenue in this region was impacted by an unfavorable year-over-year impact of changes in foreign currency exchange rates of $26.1 million.

 

A substantial portion of Bristow’s operations in the Europe Caspian region is contracted in the British pound sterling, which depreciated against the U.S. dollar in the Combined Fiscal Year 2020. Bristow recorded foreign exchange losses of $8.5 million and $7.2 million in the Combined Fiscal Year 2020 and the Predecessor Fiscal Year 2019, respectively, from the revaluation of assets and liabilities on British pound sterling functional currency entities as of March 31, 2020 (Successor) and March 31, 2019 (Predecessor), respectively, which is recorded in other income (expense), net on the consolidated statements of operations and included in adjusted EBITDA. Net of the translation and revaluation impacts, adjusted EBITDA was unfavorably impacted by $10.7 million and $11.8 million resulting from the change in foreign currency exchange rates during the Combined Fiscal Year 2020 and the Predecessor Fiscal Year 2019, respectively. A further weakening or strengthening of the British pound sterling could result in additional foreign currency exchange rate volatility in future periods.

 

  25  

 

 

In addition to the $7.6 million of OEM cost recoveries discussed above, the Predecessor Fiscal Year 2019 benefited from OEM cost recoveries that resulted in a $4.9 million reduction in rent expense (included in direct costs) and a $3.4 million reduction in direct cost.

 

Additionally, as a result of fresh-start accounting for the five months ended March 31, 2020 (Successor), Bristow recorded $10.7 million of intangible amortization in maintenance expense in direct costs on the consolidated statements of operations related to PBH contract intangible assets.

 

During the Combined Fiscal Year 2020, Bristow recorded $2.6 million for impairment of Sky Future Partners. During the Predecessor Fiscal Year 2019, Bristow recorded $20.8 million for impairment of Eastern Airways assets, including $17.5 million for aircraft and equipment, $3.0 million for intangible assets and $0.3 million for inventory. For further details, see Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements. These impairments are excluded from adjusted EBITDA and adjusted EBITDA margin.

 

Operating income and operating margin improved in the Combined Fiscal Year 2020 primarily due to lower impairment charges and an increase in U.K. and Norway oil and gas services revenue, partially offset by $10.7 million of amortization of PBH contract intangible assets and $3.3 million of amortization of the U.K. SAR intangible asset for the five months ended March 31, 2020 (Successor). Adjusted EBITDA and adjusted EBITDA margin increased in the Combined Fiscal Year 2020 primarily due to an increase in U.K. and Norway oil and gas services revenue, partially offset by an unfavorable impact from foreign currency exchange rate changes in the Combined Fiscal Year 2020. The amortization of PBH contract intangible assets is included in maintenance expense in direct costs on the consolidated statements of operations and included as a special item and excluded from Adjusted EBITDA. The amortization of the U.K. SAR intangible is included in depreciation and amortization, therefore excluded from Adjusted EBITDA.

 

Predecessor Fiscal Year 2019 Compared to Predecessor Fiscal Year 2018

 

Operating revenue decreased year-over-year primarily due to an increase of $9.8 million from U.K. SAR, including a one-time $7.6 million benefit from OEM cost recoveries and $9.6 million in Norway as a result of increased activity, mostly offset by an $13.0 million decrease in U.K. oil and gas as a result of decreased activity and a $9.3 million decrease from Eastern Airways as a result of decreased activity. Eastern Airways contributed $109.2 million and $118.5 million in operating revenue for the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively. A substantial portion of Bristow’s revenue in the Europe Caspian region is contracted in the British pound sterling, which depreciated against the U.S. dollar in the Predecessor Fiscal Year 2019. As a result, included within the amounts of operational impacts described above, revenue was negatively impacted by $8.0 million in the Predecessor Fiscal Year 2019 compared to the Predecessor Fiscal Year 2018.

 

In addition to the $7.6 million of OEM cost recoveries discussed above, the Predecessor Fiscal Year 2019 benefited from OEM cost recoveries related to ongoing aircraft issues that resulted in a $4.9 million reduction in rent expense (included in direct cost) and a $3.4 million reduction in direct cost. The Predecessor Fiscal Year 2018 benefited from OEM cost recoveries that resulted in a $9.9 million reduction in rent expense (included in direct cost).

