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Bristow Group Inc  (BRS)
Q2 2019 Earnings Conference Call
Nov. 09, 2018, 10:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to the Bristow Group Second Quarter Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Linda McNeill, Director of Investor Relations. Thank you. You may begin.

Linda McNeill -- Director of Investor Relations

Thank you, Brad, and good morning, everyone. Welcome to Bristow Group's second quarter fiscal 2019 earnings call. With me on the call are Jonathan Baliff, Chief Executive Officer; Tom Amonett, Vice Chairman and Interim President; Don Miller, Senior Vice President and CFO; and Alan Corbett, Senior Vice President of our European hub.

We hope you've seen today's press releases. They are posted in the Investor Relations section of our website at bristowgroup.com.

Let me remind everyone that during the call management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on slide two of the investor deck.

I will now turn the call over to Jonathan. Jonathan?

Jonathan Baliff -- Chief Executive Officer

Thank you, Linda.

Please turn to slide three. So guys, we have a slightly different deck than we usually give you. We have a lot of announcements today, and so we want to try and get through our prepared remarks.

This is an excellent day for Bristow. We're going to discuss our second quarter results, but it's also the announcement of the largest transaction in the Company's history, the acquisition and partnership with Columbia Helicopters. It's $560 million acquisition. It has immediate operational and financial benefits, and so we're going to describe that in some level of detail, so it would -- adds to this conversation.

We're also going to talk about CEO transition, and explain it within the context of this transformative transaction. And as part of that also we'll talk about the improved financial profile of the Company.

Please turn to slide four. First, we're going through what we consider as our normal presentation for the second quarter. I know I will say that it isn't. It's an excellent day for Bristow from the standpoint of looking forward with this transaction. It has been a difficult second quarter, and so we are going to be straightforward about how the second quarter came about and a number of things that are going on as part of the transition as we improve this oil and gas business. But first, let's start with safety.

Our first half fiscal year 2019 accident rate remains Target Zero. I want to again recognize that this reflects the commitment and consistent effort to manage risk effectively by our teams on the flight line and our shops. In our last call, we acknowledged an unacceptable increase in the reported injuries at the start of the year, and reported on the global safety standdown effort that create an opportunity to pause and reflect on potential contributing factors as well as refocus on ground hazard identification and mitigation.

This quarter, Bristow saw a 55% reduction in personal injury events, with a 20% reduction in lost work days for our operations. Near-miss reporting or what we call hazard identification and elevated risk events remained strong as a reflection of our targets zero culture, and Bristow continues to share our lessons with HeliOffshore and the rest of the companies in our industry to promote and enhance safety.

I am proud to recognize the success of our front-line and our management efforts as the number of recordable injuries in Q2 was half that seen in Q1. I'm also proud that eight of our 10 operating entities were Target Zero for recordable injuries in the second quarter, and it's appropriate to acknowledge our teams in Africa, Australia, Airnorth Trinidad and the US Gulf of Mexico and UK oil and gas for delivering full Target Zero performance for the first half of the fiscal year 2019.

Please turn to slide six. We're going to talk about revenue growth and the other areas that we're trying to improve as part of our oil and gas and other parts of our existing stand-alone Bristow. When it comes to revenue growth, let's turn to some macro comments about our performance in the past quarter and what it means for our outlook going forward.

This quarter showed that the uneven nature of the recovery in offshore oil and gas market continues. Yet we remain focused on serving our global client base, winning new contracts and delivering excellent safety performance. As discussed on our last two earnings calls, we continue to experience short cycle activity.

Despite significant progress in strengthening service to our oil and gas customers and a solid performance from our UK SAR business, our financial results were affected negatively by a number of factors. These include foreign exchange volatility, the timing of certain operating costs and continued challenges in our fixed wing operations, in addition to not realizing some contracts we had hoped to achieve during this period. Accordingly, we have lowered our adjusted EBITDA guidance for the stand-alone Bristow. Don will discuss our revised outlook later in the presentation.

Looking at some positive results. We've recently signed a new five-year contract in West Africa for a 1.5 Large AirCraft Equivalent, which started on October 1st, 2018. This is in addition to another previously announced six-month contract for one LACE aircraft that began in August. Our team in Africa has worked tirelessly to help offset the previously announced contract that expired at the end of March 2018 and they have been very successful in doing so as Africa continues to be, for the FY '19, one of our stars as part of growth.

Three, on a cost efficiency side we remain focused on reductions across the organization with G&A in the second quarter down $10 million year-over-year and down $16 million fiscal year to date. On an annualized basis G&A is now less than 11.5% of revenue, world-class for offshore aviation. We are continuing to look and implement structural changes as I talked about last quarter in our maintenance cost. A number of the structural elements of our maintenance costs are too high for the services rendered. We continue to make progress, and we'll talk about that in future quarters.

