Erickson innovates to weather myriad challenges
A series of market-force gales have battered Erickson, creating financial havoc.
Even as the aviation company, whose three principal operating sites are in Jackson County, reconfigures its finances, Erickson is rolling out next-generation rotors while its fleet of S-64 airtankers are fighting fires at home and abroad.
Erickson stock has languished below $1 for months, and its cash flow is constricted. Last month, Erickson engaged Imperial Capital to guide it through a maze of refinancing and sales options. Amid the turmoil, however, the firm has kept its nose to the grindstone.
"There is no change in our day-to-day activity," said Andy Mills, vice president of global business development. "We've been pretty aggressive about our goals. Everybody in the helicopter industry has been experiencing their fair share of issues."
In recent weeks, Erickson began flight testing its composite main rotors for its S-64 Aircranes and CH-54 Skycranes. The blades were developed to work atop two models of both helicopters, offering a significant increase in aircraft performance at high elevations. Massive fires in Southern California along with wildfire activity in the eastern Mediterranean have kept Erickson helitankers flying, along with utility work in India and other activity in Alaska.
Challenges remain, but Erickson has a strong trump suit. No one can match its fleet and operational skills.
"The kind of helicopters Erickson flies puts it in a specific and unique niche," said Brian Foley, a Sparta, N.J.-based aviation analyst. "Like any industry, there can be a cycle of good years and not-so-good years."
When Erickson owners took on the debt associated with acquiring Evergreen Aviation, military and other government contracts appeared plentiful. Demand spurred energy exploration across the globe and supported additional acquisitions.
All that changed in a relatively short period of time, with military activity subsiding, oil and gas exploration mothballed and some bread-and-butter government contracts cut off. There was relatively little on-call firefighting demand, plus Erickson's debt swelled to $355 million. Last month, an $18.5 million settlement was reached in a class action suit brought against ZM Private Equity, the company's largest shareholder.
"The emerging markets and the regions of the world that were growing quickly had high GDPs and soaring stock markets," Foley said. "Those emerging markets and North American markets were really strong, and there was a need for heavy-lift helicopters."
Just as quickly, those markets dried up.
"Those regions slowed down a bit, the stock markets normalized, GDP is lesser, maybe even negative," he said.
At the same time, oil, gas and mining all declined.
"That all comes back and hurts the markets Erickson serves," Foley said. "Not to say it's gone away totally; it's cyclical and will come back in time. Fortunately, the U.S. and North America is relatively strong compared to the rest of the world. Perhaps not as strong as it was, but it should supply residual opportunities until the rest of the world gets back on its feet."
While it was pushing forward with the composite rotor project, Erickson reached outside the heavy-lift arena when it pursued refurbishment, maintenance, repair and overhaul work for Bell 214B and Bell 214ST helicopters last year.
"It's important for a company to diversify and have irons in the fire," Foley said. "Those are things that bridge the gap during a slow market like this. It behooves manufacturers to continue to innovate. The composite blades can help in a couple areas. They're typically lighter than traditional blades. By virtue of that, they can lift more payload and have more utility."
The present fire season has been concentrated in the Southwest. An Erickson helitanker is fighting the Sand fire in the Santa Clarita Valley mountains, which has burned more than 38,000 acres.
"We're flying a lot of hours on that one," Mills said. "We have another helicopter on contract in San Diego and two more contracts are about to start in Los Angeles city and Los Angeles County."
Erickson has three aircraft deployed in Greece, where June and July were very active for firefighters.
"It's been an above-average season in Greece and Turkey, even though it's been below average in the U.S.," he said.
An aborted military coup two weeks ago in Turkey, where Erickson has a helicopter and crew contracted to the Istanbul Fire Department, was watched intently.
"What's happening now doesn't really affect us, but we have plans in place if things destabilize," Mills said. "There's a lot of coordination before we launch."
One measure Erickson took to generate cash in June was selling its 40-acre Kirtland Road facility to Smith Ranches for $3.39 million. Erickson now leases the property.
Foley said companies with a narrow focus such as Erickson do great when everything is clicking. But they can take a beating when opportunities decline.
"In the interim, I would expect Erickson to hunker down to weather the storm, cut costs, diversify to get through the rough patch," he said. "It may see a change in ownership or the majority stockholder, but the company has been around a long time and will carry on."
Reach reporter Greg Stiles at 541-776-4463 or firstname.lastname@example.org. Follow him on Twitter at www.twitter.com/GregMTBusiness, on Facebook at www.facebook.com/greg.stiles.31.