 

Bristow recorded foreign currency exchange losses of $7.2 million in the Predecessor Fiscal Year 2019 and foreign currency exchange gains of $4.3 million in the Predecessor Fiscal Year 2018 from the revaluation of assets and liabilities on British pound sterling functional currency entities as of March 31, 2019 (Predecessor) and March 31, 2018 (Predecessor), respectively, which is recorded in other income (expense), net and included in adjusted EBITDA. Net of translation and revaluation impacts, adjusted EBITDA was negatively impacted by $11.8 million and positively impacted by $9.2 million resulting from the changes in foreign currency exchange rates during the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively. A further weakening or strengthening of the British pound sterling could result in additional foreign currency exchange volatility in future periods.

 

  26  

 

 

During the Predecessor Fiscal Year 2019, Bristow recorded $20.8 million for impairment of Eastern Airways assets, including $17.5 million, $3.0 million and $0.3 million for aircraft and equipment, intangible assets and inventory, respectively. During the Predecessor Fiscal Year 2018, Bristow recorded inventory impairment charges of $4.5 million at Eastern Airways. These charges were recorded as a direct reduction in the value of spare parts inventory to record them at net realizable value. The impairments recorded in the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018 are included in operating income but were adjusted for in the calculation of adjusted EBITDA. For further details, see Notes 1 and 4 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements. Also, Bristow recorded severance expense related to organizational restructuring efforts of $1.3 million and $1.9 million for the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively, which is excluded from adjusted EBITDA and adjusted EBITDA margin.

 

The decrease in operating income and operating margin from the Predecessor Fiscal Year 2018 was primarily due to the increase in impairments of Eastern Airways assets discussed above, partially offset by the increase in revenue discussed above and the larger benefit from OEM cost recoveries in the Predecessor Fiscal Year 2019. Adjusted EBITDA and adjusted EBITDA margin decreased in the Predecessor Fiscal Year 2019 primarily due to the unfavorable year-over-year impacts from changes in foreign currency exchange rates and decrease in operating revenue, partially offset by the larger benefit from OEM cost recoveries in the Predecessor Fiscal Year 2019. Eastern Airways contributed a negative $17.3 million and negative $6.9 million in adjusted EBITDA for the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively.

 

Africa

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year Ended
March 31,
    2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Operating revenue   $ 68,122     $ 107,390     $ 175,512     $ 156,704     $ 191,830     $ 18,808       12.0 %   $ (35,126 )     (18.3 )%
Earnings from unconsolidated affiliates, net of losses   $ 2,968     $     $ 2,968     $ 2,518     $ 2,518     $ 450       17.9 %   $       %
Operating income   $ 10,154     $ 17,255     $ 27,409     $ 13,499     $ 32,326     $ 13,910       103.0 %   $ (18,827 )     (58.2 )%
Operating margin     14.9 %     16.1 %     15.6 %     8.6 %     16.9 %     7.0 %     81.4 %     (8.3 )%     (49.1 )%
Adjusted EBITDA   $ 14,812     $ 27,198     $ 42,010     $ 29,285     $ 52,419     $ 12,725       43.5 %   $ (23,134 )     (44.1 )%
Adjusted EBITDA margin     21.7 %     25.3 %     23.9 %     18.7 %     27.3 %     5.2 %     27.8 %     (8.6 )%     (31.5 )%
Rent expense   $ 5,056     $ 7,523     $ 12,579     $ 9,657     $ 8,557     $ (2,922 )     (30.3 )%   $ (1,100 )     (12.9 )%

 

The Africa region comprises all of Bristow’s operations and affiliates on the African continent, including Nigeria and Egypt.

 

Combined Fiscal Year 2020 Compared to Predecessor Fiscal Year 2019

 

Operating revenue for helicopter services in Africa increased $13.8 million in the Combined Fiscal Year 2020 due to an overall increase in activity and additional aircraft on contract compared to the Predecessor Fiscal Year 2019. Additionally, operating revenue from fixed wing services in Africa increased $5.0 million to $17.6 million in the Combined Fiscal Year 2020 from $12.6 million in the Predecessor Fiscal Year 2019.

