10-K 1 form10-k052108.htm FORM 10-K - ANNUAL REPORT FY 2008 form10-k052108.htm
 


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
Form 10-K

þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended March 31, 2008
   
 
OR
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________to______________
 
Commission File Number 001-31617
 
Bristow Group Inc.
(Exact name of registrant as specified in its charter)
Delaware
72-0679819
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification Number)
   
2000 W.  Sam Houston Pkwy. S.,
77042
Suite 1700
(Zip Code)
Houston, Texas
 
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (713) 267-7600
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each Class
 
 
Name of each exchange on which registered
Common Stock ($.01 par value)
New York Stock Exchange
Preferred Share Purchase Rights
New York Stock Exchange
5.50% Mandatory Convertible Preferred Stock
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:  NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
                                                                                               YES þ NO o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
                                                                                               YES o NO þ
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
                                                                                               YES þ NO o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
       
Large accelerated filer    þ
Accelerated filer   o
Non-accelerated filer  o
Smaller reporting company  o
                                                                               (Do not check if a smaller
                           reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
                                                                                               YES o NO þ
 
The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based upon the closing price on the New York Stock Exchange, as of September 28, 2007 was $963,382,038.
 
The number of shares outstanding of the registrant’s Common Stock as of May 15, 2008 was 23,951,447.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Certain portions of the Registrant’s Definitive Proxy Statement, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of the Registrant’s fiscal year, are incorporated by reference under Part III of this Form 10-K.

 
 

 

 
BRISTOW GROUP INC.
INDEX—FORM 10-K

   
Page
     
 
Introduction  
1
 
       
 
Forward-Looking Statements  
1
 
       
 
PART I
   
       
Item 1.
Business  
3
 
       
Item 1A.
Risk Factors  
15
 
       
Item 1B.
Unresolved Staff Comments  
25
 
       
Item 2.
Properties 
25
 
       
Item 3.
Legal Proceedings
25
 
       
Item 4.
Submission of Matters to a Vote of Security Holders 
27
 
       
 
PART II
   
       
Item 5.
Market for the Registrant’s Common Equity and Related Stockholder Matters
28
 
       
Item 6.
Selected Financial Data 
29
 
       
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
 
       
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk  
53
 
       
Item 8.
Consolidated Financial Statements and Supplementary Data  
56
 
       
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
111
 
       
Item 9A.
Controls and Procedures  
111
 
       
Item 9B.
Other Information  
113
 
       
 
PART III
   
       
Item 10.
Directors, Executive Officers and Corporate Governance 
113
 
       
Item 11.
Executive Compensation  
113
 
       
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
113
 
       
Item 13.
Certain Relationships and Related Transactions, and Director Independence
113
 
       
Item 14.
Principal Accounting Fees and Services 
113
 
       
 
PART IV
   
       
Item 15.
Exhibits, Financial Statement Schedules  
114
 
       
Signatures                                                                                                                                           
119
 

 

 
BRISTOW GROUP INC.
ANNUAL REPORT (FORM 10-K)

INTRODUCTION
 
This Annual Report on Form 10-K is filed by Bristow Group Inc., which we refer to as Bristow Group or the Company.
 
We use the pronouns “we,” “our” and “us” and the term “Bristow Group” to refer collectively to Bristow Group and its consolidated subsidiaries and affiliates, unless the context indicates otherwise.  We also own interests in other entities that we do not consolidate for financial reporting purposes, which we refer to as unconsolidated affiliates, unless the context indicates otherwise.  Bristow Group, Bristow Aviation Holdings Limited (“Bristow Aviation”), its consolidated subsidiaries and affiliates, and the unconsolidated affiliates are each separate corporations, limited liability companies or other legal entities, and our use of the terms “we,” “our” and “us” does not suggest that we have abandoned their separate identities or the legal protections given to them as separate legal entities.  Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period.  Therefore, the fiscal year ended March 31, 2008 is referred to as “fiscal year 2008.”
 
We are a Delaware corporation incorporated in 1969.  Our executive offices are located at 2000 W. Sam Houston Pkwy S., Suite 1700, Houston, Texas 77042.  Our telephone number is (713) 267-7600.
 
Our website address is http://www.bristowgroup.com.  We make our website content available for information purposes only.  It should not be relied upon for investment purposes, nor is it incorporated by reference in this Annual Report.  All of our periodic report filings with the U.S. Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) for fiscal periods ended on or after December 15, 2002 are made available, free of charge, through our website, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to these reports.  These reports are available through our website as soon as reasonably practicable after we electronically file or furnish such material to the SEC.  In addition, the public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or on their Internet website located at http://www.sec.gov.  The public may obtain information on the operation of the Public Reference Room and the SEC’s Internet website by calling the SEC at 1-800-SEC-0330.  On August 23, 2007, we submitted to the New York Stock Exchange (“NYSE”) the Annual CEO Certification required by Section 303A.12(a) of the New York Stock Exchange Listing Manual.  We filed with the SEC the certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K for the fiscal year ended March 31, 2008.
 
FORWARD-LOOKING STATEMENTS
 
This Annual Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.  Forward-looking statements are statements about our future business, strategy, operations, capabilities and results; financial projections; plans and objectives of our management; expected actions by us and by third parties, including our customers, competitors, vendors and regulators; and other matters.  Some of the forward-looking statements can be identified by the use of words such as “believes”, “belief”, “expects”, “plans”, “anticipates”, “intends”, “projects”, “estimates”, “may”, “might”, “would”, “could” or other similar words; however, all statements in this Annual Report, other than statements of historical fact or historical financial results are forward-looking statements.
 
Our forward-looking statements reflect our views and assumptions on the date we are filing this Annual Report regarding future events and operating performance.  We believe that they are reasonable, but they involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements.  Accordingly, you should not put undue reliance on any forward-looking statements.  Factors that could cause our forward-looking statements to be incorrect and actual events or our actual results to differ from those that are anticipated include all of the following:
 
·  
the risks and uncertainties described below under Item 1A. “Risk Factors”;
 
·  
the level of activity in the oil and natural gas industry is lower than anticipated;
 
·  
production-related activities become more sensitive to variances in commodity prices;
 

 

 
1

 

·  
the major oil companies do not continue to expand internationally;
 
·  
market conditions are weaker than anticipated;
 
·  
we are unable to acquire additional aircraft due to limited availability;
 
·  
we are not able to re-deploy our aircraft to regions with the greater demand;
 
·  
we do not achieve the anticipated benefit of our fleet renewal program;
 
·  
the outcome of the United States Department of Justice (“DOJ”) investigation relating to the Internal Review, which is ongoing, has a greater than anticipated financial or business impact; and
 
·  
the outcome of the DOJ antitrust investigation, which is ongoing, has a greater than anticipated financial or business impact.
 
All forward-looking statements in this Annual Report are qualified by these cautionary statements and are only made as of the date of this Annual Report.  We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 


 
2

 

 
PART I
Item 1.  Business
 
Overview
 
We are the leading provider of helicopter services to the worldwide offshore energy industry based on the number of aircraft operated.  We are one of two helicopter service providers to the offshore energy industry with global operations.  We have major operations in most of the major offshore oil and gas producing regions of the world, including in the North Sea, the U.S. Gulf of Mexico, Nigeria and Australia, and we generated 76% of our revenues from international operations in fiscal year 2008.  We have a long history in the helicopter services industry through Bristow Helicopters Ltd. and Offshore Logistics, Inc., having been founded in 1955 and 1969, respectively.
 
As of March 31, 2008, we conduct our business in one segment:  Helicopter Services.  The Helicopter Services segment operations are conducted through three divisions, Western Hemisphere, Eastern Hemisphere and Global Training, and through eight business units within those divisions:
 
·  
Western Hemisphere
 
−  
North America
 
−  
South and Central America
 
·  
Eastern Hemisphere
 
−  
Europe
 
−  
West Africa
 
−  
Southeast Asia
 
−  
Other International
 
−  
Eastern Hemisphere (“EH”) Centralized Operations
 
·  
Global Training
 
−  
Bristow Academy
 
We provide helicopter services to a broad base of major, independent, international and national energy companies.  Customers charter our helicopters to transport personnel between onshore bases and offshore platforms, drilling rigs and installations.  A majority of our helicopter revenue is attributable to oil and gas production activities, which have historically provided a more stable source of revenue than exploration and development related activities.  As of March 31, 2008, we operated 406 aircraft (including 373 aircraft owned, 25 leased aircraft and 8 aircraft operated for one of our customers; 4 of the owned aircraft are held for sale) and our unconsolidated affiliates operated 142 aircraft in addition to those aircraft leased from us.  Additionally, our Global Training division is approved to provide helicopter flight training to the commercial pilot and flight instructor level by both the U.S. Federal Aviation Administration (“FAA”) and the European Joint Aviation Authority. Bristow Academy, which forms the central core of our Global Training division, operates 69 aircraft (including 59 owned and 10 leased aircraft) and employs 165 people, including 74 flight instructors. The Global Training division supports, coordinates, standardizes, and in the case of the Bristow Academy schools, directly manages our flight training activities.
 
We previously provided production management services, contract personnel and medical support services in the U.S. Gulf of Mexico to the domestic oil and gas industry under the Grasso Production Management (“Grasso”) name.  On November 2, 2007, we sold our Grasso business, which comprised our entire Production Management Services segment.  The financial results for our Production Management Services segment are classified as discontinued operations.  In conjunction with this sale, we agreed to continue to provide helicopter services to Grasso through December 31, 2010.
 
For additional information about our business units, see Note 10 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report.  For a description of certain risks affecting our business and operations, see Item 1A. “Risk Factors” included elsewhere in this Annual Report.
 

 

 
3

 

Helicopter Services
 
Our customers charter our helicopters to transport personnel from onshore bases to offshore drilling rigs, platforms and other installations.  To a lesser extent, customers also charter our helicopters to transport time-sensitive equipment to these offshore locations.  Helicopters are generally classified as small (four to eight passengers), medium (12 to 16 passengers) and large helicopters (18 to 25 passengers), each of which serves a different transportation need of the offshore energy industry.  Medium and large helicopters, which can fly in a wider variety of operating conditions and over longer distances and carry larger payloads than small helicopters, are most commonly used for crew changes on large offshore production facilities and drilling rigs.  With their ability to carry greater payloads, travel greater distances and move at higher speeds, medium and large helicopters are preferred in international markets, where the offshore facilities tend to be larger, the drilling locations tend to be more remote and the onshore infrastructure tends to be more limited. Small helicopters are generally used for daytime flights on shorter routes and to reach production facilities that cannot accommodate medium and large helicopters.  Our small helicopters operate primarily in the shallow waters of the U.S. Gulf of Mexico and Nigeria.  Worldwide there are more than 8,800 production platforms and 660 rigs.  As a result of the greater distances offshore, demand for medium and large helicopters is also driven by drilling, development and production activity levels in deepwater locations throughout the world.  Additionally, some local governmental regulations in certain international markets require us to operate twin-engine medium and large aircraft in those markets.
 
We are able to deploy our aircraft to the regions with the greatest demand, subject to the satisfaction of local governmental regulations.  There are also additional markets for helicopter services beyond the offshore energy industry, including agricultural support, air medical, tourism, firefighting, corporate transportation, traffic monitoring, police and military.  The existence of these alternative markets enables us to better manage our helicopter fleet by providing potential purchasers for our excess aircraft during times of reduced demand in the offshore energy industry.
 
We also have technical services operations that provide helicopter repair services, engineering and design services, technical manpower support and transmission testing from facilities located in the U.S. and U.K.  While most of this work is performed on our own aircraft, some of these services are performed for third parties.
 
Most countries in which we operate limit foreign ownership of aviation companies.  To comply with these regulations and yet expand internationally, we have formed or acquired interests in a number of foreign helicopter operations.  These investments typically combine a local ownership interest with our experience in providing helicopter services to the offshore energy industry.  These arrangements have allowed us to expand operations while diversifying the risks and reducing the capital outlays associated with independent expansion.  We refer to the entities in which we do not own a majority of the equity, maintain voting control or have the ability to control their policies, management or affairs as unconsolidated affiliates.  We lease some of our aircraft to a number of these unconsolidated affiliates which in turn provide helicopter services to customers.
 
 
4

 
 
As of March 31, 2008, the aircraft in our fleet, the aircraft which we expect to take delivery of in the future and the aircraft which we have the option to acquire were as follows:
 
 
Number of Aircraft
           
 
Consolidated Affiliates
 
Unconsolidated
Affiliates
           
Type
 
In Fleet
 
     On
Order  (1)
   
Under
Option(2)
   
In Fleet
 
Maximum Passenger
Capacity
 
Speed
(MPH)(3)
 
 
Engine
Small Helicopters:
                               
Bell 206L Series
 
74
 
   
   
7
 
6
 
115
 
Turbine
Bell 206B
 
19
 
   
   
4
 
4
 
100
 
Turbine
Bell 407
 
41
 
   
   
3
 
6
 
132
 
Turbine
BK-117
 
2
 
   
   
 
7
 
160
 
Twin Turbine
BO-105
 
2
 
   
   
 
4
 
125
 
Twin Turbine
EC120
 
1
 
   
   
 
4
 
110
 
Turbine
EC135
 
2
 
   
   
2
 
6
 
143
 
Twin Turbine
Agusta 109
 
 
   
   
2
 
8
 
177
 
Twin Turbine
AS 350BB
 
 
   
   
37
 
4
 
161
 
Turbine
   
141
 
   
   
55
           
Medium Helicopters:
                               
Bell 212
 
11
 
   
   
18
 
12
 
115
 
Twin Turbine
Bell 412
 
36
 
   
   
33
 
13
 
125
 
Twin Turbine
EC155
 
10
 
   
   
 
13
 
167
 
Twin Turbine
Sikorsky S-76
 
61
 
9
   
21
   
 
12
 
145
 
Twin Turbine
EC AS 365N
 
 
   
   
4
 
14
 
167
 
Twin Turbine
Agusta AW139
 
 
   
   
1
 
15
 
181
 
Twin Turbine
EC175
 
 
   
12
   
 
16
 
166
 
Twin Turbine
   
118
 
9
   
33
   
56
           
Large Helicopters:
                               
AS332L Super Puma
 
30
 
   
   
4
 
18
 
144
 
Twin Turbine
Bell 214ST
 
4
 
   
   
 
18
 
144
 
Twin Turbine
Sikorsky S-61
 
11
 
   
   
 
18
 
132
 
Twin Turbine
Sikorsky S-92
 
10
 
9
   
8
   
3
 
19
 
158
 
Twin Turbine
Mil Mi-8
 
7
 
   
   
1
 
20
 
138
 
Twin Turbine
EC225
 
6
 
7
   
9
   
 
25
 
167
 
Twin Turbine
   
68
 
16
   
17
   
8
           
Training Helicopters:
                               
Robinson R22
 
20
 
   
   
 
2
 
92
 
Piston
Schweizer 300CB/CBi
 
46
 
10
   
   
 
2
 
92
 
Piston
Bell 206B
 
2
 
   
   
 
4
 
100
 
Turbine
Fixed wing
 
1
 
   
   
           
   
69
 
10
   
   
           
Fixed wing
 
10
 
   
   
23
           
Total (4)
 
406
 
35
   
50
   
142
           
___________

(1)
Of the aircraft on order, 27 are expected to be delivered during fiscal year 2009 (10 of which are training aircraft).  18 of the non-training aircraft which are on order have been dedicated to customers for specific projects, including 8 under signed contracts.  For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity — Future Capital Requirements — Capital Commitments” included elsewhere in this Annual Report.
   
(2)
Represents aircraft which we have the option to acquire.  If the options are exercised, we anticipate that the large aircraft would be delivered in fiscal years 2010 and 2011, while the medium aircraft would be delivered over fiscal years 2010 through 2013, principally in the later portion of that period.  For additional information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity — Future Capital Requirements — Capital Commitments” included elsewhere in this Annual Report.
   
(3)
Represents the approximate normal cruise speed flying at gross weight and at sea level under standard operating conditions.


 

 
5

 
 
   
(4)
We own 373 of the 406 aircraft reflected in the table above, hold 25 of the remaining aircraft under operating leases and operate 8 of the aircraft for one of our customers.  4 of the owned aircraft are held for sale.  Unconsolidated affiliates leased 25 of our 373 aircraft in addition to the 142 aircraft they operate.
 
The following table shows the distribution of our aircraft among our business units as of March 31, 2008.

Type
North
America
 
South &
Central
America
 
Europe
 
West
Africa
 
Southeast
Asia
 
Other
Int’l
 
EH Cent.
Ops.
 
Bristow Academy
 
 
 
Total
 
Small
121
 
4
 
1
 
12
 
3
 
 
 
 
141
 
Medium
30
 
28
 
10
 
28
 
11
 
11
 
 
 
118
 
Large
4
 
1
 
38
 
3
 
13
 
9
 
 
 
68
 
Training
 
 
 
 
 
 
 
68
 
68
 
Other (includes fixed wing)
1
 
 
 
7
 
 
2
 
 
1
 
11
 
Total consolidated
affiliates
156
 
33
 
49
 
50
 
27
 
22
 
 
69
 
406
 
Unconsolidated
affiliates
 
17
 
25
 
 
 
41
 
59
 
 
142
 
Total
156
 
50
 
74
 
50
 
27
 
63
 
59
 
69
 
548
 
Percentage of consolidated revenue for fiscal year 2008
23
%
6
%
36
%
17
%
11
%
5
%
1
%
1
%
100
%
 
Fleet Expansion
 
We expect to incur additional capital expenditures over the next three to five years to replace certain of our aircraft and upgrade strategic base facilities.  Our capital commitments in future periods related to this fleet expansion are discussed under Item 7. “Management’s Discussion and Analysis of Financial Condition — Liquidity and Capital Resources — Future Cash Requirements — Capital Commitments” included elsewhere in this Annual Report and are detailed in the table provided in that section.
 