In addition, we are in the midst of ongoing negotiations with our OEM partners to not defer -- not just defer CapEx but to eliminate additional capital expenditures, especially aircraft deliveries that are really not needed in the oil and gas market today. We look at those negotiations very similar to what we did last year in our negotiations for cost recoveries from the OEMs concerning certain aircraft. Stay tuned for more news on the reduction or elimination of this CapEx.

Four, looking at improved returns on capital. This is what drives us financially. We continue to focus on improving ROIC through the sale of underutilized assets and businesses and are looking to return more leased aircraft. There are currently 10 aircraft held for sale, and we continue to make good progress during the year. In addition, during the first half of fiscal year 2019, we returned eight leased oil and gas helicopters and have the ability to return 13 more during the remainder of fiscal year 2019. You can find the lease roll-off schedule on slide 39 of this earnings presentation.

We continue to examine all aspects of our businesses, including portfolio management of assets and businesses in order to reduce our cost structure, but importantly, increase our ROIC on businesses that are earning below that cost of capital, but also with idle aircraft.

Fifth, and looking at improved financial flexibility. An important achievement of our quarter is that our operations delivered operating cash flow of $17 million this quarter as well as $9.5 million of free cash flow.

I'd also like to highlight that our solid liquidity profile, along with our strong operating leverage, makes us well positioned to take advantage of the beginning of an offshore investment cycle as more rigs are going to work in places like the US Gulf of Mexico, North Sea, West Africa, as I talked about, and we're even beginning to see more rigs go to work in Brazil.

Please turn to slide seven. We've maintained a strong liquidity profile through this historic oil and gas downturn. Maintaining a prudent and safe level of liquidity continues to be a priority for us. As of quarter-end, we had $320 million of liquidity, including $308 million in cash, and as Don has talked about in the past, we have no bank covenants. We're, in essence, living off this excellent liquidity, allowing ourselves to be strategically flexible and really support the operations for our clients. Don will provide an update on this later in the presentation. Our refinancing and CapEx deferrals and eliminations and reductions provide us with more ample liquidity.

Please turn to slide eight. Look, I've said it's an excellent day for Bristow. And what I mean by that is you have to live life looking through the front windshield. And in many ways and in the announcement of this transformative transaction and in addition to the earnings, we're also going to announce a CEO transition process.

I will be stepping down and retiring from Bristow following the close of the Columbia transaction. Our Vice Chairman, Tom Amonett, will be serving as Interim President during this transition period, helping me free up to integrate Columbia into Bristow. Tom has served in significant leadership positions over his distinguished career, including serving in both permanent and interim senior executive roles, including CEO.

As Interim President, Tom will be working closely with our Chairman, Tom Knudson, to oversee our operations during this transition, and I expect to help him during the transition also. But my focus going forward will be on the integration and integration planning and working in tandem with Columbia's President and Chief Executive Officer, Steve Bandy, and his whole team to make this integration successful for both of us.

I'm honored to have led Bristow, and I'm proud of what our teams have accomplished since 2010, both in partnership with (inaudible) when I was Chief Financial Officer as we continued improving our Target Zero safety culture. We have improved that culture, but we've also strengthened our capital allocation processes, our operational processes. We've diversified our aviation services. And we've done all that amid a challenging period for the industry and for the team.

Bristow is such a special company, with talented and dedicated employees. We undertake critical tasks for our -- our clients every day and on a daily basis, safely, efficiently and effectively. This is no small task. I always tell people, if you have to take a helicopter to work, it's not easy. It's not easy from a weather standpoint; it's not easy sometimes from a geographic standpoint. And I'm so proud of the employees for doing it every day and safely as part of our Target Zero safety culture.

I believe the company is now well positioned to seize opportunities in the growing market for industrial aviation, especially in combination with Columbia Helicopters. And I'm committed to executing a smooth transition during this period of time.

With that, let me turn it over to Tom to say few words.

Thomas N. Amonett -- Vice Chairman and Interim President

Thank you, Jonathan.

First, on behalf of the entire company I want to thank Jonathan for his contributions to Bristow over the past eight years, particularly his advancement of our long-term strategy to diversify and expand our capabilities for existing and new customers. As a result, during Jonathan's tenure we have become positioned to become the world's premier diversified industrial aviation services company. We are now more effective -- a more effective, efficient organization.

At the same time, we know we still have significant work to do to drive revenue, reduce costs and improve our financial position. I look forward to collaborating closely with our Chairman, Tom Knudson, senior management and the rest of our talented team to continue to enhance our operations, improve capital returns and deliver the best and safest service in the industry.

The Corporate Governance and Nominating Committee will be leading the search for a new CEO with input from our Board of Directors and the support of an executive search firm. We will be speaking with our leadership teams and people in the field and fully expect our operations to run smoothly during this transition process with no disruptions to clients.