 

Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin increased as a result of the increase in operating revenue in the Combined Fiscal Year 2020 discussed above, which was only partially offset by an increase in direct cost and general and administrative expense due to the increase in activity and additional aircraft on contract in the Combined Fiscal Year 2020. In addition to the items that impacted adjusted EBITDA and adjusted EBITDA margin, operating income and operating margin were impacted by a reduction of $3.0 million in depreciation expense, partially offset by $1.3 million amortization of PBH contract intangible assets as a result of fresh-start accounting for the five months ended March 31, 2020 (Successor). The amortization of PBH contract intangible assets is included in maintenance expense in direct costs on the condensed consolidated statements of operations and included as a special item and excluded from adjusted EBITDA.

 

  27  

 

 

Predecessor Fiscal Year 2019 Compared to Predecessor Fiscal Year 2018

 

Operating revenue for Africa decreased year-over-year, due to an overall net decrease in activity and the end of certain contracts, including a contract that expired on March 31, 2018 (Predecessor). The decrease was partially offset by an increase in fixed wing services in Africa that generated $10.5 million and $7.4 million of operating revenue for the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively.

 

Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin decreased as a result of the decrease in operating revenue in the Predecessor Fiscal Year 2019, which was partially offset by a decrease in direct cost and general and administrative expenses due to the decrease in activity described above. Additionally, during the Predecessor Fiscal Year 2018, Bristow recorded $8.0 million in severance expense resulting from voluntary and involuntary separation programs as part of its restructuring efforts, which is excluded from adjusted EBITDA and adjusted EBITDA margin.

 

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Americas

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year Ended March 31,     2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Operating revenue   $ 99,717     $ 139,692     $ 239,409     $ 221,528     $ 225,377     $ 17,881       8.1 %   $ (3,849 )     (1.7 )%
Earnings from unconsolidated affiliates, net of losses   $ 4,046     $ 6,100     $ 10,146     $ 2,041     $ 16,263     $ 8,105       397.1 %   $ (14,222 )     (87.5 )%
Operating income (loss)   $ 9,762     $ 13,391     $ 23,153     $ 3,530     $ (72,083 )   $ 19,623       * %     $ 75,613       *  
Operating margin     9.8 %     9.6 %     9.7 %     1.6 %     (32.0 )%     8.1 %     * %       33.6 %     *  
Adjusted EBITDA   $ 26,301     $ 31,054     $ 57,355     $ 32,267     $ 41,984     $ 25,088       77.8 %   $ (9,717 )     (23.1 )%
Adjusted EBITDA margin     26.4 %     22.2 %     24.0 %     14.6 %     18.6 %     9.4 %     64.4 %     (4.0 )%     (21.5 )%
Rent expense   $ 7,067     $ 9,482     $ 16,549     $ 23,122     $ 24,920     $ 6,573       28.4 %   $ 1,798       7.2 %
Loss on
impairment
  $ 9,591     $     $ 9,591     $     $ 85,683     $ (9,591 )     *     $ 85,683       *  

 

 

     * percentage change too large to be meaningful or not applicable

 

The Americas region comprises all Bristow’s operations and affiliates in North America and South America, including Brazil, Canada, Guyana, Trinidad and the U.S. Gulf of Mexico.

 

Combined Fiscal Year 2020 Compared to Predecessor Fiscal Year 2019

 

Operating revenue increased in the Combined Fiscal Year 2020 primarily due to additional aircraft on contract in Guyana, which increased operating revenue by $16.5 million, $4.7 million in additional operating revenue from SAR services to oil and gas customers in the U.S. Gulf of Mexico and a $4.6 million increase in operating revenue from Canada due to an increase in activity, partially offset by a $5.7 million decrease in operating revenue from U.S. Gulf of Mexico oil and gas operations and a $1.1 million decrease in Trinidad primarily due to a decline in activity.

 

Earnings from unconsolidated affiliates, net of losses, increased $8.1 million in the Combined Fiscal Year 2020 primarily due to a $6.0 million increase in earnings from Bristow’s investment in Cougar due to an increase in activity. As permitted by fresh-start accounting, Bristow elected to transition to lag reporting for reporting the equity earnings of its investment in Líder upon emergence from Chapter 11. Líder equity earnings are reporting on a lag basis of three months consistent with Bristow’s historical practice for recording equity earnings from Cougar. During the Combined Fiscal Year 2020, Bristow recorded a $9.6 million impairment of its investment in Líder, which impacted operating income and operating margin, but is excluded from the calculation of adjusted EBITDA and adjusted EBITDA margin. See further discussion about its investment in Líder and the Brazil market in “— Executive Overview — COVID 19 and Decline in Oil Prices,” above.

