Bristow's Delayed Financials Tied To Helicopter Engines

 - February 19, 2019, 8:51 AM

Bristow Group remains unable to file its latest quarterly financial report (Form 10-Q) with the U.S. Securities and Exchange Commission (SEC), the company announced this morning. The helicopter operator had expected to file the report today, some two weeks after its initial deadline, but needed “additional time” to “complete a review of its existing processes and controls to ensure compliance with non-financial covenants within certain secured financing and helicopter lease agreements” before filing the report.

Today, Bristow offered more specifics as to the “material weaknesses” in its internal controls it first revealed on February 11. The company said it is related to the fact that “certain pledged and leased helicopter engines were not matched to specific pledged or leased helicopter airframes or returned to such airframes within specified periods, as is required under certain of the secured financing and helicopter lease agreements.”  

According to Bristow, removal and replacement was part of its normal and ongoing maintenance operations. However, “since certain of those helicopter engines and airframes are pledged to lenders or leased from lessors, the removal of a pledged or leased engine from a pledged or leased airframe can create issues of non-compliance with certain of the secured financing and helicopter lease agreements.”

Bristow said the issue affected a small number of its 385 helicopter engines subject to secured financing or helicopter leases, noting the issue was discovered and cured for all but nine engines related to three agreements before Dec. 31, 2018. Those engines were not returned to pledged airframes due to delays with certain maintenance service providers, Bristow said, adding that it had obtained non-compliance waivers under applicable agreements related to those engines. 

The company said it needs to obtain waivers from secured equipment lenders and helicopter lessors related to non-compliance of non-financial covenants under related agreements as of Dec. 31, 2018 and prior periods. Without the waivers, certain debt balances would need to be reclassified from long-term to short-term under accounting rules.

Reclassifying the debt to short-term would require Bristow to insert a “going concern” warning in its current and applicable prior financial statements filed with the SEC. Certain equipment lending/lease covenants at Bristow require the filing of audited financial annual statements (Form 10-K) “without any going concern explanation or limitation.” If Bristow is forced to insert a “going concern” warning in prior financial statements, then a “going concern” waiver would need to be obtained from the appropriate lenders/lessors.

Bristow further said the delay in filing its latest quarterly report (Form 10-Q) could trigger a delisting warning from the New York Stock Exchange.