Let me conclude by saying that I'm also very excited about the combination with Columbia. This strategic deal will strengthen our financial position, extend our industrial aviation capabilities and diversify our -- and expand our fleet and customer base.

With that, I'll turn it back to Jonathan.

Jonathan Baliff -- Chief Executive Officer

Thank you, Tom. And let me just say I've had a long and productive relationship with Tom Amonett and really look forward to our transition, Tom.

Let's turn to page nine. Let's look forward. Thank you, Tom. Look, Columbia is a company -- and we'll get into in a second -- that is well known in the industrial aviation and government services business. It might not be known to a lot of you, our shareholders and other stakeholders in our capital structure, but very well known in the industry. And we're very excited about this combination, but really partnership with the company because you'll see in a second, it's really -- it really is about their capabilities, but I have to say, it's also significantly about their people.

This combination is truly transformational for Bristow, with significant strategic, but also, and I have to emphasize, financial benefits for both companies. With this $560 million transaction, we're creating the leading global diversified industrial aviation services company virtually defining what that means.

These are two highly complementary businesses with a shared focus on world-class safety, reliability, client service and solutions. I'll talk about Columbia in a second, but it's a provider for outsourced rotor wing services to the US government, military, defense, firefighting, offshore oil and gas -- guys, they do --I'm sorry, onshore oil and gas, I apologize. They -- they're in the oil and gas industry. And they also do infrastructure and forestry services too.

Our two companies are in complementary markets. That means there's not a lot of overlap, although I would say, again, onshore oil and gas is one of those. The combination expands and diversifies the fleet, and broadens the utilization of the combined fleet. We're going to be able to use more of our unutilized assets -- or less utilized assets within Columbia. And they also -- you're going to see a vertically integrated company in the aviation services market. They have a significant MRO, maintenance and repair operation, which will help us in our oil and gas offshore operations.

Financially this is going to create a lot of value for both entities. We'll get into the structure later with Don, but with Columbia, Bristow is paying only about a 4.8 times LTM enterprise value to adjusted EBITDA, a lower multiple. But the sellers, the family, the Lematta family, which I'll talk about in a second, are taking a real equity interest in this company and so is the management team.

Transaction will significantly strengthen our operational and consolidated financial profile. It's accretive to not only EBITDA but cash flow, and significantly improves our balance sheet by reducing our leverage. And it also adds more contracted revenue similar to UK SAR. In many ways you can think of this partnership as for the US a UK SAR. It has somewhat similar revenue on a yearly basis, but even better unit economics.

Let's turn to page 11. I'll provide a brief overview of Columbia's businesses, but you're going to hear more about them in the future. And I'll show what makes this combination such a great fit. First of all, both companies share a long and distinguished history in aviation services and a critical, daily and deep commitment to safety. In fact, in many ways, they call their safety program Target 02.

The companies were founded around the same time; Bristow, in 1953 by Alan Bristow; but in 1957, Columbia was founded by Wes Lematta, no less a pioneer in helicopter aviation. And he grew that with his team into a global organization, a global brand, with a fleet of 21 high return, high-value, tandem rotor Vertol 107 and Chinook CH-234 and CH-47 Delta helicopters. They have full MRO capabilities for this. They have full inventory for the airframes, and here is key, they had a certification capability. They are like the OEM for the civilian versions of these Chinooks and Vertols.

They have another 37 aircraft capable of deployment very quickly. And so now you see how the benefits in this combination work. The company is headquartered long term in Aurora, Oregon, but has operations all around the world. Columbia does charter services for the US government, primarily, with -- and we'll talk about in a second -- with CENTCOM, which is an operational command for all of the US military service by TRANSCOM, which is the functional command for logistics. And they move cargo, they move passengers and they move heavy-lift. They lift heavy stuff with the US DoD needs.

Like Bristow, Columbia has built its business through a commitment to operational excellence, and that's why they've grown so much in the last -- especially in the last decade. And they foster long-term relationships, similar to us, with customers, and have an excellent relationship with their employees.

Columbia's last 12-month revenue for the period ending September 30th, 2018, and adjusted EBITDA was $280 million -- $281 million and $117 million, respectively, very high unit economics because of their unique capabilities and client relationships.

Please turn to slide 12. This slide could be created for Bristow. The title would be similar. The arrow would be similar. Columbia has a similar history in its commitment from an existing pioneer of Wes Lematta when it was founded initially to save lives when he founded it with a Hiller 12B. But then they found a particular expertise using this unique helicopter type, the Boeing Vertol 107, and then eventually the CH-47 D and the CH-234. These are some of the heaviest lifting helicopters in the world. But it doesn't work without the capability and the people.

