HI Uplift: Air Methods files for Chapter 11 protection – what it means

Air Methods is one of the largest air ambulance operators in the US and its financial struggles are likely to have a ripple effect.

“Have the Monday blues?” US air ambulance provider Air Methods asked its nearly 4,000 followers on the social media platform X (formerly known as Twitter) on Monday. “No worries, our teams bring calm to the storm.” Blue Monday turned red yesterday, as the company filed for pre-packaged Chapter 11 bankruptcy protection.

Air Methods’ Chapter 11 filings show the company’s senior lenders, bondholders and shareholders have agreed to a restructuring plan which will see the company’s debt reduced by $1.7bn. In addition, a group of first-lien lenders have also agreed to immediately disburse $80m in debtor-in-possession (DIP) financing. The company is continuing to operate normally during the financial restructuring and expects to complete the process by the end of the year.

JaeLynn Williams, CEO, Air Methods, said in a statement: “We are pleased to have reached this agreement with our key stakeholders, which will enable Air Methods to continue supporting patients with lifesaving care and serving as an integral link between the nation’s top healthcare facilities and people in rural and remote communities.” During the past year, the company had made significant progress optimising field operations, going in-network with commercial insurers and improving cost structure, she said. “By strengthening our balance sheet, we are taking an important step forward in delivering on our transformation plan while answering every call with the highest level of service and patient care.”

Headquartered in Englewood, Colorado, Air Methods operates a fleet of 390 helicopters and aircraft in medical configuration from 275 bases serving 47 US states. Legal adviser to Air Methods is Weil, Gotshal & Manges. The company’s investment banker is Lazard. Alvarez & Marshall is financial adviser (Jason Kahn, Air Method’s interim chief financial officer, joined from Alvarez in February 2023).

Sadly, it is not much of a surprise. This is because of the No Surprises Act (NSA), which came into law from January 1st, 2022. This US legislation specifies that health plan commercial members are protected from balance billing after receiving emergency care and non-emergency care from certain out-of-network providers at in-network facilities. For some, the practical consequence has proved to be strained cash flows for health care companies mired in lengthy (and costly) legal disputes.

“Their bonds have been trading low for a long while,” one restructuring specialist tells Helicopter Investor. “Many factors pushed them here. Covid certainly hurt as a material part of their business is transporting critical patients.” Lockdowns meant less driving and fewer accidents (good for people, but bad for air ambulance business). “Plus the dragging on of arguments and legislation in Congress on cost and payment of air ambulance trips hurt ability to collect revenue,” according to our source.

Joe Hawke, chairman & CEO, Uniflight Global tells us the move was “widely anticipated”. He attributed the filing to “excessive leverage paired with a cash crunch due to NSA”. It’s an indication the helicopter industry is susceptible to interest from private equity firms, prior Ch. 11 filings notwithstanding, said Hawke. Air Methods will be confined to operating, restructuring and, eventually emerging from Ch. 11 with a court-approved plan for reorganisation, he says.

The Chapter 11 filing is no surprise for David Crick, MD, DavAir. “Many would see the filing as a very big surprise. Within the industry though, there have been quiet rumblings and chatter for some time,” Crick tells us.

Crick wonders if the way the US medical transport contracts work predisposes operators to continually cutting rates in a quest to corner market share and secure medical facility contracts. “In today’s market, where personnel levels are at record lows (for pilot, maintenance and medical staff) due to low unemployment levels as well as supply chain issues and rising supply costs, it has become a perfect storm for very thin margins,” he says.

The news may also make similar operators a little nervous. Given the US No Surprise Act is changing the landscape for the medical transport providers, billing and operational processes will need to change drastically and quickly, he says.

“This may be to the HEMS [Helicopter Emergency Medical Services] market what the CHC/Bristow/etc. filings were like for the offshore oil and gas markets some years ago … and just when the helicopter market was coming out of its extended slumber,” says Crick.

Helicopter Investor Insight

Simply put, the company is facing liquidity issues with debt maturity of $1.25bn within the next six months, writes Helicopter Investor finance editor Fayaz Hussain. Air Methods faces challenges in raising new funds and collect revenues in time amid higher interest rates, changes in regulatory landscapes and the abnormal weather events. Air Method’s bonds were downgraded to junk or high yield by Moody’s in November 2022.

The company said the continuous rise in interest rates and unfavourable debt market conditions have dramatically reduced the company’s free cash flow. Raising fresh funds has proved significantly costlier for companies in the US as the Federal Reserve has increased interest rates by from 0.25% to 5.5% between March 17th, 2022 to July 26th 2023.

It also blames the No Surprises Act for its financial woes. In its filings, it says the time required in resolution of rate disputes with ‘out-of-network’ payors taken by the Independent Dispute Resolution process has resulted in significant increases in the time to collect receivables.

The increase in time required to collect revenue for services delivered due to the introduction of IDR has led to a surge in the company’s ‘days sales outstanding’ (DSO). DSO is the average number of days it takes a company to receive payment for a sale or services delivered.

Severe weather events have also taken a toll on Air Methods’ bottom line. Over the past year, the company said, it has faced higher than normal weather-related cancellations, as weather patterns continue to change dramatically. Air Methods estimates that a 1% variance in its weather cancellation rate can hit its EBITDA by as much as $11m.