Shefali Shah - Senior Vice President, General Counsel and Corporate Secretary Chris Bradshaw - President and Chief Executive Officer Andy Puhala - Senior Vice President and Chief Financial Officer Stuart Stavley - Vice President, Operations and Fleet Management Jennifer Whalen - Vice President and Chief Accounting Officer Matt McCarville - Director of Corporate Development and Finance.

James West - Evercore ISI Bill Mastoris - Baird & Company Pavan Rangachar - Goldman Sachs Adam Ritzer - Pressprich Sean Sneeden - Oppenheimer Christopher Hagedorn - Redwood Capital.

Good day, ladies and gentlemen and welcome to today’s Era Group Inc. Q3 2016 Earnings Call. Just as a reminder, today’s call is being recorded. At this time, I would like to turn the conference over to host for today, Shefali Shah. Please go ahead..

Thank you, Sarah. Good morning, everyone. Thank you for joining Era’s third quarter 2016 earnings call.

I’m here today with our President and CEO, Chris Bradshaw; our SVP and CFO, Andy Puhala; our SVP, Operations and Fleet Management, Stuart Stavley; our VP and Chief Accounting Officer, Jennifer Whalen; and our Director of Corporate Development and Finance, Matt McCarville.

If you have not already done so, I would encourage you to access our most recent earnings press release and presentation slides available on either our website eragroupinc.com or the SEC website, sec.gov.

Forward-looking statements expressed on this call are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements, including those risks and uncertainties described in our most recent Annual Report on Form 10-K, our subsequent Quarterly Reports on Form 10-Q and the other filings we make with the SEC.

In addition, we will discuss non-GAAP financial measures, such as adjusted EBITDA. Please refer to our earnings press release or the presentation slides for the calculation of these measures and the appropriate GAAP reconciliation. I’d now like to turn the call over to our President and CEO.

Chris?.

Thank you, Shefali, and welcome to the call everyone. As always, I will begin our prepared remarks with a note on safety, which is Era’s most important core value and our highest operational priority.

A major safety related issue impacting the offshore helicopter industry is the potential return to service of the H225 and AS332 L2 model helicopters following a fatal accident offshore Norway in April of this year.

Although the accident investigation remains ongoing, the European Aviation Safety Agency issued an airworthiness directive on October 7, which provides for additional maintenance and inspection requirements to allow these helicopters to return to service.

It is unknown at this time when or if other jurisdictions such as Norway, the United Kingdom, or the United States will allow these helicopters to return to service.

The UK and Norwegian civil aviation authorities have said that they are united in their approach and await further information from the accident investigation before considering any further action. As of today, we believe there are no H225 or L2 model helicopters operating oil and gas missions.

Era has implemented measures to minimize our H225 related expenses, including placing the helicopters in long-term storage, reducing or reassigning staff, and withdrawing these helicopters from maintenance programs.

We have exited PBH agreements for our H225 airframes and engines, which resulted in $5.7 million of credits in Q3 and an additional $3.8 million of credits that we expect to realize over the next five to six quarters. Turning now to a discussion of recent highlights.

We work closely with our bank group to amend our credit facility in October to ensure that we continue to have access to ample liquidity for the duration of the downturn. Given our visibility on asset sale proceeds in Q4 2016, we had a very high degree of comfort that the company would remain in covenant compliance for the next 12 months.

However, given the uncertainty regarding the ultimate severity and duration of the market downturn, we wanted to enhance the confidence interval and positive compliance margin under our covenant package without having to rely upon asset sales.

We believe this amendment provides the company with additional flexibility and we are very pleased with the level of support that we receive from our bank group.

Looking at our financial results, despite the very challenging conditions in the offshore oil and gas industry, Era generated positive operating cash flow of $18 million in Q3, raising the year-to-date total to over $46 million. We continue to prioritize the protection of our strong balance sheet.

Consistent with that objective, during the first nine months of 2016, total debt and net debt decreased by $33 million and $51 million respectively. At the same time, we believe we are making prudent investments to improve our competitive position for the eventual market recovery.

The combination of planned helicopter deliveries comprised of two new AW189 heavy helicopters and contracted asset sales comprised of two AW139 medium helicopters and one Bell 412 medium helicopter, and Q4 2016 will allow us to upgrade and diversify our fleet with negligible if any incremental cash expenditure.

We continue to believe that the AW189 model has a promising future in the offshore oil and gas industry given its performance metrics and efficient operating cost profile. Turning to a brief update on current market conditions, flight hours and revenues in our U.S.

Gulf of Mexico oil and gas operations increased on a sequential quarter basis, which is consistent with our prior commentary that activity levels in that market appear to have stabilized although at admittedly low levels. Our sequential quarter results also benefited from the normal seasonal activity pattern in Alaska.