These people are creative, they're innovative, the employees of Columbia. They developed what was -- what is called direct visual operational control, and to translate that into layman's, they lift heavy stuff safely underneath their helicopters and can do it for all types of industries and clients. They were the pioneers in this. They're unique. And they create these client solutions today.

They also, if you notice here, have something very unique for an airlift operator, called a CARB Certificate. It's a Commercial Airlift Review Board. You cannot fly for DoD unless you have one, and they're not given out every day. And Columbia was able to receive it because of all this significant capability. And so you see from 2010 on, they use the capability that was world-class in their logging business so then translate to client solutions in the US military and also in oil and gas.

So we are proud of their history. I know they are proud of their history. And you'll learn more about it in the future.

Please turn to slide 13. Columbia has a number of business lines, most of them complementary to Bristow, specifically with the US government and military. They have a unique capability, especially in the solutions they provide. And they've been rewarded with that with growth, but more importantly, the US military then looks to them to create solutions, especially in CENTCOM.

But, guys, these guys are in the oil and gas business too. They do onshore oil and gas, primarily in Papua New Guinea but they can do it in other places of the world: Latin America; they can do it in Europe. They could do it in the United States. They are a significant provider of heavy lift services to oil and gas by lifting platforms, breaking them down and moving them around to be productive, similar to the manufacturing processes of onshore production you see in Texas and North Dakota today.

They're also in the firefighting and other airlift. These are unique aircraft with unique capability. Their aircraft can lift more weight in hot weather at high altitudes than almost any other helicopter out there. And, again, they provide all of these services on an integrated way -- vertically integrated -- with a maintenance, repair and certification process similar to an OEM.

Please turn to slide 14. We don't have enough time to talk about how US government procurement works. But generally, you have a contract with TRANSCOM, which is the logistics provider to the US government, and Columbia is the primary provider through TRANSCOM, for CENTCOM's critical rotary needs. Currently, those rotary needs are in Afghanistan, but they can also use them, as you see in the picture, from Pakistan, all the way to the -- to the Gulf, the Arabian Gulf.

So in terms of US government military ops, they're one of only 3 operators that can support the requirements in the broader CENTCOM area, and they're by far the largest. With the CARB Certificate obtained in 2011, Columbia's renewed its original contract and expanded in 2018. They've technically renewed it twice. But they significantly expanded it to 12 aircraft due to their strong performance and reliability.

The US government grades you every day. I know this, having been part of the US government 25 years ago. But they also grade their suppliers, and Columbia gets some of the highest marks of airlift providers in TRANSCOM. And their unique fleet and capabilities have made us, when they combine with us, the US government's provider of choice.

The contract structure that you see with TRANSCOM, which we can talk about later, is attractive. It has a fixed monthly fee, similar to what you've seen in our oil and gas and UK SAR as well as our hourly flight revenue. So it'll be familiar to you guys as you get -- as you start seeing the details.

Please turn to slide 15. This capability, this executive management team, these employees have translated this history -- commitment to safety and unique capability, into excellent financial results. Columbia has seen significant growth in the number of aircraft and revenue over the last three years, and is well positioned for future growth through US TRANSCOM and other military support entities. Although they have the CENTCOM contract today, they can expand, through use of our aircraft and their capabilities, to other geographic commands like AFRICOM, EUROCOM.

Some other key metrics. Columbia has consistently grown its average monthly operational aircraft revenue and adjusted EBITDA at high rates over the past several years. Columbia is a high performing business because of its people, and I'll talk about that in a second, but you can see it translates into improved revenue, but their unit economics -- you can see, high margin is due to the unique capability melded to that CARB Certificate, with their management, employees, doing an excellent job, satisfying the unique demands of this client base.

Please turn to slide 16. I'm not going to go through all of these. I've covered most of them already. But like Bristow, Columbia is safety focused. It's a unique business model. It has long-term contracted revenue similar to UK SAR. UK SAR's contracted revenue has a mode around it through the contract structure. But Columbia's revenue is really based because they have unique capabilities for the US government. And they own the Type Certificate for this aircraft. Their customer base is stable, it's diversified and it will be more diversified when combined with us. And they have an established record of prudent, strong financial performance, which will benefit Bristow immediately.

I turn to page 17, which in many ways is a key slide for Bristow, our Board of Directors and the management team. This is a proven management team with over 110 years of experience. They have 860 employees; 60% are pilots. They have an MRO and field mechanic and also and engineering team that is second to none. And it helps make Columbia the right partner for Bristow at the right time.

And as you -- you'll see in the future, but you can see in this bullet point, the management team is rolling a substantial amount of their equity in Columbia into Bristow stock, and that's a really important point for me to make. Steve Bandy, the President and Chief Executive Officer, who's been in Columbia almost 30 years, believes in this combination and is doing it and showing that through his economics. And the rest of this team is following. You can see them here today. We can talk about them later. You'll meet them. But this is an employee base that is passionate as Bristow, and committed to safety and client service.