 

The increases in operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin were driven by the increases in operating revenue and earnings from unconsolidated affiliates discussed above and a decrease in rent expense due to the return of leased aircraft or rejection of leased aircraft during the Chapter 11 Cases. In addition to the items impacting adjusted EBITDA and adjusted EBITDA margin, operating income and operating margin were impacted by the $9.6 million impairment of the investment in Líder and $3.1 million amortization of PBH contract intangible assets as a result of fresh-start accounting for the five months ended March 31, 2020 (Successor).

 

  29  

 

 

Predecessor Fiscal Year 2019 Compared to Predecessor Fiscal Year 2018

 

Operating revenue decreased year-over-year, primarily due to a decrease of $6.6 million from Canada and a decrease of $5.0 million in intra-region operating revenue from decreased activity in Africa, partially offset by an increase of $7.8 million from higher activity with Bristow’s U.S. Gulf of Mexico oil and gas customers.

 

Earnings from unconsolidated affiliates, net of losses, decreased $14.2 million year-over-year, primarily due to a $9.2 million decrease in earnings from Bristow’s investment in Líder resulting from a decrease in activity and an unfavorable impact of foreign currency exchange rates and a $5.0 million decrease in earnings from Bristow’s investment in Cougar resulting from a decrease in activity. Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin were negatively impacted by unfavorable foreign currency exchange rate changes, which decreased Bristow’s earnings from its investment in Líder by $4.2 million in the Predecessor Fiscal Year 2019 and $2.0 million in the Predecessor Fiscal Year 2018. During the Predecessor Fiscal Year 2018, Bristow recorded an $85.7 million impairment of its investment in Líder, which impacted operating income and operating margin, but is excluded from the calculation of adjusted EBITDA and adjusted EBITDA margin. See further discussion about its investment in Líder and the Brazil market in “— Executive Overview — Selected Regional Perspectives,” above.

 

The increases in operating income and operating margin resulted from the impairment of Bristow’s investment in Líder in the Predecessor Fiscal Year 2018 as discussed above. The decrease in adjusted EBITDA primarily resulted from the decrease in revenue and earnings from unconsolidated affiliates discussed above, partially offset by a $4.7 million decrease in general and administrative expenses (primarily due to lower salaries and benefits of $1.6 million and lower franchise taxes of $1.3 million) and a $1.8 million decrease in rent expense due to lease returns. Additionally, Bristow recorded severance expense, related to organizational restructuring efforts, of $0.3 million and $0.4 million for the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively, which is excluded from adjusted EBITDA and adjusted EBITDA margin.

 

Asia Pacific

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year Ended
March 31,
    2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Operating revenue   $ 30,157     $ 69,438     $ 99,595     $ 176,079     $ 201,190     $ (76,484 )     (43.4 )%   $ (25,111 )     (12.5 )%
Operating loss   $ (6,921 )   $ (33,653 )   $ (40,574 )   $ (23,645 )   $ (24,290 )   $ (16,929 )     (71.6 )%   $ 645       2.7 %
Operating margin     (22.9 )%     (48.5 )%     (40.7 )%     (13.4 )%     (12.1 )%     (27.3 )%     (203.7 )%     (1.3 )%     (10.7 )%
Adjusted EBITDA   $ (6,022 )   $ 3,867     $ (2,155 )   $ (4,874 )   $ (1,424 )   $ 2,719       55.8 %   $ (3,450 )     (242.3 )%
Adjusted EBITDA margin     (20.0 )%     5.6 %     (2.2 )%     (2.8 )%     (0.7 )%     0.6 %     21.4 %     (2.1 )%     (300.0 )%
Rent expense   $ 4,058     $ 18,075     $ 22,133     $ 31,040     $ 32,908     $ 8,907       28.7 %   $ 1,868       5.7 %
Loss on impairment   $     $ 17,504     $ 17,504     $     $     $ (17,504 )     *     $       *  

  

 

     * percentage change too large to be meaningful or not applicable

 

The Asia Pacific region comprises all of Bristow’s operations and affiliates in Australia and Asia and Bristow’s fixed wing operations through Airnorth in Australia. Prior to the sale of BHLL and Aviashelf during the seven months ended October 31, 2019 (Predecessor), Bristow had operations in Sakhalin, Russia, which is included in the Asia Pacific region.

