Evergreen sells helicopter division for $250 million
Privately held Evergreen, which had previously sold off its unmanned aerial vehicle business and its massive Marana air base in Southern Arizona, has been struggling with a crushing load of debt — about $300 million, according to founder Del Smith.
Smith said money from the sale would help both ease that debt load and fund acquisitions making its other principal line of business, international air freight using a fleet of 747s, more competitive. He was very bullish about Evergreen’s air cargo division, saying it had recently modernized its fleet and was eying acquisition of other international operators to strengthen its market position.
Erickson President and CEO Udo Rieder said in a Wednesday morning conference call with analysts that he expects to maintain the helicopter division’s operating headquarters in McMinnville “for the near term.” He said the aquisition would also support the hiring of additional personnel at the factory in Central Point where it manufactures heavy-lift helicopters and the office in Portland where it maintains corporate headquarters.
Evergreen Helicopters employs about 400 pilots, support personnel and supervisory personnel, about 100 of whom are based in McMinnville. And he said he envisioned no immediate change in that mix.
Rieder said he had every expectation of fully meeting the performance standards established in the agreement, thus incurring an additional obligation to Evergreen of $26.3 million.
In a telephone interview, Smith told the News-Register the company’s helicopter subsidiary had accounted for about a third of its total revenue over the past 20 years. At present, he said, total employment for the company, which started in helicopters before moving into air cargo, airline ground support, agricultural operations and aircraft storage and maintenance, “hovers between 2,000 and 3,000.”
Smith said it was wrenching for him to let go of the division which started it all in 1960, serving as the foundation for everything else.
“It was the acorn that grew the oak tree,” he said. “Yeah, it’s like losing your first-born child.”
But he termed the sale good news overall — for Evergreen, for its employees and for the state of Oregon.
“It’s good for everybody,” Smith said. “It’s good for Oregon because the buyer is from Oregon, so it keeps all the jobs here and employs many people — 400 to 500 people.
“And they have the same values we have. They believe in integrity and a work ethic. So I think it’s going to be a harmonious and positive result, and I wish them the best.”
Smith said Evergreen worked with the East Coast investment banking firm Goldman Sachs in marketing the unit. He said the company received “over 19 indications of interest,” allowing it to choose among its suitors with care.
“Our selection was based on the values and the performance and the integrity of the buyer,” he said. “You had to look after the employees, and you had to look after the state.
“It’s very good news to the state of Oregon that it won’t be relocated, and it’s very good news for the employees. They’ll have the certainty and stability. ”
Moody’s Investors Service downgraded the Evergreen International Aviation corporate bond rating from Caa2 to Ca on Feb. 1, citing a debt load that had it struggling to meet its payroll and cover its daily operating expenses. Over the holiday season, paychecks were subjected to repeated delays, and McMinnville Water & Light briefly shut off power at one point due to non-payment.
Smith alluded to those factors when he termed the sale a moral imperative.
“I’m 83 years old, and I didn’t want to leave this earth owing anyone any money,” he told the News-Register. “So I thought the moral thing to do was to sell some assets and retire the debt.”
It was Evergreen’s third major asset sale in recent years. The company sold its unmanned aerial vehicle business to a British firm in September 2010 and its Marana air base to the investment firm Relativity Capital in June 2011.
Smith is hopeful it will also be the firm’s last. Asked if he was contemplating any more divestitures, he said, “No, we think this’ll be it for a while.”
With the sale behind him, Smith said it’s time to look forward again.
He said he doesn’t intend to apply all the proceeds from the sale to the retirement of debt. He intends to use some upgrading and expanding remaining elements of the company.
“The airline will be our primary focus,” he said, referring to the company’s international cargo carrying arm.
“We acquired four Boeing 747-400s, and we’d like to acquire two more,” he said. “It’s a substantial change in performance and technology, with greater range, greater lift, lesser fuel burn and lesser maintenance costs, all four of which are very serious cost elements.”
In addition, he said, “We are working with Goldman Sachs on the purchase of two airlines.” He declined to offer specifics at this point, other than to say, “They’ll be global.”
During the morning conference call, the Erickson CEO referred to Evergreen as “a privately held company going through a restructuring,” a term often used for firms undergoing court-assisted reorganization after declaring bankruptcy.
“No, we’re going through … a merger and acquisition,” Smith said. “We’re selling off one company and acquiring two more.”
In a corporate press release, Evergreen said the deal promised to provide “the necessary liquidity and other resources to ensure the long-term success of the airlines and our other remaining businesses.” It said the sale, valued at up to $276.3 million, was expected to close during the second quarter of the year.
In the release, Evergreen said payment would consist of $185 million in cash, $17.5 million in unsecured promissory notes, 4 million Erickson shares valued at $11.85 each or $47.5 million in all. And if Erickson Air-Crane meets revenue targets through 2015, it will be obligated to pay an additional $26.3 million, Evergreen said.
The sale will provide Erickson with 64 additional aircraft, 22 of them owned outright and the other 42 under lease. Rieder said 52 were rotary and 12 fixed-wing.
Erickson’s current operations are built around a fleet of 18 heavy-lift helicopters. The Evergreen acquisition, coupled with another major purchase the company has planned in South America, promise to expand its capabilities into new areas.
The helicopters Erickson is acquiring are scattered about the world. Reider said company personnel had inspected 80 percent of the aircraft, and is planning to spend about $20 million on maintenance and upgrades.
Erickson is also in the process of acquiring the Brazilian air services firm Air Amazonia. Together the purchases promise to more than double the size of the company, which went public about a year ago.