North America
 
As of March 31, 2008, we conducted our North America operations primarily from ten operating facilities along the U.S. Gulf of Mexico, with additional operations in Alaska. Among our strengths in the U.S. Gulf of Mexico region are our ten operating facilities, our advanced flight-following systems and our widespread and strategically located offshore fuel stations.  As of March 31, 2008, we operated 139 aircraft in the U.S. Gulf of Mexico and 17 aircraft in Alaska.  During fiscal year 2008, our North America business unit contributed 23% of our gross revenue.  We are one of the two largest suppliers of helicopter services in the U.S. Gulf of Mexico and a major supplier in Alaska, where we fly the entire length of the TransAlaska pipeline.  The U.S. Gulf of Mexico is a major offshore oil and gas producing region with approximately 4,000 production platforms.  The shallow water platforms are typically unmanned and are serviced by our small aircraft.  The deep water platforms are serviced by our medium and large aircraft.  The North America business unit includes our Western Hemisphere (“WH”) Centralized Operations, which performs major maintenance on aircraft operated by our Western Hemisphere business units.  Beginning in fiscal year 2009, the North America business unit will be segregated into three separate business units:  Gulf of Mexico, Arctic and WH Centralized Operations.
 
South and Central America
 
As of March 31, 2008, we conducted our South and Central America operations in Brazil, Colombia, Mexico, Peru and Trinidad.  As of March 31, 2008, we operated 33 helicopters, most of which are medium sized, in South and Central America (2 in Brazil, 4 in Colombia, 13 in Mexico, 2 in Peru and 12 in Trinidad) and our unconsolidated affiliates operated 17 helicopters.  In Trinidad, Bristow Caribbean Limited (“BCL”), a joint venture, is the largest helicopter services provider.  In Mexico, we are the largest provider of helicopter services through our joint venture partners, conducting diverse operations ranging from seismic support to offshore crew transfers.  In Brazil, Colombia and Peru,we provide dry lease and technical support services, typically to the local operators.  During fiscal year 2008, our South and Central America business unit contributed 6% of our gross revenue.  Beginning in fiscal year 2009, the South and Central America business unit will be referred to as the Latin America business unit.
 

 

 
6

 
 
Brazil
 
We own a 50% interest in Helicopter Leasing Associates (“HLA”), a Louisiana limited liability company.  HLA leases two aircraft from a third party, which it leases to the former joint venture of ours in Brazil as mentioned below.  We currently provide dry lease and technical support to two Brazilian operators.  Our aircraft are located at the operators’ base locations of Macae, Victoria and Uracu.
 
In March 2007, we sold our ownership interest in a joint venture that operates in Brazil to our partners in the joint venture while we and HLA continued to lease aircraft already in country to this entity.  We sold six of our owned aircraft in Brazil in fiscal year 2008.
 
We have contracted to provide two new medium aircraft to another customer in Brazil beginning in June and September 2008.
 
Mexico
 
We own a 49% interest in Hemisco Helicopters International, Inc. and Heliservicio Campeche S.A. de C.V. (collectively, “HC”) which provide onshore helicopter services to the Mexican Federal Electric Commission and offshore helicopter transportation to Petróleos Mexicanos ("PEMEX") and other companies on a contract and ad hoc basis.  HC owns 3 aircraft and leases 7 aircraft from us, 13 aircraft from another affiliate of ours (discussed below) and 5 aircraft from a third party to provide helicopter services to its customers.  HC services customers from the primary bases located in Mexico City, Cuidad del Carmen, Poza Rica, Tampico, Reynosa and Monterrey.
 
We own a 49% interest in Rotorwing Leasing Resources, LLC. (“RLR”), which owns seven aircraft and leases six aircraft from us, all of which it leases to HC.
 
Trinidad
 
We own a 40% interest in BCL, a joint venture in Trinidad with a local partner that holds the remaining 60% interest.  BCL, the largest helicopter services provider in Trinidad, provides offshore helicopter services to customers of ours in Trinidad.  BCL has 12 medium aircraft used to service our customers which are primarily engaged in oil and gas activities.  Because we control the significant management decisions of this entity, including the payment of dividends to our partner, we account for this entity as a consolidated subsidiary.  We have one base located at Trinidad’s airport at the Port of Spain where we constructed five helipads during fiscal year 2008.
 
Europe
 
As of March 31, 2008, we operated 49 aircraft in Europe.  We operate from four bases in the U.K. and one base in Holland.  Our Europe operations are managed out of our facilities in Aberdeen, Scotland.  Based on the number of aircraft operating, we are the second largest provider of helicopter services in the North Sea, where there are harsh weather conditions and geographically concentrated offshore facilities.  The offshore facilities in the North Sea are large and require frequent crew change flight services.  We deploy the majority of the large aircraft in our consolidated fleet in this region.  In addition to our oil and gas helicopter services, we are a civil supplier of search and rescue services to the Netherlands Oil and Gas Exploration and Production Association.  We also have an ownership interest in and lease aircraft to our 49% owned Norwegian affiliate, Norsk Helikopter AS (“Norsk”), for use in its North Sea operations (see discussion below).  During fiscal year 2008, our Europe business unit contributed 36% of our gross revenue.
 
During the period from July 1, 2007 to April 3, 2008, we provided search and rescue services using seven S-61 aircraft and operated four helicopter bases for the U.K. Maritime Coastguard Agency (“MCA”) under a contract that was transitioned to another operator.  The conclusion of this contract ended a 24-year association of providing critical search and rescue services to the MCA.  We are in a partnership with FB Heliservices Limited (“FBH”), an unconsolidated affiliate of ours, and two third parties, Serco Limited and Agusta Westland, through which we are seeking to obtain the future U.K.-wide search and rescue contract that will require the provision of approximately 30 aircraft and is anticipated to start in 2012.  We submitted a first round bid in January 2008 and expect final selection in 2009.  See further discussion under Item 7. “Management’s Discussion and Analysis of Financial Condition — Business Unit Operating Results — Fiscal Year 2008 Compared to Fiscal Year 2007 — Europe” included elsewhere in this Annual Report.
 

 

 
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The U.K., as do other countries in which we operate, limits foreign ownership of aviation companies.  To comply with these restrictions, we own only 49% of the common stock of Bristow Aviation.  In addition, we have a put/call agreement with the other two stockholders of Bristow Aviation which grants us the right to buy all of their shares of Bristow Aviation common stock (and grants them the right to require us to buy all of their shares).  Under U.K. regulations, to maintain Bristow Aviation’s operating license, we would be required to find a qualified European Union owner to acquire any of the Bristow Aviation shares that we have the right or obligation to acquire under the put/call agreement.  In addition to our equity investment in Bristow Aviation, we own subordinated debt issued by Bristow Aviation.
 
We own a 49% interest in Norsk, a Norwegian corporation that provides helicopter services in the Norwegian sector of the North Sea. Norsk operates 12 aircraft, 6 of which are leased from us.  Norsk owns 100% of Lufttransport AS, a Norwegian company, which operates 20 aircraft and is engaged in providing air ambulance services in Scandinavia.  As of March 31, 2008, Norsk and its subsidiary operated a total of 32 aircraft.
 
West Africa
 
As of March 31, 2008, we operated 50 aircraft in West Africa (all of which were operating in Nigeria). We have the largest helicopter fleet and are the largest provider of helicopter services to the oil and gas industry in the area.  In Nigeria, we deploy a combination of small, medium and large aircraft and operate and service a diverse oil and gas customer base from nine operational bases with the largest being our bases in Escravos, Warri, Port Harcourt and Lagos. The marketplace for such services had historically been concentrated predominantly in the oil rich swamp and shallow waters of the Niger Delta area.  More recently we have been undertaking work further offshore in support of deep water exploration.  During fiscal year 2008, our West Africa business unit contributed 17% of our gross revenue.
 
Southeast Asia
 
We conduct our Southeast Asia operations predominantly in Australia and Malaysia.  As of March 31, 2008, we operated 27 helicopters in our Southeast Asia business unit (23 of which were operating in Australia).  We have nine operational bases in Australia: six are located in Western Australia and Victoria, Queensland and the Solomon Islands each have one base.  These operations are managed from our Australian head office facility in Perth, Western Australia.  During fiscal year 2008, our Southeast Asia business unit contributed 11% of our gross revenue.
 
We are the largest provider of helicopter services to the oil and gas industry in Australia.  Our client base is largely derived from large oil and gas operators.  Our operating bases are located in the vicinity of the major oil and gas exploration and production fields in the North West Shelf, Browse and Carnarvon basins of Western Australia where the fleet provides helicopter services solely to offshore oil and gas operators.  These platforms are largely serviced by medium and large aircraft.  We provide engineering services to the Republic of Singapore Air Force from their base in Oakey, Queensland and in January 2008 began providing helicopter services to offshore oil and gas producers in the Gippsland Basin off the coast of Victoria.
 
Operations commenced in Malaysia in August 2007, and we currently have four medium aircraft in Malaysia.  The Malaysian operations are serviced from bases in Kerteh and Bintulu with large oil and gas companies as customers.
 
Other International
 
We conduct our Other International operations in Egypt, India, Ireland, Kazakhstan, Mauritania, Morocco, Russia and Turkmenistan.  As of March 31, 2008, we and our unconsolidated affiliates operated 63 aircraft (including 1 aircraft held for sale as of March 31, 2008) in our Other International business unit comprising a mixture of medium, large and fixed wing aircraft.  During fiscal year 2008, our Other International business unit contributed 5% of our gross revenue.  The following is a description of operations in our Other International business unit:
 
·  
Egypt – We operate through our 25% interest in Petroleum Air Services (“PAS”), an Egyptian corporation. PAS provides helicopter and fixed wing transportation to the offshore energy industry.  Additionally, spare fixed-wing capacity is chartered to tourism operators.  PAS owns 40 aircraft and leases 1 aircraft from us.
 
·  
India – We lease two aircraft to an Indian helicopter operator and operate from two locations.
 
·  
Ireland – We lease an aircraft to another helicopter operator.
 

 

 
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·  
Kazakhstan – We operate four aircraft through our 49% interest in Atyrau Bristow Air Services (“ABAS”), a Kazakhstan corporation.  ABAS owns one aircraft, and we lease the other three aircraft to them.  ABAS provides helicopter services to an international oil company from a single location.
 
·  
Mauritania – We operate two aircraft and provide services to an international oil company from a single location.
 
·  
Morocco – We operate one aircraft and provide helicopter services to an international oil company from a single location.
 
·  
Russia – We operate nine aircraft from three locations on Sakhalin Island and provide both helicopter and fixed wing services to international oil companies and domestic customers.
 
·  
Turkmenistan – We operate two aircraft through our 51% interest in Turkmenistan Helicopters Limited (“THL”), a Turkmenistan corporation.  THL provides helicopter services to an international oil company from a single location.
 
EH Centralized Operations
 
Our EH Centralized Operations business unit is comprised of our technical services business, other non-flight services business (e.g., provision of spare parts as well as maintenance and supply chain services to other Eastern Hemisphere business units) in the Eastern Hemisphere and division level expenses for our Eastern Hemisphere businesses.  These operations are not included within any other business unit as they are managed separate and apart from these other operations.  During fiscal year 2008, our EH Centralized Operations business unit contributed 1% of our gross revenue.
 
Our technical services portion of this business unit provides helicopter repair services from facilities located in Redhill, England, and Aberdeen, Scotland.  While most of this work is performed on our own aircraft, some of these services are performed for third parties and unconsolidated affiliates.
 
We own a 50% interest in each of FBS Limited (“FBS”), FBH and FB Leasing Limited (“FBL”) (collectively, the “FB Entities”), U.K. corporations which principally provide pilot training, maintenance and support services.  Most of the FB Entities’ revenue is earned under an agreement with the British military that runs through March 31, 2012.  The FB Entities provide services to military organizations in other countries as well.  FBS and FBL own and operate a total of 59 aircraft.
 
Global Training
 
On April 2, 2007, we acquired all of the common equity of HAI, a leading flight training provider with operations in Titusville, Florida, and Concord, California.  Upon purchase, HAI was renamed Bristow Academy,  which, when combined with our existing training facilities in Norwich, England, forms a central core of our new Global Training division.  Additionally, we acquired Vortex, a flight training school in New Iberia, Louisiana in November 2007.
 
We have made the strategic decision to expand our existing training operations based upon the anticipated long-term demand for skilled pilot and aircraft maintenance personnel in the rotorwing aviation services business. This view is based upon internal analysis of our existing pilot and aircraft maintenance personnel compared to requirements to meet growing demand and from public comments made by other participants in the rotorwing aviation services industry (both relating to offshore energy services and other sectors) regarding general shortages in qualified, experienced personnel. We believe that entry into the ab initio (“beginning”) aviation training business provides us with a strategic advantage over competitors.  Bristow Academy represented 1% of consolidated revenue for fiscal year 2008.  We expect profitability of Bristow Academy to improve in future periods, although the primary value of this business is the supply of pilots for use in our global operations.  During fiscal year 2008, approximately 200 pilots graduated from Bristow Academy, and we hired 47 pilots into our other business units who are recent graduates of Bristow Academy.
 
 

 

 
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Bristow Academy is a leading provider of aviation training services with over 20 years experience.  Bristow Academy trains students from around the world to become helicopter pilots. Our ab initio flight training program typically lasts nine to twelve months and culminates with a student completing approximately 200 hours of flight instruction, passing written and flight exams and obtaining a commercial pilot license with instrument rating and flight instructor qualifications.  Later, with 500 to 1,000 hours of flight experience, these employees then become qualified for offshore flight operations and have the opportunity to join Bristow’s Helicopter Services operations.  Alternatively, graduates of Bristow Academy may pursue aviation careers in any number of flight services sectors.  Currently, Bristow Academy has approximately 200 students enrolled in ab initio flight training.  Additionally, Bristow has historically provided continuing education to its own staff of pilots and aircraft maintenance personnel worldwide.
 
Customers and Contracts
 
The principal customers for our Helicopter Services are national and international oil and gas companies.  During fiscal years 2006, 2007 and 2008, respectively, the Shell Companies accounted for 10%, 18% and 21%, respectively, of our gross revenue.  No other customer accounted for 10% or more of our gross revenue during those periods.  During fiscal year 2008, our top ten customers accounted for 57% of our gross revenue.
 
Our helicopter contracts are generally based on a two-tier rate structure consisting of a daily or monthly fixed fee plus additional fees for each hour flown.  We also provide services to customers on an “ad hoc” basis, which usually entails a shorter notice period and shorter duration.  Our charges for ad hoc services are generally based on an hourly rate, or a daily or monthly fixed fee plus additional fees for each hour flown.  Generally, our ad hoc services have a higher margin than our other helicopter contracts due to supply and demand dynamics.  In addition, our standard rate structure is based on fuel costs remaining at or below a predetermined threshold.  Fuel costs in excess of this threshold are generally charged to the customer.  We also derive revenue from reimbursements for third party out of pocket cost such as certain landing and navigation costs, consultant salaries, travel and accommodation costs, and dispatcher charges.  The costs incurred that are rebilled to our customers are presented as reimbursable expense and the related revenue is presented as reimbursable revenue in our consolidated statements of income.
 
Our helicopter contracts are for varying periods and in certain cases permit the customer to cancel the charter before the end of the contract term.  These contracts provide that the customer will reimburse us for cost increases associated with the contract and are cancelable by the customer with notice of generally 30 days in the U.S. Gulf of Mexico, 90 to 180 days in Europe and 90 days in West Africa. In North America, we generally enter into short-term contracts for twelve months or less, although we occasionally enter into longer-term contracts.  In Europe, contracts are longer term, generally between two and five years. In South and Central America, West Africa, Southeast Asia and Other International, contract length generally ranges from three to five years.  At the expiration of a contract, our customers often negotiate renewal terms with us for the next contract period.  In other instances, customers solicit new bids at the expiration of a contract.  Contracts are generally awarded based on a number of factors, including price, quality of service, operational experience, record of safety, quality and type of equipment, customer relationship and professional reputation.  Incumbent operators typically have a competitive advantage in the bidding process based on their relationship with the customer, knowledge of the site characteristics and understanding of the cost structure of the operations.
 
Competition
 
The helicopter transportation business is highly competitive throughout the world.  We compete against several providers in almost all of our regions of operation.  We have several significant competitors in the U.S. Gulf of Mexico, two significant competitors in the North Sea and one significant competitor in Nigeria.  We believe that it is difficult for additional significant competitors to enter our industry because it requires considerable capital investment, working capital, a complex system of onshore and offshore bases, personnel and operating experience.  However, these requirements can be overcome with the appropriate level of customer support and commitment.  In addition, while not the predominant practice, certain of our customers and potential customers in the offshore energy industry perform their own helicopter services on a limited basis.
 
Generally, customers charter helicopters on the basis of competitive bidding. In some situations, our customers may renew or extend existing contracts without employing a competitive bid process.  Contracts in our North America business unit are generally renewable on an annual or shorter basis.  For our operations in the North Sea and other international locations, contracts tend to be of longer duration.  While price is a key determinant in the award of a contract to a successful bidder, quality of service, operational experience, record of safety, quality and type of equipment, customer relationship and professional reputation are also factors taken into consideration.  Since certain of our customers in the offshore energy industry have the capability to perform their own helicopter services, our ability to increase charter rates may be limited under certain circumstances.
 

 

 
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Safety, Industry Hazards and Insurance
 
Hazards, such as harsh weather and marine conditions, mechanical failures, crashes and collisions are inherent in the offshore transportation industry and may cause losses of equipment and revenue, and death or injury to personnel.  We have an industry leading safety record.  Our air accident rate per 100,000 flight hours is substantially less than that of both the U.S. civil turbine engine helicopter average and the global oil and gas production helicopter average over the past four years for which data is published.
 
In fiscal year 2008, we had two helicopter crashes resulting in fatalities, both of which are still under investigation, and one other helicopter accident which resulted in no fatalities.  In fiscal year 2007, we had no accidents resulting in fatalities.  In fiscal year 2006, we had one helicopter accident in the U.S. Gulf of Mexico that resulted in two fatalities. Our accident rates have typically been significantly lower than the industry average.
 
