Erickson Air-Crane, Inc. has entered into a definitive purchase agreement with HRT Participações em Petróleo S.A. (“HRT”) to acquire its aviation services division, Air Amazonia Serviços Aeronauticos Ltda. (“Air Amazonia”). Also, per the agreement, the company will take possession of a fleet of six aircraft and ground facilities of HRT.
The transaction is expected to be completed in the third quarter of 2013. At the close of the transaction, the company will pay $23 million while it will pay an additional $3 million within one year of closing.
The company plans to fund the initial purchase price from its existing revolving credit facility and intends to release the $45 million cash held in escrow under the notes offering. With excellent use of capital, the transaction will be immediately accretive to the company’s business.
The agreement also calls for a five-year aerial services contract from HRT that will bring in revenues of $29 million annually. Per the contract, the company will provide rotary-wing aircraft services to support HRT’s oil & gas activities in the Solimoes region. The contract includes annual renewal options.
In order to execute the contract, the company intends to utilize a fleet of 6 rotary-wing aircraft of varying types and mission capabilities acquired from HRT. Also, the company will make use of 2 aircraft from its fleet that are currently idle.
Erickson Air-Crane has been making judicious acquisitions. The acquisition of Evergreen Helicopters in May this year, followed by the current announcement will strengthen the company’s business. Specifically, the acquisition of Air Amazonia will help the company to continue to expand into the South American oil and gas market.
Evergreen Helicopters has also fetched renewed contracts for the company. In July this year, the company received a contract extension from the U.S. Army’s Garrison in Hawaii for the supply of rotary wing aerial services to support air medical evacuation and training activities. Previously, it received two contract extensions with Special Operations Command Africa. Per the contract, Evergreen Helicopters will provide a fleet of fixed and rotary wing aircraft for personnel and cargo transport for the Department of Defense in Central Africa.
Despite back-to-back contracts and acquisitions, Erickson Air-Crane like its peers General Dynamics Corp. (GD - Free Report) and Lockheed Martin Corp. (LMT - Free Report) faces the risk of defense budget uncertainty and sequestration. Erickson Air-Crane presently retains a short-term Zacks Rank #3 (Hold).
Erickson Air-Crane is expected to release its second quarter 2013 results on Jul 29, 2013. The Zacks Consensus Estimate for the quarter is 28 cents per share.
In the near term, we would advise investors to accumulate its short-term Zacks Rank #2 (Buy) peer The Boeing Company (BA - Free Report) .