After Air Methods’ Chapter 11 filings: ‘more to follow’
More helicopter emergency medical services (EMS) businesses are likely to follow Air Methods in seeking Chapter 11 bankruptcy protection, according to Jason Kmiecik, president of appraisals business HeliValue$,
“It’s no surprise that this has been coming now for over a year,” Kmiecik tells Helicopter Investor. “I wouldn’t be surprised if there are more to follow in the upcoming year.”
The root of the problem for Kmiecik is clear: “The main issue that has pushed them into this situation, I believe, has been the problem with getting paid for their services,” he said. “Everything I have heard and read about since the government implemented the NSA, No Surprises Act has been a detriment to the EMS operators.”
Kmiecik believes the Chapter 11 filings for operators in the medical sector will differ from the pattern seen for of shore helicopter companies. “I see these situations unfolding differently than they did for offshore operators, simply because the majority of their aircraft are still flying on contracts, unlike the offshore situation.
“The creditors have been regularly following up on their aircraft values since their credit rating started falling, so it’s also not much of a surprise to them. On a positive note, many of the aircraft values have been improving over that time,” said Kmiecik of HeliValue$.
Air Methods filed for pre-packaged Chapter 11 bankruptcy protection this week. The company’s Chapter 11 filings show its senior lenders, bondholders and shareholders have agreed to a restructuring plan which will see the company’s debt reduced by $1.7bn. 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.
Another helicopter appraisals expert who is far from surprised at Air Methods’ Chapter 11 filing is Alastair Fallon, director and senior appraiser, at valuation business F4 Fly Fast Further First. As one of the biggest EMS operators, Air Methods’ move will help to focus the attention of other businesses in the sector, Fallon told Helicopter Investor.
As far back as 2017, financial analysts were warning that the company’s business model was not sustainable. “The EMS stream will require a rethink and a more reserved approach,” he said. “Part of the 2021 Congressional No Surprises Act was transparency. We need to see that in action.” The majority of ownership in the sector is private equity, which will “try to recover every cent it can”, he added.
“Covid probably didn’t help any operator and the 2021 Act has exacerbated margins and those already on the breadline will be feeling the pinch,” he told us. “Vast debt cannot be built up trying to keep dividend payments high.”
Fayaz Hussain, Helicopter Investor’s finance editor comments: “Simply put, the company is facing liquidity issues with debt maturity of $1.25bn within the next six months. 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’ by the Moody’s Ratings Agency in November 2022.” Read his full analysis here.