During the fourth quarter of fiscal year 2007, we launched a global safety campaign to further improve and enhance safety.  It is called ‘Target Zero’, as our common safety vision is to have zero accidents, zero harm to people, and zero harm to the environment.  In conjunction with this initiative, we completed a global safety culture survey across most of our operations, providing us insight regarding our employees’ views about safety.  Safety leadership workshops commenced in late April 2007 and have been delivered to over 550 managers and supervisors throughout fiscal year 2008.  In early fiscal year 2009, we have extended the Target Zero program to ten additional seminars in which we are training champions (line pilots, maintenance staff and supervisors) who will continue to cascade the safety training to all line employees.
 
We maintain hull and liability insurance, which generally insures us against damage to our aircraft, as well as certain legal liabilities to others.  We also carry workers’ compensation, employers’ liability, auto liability, property and casualty coverages for most of our U.S. and U.K. operations.  We believe that our insurance coverage will be adequate to cover any claims ultimately paid related to accidents which have occurred in the past.  It is also our policy to carry insurance for, or require our customers to indemnify us against, expropriation, war risk and confiscation of the helicopters we use in our operations internationally.
 
Terrorist attacks, the continuing threat of terrorist activity and economic and political uncertainties (including, but not limited to, our operations in Nigeria), may significantly affect our premiums for much of our insurance program.  There is no assurance that in the future we will be able to maintain our existing coverage or that we will not experience substantial increases in premiums, nor is there any assurance that our liability coverage will be adequate to cover all potential claims that may arise.
 
Employees
 
As of March 31, 2008, we employed 3,644 employees.  The following table shows the number of employees by business unit at March 31, 2008:
 
North America  
 
1,044
South and Central America 
 
177
Europe 
 
604
West Africa  
 
766
Southeast Asia 
 
308
Other International   
 
335
EH Centralized Operations 
 
204
Bristow Academy  
 
165
Corporate 
 
41
   
3,644
 
We employ approximately 330 pilots in our North America business unit who are represented by the Office and Professional Employees International Union (“OPEIU”) under a collective bargaining agreement.  We and the pilots represented by the OPEIU ratified an amended collective bargaining agreement on April 4, 2005.  The terms under the amended agreement are fixed until October 3, 2008 and include wage increases for the pilot group and improvements to several benefit plans.  We do not believe that these increases place us at a competitive, financial or operational disadvantage.
 

 

 
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Additionally, as of March 31, 2008, substantially all of our employees in the U.K., Nigeria and Australia are represented by collective bargaining or union agreements which are ongoing.  With respect to the U.K., these agreements have no specific termination dates.  The collective bargaining agreements in Nigeria renew annually, typically on a retroactive basis.
 
We are currently involved in negotiations with unions representing our pilots and engineers in the U.K.  As a result of the negotiations complete to date, labor rates under our existing contracts increased 4-5% starting in July 2007, and the new labor rates will continue through June 2008.
 
During the three months ended December 31, 2007, we completed annual contract negotiations with the unions in Nigeria, which resulted in increased labor costs.
 
As part of a strategic review and reorganization that commenced in 2007, our West Africa business unit embarked upon a plan to indigenize the local work force in line with the federal government targets for national development and content. A large scale training program was embarked upon in collaboration with air schools in South Africa and Bristow Academy in the U.S. to train Nigerian pilots. In addition to the pilot training, an initiative was put in place to foster and develop a partnership with the Nigeria College of Aviation Technology to train Nigerian engineers for the Nigerian Civil Aviation Authority examinations.
 
In April 2008, an agreement was successfully negotiated with the pilot’s union in Australia. The agreement extends to June 30, 2010 and we do not anticipate any industrial action by pilots prior to the expiration of the agreement. The agreement was lodged with the relevant authorities to become binding on all parties at the beginning of May 2008.  As a result of this agreement, labor rates increased 20.4%, portions of which were retroactive to May 2007 and January 2008. Additional increases of 5% will become effective in September 2008 and July 2009.
 
Many of the employees of our affiliates are represented by collective bargaining agreements.  Periodically, certain groups of our employees who are not covered by a collective bargaining agreement consider entering into such an agreement.  We believe that our relations with our employees are generally satisfactory.  We do not expect increased labor rates to result in a decline in our operating margins over the long-term.
 
Government Regulation
 
United States
 
As a commercial operator of aircraft, our U.S. operations are subject to regulations under the Federal Aviation Act of 1958, as amended, and other laws.  We carry persons and property in our helicopters under an Air Taxi Certificate granted by the FAA.  The FAA regulates our U.S. flight operations and, in this respect, exercises jurisdiction over personnel, aircraft, ground facilities and certain technical aspects of our operations.  The National Transportation Safety Board is authorized to investigate aircraft accidents and to recommend improved safety standards. Our U.S. operations are also subject to the Federal Communications Act of 1934 because we use radio facilities in our operations.
 
Under the Federal Aviation Act, it is unlawful to operate certain aircraft for hire within the U.S. unless such aircraft are registered with the FAA and the FAA has issued an operating certificate to the operator.  As a general rule, aircraft may be registered under the Federal Aviation Act only if the aircraft are owned or controlled by one or more citizens of the U.S. and an operating certificate may be granted only to a citizen of the U.S.  For purposes of these requirements, a corporation is deemed to be a citizen of the U.S. only if at least 75% of its voting interests are owned or controlled by U.S. citizens, the president of our company is a U.S. citizen, two-thirds or more of our directors are U.S. citizens and our company is under the actual control of U.S. citizens.  If persons other than U.S. citizens should come to own or control more than 25% of our voting interest or if any of the other requirements were not met, we have been advised that our aircraft may be subject to deregistration under the Federal Aviation Act, and we may lose our ability to operate within the U.S.  Deregistration of our aircraft for any reason, including foreign ownership in excess of permitted levels, would have a material adverse effect on our ability to conduct operations within our North America business unit. Therefore, our organizational documents currently provide for the automatic suspension of voting rights of shares of our outstanding voting capital stock owned or controlled by non-U.S. citizens, and our right to redeem those shares, to the extent necessary to comply with these requirements.  As of March 31, 2008, approximately 1,970,000 shares of our common stock, par value $.01 per share (“Common Stock”), were held by persons with foreign addresses. These shares represented approximately 8.2% of our total outstanding Common Stock as of March 31, 2008.  Our foreign ownership may fluctuate on each trading day because a substantial portion of our Common Stock and our 5.50% Mandatory Convertible Preferred Stock (“Preferred Stock”) is publicly traded.
 

 

 
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United Kingdom
 
Our operations in the U.K. are subject to the Civil Aviation Act 1982 and other similar English and European statutes and regulations. We carry persons and property in our helicopters pursuant to an operating license issued by the Civil Aviation Authority (“CAA”).  The holder of an operating license must meet the ownership and control requirements of Council Regulation 2407/92.  To operate under this license, the company through which we conduct operations in the U.K., Bristow Helicopters Ltd., must be owned directly or through majority ownership by European Union nationals, and must at all times be effectively controlled by them.  Bristow Helicopters Ltd. is a wholly owned subsidiary of Bristow Aviation.  We own 49% and hold certain put/call rights over additional shares of common stock of Bristow Aviation.
 
The CAA regulates our U.K. flight operations and exercises jurisdiction over personnel, aircraft, ground facilities and certain technical aspects of those operations.  The CAA often imposes improved safety standards.  Under the Licensing of Air Carriers Regulations 1992, it is unlawful to operate certain aircraft for hire within the U.K. unless such aircraft are approved by the CAA.  Changes in U.K. or European Union statutes or regulations, administrative requirements or their interpretation may have a material adverse effect on our business or financial condition or on our ability to continue operations in these areas.
 
Other
 
Our operations in areas other than the U.S. and the U.K. also are subject to local governmental regulations that may limit foreign ownership of aviation companies.  Because of these local regulations, we conduct some of our operations through entities in which local citizens own a majority interest and we hold only a minority interest, or under contracts that provide for us to operate assets for the local companies or to conduct their flight operations.  This includes our operations in Kazakhstan, Russia and Turkmenistan.  Changes in local laws, regulations or administrative requirements or their interpretation may have a material adverse effect on our business or financial condition or on our ability to continue operations in these areas.
 
Environmental
 
All of our operations are subject to laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment.  If we fail to comply with these environmental laws and regulations, administrative, civil and criminal penalties may be imposed, and we may become subject to regulatory enforcement actions in the form of injunctions and cease and desist orders.  We may also be subject to civil claims arising out of a pollution event.  These laws and regulations may expose us to strict, joint and several liability for the conduct of or conditions caused by others or for our own acts even though these actions were in compliance with all applicable laws at the time they were performed.  To date, such laws and regulations have not had a material adverse effect on our business, results of operations or financial condition.
 
Increased public awareness and concern over the environment, however, may result in future changes in the regulation of the offshore energy industry, which in turn could adversely affect us.  The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus there can be no assurance as to the effect of such regulation on our operations or on the operations of our customers.  We try to anticipate future regulatory requirements that might be imposed and plan accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance.  We do not believe that compliance with federal, state or local environmental laws and regulations will have a material adverse effect on our business, financial position or results of operations.  We cannot assure you, however, that future events, such as changes in existing laws, the promulgation of new laws, or the development or discovery of new facts or conditions will not cause us to incur significant costs.  Below is a discussion of the material U.S. environmental laws and regulations that relate to our business.  We believe that we are in substantial compliance with all of these environmental laws and regulations.
 
Under the Comprehensive Environmental Response, Compensation and Liability Act, referred to as CERCLA or the Superfund law, and related state laws and regulations, strict, joint and several liability can be imposed without regard to fault or the legality of the original conduct on certain classes of persons that contributed to the release of a hazardous substance into the environment.  These persons include the owner and operator of a contaminated site where a hazardous substance release occurred and any company that transported, disposed of or arranged for the transport or disposal of hazardous substances, even from inactive operations or closed facilities, that have been released into the environment.  In addition, neighboring landowners or other third parties may file claims for personal injury, property damage and recovery of response cost.  We currently own, lease, or
 

 

 
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operate properties and facilities that, in some cases, have been used for industrial activities for many years.  Hazardous substances, wastes, or hydrocarbons may have been released on or under the properties owned or leased by us, or on or under other locations where such substances have been taken for disposal. In addition, some of these properties have been operated by third parties or by previous owners whose treatment and disposal or release of hazardous substances, wastes, or hydrocarbons was not under our control.  These properties and the substances disposed or released on them may be subject to CERCLA and analogous state statutes.  Under such laws, we could be required to remove previously disposed substances and wastes, remediate contaminated property, or perform remedial activities to prevent future contamination.  These laws and regulations may also expose us to liability for our acts that were in compliance with applicable laws at the time the acts were performed.  We have been named as a potentially responsible party in connection with certain sites. See further discussion under Item 3. “Legal Proceedings” included elsewhere in this Annual Report.
 
In addition, since our operations generate wastes, including some hazardous wastes, we may be subject to the provisions of the Resource, Conservation and Recovery Act, or RCRA, and analogous state laws that limit the approved methods of disposal for some types of hazardous and nonhazardous wastes and require owners and operators of facilities that treat, store or dispose of hazardous waste and to clean up releases of hazardous waste constituents into the environment associated with their operations.  Some wastes handled by us in our field service activities that currently are exempt from treatment as hazardous wastes may in the future be designated as “hazardous wastes” under RCRA or other applicable statutes.  If this were to occur, we would become subject to more rigorous and costly operating and disposal requirements.
 
The Federal Water Pollution Control Act, also known as the Clean Water Act, and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants into state waters or waters of the U.S.  The discharge of pollutants into jurisdictional waters is prohibited unless the discharge is permitted by the U.S. Environmental Protection Agency, also referred to as the EPA, or applicable state agencies.  Some of our properties and operations require permits for discharges of wastewater and/or stormwater, and we have a system in place for securing and maintaining these permits.  In addition, the Oil Pollution Act of 1990 imposes a variety of requirements on responsible parties related to the prevention of oil spills and liability for damages, including natural resource damages, resulting from such spills in the waters of the U.S.  A responsible party includes the owner or operator of a facility.  The Clean Water Act and analogous state laws provide for administrative, civil and criminal penalties for unauthorized discharges and, together with the Oil Pollution Act, impose rigorous requirements for spill prevention and response planning, as well as substantial potential liability for the costs of removal, remediation, and damages in connection with any unauthorized discharges.
 
Some of our operations also result in emissions of regulated air pollutants.  The Federal Clean Air Act and analogous state laws require permits for facilities that have the potential to emit substances into the atmosphere that could adversely affect environmental quality.  Failure to obtain a permit or to comply with permit requirements could result in the imposition of substantial administrative, civil and even criminal penalties.
 
Our facilities and operations are also governed by laws and regulations relating to worker health and workplace safety, including the Federal Occupational Safety and Health Act, or OSHA.  We believe that appropriate precautions are taken to protect our employees and others from harmful exposure to potentially hazardous materials handled and managed at our facilities, and that we operate in substantial compliance with all OSHA or similar regulations.
 
Our operations outside of the U.S. are subject to similar foreign governmental controls relating to protection of the environment.  We believe that, to date, our operations outside of the U.S. have been in substantial compliance with existing requirements of these foreign governmental bodies and that such compliance has not had a material adverse effect on our operations.  There is no assurance, however, that future expenditures to maintain compliance will not become material.
 

 

 
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Item 1A.  Risk Factors
 
If you hold our securities or are considering an investment in our securities, you should carefully consider the following risks, together with the other information contained in this Annual Report.
 
Risks Relating to Our Customers and Contracts
 
The demand for our services is substantially dependent on the level of offshore oil and gas exploration, development and production activity.
 
We provide helicopter services to companies engaged in offshore oil and gas exploration, development and production activities.  As a result, demand for our services, as well as our revenue and our profitability, are substantially dependent on the worldwide levels of activity in offshore oil and gas exploration, development and production.  These activity levels are principally affected by trends in, and expectations regarding, oil and gas prices, as well as the capital expenditure budgets of oil and gas companies.  We cannot predict future exploration, development and production activity or oil and gas price movements.  Historically, the prices for oil and gas and activity levels have been volatile and are subject to factors beyond our control, such as:
 
·  
the supply of and demand for oil and gas and market expectations for such supply and demand;
 
·  
actions of the Organization of Petroleum Exporting Countries and other oil producing countries to control prices or change production levels;
 
·  
general economic conditions, both worldwide and in particular regions;
 
·  
governmental regulation;
 
·  
the price and availability of alternative fuels;
 
·  
weather conditions, including the impact of hurricanes and other weather-related phenomena;
 
·  
advances in exploration, development and production technology;
 
·  
the policies of various governments regarding exploration and development of their oil and gas reserves; and
 
·  
the worldwide political environment, including the war in Iraq, uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in the Middle East or the other geographic areas in which we operate (including, but not limited to, Nigeria), or further acts of terrorism in the U.S. or elsewhere.
 
The implementation by our customers of cost-saving measures could reduce the demand for our services.
 
Oil and gas companies are continually seeking to implement measures aimed at greater cost savings.  As part of these measures, these companies are attempting to improve cost efficiencies with respect to helicopter transportation services.  For example, these companies may reduce staffing levels on both old and new installations by using new technology to permit unmanned installations and may reduce the frequency of transportation of employees by increasing the length of shifts offshore.  In addition, these companies could initiate their own helicopter or other alternative transportation methods.  The continued implementation of these kinds of measures could reduce the demand for helicopter services and have a material adverse effect on our business, financial condition and results of operations.
 
Our industry is highly competitive and cyclical, with intense price competition.
 
Our industry has historically been cyclical and is affected by the volatility of oil and gas price levels.  There have been periods of high demand for our services, followed by periods of low demand for our services.  Changes in commodity prices can have a dramatic effect on demand for our services, and periods of low activity intensify price competition in the industry and often result in our aircraft being idle for long periods of time.
 

 

 
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We depend on a small number of large offshore energy industry customers for a significant portion of our revenue.
 
We derive a significant amount of our revenue from a small number of national oil companies and major and independent oil and gas companies.  Our loss of one of these significant customers, if not offset by sales to new or other existing customers, could have a material adverse effect on our business, financial condition and results of operations.  Additionally, a change in policy by national oil companies could adversely affect us.  See Item 1. “Business — Customers and Contracts” included elsewhere in this Annual Report.
 
Our contracts generally can be terminated or downsized by our customers without penalty.
 
Many of our fixed-term contracts contain provisions permitting early termination by the customer for any reason and generally without penalty, and with limited notice requirements.  In addition, many of our contracts permit our customers to decrease the number of aircraft under contract with a corresponding decrease in the fixed monthly payments without penalty.  As a result, you should not place undue reliance on our customer contracts or the terms of those contracts.
 
We may not be able to obtain customer contracts with acceptable terms covering some of our new helicopters, and some of our new helicopters may replace existing helicopters already under contract, which could adversely affect the utilization of our existing fleet.
 
We have ordered, and have options for, a substantial number of new helicopters.  Many of our new helicopters may not be covered by customer contracts when they are placed into service, and we cannot assure you as to when we will be able to utilize these new helicopters or on what terms.  To the extent our helicopters are covered by a customer contract when they are placed into service, many of these contracts are for a short term, requiring us to seek renewals more frequently.  Alternatively, we expect that some of our customers may request new helicopters in lieu of our existing helicopters, which could adversely affect the utilization of our existing fleet.
 
Risks Relating to Our Internal Review and Governmental Investigations
 
The DOJ investigation relating to the Internal Review, any proceedings related to the Internal Review including proceedings in other countries and the consequences of the activities identified in the Internal Review could result in civil or criminal proceedings, the imposition of fines and penalties, the commencement of third-party litigation, the incurrence of expenses, the loss of business and other adverse effects on our Company.
 
In February 2005, we voluntarily advised the staff of the SEC that the Audit Committee of our board of directors had engaged special outside counsel to undertake a review of certain payments made by two of our affiliated entities in a foreign country.  The review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by the Audit Committee to cover operations in other countries and other issues (the “Internal Review”).  As a result of the findings of the Internal Review (which was completed in late 2005), our quarter ended December 31, 2004 and prior financial statements were restated.  We also provided the SEC with documentation resulting from the Internal Review which eventually resulted in a formal SEC investigation.  In September 2007, we consented to the issuance of an administrative cease-and-desist order by the SEC, in final settlement of the SEC investigation. The SEC did not impose any fine or other monetary sanction upon the Company.  Without admitting or denying the SEC's findings, we consented to be ordered not to engage in future violations of certain provisions of the federal securities laws involving improper foreign payments, internal controls and books and records.  For further information on the restatements, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.
 
