Challenges ahead for expanding air ambulance service provider

 - April 1, 2008, 8:58 AM

With its 2007 acquisition of Pittsburgh-based CJ Systems, Air Methods has become the largest civil air ambulance provider in the country. Integrating CJ into Air Methods has proceeded smoothly, so far, said CEO Aaron Todd, but there are challenges ahead.

The combined company now operates a fleet of 350 aircraft, mostly helicopters, in 42 states. It owns an estimated 80 percent of these aircraft. (The remainder are owned by clients and operated by Denver-based Air Methods under service agreements.) The company is also an aggressive purchaser of new aircraft, with more than 138 helicopters on order over the next five years–38 of them scheduled for delivery this year. The majority of these will replace existing helicopters. These orders–mostly for Eurocopters–represent a capital commitment of more than $500 million. Air Methods is the launch customer for the Bell 429 twin, scheduled for initial customer deliveries late this year. CJ operated a fleet of 107 aircraft and had 900 employees. “We are pleased how smoothly the acquisition has gone and with the merging of the workforces. They have come together in a great spirit of cooperation and support,” Todd said. Air Methods acquired the parent company of CJ, FSS Airholdings, for $25 million and the assumption of debt financed with $100 million in term and line-of-credit bank debt.

According to Todd, the acquisition of CJ gives Air Methods “critical mass” as well as much needed maintenance and overhaul facilities in Pittsburgh.

Todd points out that 60 percent of the combined company’s fleet is located East of the Mississippi, and that transporting those helicopters to Air Methods’ Denver base was sometimes expensive and impractical. The acquisition also produced greater economies of scale, improved customer service, and reduced the insurance rate on CJ’s helicopters.

Todd sees retention of CJ’s existing customers as the merger’s greatest challenge. “We need to win the trust of their customers. We are a new entity, a new organization, and they need to become comfortable with us. We are making every effort to maintain their loyalty and their business. We need to develop our own track record of performance with them.”

He believes consolidation within the market will continue, as will fierce competition for contracts with hospitals. “There is always good, healthy competition each time we have a contract up for renewal,” he said.

Air Medical Services
Air Methods operates air ambulance services through two main divisions, a hospital-based services division and a community-based services division. The company is the largest provider of services to both sectors nationwide. Before the CJ acquisition, Air Methods provided services to 80 hospital customers in 33 states with a fleet of 200 aircraft. In 2006, the hospital-based services flew 51,000 EMS missions.

The company also provides air ambulance equipment and EMS completions through its products division, located in a 48,000-sq-ft plant in Englewood, Colo. Most of the completions and refurbishments are for Air Methods’ own helicopters and account for 30 to 50 helicopters per year, and involve Air Methods-held STC medical equipment and avionics packages. However, the company is also a factory-authorized EMS completion center for Eurocopter on the AS 350B3 and EC 145, and recently delivered a copy of the latter to Omniflight for the Mayo Clinic in Rochester, Minn.

In late January, the products division announced that it had received an STC
for its single-pilot IFR (SPIFR) avionics package for the EC 145. The package
includes dual Garmin GNS 430W navcom/ GPS, Garmin GMX multifunction display, Honeywell Mark XXI enhanced ground proximity warning system (EGPWS), Garmin GDL 69/69A satellite datalink system, dual Garmin GTX 330 transponders, Bendix King KRA 405B radar altimeter, Bendix King RDR 2000 weather radar, Sky Connect or OuterLink satellite tracking system, NAT audio system, Bendix/ King KR 22 marker beacon, Technisonic TDFM-6158/RC-6000 FM communications system, Artex C406 ELT, and NVIS compatible lighting package.

Todd said the company has been growing at a steller rate, and he sees this growth continuing. “We’ve given annual guidance of expanding the company by 20 percent and increasing revenues by 10 percent, not necessarily by increasing our margins but by increasing the number of services we are providing throughout the country.” He acknowledges that maintaining the current growth rate will be more difficult because the number of underserved communities is less than it was three to five years ago. “Successful expansion requires partnerships and healthy relationships with hospital systems to fill needs not being met,” he concluded.