Please turn to 19. These are the four points when you go through and give you a little bit more detail on the complementary business and revenue growth opportunities and commercial upside. Much of the numbers that we're going to show don't include synergies, and I have to emphasize that. The addition of Columbia strengthens our operational profile, but again, with an emphasis that it it's also improving our financial profile, with cash flow accretion and meaningful deleveraging.

Please turn to slide 20. This is a great illustration, both geographically, through business lines through fleet, that we become a truly globally diversified industrial aviation services company, something that we've been doing for the last really 10 years as we sought and won the UK SAR contract, and this is a continuation of that. It diversifies our fleet type, adding the Boeing Vertol 107 and the Chinook 234 and 47 Deltas. The Vertol 107 was, in the Marine Corps for many years, called the Sea Knight. And these have civilian equivalents which Columbia has the Type Certificates for and has particularly expertise in deploying.

Equally important, this combination diversifies our revenue mix with the addition of the US government and military work. The 12% of combined revenue that will come out of this is roughly the same percentage as our UK SAR business and reduces our dependence on oil and gas. But I have to emphasize, we look at trying to grow our oil and gas revenue too through the onshore work that Columbia does.

Another way to think about the EBITDA contributions of the company as you see the revenue mix there, but at the end of this -- and part of closing of this transaction, oil and gas, UK SAR and US government military will each contribute roughly one-third of the EBITDA to the new combined Bristow, making ourselves, again, truly diversified.

Please turn to slide 21. This gives you a sense, a little bit more detail of the safety focus from Columbia over its 60-year history. Wes Lematta proclaimed there is no substitute for safety, and it's been at the forefront of all of their operations. Like us, they operate in operationally challenged environments. But they do an outstanding job. They're at Target Zero action since 2017 year-to-date and have been Target Zero from an aviation standpoint for many years, for decades, in many ways. Today Columbia continues to build on its core safety processes and we will learn from them. We're going to learn significantly from them. But then, they will also learn from us. The combination will actually be beneficial, not just in a complementary but in an integrated safety way, for the industry.

Please turn to slide 22. You can see here the complementariness of the business. But we put the red and the blue line to kind of look at the operations without thinking in certain ways about US government deployment being really global. Through TRANSCOM, we have the opportunity to deploy our idle aircraft, through their CARB Certificate, virtually around the world, wherever the US Air Force, Navy and Marines operate through TRANSCOM. And that's exciting because we have idle 225s that can go to work within this CARB Certificate and they're already being requested today.

We believe that meaningful revenue growth opportunities abound. Also, we expect to use the civilian Chinook and Vertol fleet in our AOCs. There are operations in which we have air certificates in Europe and around the world, in the United Kingdom, that their Chinooks can come in and operate for us in firefighting and other government work outside of the United States government. Our global presence presents an opportunity for these aircraft to go to work and we also have the embedded facilities to be able to get them to work for our client base.

Please turn to slide 23. You can see by this slide, which doesn't include any cash flow or revenue for synergies that we are confident that this combination is tremendously financially and operationally valuable to you, our Bristow shareholders immediately. It's at an attractive price, again, less than five times EV to EBITDA. It more than doubles the combined annual adjusted EBITDA on a consolidated basis. It meaningfully reduces our net leverage over four times. It improves the ROIC of the overall company very significantly, 500 basis points. it provides us with more consolidated operation cash flow -- and Don will talk about how the structure of the financing works. It also will provide cash flow up from Columbia.

But I have to emphasize, Columbia will be operated as a company with a separate subsidiary that's unrestricted, with a separate board and it will keep its name, it will keep its livery, it will keep its operational and management structure. This is a company that's successful and it's successful operating as Columbia. And it's expected to improve our liquidity position meaningfully starting in 2020, and especially in those early years.

Please turn to slide 24. We're just announcing this transaction today. I can tell you today we have identifiable, measurable and achievable synergies. We will be talking about these in the future. We will talk today on this slide more about what the opportunities are, and we'll be able to define them more in the future. Because I know a number of you, especially our sell-side analysts, want to see more specifics about this. We will get them to you. But just note, the numbers you saw on the previous page do not include any of the synergies.

One of the things that Steve Bandy talks to me about is we are both very focused on safety. So is Tom Amonett, so is our Board and will be the Columbia board -- and the Columbia board today. But one of his comments to me is, one of the things he loses sleep over, is lost opportunities. And so we have been under way pretty significantly in thinking about what those opportunities can be, knowing that the combination will not close for a number of months.