We want to remind investors that our business in Alaska and the Gulf of Mexico is seasonal with Q4 and Q1 generally characterized by lower activity levels than Q2 and Q3. Our search and rescue service line is based in the Gulf of Mexico and largely dependent upon oil and gas customers.

As a result of pressures related to the market downturn, we have experienced a reduction in the number of subscribers and a decrease in missions which has negatively impacted revenues. In addition, the onshore air medical industry in the U.S.

continues to move in a disparate direction from our strategic focus on markets where we can earn an attractive return on investment while maintaining the same safety standards we apply in our oil and gas operations. As of today, we expect our remaining air medical services contracts in the U.S. to end in Q1 2017.

International oil and gas revenues continued to be a relative bright spot for us. New contracts in Suriname should keep the two AW139s that we have in country busy for the remainder of 2016 and into 2017. In Brazil, we remain optimistic about the long term future of that market.

Given the high quality nature of the country's oil reserves, the distance of oil facilities from shore and what could be a growing presence of international oil companies in the country given the pending legislation that would remove the requirement that Petrobras operate and maintain a minimum 30% interest in all presalt fields.

We view the liberalization of the pre-salt reserves as a very positive development for the Brazilian market. With that, I will now turn it over to our CFO, Andy Puhala, to provide a review of our Q3 financial results and a more in-depth discussion of the credit facility amendment.

Andy?.

Thanks, Chris. For the third quarter 2016, we reported a net loss attributable to Era Group of $0.6 million or $0.03 per diluted share on revenues of $65 million compared to net income of $0.9 million or $0.04 per diluted share on revenues of $69.7 million in Q3 of 2015. Consolidated revenues were down $4.7 million or 7% versus the prior year quarter.

If we exclude Aeróleo revenues from both periods, revenues were down 20% versus Q3 last year primarily due to lower utilization and lower average rates in our U.S. oil and gas operations. As a reminder, in Q4 2015, we began consolidating Aeróleo into our financial results which makes the year-over-year comparison a straightforward.

Aeróleo generated $15.2 million of revenue in the current quarter, all reported in the international oil and gas line of service. In the prior year quarter, Aeróleo generated $7.3 million of revenue, which was included in the dry leasing line of service and recognized based on the cash we received.

For additional detail on the impact of the Aeróleo consolidation, please see slide 10 of our Q3 investor presentation. Operating expenses were $40.4 million in the quarter, a decrease of $2.6 million or 6% compared to Q3 of last year.

The primary driver of the decrease was a reduction in repair and maintenance expenses due to the removal of our H225 engines and airframes from PBH programs which resulted in a credit of $5.7 million in the quarter as well as reductions related to the timing of repairs. Personnel and fuel costs were also lower in the U.S.

due to reduced headcount and fewer flight hours respectively. These savings were partially offset by the consolidation of Aeróleo which added $8.7 million to operating expenses in the quarter. Excluding the impact of the Aeróleo consolidation, operating expenses were down $11.4 million or 26%.

SG&A expenses were down $1.7 million or 15% in the quarter primarily due to lower headcount and compensation expenses in the U.S. and reduced professional services expenses, partially offset by the consolidation of Aeróleo. EBITDA was $15.3 million in the quarter compared to $17.1 million in Q3 of 2015.

Adjusted EBITDA excluding gains on asset sales and special items was $15.6 million in the quarter compared to $15.3 million in the prior year quarter.

Looking sequentially, operating revenues were up $1.7 million or 3% versus Q2 this year primarily due to normal seasonal patterns in Alaska and incremental international revenues including a full quarter of activity in Suriname. These increases were partially offset by the loss of a SAR subscriber.

Operating expenses were down $7 million or 15% sequentially primarily due to lower R&M expenses discussed earlier. Administrative and general expenses were up $1.4 million or 17% sequentially due to the recovery of our previously reserved receivable in the prior quarter and additional reserves in the current quarter.

As Chris mentioned in his opening remarks, subsequent to quarter-end, we amended our revolving credit facility and the key changes include that the amendment replaced the total leverage ratio covenant with the senior secured leverage ratio with a maximum level of 3 times which increases to 3.25 times for Q2 of 2017 and further increases to 3.5 times for Q3 of 2017 and thereafter.

It reduced the minimum interest coverage ratio to 1.75 times with a further reduction to 1.5 times at Q4 of 2017 and thereafter. In addition, the add back for cash proceeds from asset sales was removed for purposes of this covenant.

It revised the definition of EBITDA to allow for the add back of non-cash expenses such as stock compensation expense and the amortization of PBH and limited the add back for cash proceeds from asset sales to $20 million. We changed the asset coverage requirement to $400 million.

It decreased the size of the facility from $300 million to $200 million and it added a provision requiring cash balances in excess of $40 million to be applied to outstanding borrowings under the facility subject to certain customary carve outs.