Following the previously disclosed settlement with the SEC regarding improper payments made by foreign affiliates of the Company in Nigeria, outside counsel to the Company was contacted by the DOJ and was asked to provide certain information regarding the Audit Committee’s related Internal Review. We previously provided disclosure regarding the Internal Review in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.  We have entered into an agreement with the DOJ that tolls the statute of limitations relating to these matters. We intend to continue to be responsive to the DOJ’s requests. At this time, it is not possible to predict what the outcome of the DOJ’s investigation into these matters will be for the Company.
 
As a result of the disclosure and remediation of a number of activities identified in the Internal Review, we may encounter difficulties conducting business in certain foreign countries and retaining and attracting additional business with certain customers.  We cannot predict the extent of these difficulties; however, our ability to continue conducting
 

 

 
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business in these countries and with these customers and through agents may be significantly impacted. We could still face legal and administrative proceedings, the institution of administrative, civil injunctive or criminal proceedings involving us and/or current or former employees, officers and/or directors who are within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies and/or sanctions, including precluding us from participating in business operations in their countries.  It is also possible that we may become subject to claims by third parties, possibly resulting in litigation.  The matters identified in the Internal Review and their effects could have a material adverse effect on our business, financial condition and results of operations.
 
In addition, we face legal actions relating to remedial actions which we have taken as a result of the Internal Review, and may face further legal action of this type in the future.  In November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company, Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria.  The claimants allege that an agreement between the parties was terminated without justification and seek damages of $16.3 million.  We have responded to this claim and are continuing to investigate this matter.
 
As we continue to operate our compliance program, other situations involving foreign operations, similar to those matters disclosed to the SEC in February 2005 and described above, could arise that warrant further investigation and subsequent disclosures. As a result, new issues may be identified that may impact our financial statements and lead us to take other remedial actions or otherwise adversely impact us.
 
During fiscal years 2006 and 2007, we incurred approximately $10.5 million and $3.1 million in professional fees related to the Internal Review and related matters.  During fiscal year 2008, we reversed $1.0 million of previously accrued settlement costs due to the fact that we settled the SEC investigation and incurred $0.6 million for legal fees related to the DOJ investigation relating to the Internal Review.
 
The disclosure and remediation of activities identified in the Internal Review could result in the loss of business relationships and adversely affect our business.
 
As a result of the disclosure and remediation of a number of activities identified in the Internal Review, we may encounter difficulties conducting business in certain foreign countries and retaining and attracting additional business with certain customers.  We cannot predict the extent of these difficulties; however, our ability to continue conducting business in these countries and with these customers and through agents may be significantly impacted.  In addition, applicable governmental authorities may preclude us from bidding on contracts to provide services in the countries where improper activities took place.
 
The DOJ antitrust investigation or any related proceedings in other countries could result in criminal proceedings and the imposition of fines and penalties, the commencement of third-party litigation, the incurrence of expenses, the loss of business and other adverse effects on our Company.
 
In June 2005, one of our subsidiaries received a document subpoena from the DOJ. The subpoena related to a grand jury investigation of potential antitrust violations among providers of helicopter transportation services in the U.S. Gulf of Mexico.  The subpoena focused on activities during the period from January 1, 2000 to June 13, 2005.  We believe we have submitted to the DOJ substantially all documents responsive to the subpoena.  We have had discussions with the DOJ and provided documents related to our operations in the U.S. as well as internationally.  We intend to continue to provide additional information as required by the DOJ in connection with the investigation.  There is no assurance that, after review of any information furnished by us or by third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have occurred.  The period of time necessary to resolve the DOJ antitrust investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.
 
The outcome of the DOJ antitrust investigation and any related legal proceedings in other countries could include civil injunctive or criminal proceedings involving us or our current or former officers, directors or employees, the imposition of fines and other penalties, remedies and/or sanctions, including potential disbarments, and referrals to other governmental agencies.  In addition, in cases where anti-competitive conduct is found by the government, there is a greater likelihood for civil litigation to be brought by third parties seeking recovery.  Any such civil litigation could have serious consequences for our Company, including the costs of the litigation and potential orders to pay restitution or other damages or penalties, including potentially treble damages, to any parties that were determined to be injured as a result of any impermissible anti-competitive conduct.  Any of these adverse consequences could have a material adverse effect on our business, financial condition and results of operations.  The DOJ antitrust investigation, any related
 

 

 
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proceedings in other countries and any third-party litigation, as well as any negative outcome that may result from the investigation, proceedings or litigation, could also negatively impact our relationships with customers and our ability to generate revenue.
 
In connection with this matter, we incurred $2.6 million, $1.9 million and $0.7 million in legal and other professional fees in fiscal years 2006, 2007 and 2008, respectively, and significant expenditures may continue to be incurred in the future.
 
Risks Relating to Our Business
 
We are highly dependent upon the level of activity in the U.S. Gulf of Mexico and the North Sea.
 
In fiscal years 2006, 2007, and 2008 approximately 55%, 55% and 53%, respectively, of our gross revenue was derived from helicopter services provided to customers operating in the U.S. Gulf of Mexico and the North Sea.  The U.S. Gulf of Mexico and the North Sea are mature exploration and production regions that have experienced substantial seismic survey and exploration activity for many years.  Because a large number of oil and gas prospects in these regions have already been drilled, additional prospects of sufficient size and quality could be more difficult to identify.  In addition, the U.S. government’s exercise of authority under the Outer Continental Shelf Lands Act, as amended, to restrict the availability of offshore oil and gas leases could adversely impact exploration and production activity in the U.S. Gulf of Mexico.  If activity in oil and gas exploration, development and production in either the U.S. Gulf of Mexico or the North Sea materially declines, our business, financial condition and results of operations could be materially and adversely affected.  We cannot predict the levels of activity in these areas.
 
Our future growth depends on the level of international oil and gas activity and our ability to operate outside of the U.S. Gulf of Mexico and the North Sea.
 
Our future growth will depend significantly on our ability to expand into international markets outside of the U.S. Gulf of Mexico and the North Sea.  Expansion of our business depends on our ability to operate in these regions.
 
Expansion of our business outside of the U.S. Gulf of Mexico and the North Sea may be adversely affected by:
 
·  
local regulations restricting foreign ownership of helicopter operators;
 
·  
requirements to award contracts to local operators; and
 
·  
the number and location of new drilling concessions granted by foreign sovereigns.
 
We cannot predict the restrictions or requirements that may be imposed in the countries in which we operate.  If we are unable to continue to operate or retain contracts in markets outside of the U.S. Gulf of Mexico and the North Sea, our future business, financial condition and results of operations may be adversely affected, and our operations outside of the U.S. Gulf of Mexico and the North Sea may not grow.
 
In order to grow our business, we may require additional capital in the future, which may not be available to us.
 
Our business is capital intensive, and to the extent we do not generate sufficient cash from operations, we will need to raise additional funds through public or private debt or equity financings to execute our growth strategy.  Adequate sources of capital funding may not be available when needed, or may not be available on favorable terms.  If we raise additional funds by issuing equity or certain types of convertible debt securities, dilution to the holdings of existing stockholders may result.  If funding is insufficient at any time in the future, we may be unable to acquire additional aircraft, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.  See discussion of our capital commitments in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Future Cash Requirements — Capital Commitments” included elsewhere in this Annual Report.
 
Our operations outside of the U.S. Gulf of Mexico and the North Sea are subject to additional risks.
 
During fiscal years 2006, 2007 and 2008, approximately 45%, 45% and 47%, respectively, of our gross revenue was attributable to helicopter services provided to oil and gas customers operating outside of the U.S. Gulf of Mexico and the North Sea.  Operations in most of these areas are subject to various risks inherent in conducting business in international locations, including:
 

 

 
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·  
political, social and economic instability, including risks of war, general strikes and civil disturbances;
 
·  
physical and economic retribution directed at U.S. companies and personnel;
 
·  
governmental actions that restrict payments or the movement of funds or result in the deprivation of contract rights;
 
·  
the taking of property without fair compensation; and
 
·  
the lack of well-developed legal systems in some countries which could make it difficult for us to enforce our contractual rights.
 
For example, there has been continuing unrest in Nigeria, where we derived 15%, 16% and 17% of our gross revenue in fiscal years 2006, 2007 and 2008, respectively.  This unrest adversely affected our results of operations in Nigeria in fiscal year 2007, and any future unrest in Nigeria or our other operating regions could adversely affect our business, financial condition and results of operations in those periods.  We cannot predict whether any of these events will continue to occur in the future in Nigeria or occur in the future elsewhere.
 
Foreign exchange risks and controls may affect our financial position and results of operations.
 
Through our operations outside the U.S., we are exposed to currency fluctuations and exchange rate risks.  The majority of both our revenue and expenses from our Europe business unit is denominated in British pound sterling.  Our foreign exchange rate risk is even greater when our revenue is denominated in a currency different from that associated with the corresponding expenses.  In addition, some of our contracts provide for payment in currencies other than British pound sterling or U.S. dollars.  We attempt to minimize our exposure to foreign exchange rate risk by contracting the majority of our services, other than in our Europe business unit, in U.S. dollars.  As a result, a strong U.S. dollar may increase the local cost of our services that are provided under U.S. dollar-denominated contracts, which may reduce the demand for our services in foreign countries.  Generally, we do not enter into hedging transactions to protect against foreign exchange risks related to our gross revenue.
 
Because we maintain our financial statements in U.S. dollars, our financial results are vulnerable to fluctuations in the exchange rate between the U.S. dollar and foreign currencies, such as the British pound sterling.  In preparing our financial statements, we must convert all non-U.S. dollar currencies to U.S. dollars.  The effect of foreign currency translation is reflected in a component of stockholders’ investment, while foreign currency transaction gains or losses and translation of currency amounts not deemed permanently reinvested are credited or charged to income and reflected in other income (expense). In the past three fiscal years, our stockholders’ investment has decreased by as much as $20.7 million and increased by as much as $27.1 million, as a result of translation adjustments.  In addition, during this period our results of operations have included foreign currency gains or losses ranging from a loss of $9.8 million to a gain of $5.4 million.  Changes in exchange rates could cause significant changes in our financial position and results of operations in the future.
 
We operate in countries with foreign exchange controls including Brazil, Egypt, India, Kazakhstan, Malaysia, Nigeria, Russia and Turkmenistan.  These controls may limit our ability to repatriate funds from our international operations and unconsolidated affiliates or otherwise convert local currencies into U.S. dollars.  These limitations could adversely affect our ability to access cash from these operations.
 
See further discussion of foreign exchange risks and controls under Item 7A. “Quantitative and Qualitative Disclosure About Market Risk” included elsewhere in this Annual Report.
 
We operate in many international areas through entities that we do not control.
 
We conduct many of our international operations through entities in which we have a minority investment or through strategic alliances with foreign partners.  For example, we have acquired interests in, and in some cases have lease and service agreements with, entities that operate aircraft in Egypt, Mexico, Norway, the U.K., Kazakhstan and Turkmenistan.  We provide engineering and administrative support to certain of these entities.  We derive significant amounts of lease revenue, service revenue and dividend income from these entities.  In fiscal years 2006, 2007 and 2008, we received approximately $56.2 million, $54.1 million and $56.5 million, respectively, of revenue from the provision of aircraft and other services to unconsolidated affiliates.  Because we do not own a majority or maintain voting control of our unconsolidated affiliates, we do not have the ability to control their policies, management or affairs.  The interests of persons who control these entities or partners may differ from ours, and may cause such entities to take actions that are not in our best interest.  If we are unable to maintain our relationships with our partners in these entities, we could lose our ability to operate in these areas, potentially resulting in a material adverse effect on our business, financial condition and results of operations.
 

 

 
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Labor problems could adversely affect us.
 
Approximately 330 pilots in our North America business unit and approximately 2,200 of our employees in the U.K., Nigeria and Australia (collectively, about 69% of our employees) are represented under collective bargaining or union agreements.  Periodically, certain groups of our employees who are not covered by a collective bargaining agreement consider entering into such an agreement.  In addition, many of the employees of our affiliates are represented by collective bargaining agreements.  Any disputes over the terms of these agreements or our potential inability to negotiate acceptable contracts with the unions that represent our employees under these agreements could result in strikes, work stoppages or other slowdowns by the affected workers.
 
If our unionized workers engage in a strike, work stoppage or other slowdown, other employees elect to become unionized, existing labor agreements are renegotiated, or future labor agreements contain terms that are unfavorable to us, we could experience a disruption of our operations or higher ongoing labor costs which could adversely affect our business, financial condition and results of operations.
 
See Item 1. “Business — Employees” included elsewhere in this Annual Report for further discussion on the status of collective bargaining or union agreements.
 
Our failure to attract and retain qualified personnel could have an adverse effect on us.
 
Our ability to attract and retain qualified pilots, mechanics and other highly-trained personnel is an important factor in determining our future success. For example, many of our customers require pilots with very high levels of flight experience. The market for these experienced and highly-trained personnel is competitive and may become more competitive. Accordingly, we cannot assure you that we will be successful in our efforts to attract and retain such personnel. Some of our pilots, mechanics and other personnel, as well as those of our competitors, are members of the U.S. or U.K. military reserves who have been, or could be, called to active duty. If significant numbers of such personnel are called to active duty, it would reduce the supply of such workers and likely increase our labor costs. Additionally, our fleet expansion program will require us to retain additional pilots, mechanics and other flight-related personnel. Finally, as a result of the disclosure and remediation of activities identified in the Internal Review, we may have difficulty attracting and retaining qualified personnel, and we may incur increased expenses. Our failure to attract and retain qualified personnel could have a material adverse effect on our current business and our growth strategy.
 
Helicopter operations involve risks that may not be covered by our insurance or may increase our operating costs.
 
The operation of helicopters inherently involves a degree of risk. Hazards such as harsh weather and marine conditions, mechanical failures, crashes and collisions are inherent in our business and may result in personal injury, loss of life, damage to property and equipment and suspension or reduction of operations.  Our aircraft have been involved in accidents in the past, some of which have included loss of life and property damage.  We may experience similar accidents in the future.
 
We attempt to protect ourselves against these losses and damage by carrying insurance, including hull and liability, general liability, workers’ compensation, and property and casualty insurance.  Our insurance coverage is subject to deductibles and maximum coverage amounts, and we do not carry insurance against all types of losses, including business interruption.  We cannot assure you that our existing coverage will be sufficient to protect against all losses, that we will be able to maintain our existing coverage in the future or that the premiums will not increase substantially. In addition, future terrorist activity, risks of war, accidents or other events could increase our insurance premiums.  The loss of our liability insurance coverage, inadequate coverage from our liability insurance or substantial increases in future premiums could have a material adverse effect on our business, financial condition and results of operations.
 
We are subject to government regulation that limits foreign ownership of aircraft companies.
 
We are subject to governmental regulation that limits foreign ownership of aircraft companies.  Based on regulations in various markets in which we operate, our aircraft may be subject to deregistration and we may lose our ability to operate within these countries if certain levels of local ownership are not maintained.  Deregistration of our aircraft for
 

 

 
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any reason, including foreign ownership in excess of permitted levels, would have a material adverse effect on our ability to conduct operations within these markets.  We cannot assure you that there will be no changes in aviation laws, regulations or administrative requirements or the interpretations thereof, that could restrict or prohibit our ability to operate in certain regions.  Any such restriction or prohibition on our ability to operate may have a material adverse effect on our business, financial condition and results of operations.
 
See further discussion in Item 1. “Business — Government Regulation” included elsewhere in this Annual Report.
 
Actions taken by agencies empowered to enforce governmental regulations could increase our costs and reduce our ability to operate successfully.
 
Our operations are regulated by governmental agencies in the various jurisdictions in which we operate.  These agencies have jurisdiction over many aspects of our business, including personnel, aircraft and ground facilities.  Statutes and regulations in these jurisdictions also subject us to various certification and reporting requirements and inspections regarding safety, training and general regulatory compliance.  Other statutes and regulations in these jurisdictions regulate the offshore operations of our customers.  The agencies empowered to enforce these statutes and regulations may suspend, curtail or require us to modify our operations.  A suspension or substantial curtailment of our operations for any prolonged period, and any substantial modification of our current operations, may have a material adverse effect on our business, financial condition and results of operations.  See further discussion in Item 1. “Business — Government Regulation” and “Business — Environmental” included elsewhere in this Annual Report.
 
We face substantial competition.
 
The helicopter business is highly competitive.  Chartering of helicopters is usually done on the basis of competitive bidding among those providers having the necessary equipment, operational experience and resources.  Factors that affect competition in our industry include price, reliability, safety, professional reputation, availability, equipment and quality of service.
 
In our North America business unit, we face competition from a number of providers, including one U.S. competitor with a comparable number of helicopters servicing the U.S. Gulf of Mexico.  We have two significant competitors in the North Sea and one significant competitor in Nigeria.
 
Certain of our customers have the capability to perform their own helicopter operations should they elect to do so, which has a limiting effect on our rates.  The loss of a significant number of our customers or termination of a significant number of our contracts could have a material adverse effect on our business, financial condition and results of operations.
 
As a result of significant competition, we must continue to provide safe and efficient service or we will lose market share, which could have a material adverse effect on our business, financial condition and results of operations.  The loss of a significant number of our customers or termination of a significant number of our contracts could have a material adverse effect on our business, financial condition and results of operations.
 
See further discussion in Item 1. “Business — Competition” included elsewhere in this Annual Report.
 
Our operations are subject to weather-related and seasonal fluctuations.
 