 

  30  

 

 

Combined Fiscal Year 2020 Compared to Predecessor Fiscal Year 2019

 

Operating revenue decreased in the Combined Fiscal Year 2020 primarily due to a decrease in Australia of $51.0 million driven by contracts ending and decreased activity with oil and gas customers and a $1.0 million unfavorable foreign currency exchange rate impact, a $19.2 million decrease in Sakhalin due to the sale of Aviashelf in the Combined Fiscal Year 2020, and a decrease of $3.8 million from Bristow’s fixed wing operations at Airnorth primarily due to a $5.3 million unfavorable foreign currency exchange rate impact, partially offset by an increase in activity. Airnorth contributed $71.9 million and $75.7 million in operating revenue for the Combined Fiscal Year 2020 and the Predecessor Fiscal Year 2019, respectively.

 

Operating loss increased in the Combined Fiscal Year 2020 primarily due to the decrease in operating revenue discussed above and the $17.5 million impairment of Airnorth goodwill recorded in the Combined Fiscal Year 2020 that is not included in adjusted EBITDA and adjusted EBITDA margin, partially offset by a $56.8 million decrease in salaries and benefits, maintenance expense, fuel costs, travel and meals and training costs, a $5.4 million decrease in depreciation expense and a $8.9 million decrease to rent expense. Rent expense for the Combined Fiscal Year 2020 includes H225 lease return costs of $7.4 million that is not included in adjusted EBITDA or adjusted EBITDA margin. Adjusted EBITDA and adjusted EBITDA margin increased due to the items impacting operating loss and operating margin excluding the H225 lease return costs. Airnorth contributed $5.3 million and a negative $4.0 million in adjusted EBITDA for the Combined Fiscal Year 2020 and the Predecessor Fiscal Year 2019, respectively.

 

Additionally, during the Combined Fiscal Year 2020 and the Predecessor Fiscal Year 2019, Bristow recorded $4.4 million and $6.3 million, respectively, in severance expense related to organizational restructuring efforts. The severance expense is not included in adjusted EBITDA or adjusted EBITDA margin for the Combined Fiscal Year 2020 and the Predecessor Fiscal Year 2019.

 

Predecessor Fiscal Year 2019 Compared to Predecessor Fiscal Year 2018

 

Operating revenue decreased year-over-year, primarily due to a decrease in oil and gas services of $18.1 million primarily due to the end of short-term contracts in Australia and an $8.1 million decrease from Bristow’s fixed wing operations at Airnorth, partially offset by an increase of $1.2 million in Sakhalin. Airnorth contributed $75.7 million and $83.8 million in operating revenue for the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively. Additionally, revenue decreased by $8.7 million in the Predecessor Fiscal Year 2019 compared to the Predecessor Fiscal Year 2018 due to unfavorable changes in foreign currency exchange rates.

 

Operating loss decreased in the Predecessor Fiscal Year 2019 primarily due to a $16.7 million decrease in salaries and benefits resulting from organizational restructuring efforts and a $1.9 million decrease in rent expense due to lease returns, partially offset by a decrease in operating revenue discussed above and a $2.6 million increase in maintenance expense at Airnorth. Adjusted EBITDA and adjusted EBITDA margin decreased in the Predecessor Fiscal Year 2019 primarily due to an unfavorable year-over-year impact from changes in foreign currency exchange rates. Changes in foreign currency exchange rates negatively impacted adjusted EBITDA by $3.8 million compared to the Predecessor Fiscal Year 2018 primarily due to an increase in foreign currency exchange rate losses of $3.5 million in the Predecessor Fiscal Year 2019 compared to the Predecessor Fiscal Year 2018. Airnorth contributed a negative $4.0 million and positive $7.2 million in adjusted EBITDA in the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, respectively.

 

Additionally, during the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, Bristow recorded $6.3 million and $3.9 million, respectively, in severance expense related to organizational restructuring efforts, which is excluded from adjusted EBITDA and adjusted EBITDA margin.