While we were in compliance with our existing covenant package, we proactively work with our bank group to ensure we could maintain access to liquidity and enhance our flexibility through the downturn. Our cash plus availability under the revolving credit facility totals $161 million after giving effect to the amendment.

Given our size and scope of operations, we expect to have sufficient liquidity to manage through a prolonged downturn. At this time, I'll turn the call back to Chris for some concluding remarks.

Chris?.

Thank you, Andy. Despite the very difficult conditions prevalent in the offshore oil and gas market, Era continues to generate positive operating cash flow and we believe we are well positioned to withstand the pressures of a prolonged market downturn.

We remain focused on maintaining the highest safety standards, maximizing the utilization of our helicopter fleet, realizing efficiencies and our cost structure, and protecting our balance sheet and liquidity position. With that, let's open the line for questions.

Sarah?.

Thank you. [Operator Instructions] We will go first to James West of Evercore ISI..

Good morning guys. .

Good morning..

On the Gulf of Mexico, so you're talking about the Gulf of Mexico stabilizing at this point.

Have we stabilized both on utilization and pricing?.

Thanks for the question, James. We have seen a stabilization of activity in the Gulf of Mexico and really for the last several months, we have more or less been bouncing along the bottom. You've seen an increase on a sequential basis in flight hours and an increase in revenues as well.

We don't by matter of policy make specific commentary about rates, but I think if you evaluate the trends of flight hours and revenues, you'll see that that utilization was slightly up as were revenues..

Okay, makes sense.

And then do you think that your - I mean given that there was a big reduction in the kind of helicopters per operator, if you will, during the downturn do you think that your customers have adequate support for their programs at this point or if some gone, you’re too far the other way where they may not have adequate helicopters available?.

We’ve worked with our customers during the downturn to help them realize efficiencies in their operations. A number of them have put in very significant changes to make their operations more efficient and are operating at a level today which is reflective of the current environment.

But if there is a significant increase in the price of oil and there a need for uptick and activity, our expectation is that they would require more helicopters to support increased activity levels.

And I think from a service provider standpoint that overall the market is likely to be surprised by both the time and cost that will be involved to return idle equipment to service.

This is relatively complex equipment with sophisticated electronics that are being stored in environments like the Gulf of Mexico, Brazil, not for us but for other operators in places like even the North Sea. These are generally speaking highly corrosive environments that are tough on complex electronic equipment.

So the cost to return the aircraft to service we think will surprise the people and also from a manpower standpoint, across our industry as you well know, James, there have been significant reductions in headcount during the downturn. And in order to support returning more aircraft to service, those people will need to be rehired and retrained.

Even if you're hiring someone who has a significant amount of flight time in a particular model, regulations require that they go back through a training program that also comes with a cost both in terms of time and monetary..

Right, okay, that all makes sense. We're certainly seeing that for the rigs in the frac spreads and everything else, so helicopters would certainly fit into that category.

I guess the question - what - if you take a helicopter that's in relatively good shape, it hasn't been devastation or anything like that and you need to hire into the crew, what do you think that time lag is for this first kind of incremental helicopter, understanding that it will be longer later in the process..

There are multiple factors involved there as you might imagine. So it's a difficult question to answer across the board.

We do have some equipment that may not be contracted today, but it is very much in airworthy condition and can be brought back into service, but we also have a number of aircraft that have been in place in storage to help better preserve them and reduce expenses at the same time.

So for a new project that requires ramping up an aircraft that's in relatively good condition still in terms of the maintenance intervals and for which we're going to have to go out and hire new people, it could be 90 days to get a project launched.

But again there's going to be a fairly wide spectrum depending upon what the project needs are, the aircraft in question, and how many new hires are required..

Okay, but would you say that 90 days is probably closer to the minimum amount of time..

Yes. .

Okay, got it. Great. Thanks guys..

Thank you..

Next from Baird & Company, we’ll go to Bill Mastoris..

Thank you.

Chris, beginning with just a lot of excess capacity in your medium and heavy helicopters, could you provide us with any color that you might have in attempting to secure contracts maybe outside the oil and gas industry? And if you could also speak to maybe how much that loss of the air medical contract means just in terms of revenue and EBITDA that would be greatly appreciated.

Then I have a follow-up on the new credit agreement..

Sure. Thanks for the questions, Bill. In regard to the excess capacity, we are exploring a number of opportunities to put those aircraft back to work. As you know, we are really unique amongst the operators and that we've always had two primary business lines. We both operate for our own end customers, and we're also a lessor to other operators.

And that leasing line of service provides us an opportunity to capitalize on demand from other markets, both geographic markets and other end markets without having to make a full investment to put the infrastructure and operations in place in each and every jurisdiction.