Generally, our operations can be impaired by harsh weather conditions.  Poor visibility, high wind, heavy precipitation and sand storms can affect the operation of helicopters and result in a reduced number of flight hours.  A significant portion of our operating revenue is dependent on actual flight hours, and a substantial portion of our direct cost is fixed.  Thus, prolonged periods of harsh weather can have a material adverse effect on our business, financial condition and results of operations.
 
In the Gulf of Mexico, the months of December through March have more days of harsh weather conditions than the other months of the year.  Heavy fog during those months often limits visibility.  In addition, in the Gulf of Mexico, June through November is tropical storm and hurricane season.  When a tropical storm or hurricane is about to enter or begins developing in the Gulf of Mexico, flight activity may increase because of evacuations of offshore workers.  However, during a tropical storm or hurricane, we are unable to operate in the area of the storm.  In addition, as a significant
 

 

 
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portion of our facilities are located along the coast of the U.S. Gulf of Mexico, tropical storms and hurricanes may cause substantial damage to our property in these locations, including helicopters.  Additionally, we incur costs in evacuating our aircraft, personnel and equipment prior to tropical storms and hurricanes.
 
The fall and winter months have fewer hours of daylight, particularly in the North Sea and Alaska.  While some of our aircraft are equipped to fly at night, we generally do not do so. In addition, drilling activity in the North Sea and Alaska is lower during the winter months than the rest of the year.  Anticipation of harsh weather during this period causes many oil companies to limit activity during the winter months.  Consequently, flight hours are generally lower during these periods, typically resulting in a reduction in operating revenue during those months.  Accordingly, our reduced ability to operate in harsh weather conditions and darkness may have a material adverse effect on our business, financial condition and results of operations.
 
The Harmattan, a dry and dusty West African trade wind, blows between the end of November and the middle of March.  The heavy amount of dust in the air can severely limit visibility and block the sun for several days, comparable to a heavy fog.  We are unable to operate aircraft during these harsh conditions.  Consequently, flight hours may be lower during these periods resulting in reduced operating revenue which may have a material adverse impact on our business, financial condition and results of operations.
 
Environmental regulations and liabilities may increase our costs and adversely affect us.
 
Our operations are subject to U.S. federal, state and local, and foreign environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage, recycling and disposal of toxic and hazardous wastes.  The nature of the business of operating and maintaining helicopters requires that we use, store and dispose of materials that are subject to environmental regulation.  Environmental laws and regulations change frequently, which makes it impossible for us to predict their cost or impact on our future operations.  Liabilities associated with environmental matters could have a material adverse effect on our business, financial condition and results of operations.  We could be exposed to strict, joint and several liability for cleanup costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties.  Additionally, any failure by us to comply with applicable environmental laws and regulations may result in governmental authorities taking action against our business that could adversely impact our operations and financial condition, including the:
 
·  
issuance of administrative, civil and criminal penalties;
 
·  
denial or revocation of permits or other authorizations;
 
·  
imposition of limitations on our operations; and
 
·  
performance of site investigatory, remedial or other corrective actions.
 
For additional information see Item 1. “Business — Environmental” and Item 3. “Legal Proceedings” included elsewhere in this Annual Report.
 
Our dependence on a small number of helicopter manufacturers and the limited availability of aircraft poses a significant risk to our business and prospects, including our ability to execute our growth strategy.
 
We contract with a small number of manufacturers for most of our aircraft expansion and replacement needs.  If any of these manufacturers faced production delays due to, for example, natural disasters, labor strikes or availability of skilled labor, we may experience a significant delay in the delivery of previously ordered aircraft. Currently, helicopter manufacturers are indicating very limited availability for large- and medium-sized aircraft during the next two years, and we have limited alternative sources of new aircraft.  As a result, we may not be able to obtain orders for additional aircraft with acceptable pricing, delivery dates or other terms.  Delivery delays or our inability to obtain acceptable aircraft orders would adversely affect our revenue and profitability and could jeopardize our ability to meet the demands of our customers, and execute our growth strategy.  Additionally, lack of availability of new aircraft resulting from a backlog in orders has resulted in an increase in prices for certain types of used helicopters.
 

 

 
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A shortfall in availability of aircraft components and parts required for maintenance and repairs of our aircraft and supplier cost increases could adversely affect us.
 
In connection with the required routine maintenance and repairs performed on our aircraft in order for them to stay fully operational and available for use in our operations, we rely on a few key vendors for the supply and overhaul of components fitted to our aircraft.  Currently those vendors are working at or near full capacity supporting the aircraft production lines and the maintenance requirements of the aircraft operators who are also operating at near capacity in certain industries, including operators such as us who support the energy industry. These vendors are therefore experiencing backlogs in manufacturing schedules and some parts are in limited supply from time to time.  Lead times for ordering certain critical components are extending into longer time periods, and this could have an adverse impact upon our ability to maintain and repair our aircraft.  To the extent that these suppliers also supply parts for aircraft used by the U.S. military, parts delivery for our aircraft may be delayed during periods in which there are high levels of military operations.  Our inability to perform timely maintenance and repairs can result in our aircraft being underutilized which could have an adverse impact on our operating results.  Furthermore, our operations in remote locations, where delivery of these components and parts could take a significant period of time, may also impact our ability to maintain and repair our aircraft.  While every effort is made to mitigate such impact, this may pose a risk to our operating results. Additionally, supplier cost increases for critical aircraft components and parts also pose a risk to our operating results.  Cost increases are passed through to our customers through rate increases where possible, including as a component of contract escalation charges.  However, as certain of our contracts are long-term in nature, cost increases may not be adjusted in our contract rates until the contracts are up for renewal.
 
Risks Related to Our Level of Indebtedness
 
Our substantial indebtedness could adversely affect our financial condition and impair our ability to fulfill our obligations under our indebtedness.
 
We have substantial debt and substantial debt service requirements. As of March 31, 2008, we had approximately $606.2 million of outstanding indebtedness.
 
Our level of indebtedness may have important consequences to our business and to you, including:
 
·  
impairing our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other general corporate purposes;
 
·  
requiring us to dedicate a substantial portion of our cash flow to the payment of principal and interest on our indebtedness, which reduces the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
 
·  
subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including our borrowings under our syndicated senior secured credit facilities which consist of a $100 million revolving credit facility (with a subfacility of $25 million for letters of credit) and a $25 million letter of credit facility (our “Credit Facilities”);
 
·  
increasing the possibility of an event of default under the financial and operating covenants contained in our debt instruments; and
 
·  
limiting our ability to adjust to rapidly changing market conditions, reducing our ability to withstand competitive pressures and making us more vulnerable to a downturn in general economic conditions or our business than our competitors with less debt.
 
If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to refinance all or a portion of our existing debt or obtain additional financing. We cannot assure you that any such refinancing would be possible or that any additional financing could be obtained. Our inability to obtain such refinancing or financing may have a material adverse effect on us.
 

 

 
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Despite our and our subsidiaries’ current levels of indebtedness, we may incur substantially more debt, which could further exacerbate the risks associated with our substantial indebtedness.
 
We had $100 million of availability for borrowings under our Credit Facilities as of March 31, 2008, subject to our maintenance of covenants and other conditions. Although the agreements governing our credit facilities and the indentures governing our 6⅛% Senior Notes due 2013 (the “6⅛% Senior Notes”) and the 7½% Senior Notes due 2017 (the “7½% Senior Notes” and, together with the 6⅛% Senior Notes, the “Senior Notes”) contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and we could incur substantial additional indebtedness. In addition to amounts that we may borrow under our Credit Facilities, the indentures governing the Senior Notes also allow us to borrow significant amounts of money from other sources. Also, these restrictions do not prevent us from incurring obligations that do not constitute “indebtedness” as defined in the relevant agreement. If we incur additional indebtedness, the related risks that we now face could intensify.
 
To service our indebtedness we will continue to require a significant amount of cash, and our ability to generate cash depends on many factors beyond our control.
 
Our ability to make scheduled payments of principal or interest with respect to our indebtedness will depend on our ability to generate cash and on our financial results. Our ability to generate cash depends on the demand for our services, which is subject to levels of activity in offshore oil and gas exploration, development and production, general economic conditions, and financial, competitive, regulatory and other factors affecting our operations, many of which are beyond our control. We cannot assure you that our operations will generate sufficient cash flow or that future borrowings will be available to us under our credit facilities or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
 
Restrictive covenants in our debt agreements may restrict the manner in which we can operate our business.
 
Our Credit Facilities and the indentures governing the Senior Notes limit, among other things, our ability and the ability of our restricted subsidiaries to:
 
·  
borrow money or issue guarantees;
 
·  
pay dividends, redeem capital stock or make other restricted payments;
 
·  
incur liens to secure indebtedness;
 
·  
make certain investments;
 
·  
sell certain assets;
 
·  
enter into transactions with our affiliates; or
 
·  
merge with another person or sell substantially all of our assets.
 
If we fail to comply with these covenants, we would be in default under our Credit Facilities and the indentures governing the Senior Notes, and the principal and accrued interest on our outstanding indebtedness may become due and payable.  In addition, our Credit Facilities contain, and our future indebtedness agreements may contain, additional affirmative and negative covenants.
 
As a result of these covenants, our ability to respond to changes in business and economic conditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that might otherwise be considered beneficial to us. Our Credit Facilities also require, and our future credit facilities may require, us to maintain specified financial ratios and satisfy certain financial condition tests. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those tests. The breach of any of these covenants could result in a default under our Credit Facilities. Upon the occurrence of an event of default under our existing or future credit facilities, the lenders could elect to declare all amounts outstanding under such credit facilities, including accrued interest or other obligations, to be immediately due and payable. There can be no assurance that our assets would be sufficient to repay in full that indebtedness and our other indebtedness.
 

 

 
24

 

The instruments governing certain of our indebtedness, including our Credit Facilities and the indentures governing the Senior Notes, contain cross-default provisions. Under these provisions, a default under one instrument governing our indebtedness may constitute a default under our other instruments of indebtedness that contain cross-default provisions.
 
Item 1B.  Unresolved Staff Comments
 
None.
 
Item 2.  Properties
 
The number and types of aircraft we operate are described in Item 1. “Business — Helicopter Services” above. In addition, we lease the significant properties listed below for use in our operations.
 
·  
Approximately 21.5 acres of land at the Acadiana Regional Airport in New Iberia, Louisiana, under a lease expiring in fiscal year 2029 (with options to extend through 2069).  We have constructed on that site training facilities, parts facilities and helicopter maintenance facilities comprising about 120,000 square feet of floor space and an administrative building comprising about 35,000 square feet of floor space, which are used by our Western Hemisphere operations (primarily our North America business unit).  The property has access to the airport facilities, as well as to a major highway.
 
·  
Approximately 77,000 square feet of facilities at Redhill Aerodrome near London, England, including office and workshop space, under a lease expiring in 2075.  This facility is used for our EH, Other International and EH Centralized Operations headquarters.
 
·  
A helicopter terminal, offices and hangar facilities totaling approximately 138,000 square feet located on approximately 15 acres of property at Aberdeen Airport, Scotland, under a lease expiring in 2013 with an option to extend to 2023.  We also maintain additional hangar and office facilities at Aberdeen Airport under a lease expiring in 2030.
 
·  
Approximately 25,900 square feet of office space in a building in Houston, Texas, under a lease expiring in 2011, which we use as our corporate headquarters.
 
In addition to these facilities, we lease various office and operating facilities worldwide, including facilities along the U.S. Gulf of Mexico which support our North America operations and numerous residential locations near our operating bases in the U.K., Australia, Russia, Nigeria and Trinidad primarily for housing pilots and staff supporting those areas of operation.  Additionally, we have multiple properties in Titusville, Florida, where the largest campus of our Bristow Academy business unit is located.  These facilities are generally suitable for our operations and can be replaced with other available facilities if necessary.
 
Additional information about our properties can be found in Note 6 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report (under the captions “Aircraft Purchase Contracts” and “Operating Leases”).  A detail of our long-lived assets by geographic area as of March 31, 2007 and 2008 can be found in Note 10 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report.
 
Item 3.  Legal Proceedings
 
Internal Review
 
In February 2005, we voluntarily advised the staff of the SEC that the Audit Committee of our board of directors had engaged special outside counsel to undertake a review of certain payments made by two of our affiliated entities in a foreign country.  The review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by the Audit Committee to cover operations in other countries and other issues (the “Internal Review”).  As a result of the findings of the Internal Review (which was completed in late 2005), our quarter ended December 31, 2004 and prior financial statements were restated.  We also provided the SEC with documentation resulting from the Internal Review which eventually resulted in a formal SEC investigation.  In September 2007, we consented to the issuance of an administrative cease-and-desist order by the SEC, in final settlement of the SEC investigation. The SEC did not impose any fine or other monetary sanction upon the Company.  Without admitting or denying the SEC's findings, we consented to be ordered not to engage in future violations of certain provisions of the federal securities laws involving improper foreign payments, internal controls and books and records.  For further information on the restatements, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.
 

 

 
25

 

Following the previously disclosed settlement with the SEC regarding improper payments made by foreign affiliates of the Company in Nigeria, outside counsel to the Company was contacted by the DOJ and was asked to provide certain information regarding the Audit Committee’s related Internal Review. We previously provided disclosure regarding the Internal Review in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.  We have entered into an agreement with the DOJ that tolls the statute of limitations relating to these matters. We intend to continue to be responsive to the DOJ’s requests. At this time, it is not possible to predict what the outcome of the DOJ’s investigation into these matters will be for the Company.
 
As a result of the disclosure and remediation of a number of activities identified in the Internal Review, we may encounter difficulties conducting business in certain foreign countries and retaining and attracting additional business with certain customers.  We cannot predict the extent of these difficulties; however, our ability to continue conducting business in these countries and with these customers and through agents may be significantly impacted. We could still face legal and administrative proceedings, the institution of administrative, civil injunctive or criminal proceedings involving us and/or current or former employees, officers and/or directors who are within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies and/or sanctions, including precluding us from participating in business operations in their countries.  It is also possible that we may become subject to claims by third parties, possibly resulting in litigation.  The matters identified in the Internal Review and their effects could have a material adverse effect on our business, financial condition and results of operations.
 
In addition, we face legal actions relating to remedial actions which we have taken as a result of the Internal Review, and may face further legal action of this type in the future.  In November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company, Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria.  The claimants allege that an agreement between the parties was terminated without justification and seek damages of $16.3 million.  We have responded to this claim and are continuing to investigate this matter.
 
As we continue to operate our compliance program, other situations involving foreign operations, similar to those matters disclosed to the SEC in February 2005 and described above, could arise that warrant further investigation and subsequent disclosures. As a result, new issues may be identified that may impact our financial statements and lead us to take other remedial actions or otherwise adversely impact us.
 
During fiscal years 2006 and 2007, we incurred approximately $10.5 million and $3.1 million in professional fees related to the Internal Review and related matters.  During fiscal year 2008, we reversed $1.0 million of previously accrued settlement costs due to the fact that we settled the SEC investigation and incurred $0.6 million for legal fees related to the DOJ investigation relating to the Internal Review.
 
Document Subpoena Relating to DOJ Antitrust Investigation
 
In June 2005, one of our subsidiaries received a document subpoena from the DOJ. The subpoena related to a grand jury investigation of potential antitrust violations among providers of helicopter transportation services in the U.S. Gulf of Mexico.  The subpoena focused on activities during the period from January 1, 2000 to June 13, 2005.  We believe we have submitted to the DOJ substantially all documents responsive to the subpoena.  We have had discussions with the DOJ and provided documents related to our operations in the U.S. as well as internationally.  We intend to continue to provide additional information as required by the DOJ in connection with the investigation.  There is no assurance that, after review of any information furnished by us or by third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have occurred.  The period of time necessary to resolve the DOJ antitrust investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.
 
The outcome of the DOJ antitrust investigation and any related legal proceedings in other countries could include civil injunctive or criminal proceedings involving us or our current or former officers, directors or employees, the imposition of fines and other penalties, remedies and/or sanctions, including potential disbarments, and referrals to other governmental agencies.  In addition, in cases where anti-competitive conduct is found by the government, there is a greater likelihood for civil litigation to be brought by third parties seeking recovery.  Any such civil litigation could have serious consequences for our Company, including the costs of the litigation and potential orders to pay restitution or other damages or penalties, including potentially treble damages, to any parties that were determined to be injured as a result of any impermissible anti-competitive conduct.  Any of these adverse consequences could have a material adverse effect on our business, financial condition and results of operations.  The DOJ antitrust investigation, any related
 

 

 
26

 

proceedings in other countries and any third-party litigation, as well as any negative outcome that may result from the investigation, proceedings or litigation, could also negatively impact our relationships with customers and our ability to generate revenue.
 
In connection with this matter, we incurred $2.6 million, $1.9 million and $0.7 million in legal and other professional fees in fiscal years 2006, 2007 and 2008, respectively, and significant expenditures may continue to be incurred in the future.
 
Environmental Contingencies
 
The EPA has in the past notified us that we are a potential responsible party, or PRP, at four former waste disposal facilities that are on the National Priorities List of contaminated sites.  Under CERCLA persons who are identified as PRPs may be subject to strict, joint and several liability for the costs of cleaning up environmental contamination resulting from releases of hazardous substances at National Priorities List sites.  We were identified by the EPA as a PRP at the Western Sand and Gravel Superfund site in Rhode Island in 1984, at the Sheridan Disposal Services Superfund site in Waller County, Texas, in 1989, at the Gulf Coast Vacuum Services Superfund site near Abbeville, Louisiana, in 1989, and at the Operating Industries, Inc. Superfund site in Monterey Park, California, in 2003.  We have not received any correspondence from the EPA with respect to the Western Sand and Gravel Superfund site since February 1991, nor with respect to the Sheridan Disposal Services Superfund site since 1989.  Remedial activities at the Gulf Coast Vacuum Services Superfund site were completed in September 1999, and the site was removed from the National Priorities List in July 2001.  The EPA has offered to submit a settlement offer to us in return for which we would be recognized as a de minimis party in regard to the Operating Industries Superfund site, but we have not yet received this settlement proposal.  Although we have not obtained a formal release of liability from the EPA with respect to any of these sites, we believe that our potential liability in connection with these sites is not likely to have a material adverse effect on our business, financial condition or results of operations.
 