We can utilize our idle oil and gas Bristow aircraft to pursue these government opportunities I've spoken about. We'll see commercial market expansion such as Bristow's network of global AOCs and facilities at existing bases in more than 10 countries to use the Columbia assets to pre-position them either actively in working, in firefighting or other government work, or in onshore oil and gas. We've got the facilities and the AOCs to be able to do that. We can use Bristow's global footprint to pursue third-party MRO opportunities in places like the southern area of the United States, Europe, Australia and, again, in other areas where the US government can work. And other governments also.

As a point, the UK -- and the UK government is the number three user of the Chinook family. We will also be able to achieve cost savings. But I have to emphasize, this transaction and partnership is not about G&A savings. I believe there are some, but this is about meaningfully reducing our current $250 million spend on maintenance by utilizing Columbia's vertically integrated proven, in-house MRO capabilities as well as optimizing the combined company's tax position.

We have a significant NOL position because of the downturn. As you can see, Columbia is very profitable, and we'll be able to offset a number of those NOLs. We will detail this out in the future to give you a sense. But again, the numbers I talked about were pre-synergies. Pretty excited about this.

And with that, I'm going to turn it over to Don to discuss the transaction structure and Bristow's revised stand-alone guidance, and some key pro forma metrics for the combined entity, especially in FY '19.

L. Don Miller -- Senior Vice President and Chief Financial Officer

Thanks, Jonathan.

Please turn to slide 25 for a detailed overview of the Columbia transaction. In terms of the transaction structure, Bristow will acquire 100% of the equity interest of Columbia for $560 million from the Lematta family and current management. The $492 million cash portion of the transaction will be funded through a combination of senior secured debt at Columbia and convertible secured debt at Bristow, secured only by the stock of Columbia.

For reference, the financing documents are being posted on our website during this call. This debt financing will be combined with 77 million of newly issued common shares directly to the Lematta family and existing Columbia management, all of which total a minimum of 572 million. We expect that a modest amount of cash from Bristow's balance sheet will be used primarily for transaction costs and expenses. Bristow has secured fully committed debt and convertible debt financing for the transaction.

In further terms of the purchase agreement, the Lematta family and existing Columbia Management, which is committed to continuing to lead Columbia, will roll over 77 million of their current ownership into Bristow common stock. Columbia will be designated as an unrestricted subsidiary and is expected to be fully consolidated on the Bristow financial statements upon transaction close. The transaction is expected to close by December 31, 2018, and is subject to customary closing conditions.

Please turn to slide 26 to discuss Bristow's stand-alone updated financial guidance. While Bristow's operations delivered positive operating cash flow and free cash flow, our second quarter fiscal 2019 financial results were negatively affected by foreign exchange volatility, the uneven nature of the offshore recovery and continued challenges in our fixed wing operations. Due to the factors just mentioned and based on the first half of fiscal 2019 financial performance, we are lowering and narrowing our Bristow's stand-alone fiscal 2019 adjusted EBITDA financial guidance to a range of $80 million to $110 million from $90 million to $140 million.

Our revised guidance range reflects the dynamic nature of the offshore market and the uneven short cycle drilling work, as well as the impact that the change in incremental activity has on our bottom line given our high operating leverage. In addition, our financial guidance range includes the impact of the strong US dollar relative to the pound, which may continue to be a headwind in future quarters and could result in additional foreign exchange volatility.

Getting into the details of our updated financial guidance. We are reducing the upper range of the oil and gas adjusted EBITDA guidance by $10 million. We are also reducing our UK SAR guidance by $5 million, primarily reflecting the strength of the US dollar relative to the pound. We are lowering both Eastern and Airnorth's full year projected adjusted EBITDA range by $5 million to a range of negative $5 million to breakeven, reflecting the continued challenges in our fixed wing businesses, including unexpected engine events and maintenance in Airnorth. No other financial metrics on the slide have been modified.

As Jonathan mentioned, we ended the quarter with $320 million of liquidity, including $308 million of cash. As of last Friday, our total liquidity was $266 million, reflecting the payment of $15 (ph) million of interest, a $4 million reduction in our ABL availability and $35 million of other working capital changes since September 3rd.

Please turn to slide 27. The acquisition of Columbia is expected to be immediately accretive to fiscal 2019 operating revenue, adjusted EBITDA and cash flow. Looking at slide 27, you can see Columbia doubles the fiscal 2019 pro forma combined annual adjusted EBITDA on a consolidated basis, with over 575 basis points of margin expansion compared to Bristow stand-alone. The combined projected EBITDA listed on the slide does not reflect any of the cost savings or revenue opportunities that we have identified, which we anticipate being able to action (ph) as soon as fiscal 2020.

Assuming the closing date of December 31, 2018, and the inclusion of Columbia for our fiscal fourth quarter of 2019 only, our combined Bristow and Columbia fiscal 2019 adjusted EBITDA guidance range is $100 million to $140 million, of which fourth quarter fiscal year 2019 EBITDA contribution from Columbia is expected to be $20 million to $30 million.