 

  31  

 

 

Corporate and Other

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal
Year
    Fiscal Year Ended March 31,     2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Operating revenue   $ 375     $ 394     $ 769     $ 1,837     $ 4,305     $ (1,068 )     (58.1 )%   $ (2,468 )     (57.3 )%
Earnings from unconsolidated affiliates, net of losses   $     $ 321     $ 321     $ (403 )   $ (273 )   $ 724       179.7 %   $ (130 )     (47.6 )%
Operating loss   $ (36,970 )   $ (101,559 )   $ (138,529 )   $ (195,740 )   $ (88,965 )   $ 57,211       29.2 %   $ (106,775 )     (120.0 )%
Adjusted EBITDA   $ (32,759 )   $ (30,584 )   $ (63,343 )   $ (38,765 )   $ (68,081 )   $ (24,578 )     (63.4 )%   $ 29,316       43.1 %
Rent expense   $ 732     $ 3,404     $ 4,136     $ 6,215     $ 8,148     $ 2,079       33.5 %   $ 1,933       23.7 %
Loss on impairment   $     $ 44,597     $ 44,597     $ 96,419     $ 1,192     $ 51,822       53.7 %   $ (95,227 )     *  

 

 

     * percentage change too large to be meaningful or not applicable

 

Corporate and other includes Bristow’s supply chain management and corporate costs that have not been allocated out to other regions and its Bristow Academy operations prior to the sale of Bristow Academy on November 1, 2017 (Predecessor).

 

Combined Fiscal Year 2020 Compared to Predecessor Fiscal Year 2019

 

Operating loss for the Combined Fiscal Year 2020 includes $42.0 million for the impairment of H225 aircraft and prepetition professional fees of $13.5 million related to the filing of the Chapter 11 Cases included in prepetition restructuring charges on the consolidated statements of operations. Operating loss for the Predecessor Fiscal Year 2019 includes impairments of $87.5 million for the impairment of H225 aircraft and $8.9 million for the impairment of H225 inventory. None of the impairment of H225 aircraft and inventory and prepetition professional fees are included in adjusted EBITDA. Operating loss for the Predecessor Fiscal Year 2019 also includes transaction costs of $32.8 million resulting from the Columbia Transaction and related financing transactions, including a $20.0 million termination fee paid in February 2019 (Predecessor). Operating loss decreased in the Combined Fiscal Year 2020 primarily due to the lower H225 aircraft and inventory impairments in the Combined Fiscal Year 2020 than the H225 aircraft and inventory impairments recorded in the Predecessor Fiscal Year 2019 and the Columbia Transaction costs incurred in the Predecessor Fiscal Year 2020, partially offset by the prepetition professional fees incurred in the Combined Fiscal Year 2020. Adjusted EBITDA decreased primarily due to an increase of $15.6 million in salaries and benefits due to an increase in short-term incentive compensation in the Combined Fiscal Year 2020 and $0.8 million of foreign currency exchange rate transaction losses for the Combined Fiscal Year 2020 versus $6.5 million of foreign currency exchange rate transaction gains for the Predecessor Fiscal Year 2019.

 

Predecessor Fiscal Year 2019 Compared to Predecessor Fiscal Year 2018

 

Operating revenue decreased year-over-year, primarily due to the sale of Bristow Academy.

 

Operating loss for the Predecessor Fiscal Year 2019 includes impairments of $87.5 million and $8.9 million for the impairment of H225 aircraft and inventory, respectively. For further details, see Note 1 in the “Notes to Consolidated Financial Statements” to the Bristow Financial Statements. The impairments are excluded from adjusted EBITDA and adjusted EBITDA margin.

 

  32  

 

 

Operating loss increased year-over-year, primarily due to the H225 aircraft and inventory impairments discussed above and transaction costs of $32.8 million resulting from the Columbia Transaction and related financing transactions, including a $20.0 million termination fee paid in February 2019 (Predecessor). Adjusted EBITDA improved primarily due to foreign currency transaction gains of $6.5 million for the Predecessor Fiscal Year 2019 compared to foreign currency transaction losses of $4.4 million for the Predecessor Fiscal Year 2018, the sale of Bristow Academy, which generated negative adjusted EBITDA of $3.9 million in the Predecessor Fiscal Year 2018 and a $15.2 million decrease in general and administrative expenses excluding CEO retirement, organizational restructuring and transaction costs primarily due to a decrease in short-term and long-term incentive compensation costs.

 

During the Predecessor Fiscal Year 2019, Bristow recorded $1.0 million for CEO retirement costs and during the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018, Bristow recorded $1.4 million and $9.5 million, respectively, related to organizational restructuring costs. The CEO retirement costs, organization restructuring costs, impairment costs, and Columbia Transaction and termination fee are excluded from adjusted EBITDA.