Other Matters
 
Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to a deductible.  We are a defendant in certain claims and litigation arising out of operations in the normal course of business.  In the opinion of management, uninsured losses, if any, will not be material to our financial position, results of operations or cash flows.
 
Item 4.  Submission of Matters to a Vote of Security Holders
 
Not applicable.
 

 

 
27

 

PART II
 
Item 5.  Market for the Registrant’s Common Equity and Related Stockholder Matters
 
Our Common Stock is listed on the NYSE under the symbol “BRS.”  Prior to becoming listed on the NYSE in 2003, our Common Stock had been quoted on the NASDAQ National Market system since 1984.
 
The following table shows the range of closing prices for our Common Stock during each quarter of our last two fiscal years.
 
   
Fiscal Year Ended March 31,
   
2007
 
2008
   
High
 
Low
 
High
 
Low
First Quarter 
 
$
38.37
 
$
33.62
 
$
52.21
 
$
36.01
Second Quarter  
   
38.52
   
32.21
   
53.06
   
41.85
Third Quarter   
   
36.84
   
32.11
   
58.63
   
45.07
Fourth Quarter 
   
38.45
   
33.51
   
57.38
   
49.58

On May 15, 2008, the last reported sale price of our Common Stock on the NYSE was $58.03 per share.  As of May 15, 2008, there were 639 holders of record of our Common Stock.
 
We have not paid dividends on our Common Stock since January 1984.  We do not intend to declare or pay regular dividends on our Common Stock in the foreseeable future.  Instead, we generally intend to invest any future earnings in our business.  Subject to Delaware law, our board of directors will determine the payment of future dividends on our Common Stock, if any, and the amount of any dividends in light of:
 
·  
any applicable contractual restrictions limiting our ability to pay dividends;
 
·  
our earnings and cash flows;
 
·  
our capital requirements;
 
·  
our financial condition; and
 
·  
other factors our board of directors deems relevant.
 
In addition, the terms of our Senior Notes and Credit Facilities restrict our payment of cash dividends and other distributions to stockholders.  For descriptions of our Senior Notes and Credit Facilities, see Note 5 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report.
 
Please refer to Item 12 of this Annual Report for information concerning securities authorized under our equity compensation plans.
 

 

 
28

 

Item 6.  Selected Financial Data
 
The following table contains our selected historical consolidated financial data.  You should read this table along with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements” and “Notes to Consolidated Financial Statements” that are included elsewhere in this Annual Report.
 
   
Fiscal Year Ended March 31,
 
   
2004 (1)
 
2005 (2)
 
2006 (3)
 
2007 (4)
 
2008 (5)
 
   
(In thousands, except per share data)
 
                                 
Statement of Income Data:  (6)
                               
Gross revenue (7)
 
$
574,124
 
$
622,637
 
$
709,901
 
$
843,595
 
$
1,012,764
 
Income from continuing operations (7)
   
48,214
   
49,021
   
54,310
   
71,348
   
107,814
 
Income (loss) from discontinued operations
   
1,611
   
2,539
   
3,499
   
2,824
   
(3,822
)
Net income
 
$
49,825
 
$
51,560
 
$
57,809
 
$
74,172
 
$
103,992
 
Basic earnings per common share: (6)
                               
Earnings from continuing operations (7)
 
$
2.14
 
$
2.13
 
$
2.33
 
$
2.75
 
$
4.00
 
Earnings (loss) from discontinued operations
   
0.07
   
0.11
   
0.15
   
0.12
   
(0.16
)
Net earnings
 
$
2.21
 
$
2.24
 
$
2.48
 
$
2.87
 
$
3.84
 
                                 
Diluted earnings per common share: (6)
                               
Earnings from continuing operations (7)
 
$
2.08
 
$
2.10
 
$
2.30
 
$
2.64
 
$
3.53
 
Earnings (loss) from discontinued operations
   
0.07
   
0.11
   
0.15
   
0.10
   
(0.12
)
Net earnings
 
$
2.15
 
$
2.21
 
$
2.45
 
$
2.74
 
$
3.41
 

   
March 31,
 
   
2004
 
2005
 
2006
 
2007
 
2008
 
   
(In thousands)
 
Balance Sheet Data:
                               
Total assets
 
$
1,046,828
 
$
1,149,576
 
$
1,176,413
 
$
1,505,803
 
$
1,977,355
 
Long-term debt, including current maturities
   
255,534
   
262,080
   
265,296
   
259,082
   
606,218
 
_________

(1)
Results for fiscal year 2004 include $21.7 million ($15.7 million, net of tax) of curtailment gain relating to the pension plan, $7.9 million ($5.7 million, net of tax) of foreign currency transaction losses and a $6.2 million in loss on extinguishment of debt related to notes redeemed in that fiscal year.
   
(2)
Results for fiscal year 2005 include $2.2 million ($1.4 million, net of tax) in costs associated with the Internal Review, a $3.7 million reduction in our provision for income taxes resulting from the resolution of tax contingencies and $1.3 million ($0.9 million, net of tax) of foreign currency transaction losses.
   
(3)
Results for fiscal year 2006 include $10.5 million ($6.8 million, net of tax) in costs associated with the Internal Review, $2.6 million ($1.7 million, net of tax) in costs associated with the DOJ antitrust investigation, $1.0 million in an impairment charge to reduce the value of our investment in a Brazilian joint venture as we expected at that time that our investment would not be recoverable, a $11.4 million reduction in our provision for income taxes resulting from the resolution of tax contingencies and $5.4 million ($3.5 million, net of tax) of foreign currency transaction gains.
 

 

 
29

 


(4)
Results for fiscal year 2007 include $3.1 million ($2.0 million, net of tax) in costs associated with the Internal Review, $1.9 million ($1.3 million, net of tax) in costs associated with the DOJ antitrust investigation, $2.5 million ($1.6 million, net of tax) in a gain realized on the sale of our investment in a Brazilian joint venture for which we had recorded an impairment charge in fiscal year 2006 as we expected at that time that our investment would not be recoverable, $2.5 million of additional tax expense resulting from the sale of Turbo Engines, Inc. (“Turbo”) in November 2006 and $9.8 million ($6.3 million, net of tax) of foreign currency transaction losses.  Diluted earnings per share for fiscal year 2007 was also impacted by the impact of our issuance of Preferred Stock in September and October 2006, which resulted in a reduction of $0.30 per share.
 
(5)
Results for fiscal year 2008 include $1.0 million ($0.7 million, net of tax) in a reversal of costs accrued for the Internal Review as we settled the SEC investigation, $1.3 million ($0.8 million, net of tax) in costs associated with the DOJ investigations, $10.7 million ($7.0 million, net of tax) in net interest incurred on the 7 ½% Senior Notes issued in June and November 2007 and $1.5 million ($1.0 million, net of tax) of foreign currency transaction gains.  Diluted earnings per share for fiscal year 2008 was also impacted by the issuance of Preferred Stock in September and October 2006, which resulted in a reduction of $0.96 per share.  Additionally, fiscal year 2008 includes the significant items as discussed under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview — Overview of Operating Results — Fiscal Year 2008 Compared to Fiscal Year 2007” included elsewhere in this Annual Report.
   
(6)
Results of operations and financial position of companies that we have acquired have been included beginning on the respective dates of acquisition and include Aviashelf Aviation Co. (July 2004), HAI (April 2007) and Vortex (November 2007).
   
(7)
Excludes amounts related to Grasso which are classified as discontinued operations as discussed in Item 1. “Business —Overview” included elsewhere in this Annual Report.
 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with “Forward-Looking Statements,” Item 1A. “Risk Factors” and our Consolidated Financial Statements for fiscal years 2006, 2007 and 2008, and the related notes thereto, all of which are included elsewhere in this Annual Report.
 
Executive Overview
 
This Executive Overview only includes what management considers to be the most important information and analysis for evaluating our financial condition and operating performance.  It provides the context for the discussion and analysis of the financial statements which follow and does not disclose every item bearing on our financial condition and operating performance.
 
See discussion of our business and the operations within our Helicopter Services Segment under Part I. Item 1. “Business — Overview” included elsewhere in this Annual Report.
 
Our Strategy
 
Our goal is to advance our position as the leading helicopter services provider to the offshore energy industry.  We intend to employ the following strategies to achieve this goal:
 
·  
Grow our business.  We plan to grow our business in most of the markets in which we operate and increase our revenue, profitability and fleet capacity. We have a footprint in most major oil and gas producing regions of the world, and we have the opportunity to expand and deepen our presence in many of these markets.  We anticipate this growth will result primarily from the deployment of new aircraft into markets where we expect they will be most profitably employed, as well as by executing opportunistic acquisitions.  Through our relationships with our existing customers, we are aware of future business opportunities in a broad range of the markets we currently serve that would require substantial capital expenditures relative to our current capital expenditure commitments.  Our acquisition-related growth may include increasing our role and participation with existing unconsolidated affiliates and may include increasing our position in existing markets or expanding into new markets.
 

 
30

 

·  
 
Strategically position our Company as the preferred provider of helicopter services.  We position our Company as the preferred provider of helicopter services by maintaining strong relationships with our customers and providing safe and high-quality service.  We focus on maintaining relationships with our customers’ field operations and corporate management.  We believe that this focus helps us better anticipate customer needs and provide our customers with the right aircraft in the right place at the right time, which in turn allows us to better manage our existing fleet and capital investment program.  We also leverage our close relationships with our customers to establish mutually beneficial operating practices and safety standards worldwide.  By applying standard operating and safety practices across our global operations, we are able to provide our customers with consistent, high-quality service in each of their areas of operation.  By better understanding our customers’ needs and by virtue of our global operations and safety standards, we have effectively competed against other helicopter service providers based on aircraft availability, customer service, safety and reliability, and not just price.
 
·  
Integrate our global operations.  We are an integrated global operator, and we intend to continue to identify and implement further opportunities to integrate our global organization. In the past several years, we have changed our senior management team, integrated our operations among previously independently managed businesses, created a global flight and maintenance standards group, improved our global asset allocation and made other changes in our corporate operations. We anticipate that these improvements and further integration opportunities will result in revenue growth, and may also generate cost savings.
 
Consistent with our desire to maintain a conservative use of leverage to fund growth, we raised $222.6 million of capital through the sale of Preferred Stock completed in September and October 2006.  Additionally, we raised $344.7 million through the sale of 7 ½% Senior Notes completed in June and November 2007.  As of March 31, 2008, we had commitments to purchase 16 large, 9 medium and 10 training aircraft and options to purchase an additional 17 large and 33 medium aircraft.  Depending on market conditions, we expect to exercise some or all of these options to purchase aircraft and may elect to expand our business through the purchase of other aircraft not currently under option and acquisition or investment in other helicopter operations, including acquisitions currently under consideration.
 
As part of our global fleet management program, prior to an aircraft coming off of a customer contract we evaluate our alternatives for use of the aircraft, including factors such as the cost and timing of future major maintenance, potential contracts in existing or other markets and potential sale of the aircraft.
 
Market Outlook
 
We are currently experiencing significant demand for our helicopter services.  Based on our current contract level and discussions with our customers about their needs for aircraft related to their oil and gas production and exploration plans, we anticipate the demand for helicopter services will continue at a very high level for the near term.  In addition, this high level of demand has allowed us to increase the rates we charge for our services over the past several years.
 
We expect to see growth in demand for additional helicopter services, particularly in North and South America, West Africa and Southeast Asia.  We also expect that the relative importance of our other business units will continue to increase as oil and gas producers increasingly focus on prospects outside of North America and the North Sea.  This growth will provide us with opportunities to add new aircraft to our fleet, as well as opportunities to redeploy aircraft into markets that will sustain higher rates for our services.  Currently, helicopter manufacturers are indicating very limited supply availability for medium and large aircraft during the next two to three years.  We expect that this tightness in aircraft availability from the manufacturers and the lack of suitable aircraft in the secondary market, coupled with the increase in demand for helicopter services, will result in upward pressure on the rates we charge for our services.  We believe that our recent aircraft acquisitions and commitments position us to benefit from the current market conditions and to deploy new aircraft on order or under option at these favorable rates and contract terms.
 

 

 
31

 

Overview of Operating Results
 
The following table presents our operating results and other income statement information for the applicable periods:
 
   
Fiscal Year Ended March 31,
 
   
       2006
 
      2007
 
     2008
 
   
(In thousands)
 
Gross revenue:
     
Operating revenue
 
$
646,971
 
$
757,424
 
$
918,735
 
Reimbursable revenue
   
62,930
   
86,171
   
94,029
 
Total gross revenue
   
709,901
   
843,595
   
1,012,764
 
Operating expense:
                   
Direct cost
   
478,421
   
548,364
   
635,327
 
Reimbursable expense
   
61,889
   
85,938
   
91,106
 
Depreciation and amortization
   
42,060
   
42,459
   
54,140
 
General and administrative
   
59,167
   
66,321
   
92,833
 
Gain on disposal of assets
   
(103
)
 
(10,615
)
 
(9,390
)
Total operating expense
   
641,434
   
732,467
   
864,016
 
Operating income
   
68,467
   
111,128
   
148,748
 
Earnings from unconsolidated affiliates, net of losses
   
6,758
   
11,423
   
12,978
 
Interest income (expense), net
   
(10,643
)
 
(2,224
)
 
(11,054
)
Other income (expense), net
   
4,615
   
(8,998
)
 
1,585
 
Income from continuing operations before provision for income taxes and minority interest
   
69,197
   
111,329
   
152,257
 
Provision for income taxes
   
(14,668
)
 
(38,781
)
 
(44,526
)
Minority interest
   
(219
)
 
(1,200
)
 
83
 
Income from continuing operations
   
54,310
   
71,348
   
107,814
 
Discontinued operations:
                   
Income from discontinued operations before provision for income taxes
   
5,438
   
4,409
   
1,722
 
Provision for income taxes on discontinued operations
   
(1,939
)
 
(1,585
)
 
(5,544
)
Income (loss) from discontinued operations
   
3,499
   
2,824
   
(3,822
)
Net income
 
$
57,809
 
$
74,172
 
$
103,992
 
 
Fiscal Year 2008 Compared to Fiscal Year 2007
 
Our gross revenue increased to $1.0 billion for fiscal year 2008 from $843.6 million for fiscal year 2007, an increase of 20.1%. The increase in gross revenue is due primarily to improvements in our Europe, West Africa, Southeast Asia and South and Central America business units as a result of increases in rates for helicopter services, increased demand for helicopter services from our existing customers and the addition of new aircraft, as well as the impact of the acquisitions of the Bristow Academy entities which generated $14.8 million in revenue in fiscal year 2008.  Our operating expense increased to $864.0 million for fiscal year 2008 from $732.5 million for fiscal year 2007, an increase of 18.0%.  The increase primarily resulted from higher costs associated with higher activity levels, maintenance costs, and salaries and benefits (associated with the addition of personnel and salary increases), across a majority of our business units, as well as the impact of the acquisitions of the Bristow Academy entities which incurred $15.6 million in expense in fiscal year 2008.  Primarily as a result of the improvement in rates, our operating income and operating margin for fiscal year 2008 increased to $148.7 million and 14.7%, respectively, compared to $111.1 million and 13.2%, respectively, for fiscal year 2007.  Fiscal year 2008 included the following significant items:
 
·  
Costs in our Other International business unit related to a claim by a former agent whom we terminated in connection with the Internal Review, that decreased operating income by $5.0 million, income from continuing operations by $3.3 million and diluted earnings per share by $0.11.
 
·  
Retirement related expenses for two of our corporate officers that decreased operating income by $1.9 million ($1.1 million recorded in our North America business unit, $0.3 million in our South and Central America business unit and $0.5 million in our corporate results), income from continuing operations by $1.2 million and diluted earnings per share by $0.04.
 
 

 
32

 

 
·  
Tax items that increased operating income by $8.3 million, income from continuing operations by $11.4 million and diluted earnings per share by $0.37.  These tax items included:
 
-  
A reversal of accruals for sales tax contingency and employee taxes in West Africa of $5.4 million and $1.3 million, respectively, and a reversal of accruals for employee taxes in Europe of $1.6 million, which are included in direct cost in our consolidated statement of income.
 
-  
A $6.0 million reduction in our provision for income taxes resulting from a benefit of $2.5 million associated with the reduction in the corporate income tax rate in the U.K. and a benefit of $3.5 million associated with an internal reorganization completed during fiscal year 2008.
 
For further discussion of these items, see discussion of our business units under “— Business Unit Operating Results — Fiscal Year 2008 Compared to Fiscal Year 2007” included elsewhere in this Annual Report.
 
Income from continuing operations for fiscal year 2008 of $107.8 million represents a $36.5 million increase from fiscal year 2007.  This increase was driven by the improvement in operating income discussed above and foreign currency exchange gains of $1.5 million in fiscal year 2008 compared to foreign currency exchange losses of $9.8 million in fiscal year 2007, partially offset by an increase in interest expense and our provision for income taxes (which resulted from an increase in pre-tax earnings, partially offset by the tax items discussed above).
 
Fiscal Year 2007 Compared to Fiscal Year 2006
 
Our gross revenue increased to $843.6 million for fiscal year 2007 from $709.9 million for fiscal year 2006, an increase of 18.8%.  The increase in gross revenue relates to an increase in gross revenue across all of our business units, most significantly for North America (primarily resulting from increases in rates for certain contracts and an increase in utilization of our small aircraft in this market), Europe (primarily resulting from new aircraft added to the market during fiscal year 2006) and West Africa (primarily resulting from an increase in rates under certain contracts and three new contracts).  The increase in gross revenue was also attributable to an increase in out-of-pocket expenses rebilled to our customers (reimbursable revenue) of $23.2 million.  Our operating expense increased to $732.5 million for fiscal year 2007 from $641.4 million for fiscal year 2006, an increase of 14.2%.  Operating expense increased as a result of the increase in operating activity and the increase in out-of-pocket expense associated with reimbursable revenue, but also as a result of a higher level of maintenance activity on our aircraft and compensation costs driven by higher labor rates and additional personnel.  These additional operating expense items resulted in a decline in operating income for our North America business unit and a decline in operating margin for our North America and Europe business units.  However, improved margins for most of our other business units and significant gains on asset dispositions in fiscal year 2007 (compared to only a small gain on asset dispositions in fiscal year 2006) resulted in increases in our operating income and operating margin to $111.1 million and 13.2%, respectively, for fiscal year 2007 from $68.5 million and 9.6%, respectively, for fiscal year 2006.
 