The utilization of Bristow's US net operating tax losses is just one of the cash benefits of the combined company. In addition, Bristow expects to receive quarterly cash distributions in the form of customary restricted payments from Columbia. While still early in the process, we expect Columbia to contribute $25 million to $35 million in annual cash to Bristow, excluding anticipated revenue and cost synergy benefits. We anticipate updating this range on our next earnings call.

In conclusion, this combination is compelling from both a financial and strategic perspective. This transaction provides immediate and significant value for Bristow stakeholders by: one, creating a unique global aviation services company with a strong and diversified platform for future growth; two, combining Bristow with a high performing business and an attractive valuation that has significant operational synergy potential; the combination will improve our liquidity profile; and lastly, as a result, we believe Bristow will have a stronger financial profile and be a more resilient company.

With that, I'll turn it back over to Jonathan.

Jonathan Baliff -- Chief Executive Officer

Thank you, Don.

Look, I think Don summed it up well. It's a prized company and combination at an attractive valuation. But in the end, it's all about the people. And this partnership -- and it will be a true partnership with Columbia -- really provides significant benefits and really defines diversified industrial aviation.

I want to thank all of the Columbia management, the Lematta family. They're going to be taking a significant interest in Bristow, and we're very committed to you and the rest of our employees to be safe, to be excellent for our clients and to be the company that I know that Wes would want to see in the future.

On behalf of Bristow, I want to say I will continue in my role as CEO to help integrate that company, support Tom and support the rest of the employees. In the future, I will be on the board of Columbia and look forward to working with Columbia in the future.

With that, I'll turn it back over to the operator for questions.

Questions and Answers:


Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question today is from Daniel Burke of Johnson Rice. Please go ahead.

Daniel Burke -- Johnson Rice & Company -- Analyst

Yes. Good morning, everyone.

Jonathan Baliff -- Chief Executive Officer

Morning, Daniel.

Daniel Burke -- Johnson Rice & Company -- Analyst

Let's see, so a lot to digest this morning and I didn't want to forget, first of all, Jonathan, all the best. Enjoyed working with you over the years. Now it's been a challenging last handful. Moving on from that, a lot to digest this morning. The question is on Columbia, obviously. You guys have gotten comfortable with the US government contract base at Columbia. Don't really know how to ask that question -- maybe the question I'd ask is this. When you look at Columbia, you talked about the fixed versus variable nature of the contracts they have with the US government. In the event that demand for their aircrafts would be reduced, I mean, how much of those economics are preserved via the fixed charges under the current 12 -- I think you said 12 aircraft contract. Is there any way to think about the sensitivity to actual flight hours demanded?

Jonathan Baliff -- Chief Executive Officer

I'm going to take that and then going to let Don talk about it. First, if you compare it to UK SAR, UK SAR's MSC or monthly standing charge is much higher than our oil and gas business. It's roughly 85% fixed, 15% is flight hours. In oil and gas, it's lower than that, especially in this downturn, where we really depend on these flight hours. Columbia is somewhere in between, right. Columbia is somewhere in between. They get a monthly standing charge from the US government, but they also historically have flown a number of hours. That's why they've, actually when they were awarded the contract last year, was really for 10 aircraft and now they're increasing it immediately two more aircraft. But it's somewhere in between, Daniel. And if they do reduce the flight hours, it doesn't significantly eliminate the EBITDA, but it does impact it, but. We can get you more detail later, but that's really all we really can disclose at this point. Don, is there anything else that you would say?

L. Don Miller -- Senior Vice President and Chief Financial Officer

I mean, it's -- look, I mean, Daniel, in many ways it feels very familiar because it is both the monthly standing charge and the flight hour based charge from a revenue perspective. Just given the activity in Afghanistan and the flying activity, the flying activity actually has been outperforming month to month given their capability in really how really solution-oriented they are, working with the government over there, and given the precision that is required using the unique aircraft. They are the only ones operating that particular aircraft type in Afghanistan compared to the others that are primarily operating S-61, which, as you know, is a variant we used in the oil and gas industry extensively for a number of years. But it feels, when you look at the revenue profile, probably a little bit more sensitive to flight hours than not. But we're seeing real stable flight hours out of Afghanistan, and you're right, that's probably two-thirds of the overall revenue of the company.

Jonathan Baliff -- Chief Executive Officer

Daniel, we were super-focused on that as we worked with Columbia over the course of our discussions with them, and know also that if something was to happen where those aircraft are reduced, they can be redeployed fairly quickly. They can be redeployed within TRANSCOM under their, what's called IDIQ contract. We'll talk about that later, Daniel. You'll get the full brief. But they can redeploy in other areas under air tasking orders outside of Afghanistan. They can redeploy in areas outside of US government work. The demand is there. They -- Columbia has just done a very good job, similar to what we do of optimizing an aircraft for the best return on invested capital.