 

Loss on disposal of assets

 

The loss on disposal of assets in the Combined Fiscal Year 2020 included a loss of $4.2 million from the sale or disposal of eight aircraft and other equipment. The loss on disposal of assets in the Predecessor Fiscal Year 2019 included $14.7 million of contract termination costs for an aircraft purchase contract that was terminated, $8.1 million for impairment of assets held for sale related to five held for sale aircraft and a loss of $5.0 million from the sale or disposal of eight aircraft and other equipment. The loss on disposal of assets in the Predecessor Fiscal Year 2018 included impairment charges of $8.7 million related to eight held for sale aircraft, losses of $1.7 million from the sale or disposal of 11 aircraft and other equipment and $7.2 million impairment and loss on disposal related to the Bristow Academy disposal group.

 

  33  

 

 

Interest Expense, Net

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year Ended
March 31,
    2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Interest income   $ 662     $ 822     $ 1,484     $ 3,424     $ 677     $ (1,940 )     (56.7 )%   $ 2,747       *  
Interest expense     (17,068 )     (119,087 )     (136,155 )     (102,769 )     (71,393 )     (33,386 )     (32.5 )%     (31,376 )     (43.9 )%
Amortization of debt discount     (5,892 )     (1,563 )     (7,455 )     (6,337 )     (1,701 )     (1,118 )     (17.6 )%     (4,636 )     (272.5 )%
Amortization of debt fees     (4 )     (8,158 )     (8,162 )     (6,820 )     (8,048 )     (1,342 )     (19.7 )%     1,228       15.3 %
Capitalized interest           150       150       2,426       3,405       (2,276 )     (93.8 )%     (979 )     (28.8 )%
Interest expense, net   $ (22,302 )   $ (127,836 )   $ (150,138 )   $ (110,076 )   $ (77,060 )   $ (40,062 )     (36.4 )%   $ (33,016 )     (42.8 )%

 

 

      * percentage change too large to be meaningful or not applicable

 

Interest expense, net increased in the Combined Fiscal Year 2020 compared to the Predecessor Fiscal Year 2019 primarily due to $56.9 million non-cash interest expense related to the beneficial conversion feature in the DIP Facility recorded in the Combined Fiscal Year 2020 and $15.0 million of non-cash interest expense related the DIP equitization consent fee recorded in the Combined Fiscal Year 2020, partially offset by lower interest expense of $28.1 million on the 6¼% Senior Notes due 2022 and 4½% Convertible Senior Notes due 2023 as the unsecured debt was classified as liabilities subject to compromise on the Petition Date upon the filing of the Chapter 11 Cases and Bristow stopped accruing interest expense and $13.7 million less interest expense on Bristow’s 8.75% Senior Secured Notes, which were paid off during the Combined Fiscal Year 2020. Interest income was lower in the Combined Fiscal Year 2020 primarily due to a decrease in cash and cash invested at lower rates. Also, capitalized interest was lower in the Combined Fiscal Year 2020 as Bristow no longer has any aircraft progress payments in construction in progress.

 

Interest expense, net increased in the Predecessor Fiscal Year 2019 compared to the Predecessor Fiscal Year 2018 primarily due to an increase in borrowings, partially offset by an increase in interest income as a result an increase in cash and cash invested at higher rates. Also, Bristow issued convertible debt in December 2017 (Predecessor) resulting in an increase in amortization of debt discount in the Predecessor Fiscal Year 2019 compared to the Predecessor Fiscal Year 2018. Additionally, during the Predecessor Fiscal Year 2018, Bristow wrote-off $3.0 million of deferred financing fees related to the early extinguishment of debt.

  34  

 

  