Income from continuing operations for fiscal year 2007 of $71.3 million represents a $17.0 million increase from fiscal year 2006.  This increase in income was driven by the increase in operating income discussed above, increased earnings from unconsolidated affiliates, an increase in interest income and a decrease in interest expense, which was partially offset by foreign exchange losses of $9.8 million in fiscal year 2007 compared to foreign exchange gains of $5.4 million in fiscal year 2006, and an increase in the provision for income taxes due to the additional tax expense related to the Turbo asset sale (see “— Business Unit Operating Results — Fiscal Year 2007 Compared to Fiscal Year 2006 — North America” below), the increase in income during fiscal year 2007 and from an increase in the overall effective tax rate.

 

 
33

 

Business Unit Operating Results
 
The following tables set forth certain operating information for the eight business units comprising our Helicopter Services segment.  Intercompany lease revenue and expense are eliminated from our segment reporting, and depreciation expense of aircraft is presented in the segment that operates the aircraft.
 
 
Fiscal Year Ended March 31,
 
2006
 
2007
 
2008
Flight hours (excludes unconsolidated affiliates):
               
North America
 
150,240
   
152,803
   
147,802
South and Central America
 
38,469
   
38,417
   
40,439
Europe
 
38,648
   
42,377
   
44,343
West Africa
 
34,185
   
36,124
   
38,170
Southeast Asia
 
12,119
   
12,668
   
16,029
Other International
 
6,711
   
9,318
   
8,730
Consolidated total
 
280,372
   
291,707
   
295,513

 
Fiscal Year Ended March 31,
 
    2006
 
2007
 
2008
 
(In thousands)
Gross revenue:
                 
North America
$
216,482
 
$
239,978
 
$
237,658
 
South and Central America
 
42,869
   
52,820
   
63,863
 
Europe
 
245,294
   
297,934
   
361,744
 
West Africa
 
107,411
   
131,141
   
170,770
 
Southeast Asia
 
61,168
   
73,404
   
111,117
 
Other International
 
35,339
   
46,005
   
47,518
 
EH Centralized Operations
 
10,749
   
13,896
   
22,366
 
Bristow Academy
 
   
   
14,787
 
Intrasegment eliminations
 
(10,104
)
 
(12,058
)
 
(17,195
)
Corporate
 
693
   
475
   
136
 
Consolidated total
$
709,901
 
$
843,595
 
$
1,012,764
 

Operating expense: (1)
                 
North America
$
185,765
 
$
210,768
 
$
205,099
 
South and Central America
 
36,207
   
36,995
   
49,011
 
Europe
 
196,602
   
245,115
   
284,396
 
West Africa
 
95,430
   
112,343
   
138,829
 
Southeast Asia
 
51,317
   
60,034
   
87,363
 
Other International
 
26,277
   
36,696
   
47,801
 
EH Centralized Operations
 
35,761
   
27,476
   
35,757
 
Bristow Academy
 
   
   
15,596
 
Intrasegment eliminations
 
(10,104
)
 
(12,058
)
 
(17,195
)
Gain on disposal of assets
 
(103
)
 
(10,615
)
 
(9,390
)
Corporate
 
24,282
   
25,713
   
26,749
 
Consolidated total
$
641,434
 
$
732,467
 
$
864,016
 




 

 
34

 


 
Fiscal Year Ended March 31,
 
 
2006
 
2007
 
2008
 
 
(In thousands, except percentages)
 
Operating income:
                 
North America
$
30,717
 
$
29,210
 
$
32,559
 
South and Central America
 
6,662
   
15,825
   
14,852
 
Europe
 
48,692
   
52,819
   
77,348
 
West Africa
 
11,981
   
18,798
   
31,941
 
Southeast Asia
 
9,851
   
13,370
   
23,754
 
Other International
 
9,062
   
9,309
   
(283
)
EH Centralized Operations
 
(25,012
)
 
(13,580
)
 
(13,391
)
Bristow Academy
 
   
   
(809
)
Gain on disposal of assets
 
103
   
10,615
   
9,390
 
Corporate
 
(23,589
)
 
(25,238
)
 
(26,613
)
Consolidated operating income
 
68,467
   
111,128
   
148,748
 
Earnings from unconsolidated affiliates
 
6,758
   
11,423
   
12,978
 
Interest income
 
4,046
   
8,716
   
12,725
 
Interest expense
 
(14,689
)
 
(10,940
)
 
(23,779
)
Other income (expense), net
 
4,615
   
(8,998
)
 
1,585
 
Income from continuing operations before provision for income taxes
and minority interest
 
69,197
   
111,329
   
152,257
 
Provision for income taxes
 
(14,668
)
 
(38,781
)
 
(44,526
)
Minority interest
 
(219
)
 
(1,200
)
 
83
 
Income from continuing operations
$
54,310
 
$
71,348
 
$
107,814
 

Operating margin: (2)
                 
North America
 
14.2
%
 
12.2
%
 
13.7
   %
South and Central America
 
15.5
%
 
30.0
%
 
23.3
   %
Europe
 
19.9
%
 
17.7
%
 
21.4
   %
West Africa
 
11.2
%
 
14.3
%
 
18.7
   %
Southeast Asia
 
16.1
%
 
18.2
%
 
21.4
   %
Other International
 
25.6
%
 
20.2
%
 
(0.6
)
%
Bristow Academy
 
   
   
(5.5
)
%
Consolidated total
 
9.6
%
 
13.2
%
 
14.7
   %
_________

(1)
Operating expenses include depreciation and amortization in the following amounts for the periods presented:
 
   
Fiscal Year Ended March 31,
 
   
2006
 
2007
 
2008
 
   
(In thousands)
 
North America
 
$
12,436
 
$
11,553
 
$
12,245
 
South and Central America
   
3,661
   
3,891
   
3,878
 
Europe
   
10,803
   
11,671
   
17,668
 
West Africa
   
5,741
   
6,601
   
8,090
 
Southeast Asia
   
3,681
   
3,497
   
4,090
 
Other International
   
3,031
   
3,511
   
5,161
 
EH Centralized Operations
   
2,612
   
1,510
   
753
 
Bristow Academy
   
   
   
1,840
 
Corporate
   
95
   
225
   
415
 
Consolidated total
 
$
42,060
 
$
42,459
 
$
54,140
 

(2)
Operating margin is calculated as gross revenue less operating expense divided by gross revenue.
 
Fiscal Year 2008 Compared to Fiscal Year 2007
 
Set forth below is a discussion of the results of operations of our business units.  Our consolidated results are discussed under “Executive Overview — Overview of Operating Results” above.
 

 

 
35

 

North America
 
Gross revenue for North America decreased to $237.7 million for fiscal year 2008 from $240.0 million for fiscal year 2007, and flight activity decreased by 3.3%.  The decrease in gross revenue is due to a reduction in technical services revenue of $10.4 million resulting from the sale of Turbo, partially offset by a favorable shift in the mix of aircraft type utilized in the U.S. Gulf of Mexico in fiscal year 2008.  Despite an overall decrease in flight activity in the U.S. Gulf of Mexico in fiscal year 2008, revenue from flight operations were higher than fiscal year 2007 as a result of an increase in the usage of medium and large aircraft which earn higher rates.  As of March 31, 2008, there were 107 small aircraft operating in the U.S. Gulf of Mexico compared to 124 small aircraft as of March 31, 2007.  Additionally, a rate increase for certain contracts contributed to the increase in revenue from flight operations in fiscal year 2008.
 
Operating expense for North America decreased to $205.1 million for fiscal year 2008 from $210.8 million for fiscal year 2007.  The decrease is due to an $8.1 million reduction in operating expense attributable to the sale of Turbo and an increase in maintenance cost allocations to the South and Central America business unit, partially offset by higher labor costs associated with increases in salaries.  During fiscal year 2008, WH Centralized Operations incurred lower maintenance costs than planned, which together with the favorable mix of aircraft utilized and the increase in rates discussed above, resulted in an increase in operating margin to 13.7% for fiscal year 2008 from 12.2% for fiscal year 2007.  Since fiscal year 2007, we have added four new medium aircraft while disposing of 18 small aircraft (including two lease terminations).  We expect to continue disposing of our smaller aircraft in the U.S. Gulf of Mexico and are currently exploring alternatives for accelerating the disposition of approximately 50 of such aircraft within the next eighteen months.  Any such aircraft dispositions will be subject to obtaining terms acceptable to us and other factors which may affect the timing or completion of the disposition.  As medium aircraft earn higher rates, we expect to continue to see the benefit from these improved rates in future years.  Operating expense in fiscal year 2008 for the North America business unit includes $1.1 million in retirement related expense for one of our corporate officers.  Excluding this item, operating margin for fiscal year 2008 would have been 14.1%.
 
We completed the sale of certain of the assets of Turbo, our aircraft engine overhaul business, to Timken Alcor Aerospace Technologies, Inc. (“Timken”)  on November 30, 2006 for approximately $14.6 million ($14.3 million of which was received in fiscal year 2007 and $0.3 million of which was received in fiscal year 2008), including post-closing adjustments.  Turbo represented 0.9% of our consolidated gross revenue for fiscal year 2007.  See discussion of this sale in Note 2 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report.
 
South and Central America
 
Gross revenue for South and Central America increased to $63.9 million for fiscal year 2008 from $52.8 million for fiscal year 2007, primarily due to a 13.6% increase in flight activity in Trinidad resulting from the addition of aircraft in this market since fiscal year 2007.  Additionally, flight hours and gross revenue in Mexico also increased by 24.0% and 21.3%, respectively.  The increases in revenue in Trinidad and Mexico for fiscal year 2008 was partially offset by a 34.6% decrease in flight activity in Brazil as six aircraft were sold during fiscal year 2008.  As discussed in Note 3 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report, we recognize revenue on a cash basis from our 49% owned unconsolidated affiliates in Mexico, HC.  As of March 31, 2008, $1.8 million of amounts billed but not collected from HC have not been recognized in our results, and our 49% share of the equity in earnings of RLR has been reduced by $3.5 million for amounts billed but not collected from HC.  During fiscal year 2008, we recognized revenue of $0.6 million upon receipt of payment from HC for amounts billed in fiscal year 2007 and recorded equity earnings from RLR of $0.8 million related to receipt of payment by RLR from HC for amounts billed in fiscal year 2007.  We have taken several actions which have improved the financial condition and profitability of HC, and we will continue to evaluate the improving results for HC to determine if and when we will change our accounting for this joint venture from the cash to accrual basis.  In March 2008, HC was awarded a five–year contract for five medium and two small helicopters by a major customer in Mexico.  Additionally, HC signed a three–year contract to lease and operate eight medium helicopters for the Comision Federal de Electricidad, the national power supplier of Mexico.
 
Operating expense for South and Central America increased to $49.0 million for fiscal year 2008 from $37.0 million for fiscal year 2007, primarily due to increased expenses in Trinidad and Mexico resulting from the increase in flight activity in those markets.  Operating expense for the South and Central America business unit includes $0.3 million in allocation of retirement related expense for one of our corporate officers.  Operating margin for this business unit decreased to 23.3% for fiscal year 2008 compared to 30.0% for fiscal year 2007, primarily resulting from fixed costs in Brazil.
 

 

 
36

 

In March 2007, we sold our ownership interest in a Brazilian joint venture, while we continued to lease aircraft to this entity until the agreements expired in late fiscal year 2008.  As discussed above, we sold six of our owned aircraft in Brazil in fiscal year 2008.  However, we have contracted to provide two new medium aircraft to another customer in Brazil commencing in June and September 2008, which should partially offset the reduction in business related to the sale of the prior partnership and older aircraft.  As previously discussed, HLA leases two aircraft from a third party, which it leases to the former joint venture of ours in Brazil.
 
Europe
 
Gross revenue for Europe increased to $361.7 million for fiscal year 2008 from $297.9 million for fiscal year 2007.  The $63.8 million increase in gross revenue for Europe includes a $20.6 million increase relating to foreign exchange effects for fiscal year 2008.  Excluding this effect, the increase in gross revenue primarily relates to a 4.6% increase in flight activity which is in large part due to new aircraft added in the North Sea since fiscal year 2007.  Additionally, revenue improved as a result of increases in monthly standing charge rates and annual rate escalations under certain of our contracts.
 
Operating expense for Europe increased to $284.4 million for fiscal year 2008 from $245.1 million for fiscal year 2007.  This $39.3 million increase in operating expense includes a $16.2 million increase relating to foreign exchange effects for fiscal year 2008.  The remaining increase in operating expense is primarily due to an increase in salaries and benefits (resulting from the increase in activity, additions in personnel and salary increases), increases in maintenance expense (resulting from the increase in activity and an increase in allocations of maintenance from EH Centralized Operations), other expense (including third-party lease costs) and in reimbursable expense.  Operating expense included a favorable impact from the resolution of an employee tax item resulting in a $1.6 million benefit for fiscal year 2008.  As a result of new aircraft added to this market at higher margins and increased rates on other contracts, our operating margin for Europe increased to 21.4% for fiscal year 2008 from 17.7% for fiscal year 2007.  Excluding the impact of the resolution of the employee tax item, operating margin for Europe would have been 20.9% in fiscal year 2008.
 
In October 2006, we were awarded an amendment and extension of our existing contract in the North Sea with Integrated Aviation Consortium for the provision of helicopter transportation services to offshore facilities both east and west of the Shetland Islands.  The amendment extended the contract until June 2010 and called for the provision of five new Sikorsky S-92 helicopters to replace six AS332L Super Puma helicopters.  In December 2006, the provision for a sixth Sikorsky S-92 was confirmed and a related aircraft option was exercised.  The first aircraft was delivered and went into service in the second quarter of fiscal year 2008.  Additionally, two aircraft were delivered in the third quarter of fiscal year 2008 with the final three aircraft delivered in the fourth quarter of fiscal year 2008.  Of the six AS332L Super Puma helicopters displaced, four are being re-deployed to Southeast Asia and one is being re-deployed to West Africa.  One support aircraft remains in Aberdeen.
 
We previously provided search and rescue services for the MCA.  The four bases under the contract were transitioned to another operator during the period from July 1, 2007 until April 3, 2008.  We expect that we will either be able to employ these aircraft for other customers, trade the aircraft in as partial consideration towards the purchase of new aircraft or sell the aircraft.  We sold one of these aircraft in January 2008.  In fiscal year 2007 and 2008, we had $32.7 million and $24.3 million, respectively, in operating revenue associated with this contract.
 
West Africa
 
Gross revenue for West Africa increased to $170.8 million for fiscal year 2008 from $131.1 million for fiscal year 2007, primarily as a result of an increase in rates under our contracts with customers and the addition of new aircraft in Nigeria.  In September 2007, we renegotiated two different contracts with one of these customers that increased the rates and extended the terms.  One of the contracts is for helicopters and the other contract for fixed-wing aircraft.  The extension period for the helicopter contract is from October 2007 through September 2009 and calls for rate increases retroactive to April 1, 2007.  This agreement also includes an additional rate escalation effective October 2008.  The agreement for the fixed-wing aircraft extends from August 2007 through December 2008 and includes rate increases effective August 2007 and January 2008.  In addition, a second major customer in Nigeria extended its contract for helicopter services at higher rates from October 2007 through September 2008.  This contract calls for a rate increase effective April 2008 for most of the equipment involved.  In November 2007, we renegotiated a helicopter services contract with a third major customer, which expires in February 2010 and includes a rate increase retroactive to July 1, 2007 and rate escalations effective July 2008 and July 2009.  In December 2007, a major customer in Nigeria notified us of termination of a contract effective March 17, 2008 under which we operated and maintained fixed-wing aircraft owned by the customer.  In March 2007, we negotiated a two–year contract extension with a major customer in Nigeria for two large and one medium aircraft, which is effective April 1, 2008 and includes a rate increase in the first year and an additional rate escalation in the second year.
 

 

 
37

 
 
Operating expense for West Africa increased to $138.8 million for fiscal year 2008 from $112.3 million for fiscal year 2007.  The increase was primarily a result of safety and compensation related increases, including severance accruals, wage increases and additional end of service costs, increases in maintenance expense (resulting from the increase in activity and an increase in allocations of maintenance from EH Centralized Operations), and additional costs related to training of local Nigerian personnel, which were partially offset by the reversals of $6.7 million in accruals for tax contingency items in fiscal year 2008 and decreases in other expenses, including freight charges and travel costs. $2.8 million of the accruals for tax contingency items reversed in fiscal year 2008 were originally accrued in fiscal year 2007.  Compensation related increases in fiscal year 2008 included approximately $2.5 million in costs incurred to make employees of ours in Nigeria redundant.  The tax contingency items reversed included $5.4 million associated with sales taxes and $1.3 million associated with employee taxes.  Operating margin for West Africa increased to 18.7% for fiscal year 2008 from 14.3% for fiscal year 2007, primarily as a result of the increases in rates and reversal of the accruals for tax contingency items.  Excluding the reversal of the accruals for tax contingency items and the employee redundancy costs, our operating margin for fiscal year 2008 would have been 16.2%.
 
In fiscal year 2007, we reorganized our Nigerian operations, which included increased security, consolidation of management of two operating businesses, expansion of several hangar facilities, integration of finance and administrative functions, and repositioning of major maintenance operations into our two largest operating facilities.  In fiscal year 2008, we completed negotiations with the unions in Nigeria, which resulted in a portion of the increase in salaries and benefits discussed above.  We also experience periodic disruption to our operations related to civil unrest and violence.  These factors have made and are expected to continue to make our operating results from Nigeria unpredictable.
 
