Air Methods To Acquire Tri-State Flight for $222M

Air Methods announced its intention on November 5 to acquire air medical provider Tri-State Care Flight for $222.5 million. Tri-State was founded in 2002 and operates a mixed fleet of 27 aircraft. Among those are 19 EMS helicopters (AW109Es, AW119s and AS350s) and airplanes (King Air B200s) flown from bases in Arizona, Colorado, Nevada and New Mexico. Tri-State employs 350 people and generated net revenue of $81.5 million last year.

Upon the deal’s closing, Tri-State will become a wholly owned subsidiary of Air Methods. Air Methods expects to finance the acquisition through its credit facility, which was amended in August to provide an additional $400 million in borrowing capacity. The acquisition, subject to customary closing and regulatory conditions, is expected to close in 30 to 60 days. The announcement comes just weeks after Air Methods acquired San Antonio AirLife in a transaction that included two owned and one leased Bell 430.

In a conference call with analysts following announcement of the acquisition, Aaron Todd, CEO of Air Methods, said discussions to acquire Tri-State had been under way for approximately six months. The acquisition “enhances our significant presence in the southwestern United States and further demonstrates our ability to use our strong capital position to create substantial value for shareholders,” he said. Todd defended the purchase price, saying, “The multiple we are paying for this business is on par for what other businesses have been bought and sold for in recent years in the air medical sector.”

Todd does not expect any difficulty integrating Tri-State’s predominantly AgustaWestland fleet into Air Methods, and noted, “We are familiar with the aircraft. The [Tri-State] fleet is slightly older than Air Methods’, but it is still a fairly young fleet. Air Methods’ average fleet age is around ten years and Tri-State’s is in the 12- to 13-year range.”

The Tri-State acquisition should not be interpreted as meaning that Air Methods is finished looking at properties to buy this year, Todd said. “We still have meaningful pursuits ongoing within the [air] tourism and air medical sectors,” Todd said. “That was true in August and it is still true today. It is a fruitful time right now and there are lots of opportunities yet to come.”

The Air Methods CEO estimates that some 10 more players of Tri-State’s size remain on the regional market and could be targets for acquisition.

Todd’s optimism was buoyed by Air Methods’ third-quarter financial results. Air Medical Services (AMS) revenue climbed by 12.7 percent, to $266.8 million, compared with $236.7 million in the prior-year quarter. Its segment net income was up 34.6 percent, to $85.9 million, compared with $63.8 million for the third quarter of 2014. Community-based patient transports were 17,330 during the current-year quarter, compared with 15,796 in the prior-year quarter, a 9.7 percent gain. Patients transported for community bases in operation greater than one year (same-base transports) improved by 2.4 percent, or 367 transports, but weather cancellations for these same bases were also up (by 53 transports) compared with the prior-year period. Same-base requests for community-based service climbed 3.6 percent. Net revenue per community-based transport was up 7.2 percent, from $11,972 to $12,839 in the current-year quarter. AMS maintenance expense was flat in the current-year quarter, compared with the prior-year quarter, despite total flight volume being up 5.7 percent. AMS fuel expense fell by $0.9 million compared with the prior-year quarter, while fuel expense per flight hour dropped 22.3 percent. Same-base transports in the Air Medical Services division were up 2.4 percent. When coupled with the addition of 14 new bases since the third quarter of 2014 from both Greenfields and base conversions, total patient transports made gains of 9.7 percent. The number of air tourism passengers grew 6.9 percent year-over-year and bottom-line results were healthier by 47.4 percent, thanks to lower fuel and maintenance costs.

Financials even improved at United Rotorcraft, the company’s in-house modification business: External revenue climbed 36.2 percent, to $8.4 million, compared with $6.2 million in the prior-year quarter. Its segment external earnings turned around from a loss of $0.8 million in the year-ago period to income of $0.5 million in the current-year quarter.