Other Income (Expense), Net

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March
31,
    Seven
Months
Ended
October
31,
    Combined
Fiscal Year
    Fiscal Year Ended
March 31,
    2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Foreign currency gains (losses) by region:                                                                        
Europe Caspian   $ (3,107 )   $ (5,392 )   $ (8,499 )   $ (7,159 )   $ 4,328     $ (1,340 )     (18.7 )%   $ (11,487 )     (265.4 )%
Africa     1,075       (904 )     171       (331 )     (1,720 )     502       151.7 %     1,389       80.8 %
Americas     (315 )     1,007       692       176       56       516       293.2 %     120       214.3 %
Asia Pacific     (3,840 )     (587 )     (4,427 )     (4,340 )     (795 )     (87 )     (2.0 )%     (3,545 )     *  
Corporate and other     (5,390 )     4,549       (841 )     6,491       (4,449 )     (7,332 )     (113.0 )%     10,940       245.9 %
Foreign currency losses     (11,577 )     (1,327 )     (12,904 )     (5,163 )     (2,580 )     (7,741 )     (149.9 )%     (2,583 )     (100.1 )%
Pension-related costs     1,658       (2,256 )     (598 )     (3,839 )     119       3,241       84.4 %     (3,958 )     *  
Other     (37 )     82       45       104       (496 )     (59 )     (56.7 )%     600       121.0 %
Other income (expense), net   $ (9,956 )   $ (3,501 )   $ (13,457 )   $ (8,898 )   $ (2,957 )   $ (4,559 )     (51.2 )%   $ (5,941 )     (200.9 )%

 

 

      * percentage change too large to be meaningful or not applicable

 

Other income (expense), net for the periods presented above were most significantly impacted by foreign currency exchange rate gains (losses). The foreign currency exchange rate gains (losses) within other income (expense), net are reflected within the results (below operating income) of the regions shown in the table above. Also, pension-related costs include interest costs, amortization of pension-related costs from prior periods, and the gains or losses on plan assets and are included in its Europe Caspian region results (below operating income). Additionally, during the Predecessor Fiscal Year 2018, Bristow recorded a provision related to a non-operational contract matter with a client in other income.

 

Transaction gains and losses represent the revaluation of monetary assets and liabilities from the currency that will ultimately be settled into the functional currency of the legal entity holding the asset or liability. The most significant items revalued are denominated in U.S. dollars on entities with British pound sterling and Nigerian naira functional currencies and denominated in British pound sterling on entities with U.S. dollar functional currencies with transaction gains or losses primarily resulting from the strengthening or weakening of the U.S. dollar versus those other currencies.

 

  35  

 

 

Taxes

 

    Successor     Predecessor           Predecessor     Favorable / (Unfavorable)  
    Five
Months
Ended
March 31,
    Seven
Months
Ended
October 31,
    Combined
Fiscal Year
    Fiscal Year
Ended March 31,
   
    2020 vs 2019     2019 vs 2018  
    2020     2019     2020     2019     2018                          
          (In thousands, except percentages)  
Effective tax rate     0.3 %     5.8 %     (6.8 )%     %     13.5 %     (6.8 )%     *       (13.5 )%     (100.0 )%
Net foreign tax on non-U.S. earnings   $ (1,996 )   $ 6,369     $ 4,373     $ (2,570 )   $ 2,640     $ (6,943 )     (270.2 )%   $ 5,210       *  
Expense (benefit) of foreign earnings indefinitely reinvested abroad   $ 3,091     $ 52,769     $ 55,860     $ 14,874     $ 18,463     $ (40,986 )     (275.6 )%   $ 3,589       19.4 %
Change in valuation allowance   $ (559 )   $ 5,382     $ 4,823     $ 51,028     $ (2,575 )   $ 46,205       90.5 %   $ (53,603 )     *  
Benefit of foreign tax deduction in the U.S.   $ (240 )   $ (212 )   $ (452 )   $ (127 )   $     $ 325       255.9 %   $ 127       *  
Expense from change in tax contingency   $ 192     $ (277 )   $ (85 )   $ (2,345 )   $ 5,351     $ (2,260 )     (96.4 )%   $ 7,696       *  
Impact of stock based compensation   $     $     $     $ 1,565     $ 1,773     $ 1,565       100.0 %   $ 208       11.7 %
Sale of subsidiaries   $     $ 9,824     $ 9,824     $     $     $ (9,824 )     *     $       *  
Impairment of assets   $ 2,014     $ 5,256     $ 7,270     $     $     $ (7,270 )     *     $       *  
Reorganization and fresh-start accounting   $ 11,144     $ 52,374     $ 63,518     $     $     $ (63,518 )     *     $       *  
Preferred stock embedded derivative   $ (38,669 )   $     $ (38,669 )   $     $     $ 38,669       *     $       *
U.S. statutory rate reduction   $     $     $     $ (19,033 )   $ (52,990 )   $ (19,033 )     (100.0 )%   $ (33,957 )     (64.1 )%
One-time transition tax   $     $     $