Daniel Burke -- Johnson Rice & Company -- Analyst

Got it. Okay, thank you guys. And then wanted to get through maybe two more. I was curious, Jonathan, you highlighted maybe the opportunity to deploy some of the 225s under the aegis of Columbia. I was curious about the -- maybe the relative opportunity there. Given that you're also pointing out that Columbia has a lot of unutilized airframes, I would imagine so much higher cost to operate those 225s. What type of niches could the 225s solve that incremental Columbia activations wouldn't fulfill?

Jonathan Baliff -- Chief Executive Officer

Yes. Let's -- there's two parts to your question. I'm going to answer both because I think it's important to actually delineate between a Columbia aircraft that's not operational and a Bristow aircraft that's not operational. Currently the Bristow aircraft that's not operational is mostly due to demand, right. Either they're unutilized or they're under-utilized, especially our 225 fleet in oil and gas. The Columbia aircraft that aren't operational are not due to demand. It's more due to what we would say is a company that has been private, a company that has low leverage, lived within its means and just not looked to expand all that much outside of logging for most of its -- for most of its history, even though it's been highly successful in that and also in oil and gas. So we expect, with very low capital, because, and most of those airframes that are nonoperational are already paid for, but can actually be put to work in other areas, especially in areas where we have AOCs and facilities that can take them. So there is a nice low capital way to redeploy those aircraft fairly quickly. The same is true of ours, but I would say it is going to take some period of time to get our idle 225s and 76s within the CARB Certificate. It's not something that would happen immediately, but I think we're talking about something that happens in a year or so, to be able to get them to go to work. And the demand is there. In many ways -- Don told you there are two S-61s working currently in Afghanistan under a TRANSCOM contract. We believe that had we been in this partnership, we could have supplied some of those type of aircraft into Afghanistan for and as partnership with Columbia.

Daniel Burke -- Johnson Rice & Company -- Analyst

Got it. Okay, that's helpful. And if I'm going to be allowed to just scramble more in maybe for Don. Don, you mentioned the $25 million to $30 million annual cash distribution you'd expect to Bristow. I haven't got my head around the deal structure here, but can you help me understand the spread between that $25 million to $30 million and the EBITDA generation at Columbia? Is that after seeing -- is that after servicing the converting the debt? Or can you help me rectify the delta?

L. Don Miller -- Senior Vice President and Chief Financial Officer

Yes, Daniel. Yes, now, it's a great question. And look, we'll obviously spend some more time with you and the analysts and the investors, kind of understanding the structure and there is actually a good page, if you will, in the deck. I'll just point you to, it's in the back of I think page 59 in deck that gives you a pretty good schematic of how it's laid out. But it's actually -- what I mentioned in the call is actually $25 million to $35 million and I kind of highlighted -- I don't want to get ahead of myself on that. It's early in the process, but as we look into FY '20 without synergies, that's the actual cash benefit that we would get out of the unrestricted subsidiary Columbia. And so the way to think about this is as an unrestricted subsidiary. We'll get the benefits of a management fee, using NOLs and then kind of traditional RP basket, restricted payment basket. So that's -- there is actually a cash flow that will move from Columbia up into Bristow, which will be very credit enhancing and further improve our liquidity, and that's net of paying interest at the Columbia level. So that's just the free cash flow that moves up the system out of Columbia up into Bristow's, in effect, coffers and again focusing on credit and improve liquidity that will really help over time. And I want to emphasize that -- I know I've said couple times, but that's pre-synergies, whether it's cost synergies and/or revenue synergies. Is that helpful, Daniel?

Daniel Burke -- Johnson Rice & Company -- Analyst

Yes, it is. It is (multiple speakers).

L. Don Miller -- Senior Vice President and Chief Financial Officer

Probably not a short answer. It's probably not a short answer, unfortunately, on a conference call, so. But, we'll spend some more time with the Street basically trying to make sure by understanding how finance this relative to other -- other capital instruments.

Daniel Burke -- Johnson Rice & Company -- Analyst

Understood -- understood. Got it. Thank you guys for your patience with my questions.

L. Don Miller -- Senior Vice President and Chief Financial Officer

Yes (inaudible) Daniel.


(Operator Instructions)

Jonathan Baliff -- Chief Executive Officer

With that, operator, I want to thank you and thank the team. It's been hard work on both sides and we look forward to talking to you about this excellent partnership in the future. Thank you.


Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines. And have a wonderful day.

Duration: 55 minutes

Call participants:

Linda McNeill -- Director of Investor Relations

Jonathan Baliff -- Chief Executive Officer

Thomas N. Amonett -- Vice Chairman and Interim President

L. Don Miller -- Senior Vice President and Chief Financial Officer

Daniel Burke -- Johnson Rice & Company -- Analyst

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