Southeast Asia
 
Gross revenue for Southeast Asia increased to $111.1 million for fiscal year 2008 from $73.4 million for fiscal year 2007, primarily due to higher revenue in Australia and Malaysia.  Australia’s flight activity and revenue increased 18.2% and 54.1%, respectively, from fiscal year 2007, primarily due to the addition of aircraft to this market and rate increases.  Malaysia’s revenue increased by over 200% as a result of the addition of four medium aircraft during fiscal year 2008.
 
Operating expense increased to $87.4 million for fiscal year 2008 from $60.0 million for fiscal year 2007 as a result of an increase in salary, maintenance and fuel costs primarily driven by the increase in activity compared to fiscal year 2007.  As a result of new aircraft added at higher margins and increased rates on other contracts in Australia and the addition of aircraft in Malaysia in fiscal year 2008, operating margin increased to 21.4% for fiscal year 2008 from 18.2% for fiscal year 2007. In April 2008, we completed negotiations on the collective bargaining agreement with the pilot’s union in Australia, which resulted in a portion of the increase in salary cost discussed above.
 
Other International
 
Gross revenue for Other International increased marginally to $47.5 million for fiscal year 2008 from $46.0 million for fiscal year 2007.  Fiscal year 2008 included increases in flight activity in Egypt and India (which resulted from an aircraft that was offline for maintenance for a portion of fiscal year 2007 and an additional aircraft operating in fiscal year 2008), rate increases for our operations in Russia, the operation of new aircraft in Kazakhstan at higher rates than aircraft previously operating in this market and a short-term contract in Libya in fiscal year 2008, while fiscal year 2007 included the billing of an escalation charge in fiscal year 2007 on contracts in both Russia ($1.6 million in gross revenue) and Mauritania ($0.5 million in gross revenue) and revenue earned under a short-term contract in Kenya ($3.0 million in gross revenue).  Our most significant contract in Russia expires at the end of May 2008, and if not renewed, there could be a significant reduction in our revenue and operating income for our Other International business unit in future periods.
 
Operating expense increased to $47.8 million for fiscal year 2008 from $36.7 million for fiscal year 2007.  The increase in operating expense is primarily due to increased operational costs associated with the increases in flight activity in Egypt and India, the performance of a short-term contract in Libya, increases in operating costs associated with new aircraft operating in Kazakhstan, increased employee costs in Russia and increased allocations of maintenance costs from EH Centralized Operations.  Additionally, our results include $5.0 million in costs related to a claim by a former agent who we terminated in connection with the Internal Review and $1.5 million in additional expense during
 

 
 
38

 

the fourth quarter of fiscal year 2008 related to the price paid for an acquisition in Russia in a prior period classified as a intangible asset and amortized to expense.  As a result of increased costs in a number of markets, including for the former agent’s claim and additional amortization costs, operating margin for Other International decreased to a negative 0.6% for fiscal year 2008 from a positive 20.2% for fiscal year 2007.  Excluding the costs associated with the former agent’s claim and the additional amortization costs recorded in Russia, our operating margin would have been 13.2%.
 
EH Centralized Operations
 
Our EH Centralized Operations business unit is comprised of our technical services business, other non-flight services business in the Eastern Hemisphere (e.g., provision of maintenance and supply chain parts and services to other Eastern Hemisphere business units) and division level expenses for our Eastern Hemisphere businesses.
 
Gross revenue for EH Centralized Operations increased to $22.4 million for fiscal year 2008 from $13.9 million for fiscal year 2007 as a result of increases in charges to other business units for cost allocations and part sales, partially offset by a decrease in third party technical services revenue.
 
 Operating expense increased to $35.8 million for fiscal year 2008 from $27.5 million for fiscal year 2007, primarily due to increases in salaries and benefits resulting from additional personnel, increases in costs associated with the increase in technical service operations (including the costs of parts sold) and a $1.8 million impairment charge related to inventory utilized on S-61 search and rescue configured aircraft.
 
Bristow Academy
 
As discussed in Part I. Item 1. “Business — Bristow Academy”  included elsewhere in this Annual Report, on April 2, 2007 we acquired Bristow Academy and formed our Global Training division.  In November 2007, we expanded Bristow Academy through the acquisition of Vortex.  For further discussion of these acquisitions, see “— Executive Overview” included elsewhere in this Annual Report.
 
Gross revenue and operating expense for Bristow Academy were $14.8 million and $15.6 million for fiscal year 2008, respectively, resulting in a $0.8 million loss for the fiscal year.  The results for fiscal year 2008 were impacted by depreciation on the stepped-up cost basis of assets resulting from purchase price accounting for this acquisition.  We expect Bristow Academy to be profitable in future periods, although the primary strategic value to the Company from this business is the supply of pilots for use in our global operations. During fiscal year 2008, approximately 200 pilots graduated from Bristow Academy, and we hired 47 pilots into our other business units who are recent graduates of Bristow Academy.
 
Corporate
 
Corporate operating expense primarily represents costs of our corporate office and other general and administrative costs not allocated to our business units.  Corporate operating expense increased to $26.7 million for fiscal year 2008 compared to $25.7 million for fiscal year 2007.  The increase is primarily due to a $4.4 million increase in salaries and benefits associated with the addition of personnel and an overall increase in salaries and a $0.8 million increase in other general and administrative costs, partially offset by a $4.6 million decrease in professional fees, primarily resulting from lower costs associated with the Internal Review.  Salaries and benefits in fiscal year 2008 include $0.5 million in expenses related to a retirement agreement executed between the Company and one of our corporate officers.  We incurred $0.6 million in legal and professional fees related to the Internal Review in fiscal year 2008 compared to $3.1 million in fiscal year 2007.  Professional fees for fiscal year 2008 were further reduced by a $1.0 million reversal of previously accrued settlement costs in connection with our settlement of the SEC investigation (see further discussion of the Internal Review and SEC investigation in Note 6 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report).
 
Earnings from Unconsolidated Affiliates
 
Earnings from unconsolidated affiliates increased to $13.0 million for fiscal year 2008 compared to $11.4 million for fiscal year 2007, primarily due to an increase in equity earnings from FBH of $3.4 million (primarily resulting from a gain recorded in the fiscal year 2008 by FBH upon loss of a medium aircraft in an accident and reduced interest expense), partially offset by a decrease in equity earnings from Norsk of $2.1 million (primarily resulting from changes in estimates in the fourth quarter of fiscal year 2008).  We are in the process of completing a restructuring of Norsk.
 

 

 
39

 

As discussed previously, in March 2007, FBH was awarded a £9 million (approximately $18 million) extension to its contract to provide helicopters and support to British Forces Cyprus and the Sovereign Base Areas Administration until March 31, 2010.
 
Interest Expense, Net
 
Interest expense, net of interest income, increased to $11.1 million during fiscal year 2008 compared to $2.2 million during fiscal year 2008, primarily due to additional interest expense of $21.0 million associated with the 7½% Senior Notes issued in June and November 2007, partially offset by an increase in capitalized interest from $6.4 million in fiscal year 2007 to $12.9 million in fiscal year 2008 and a $4.0 million increase in interest income.  More interest was capitalized in fiscal year 2008 as a result of the increase in the amount of construction in progress related to helicopters being manufactured as  discussed under “— Liquidity and Capital Resources — Cash Flows — Investing Activities” and in Note 1 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report.  The increase in interest income primarily resulted from an increase in cash on hand during fiscal year 2008 as a result of the issuance of the 7½% Senior Notes.
 
Other Income (Expense), Net
 
Other income (expense), net, for fiscal year 2008 was income of $1.6 million compared to expense of $9.0 million for fiscal year 2007.  The gains in fiscal year 2008 primarily consist of $1.5 million in foreign currency transaction gains, which resulted from revaluation of intercompany balances between entities whose functional currencies are the U.S. dollar and Nigerian naira and entities whose functional currency is the British pound sterling.  The expense for fiscal year 2007 primarily consists of $9.8 million in foreign currency transaction losses, which primarily arose from operations performed by entities whose functional currency is the British pound sterling that were denominated in U.S. dollars as a result of the weakening of the U.S. dollar in that period (see a discussion of foreign currency transactions in Note 1 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report).  See Item 7A. “Quantitative and Qualitative Disclosures About Market Risk — Foreign Currency Risk” included elsewhere in this Annual Report for a discussion of how we manage these risks.  Additionally, fiscal year 2007 included a $2.5 million gain resulting from the sale of our investment in a Brazilian joint venture in March 2007 and a charge of $1.9 million for acquisition costs previously deferred in connection with an acquisition we were evaluating but determined was no longer probable.
 
Taxes
 
Our effective income tax rates from continuing operations were 29.2% and 34.8% for fiscal years 2008 and 2007, respectively.  The effective tax rate for fiscal year 2008 was impacted by the reduction in the U.K. corporate tax rate which resulted in a $2.5 million decrease in our provision for income taxes and a benefit of $3.5 million associated with transactions completed during fiscal year 2008 in connection with an internal reorganization completed on March 31, 2008 (see discussion of these items in Note 7 in the “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report).  Additional transactions related to the reorganization completed on April 1, 2008 are expected to result in a charge to other comprehensive income in the first quarter of fiscal year 2009 as a result of a reduction of approximately $10 million in deferred tax assets associated with our net pension liability; however, we do not expect these transactions to result in a material impact on net income.  Excluding these items, our effective tax rate from continuing operations was 33.2%.  The effective tax rate for fiscal year 2007 was impacted by additional tax expense of $2.5 million recorded as a result of the sale of certain of the assets of Turbo as discussed above.  Excluding the tax recorded as a result of the Turbo asset sale, our effective tax rate for fiscal year 2007 was 32.6%.  During fiscal years 2007 and 2008, we benefited from the resolution of tax contingencies of $3.4 million and $2.2 million, respectively.  Our effective tax rate was also reduced by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.
 
Discontinued operations
 
Discontinued operations for fiscal year 2008 incurred a $3.8 million after-tax loss compared to $2.8 million income in fiscal year 2007.  The loss for fiscal year 2008 is due to taxes associated with non-deductible goodwill of $4.9 million recorded in the provision for income taxes on discontinued operations in our consolidated income statement, as well as $1.5 million in transaction expenses partially offset by the $1.0 million gain on sale and $2.2 million pre-sale operating income.  Additional details regarding discontinued operations are provided in Note 2 in the “Notes to the Consolidated Financial Statements” included elsewhere in this Annual Report.
 

 

 
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Fiscal Year 2007 Compared to Fiscal Year 2006
 
Set forth below is a discussion of the results of operations of our business units.  Our consolidated results are discussed under “Executive Overview — Overview of Operating Results” above.
 
North America
 
Gross revenue for North America increased to $240.0 million for fiscal year 2007 from $216.5 million for fiscal year 2006, and flight activity increased by 1.7%.  This increase in gross revenue is due to a rate increase in May 2005 of 8% (which was phased in during fiscal year 2006), an additional 10% rate increase for certain contracts (which was phased in beginning in March 2006), and an increase in the number of aircraft on month-to-month contracts in fiscal year 2007.  Although less of an impact in fiscal year 2007, another 8-10% increase became effective in March 2007, which was phased in during fiscal year 2008.
 
Operating expense for North America increased to $210.8 million for fiscal year 2007 from $185.8 million for fiscal year 2006.  The increase was primarily due to increased maintenance expense (largely associated with the complete refurbishment of several aircraft in fiscal year 2007), higher labor costs associated with the increase in flight activity and from the adoption of the new equity compensation accounting standard in fiscal year 2007, and higher fuel costs associated with both the increase in flight activity and a higher average cost per gallon (which we are generally able to recover from our customers).  Our operating margin for North America decreased to 12.2% for fiscal year 2007 from 14.2% for fiscal year 2006 primarily due to the increase in maintenance and labor costs, and a high level of utilization of aircraft under contracts as opposed to ad hoc work (which earns higher margins).
 
South and Central America
 
Gross revenue for South and Central America increased to $52.8 million for fiscal year 2007 from $42.9 million for fiscal year 2006, primarily due to higher revenue recognized in fiscal year 2007 upon receipt of cash from our joint venture in Mexico and an increase in the number of aircraft operating in Trinidad compared to fiscal year 2006.  As discussed in “— Fiscal Year 2008 Compared to Fiscal Year 2007 — South and Central America” included elsewhere in this Annual Report, lease revenue from HC is recognized as collected.  As of March 31, 2007, $0.7 million of revenue billed but not collected from HC had not been recognized in our results, and our 49% share of the equity in earnings of RLR had been reduced by $2.8 million for revenue billed but not collected from HC.  During fiscal year 2007, we recognized revenue of $1.8 million upon receipt of payment from HC for amounts billed in fiscal year 2006 and recorded equity earnings from RLR of $2.3 million related to the receipt of payment by RLR from HC for amounts billed in fiscal year 2006.
 
Operating expense for South and Central America increased to $37.0 million for fiscal year 2007 from $36.2 million for fiscal year 2006, primarily due to operating expense increases in Trinidad as a result of additional aircraft in that market, which was almost fully offset by lower operating expense in other markets.  The largest of these decreases was noted in Mexico, where overall flight activity had declined due to the conclusion of the PEMEX contract in February 2005.  As a result of the increase in gross revenue while operating expense was substantially unchanged, the operating margin for this business unit increased significantly to 30.0% for fiscal year 2007 from 15.5% for fiscal year 2006.
 
Europe
 
Gross revenue for Europe increased to $297.9 million for fiscal year 2007 from $245.3 million for fiscal year 2006.  The $52.6 million increase in gross revenue for Europe includes a $17.5 million increase relating to foreign exchange effects for fiscal year 2007.  Excluding this effect, the increase in gross revenue primarily relates to a 9.6% increase in flight activity and an $18.0 million increase in out-of-pocket expenses rebilled to our customers.  The majority of the increase in flight hours related to new contracts within the North Sea and an increase in our utilization per airframe.
 
Operating expense for Europe increased to $245.1 million for fiscal year 2007 from $196.6 million for fiscal year 2006.  The $48.5 million increase in operating expense for Europe includes a $14.4 million increase relating to foreign exchange effects for fiscal year 2007.  Excluding this effect, the increase in operating expense primarily relates to an increase in activity in the North Sea, increased maintenance costs, higher fuel rates, the impact of additions in personnel and salary increases, and the increase in out-of-pocket expenses rebilled to our customers in fiscal year 2007 compared
 

 

 
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to fiscal year 2006.  As a result of the increases in maintenance costs and salaries and a higher level of utilization of aircraft under contracts as opposed to ad hoc work (which earns higher margins), operating margin for Europe decreased to 17.7% for fiscal year 2007 from 19.9% for fiscal year 2006.
 
In connection with the contract with the MCA, we had $27.3 million and $32.7 million, respectively, in operating revenue for fiscal years 2006 and 2007.  For additional information relating to the contract with MCA, see “Fiscal Year 2008 Compared to Fiscal Year 2007 — Europe” included elsewhere in this Annual Report.
 
West Africa
 
Gross revenue for West Africa increased to $131.1 million for fiscal year 2007 from $107.4 million for fiscal year 2006, primarily as a result of a 5.7% increase in flight activity in Nigeria from fiscal year 2006 (resulting from the addition of three new contracts in fiscal year 2007), an increase in rates under our contract with a major customer in Nigeria (beginning October 1, 2006), increases in certain of our standard monthly rates for other contracts, and a $3.5 million increase in out-of-pocket expenses rebilled to our customers.
 
Operating expense for West Africa increased to $112.3 million for fiscal year 2007 from $95.4 million in fiscal year 2006.  The increase was primarily a result of higher salary expense and maintenance costs associated with the increase in activity, increases in freight charges on spare parts, higher travel and security costs and the increase in out-of-pocket expenses rebilled to our customers.  Operating margin for West Africa increased to 14.3% for fiscal year 2007 from 11.2% for fiscal year 2006 as a result of the increase in gross revenue.
 
Southeast Asia
 
Gross revenue for Southeast Asia increased to $73.4 million for fiscal year 2007 from $61.2 million for fiscal year 2006, primarily due to higher revenue in Australia.  Australia’s flight activity and revenue increased 20.7% and 27.3%, respectively, from fiscal year 2006, primarily due to the utilization of an additional large aircraft, increases in certain rates and the billing of contract escalations.
 
Operating expense increased to $60.0 million for fiscal year 2007 from $51.3 million for fiscal year 2006 primarily as a result of an increase in salary, maintenance and fuel costs related to the increase in activity compared to fiscal year 2006.  As a result of higher gross revenue during fiscal year 2007, operating margin increased to 18.2% for fiscal year 2007 from 16.1% for fiscal year 2006.
 
Other International
 
Gross revenue for Other International increased to $46.0 million for fiscal year 2007 from $35.3 million for fiscal year 2006, primarily due to an increase in flight activity in Russia, the billing of escalation charges on contracts in both Russia ($1.6 million in gross revenue) and Mauritania ($0.5 million in gross revenue), the commencement of flight operations in Kenya, and additional revenue in Egypt resulting from an additional large aircraft leased to our unconsolidated affiliate in that country, which commenced in December 2005.
 
Operating expense increased to $36.7 million for fiscal year 2007 from $26.3 million for fiscal year 2006.  The increase in operating expense is primarily due to increased operational costs associated with the increases in flight activity discussed above and increased general and administrative costs associated with higher salaries, travel expenses, and overhead cost allocations.  As a result of the increase in general and administrative costs discussed above, our operating margin for Other International decreased to 20.2% for fiscal year 2007 from 25.6% for fiscal year 2006.
 
EH Centralized Operations
 
Gross revenue for EH Centralized Operations increased to $13.9 million for fiscal year 2007 from $10.7 million for fiscal year 2006 as a result of increased parts sales, increased intercompany charges to other business units for overhead costs and increased out-of-pocket costs rebilled to our customers in fiscal year 2007 compared to fiscal year 2006.
 
 Operating expense decreased to $27.5 million for fiscal year 2007 from $35.8 million for fiscal year 2006, primarily due to lower unrecovered maintenance costs, higher maintenance costs in fiscal year 2006 for a large aircraft that was being prepared for deployment to Malaysia and lower professional fees incurred in fiscal year 2007, partially offset by increased salaries for additional personnel and increased costs of materials.
 

 

 
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