So we are actively marketing those aircraft for both other end markets and other geographies, and the leasing business could help us improve the utilization and eliminate some of that excess capacity which has existed. With respect to specific service lines and this will tie into the air medical discussion, while the U.S.

onshore air medical industry has been moving in a disparate direction from our future focus over the last several years, we are seeing a number of opportunities in other jurisdictions, areas where for the first time regulations are allowing the introduction of helicopter emissions.

And we believe opportunities in those developing economies could be attractive. The one that we've been able to announce publicly is the partnership in India with our long-term partner there in a company that we believe is the highest quality operator in India.

So that's very much in a nascent business development stage now, but over the long term could prove to be attractive for us. With respect to your question about air medical, in Q3, it did a little under $2 million of revenue. So if you want to think about that on a quarter basis or you could annualize that.

With respect to EBITDA, we never provide disclosure of EBITDA on a line of service basis. Our position is that we don't have separate business segments, we just have one business segment which is operating and leasing helicopters, and we report our financial results on that basis..

Would it be fair to assume that EBITDA though would be in line with what you realized in your oil and gas industry? Or would it be slightly better?.

Well, I think what we've seen overall is that, one of the primary reasons that our air medical business in the U.S.

has been declining over the last several years and this has been a multi-year trend is that, we found it difficult to earn similar levels of returns to what we get in our oil and gas business while maintaining the same safety standards that we apply in our oil and gas business.

So generally speaking, when we've lost air medical contracts, it's to lower bids that really did not meet our threshold for returns..

Okay. And then turning to the new credit agreement, Andrew, $400 million in asset coverage, I assume that's $400 million of unencumbered aircraft.

And my question would be, are those specific to new technology or specific models of heavy and medium helicopters? And then as a follow on to that, does the credit agreement prohibit any repurchase of bonds in the open market?.

Okay, Bill. In terms of the asset coverage, we can meet that requirement through a combination of aircraft and inventory and receivables. And it's not specific to any particular models of aircraft to the extent that we decide to pledge an aircraft to the facility and it's in the U.S.

we're able to do that without any restrictions with respect to the model and make. In terms of our ability to repurchase notes, there's nothing in the amendment that would prohibit us from specifically repurchasing notes as long as we maintain within the covenants that I talked about..

Okay. Thank you. I'll get back in queue. .

Thank you..

Hearing now from Sean Quinn [ph] of Cowen. Please go ahead..

Hi, good morning..

Good morning..

My first question is in relation to 225, the most recent 225 crash was not the first and I'm wondering if you have a sense from the unions regarding their possible reluctance to fly in the 225 moving forward even if flight restrictions are lifted..

The union workers in the North Sea in particular have been very vocal about their concerns with that model and hundreds of them have signed a petition seeking to ban that particular model from operations in the North Sea.

So without taking any position on the union stance, that is the status of the Union Position which has been quite vocal in regard to the 225 in the North Sea..

Okay. Next question is in regards to CHCs lease rejections. As you probably know, CHC has been rejecting a number of their leases in their bankruptcy proceedings. I believe they've rejected 71 leases thus far.

Do you see any impact of their lease rejections on the value of your fleet?.

Yes, we do actively follow the CHC bankruptcy proceedings for its potential impacts on the overall industry and on the utilization rate and asset values for helicopters that we operate. We agree with your numbers that show as of today 71 helicopters have been rejected.

We also understand that as of the end of last week, CHC sought to reject additional leases for 24 helicopters and they're also looking to abandon a handful of helicopters back to their lenders under their asset backed base facility.

For us, we think if you look at the 90 to 100 helicopters that may either be rejected or abandoned recognizing that some of those 24 which are identified for additional rejection, we understand appear to be the subject of renegotiation attempts in lieu of rejection.

So if its somewhere between 90 to 100, if you break that aggregate number down into individual models which we think is important, over half of the total is comprised of either H225s or L2s which as you know are not able to be operated today anyway, as well as legacy models which are really not competitive for new business.

So then you really need to look at the balance of what we would consider new generation aircraft that would be actively marketed for new oil and gas emissions today. And currently there are 11 S92s which are subject to potential rejection, 17 AW139s and about 9 S76 C+/C++ which are less really a competitive machine for certain markets today.

So that's really the potential impact that we see. Again, we are following those machines and where they might be placed when they go back to the lessors and put out for additional lease elsewhere.

As of today, it's hard to make a determination given the amount of churn that there is on this process as to what the ultimate impact might be on great utilization and asset values, but it is something that we're actively monitoring..

Great. Thank you..

Pavan Rangachar of Goldman Sachs has our next question..

Hey guys, thanks for taking my question.

First one I have is, did you guys have a full year CapEx estimate to our guide for 2016?.

Pursuant to our longstanding disclosure policy, we don't provide forward-looking guidance. What we have provided in our disclosure is that, if you take out the capital that we elected to spend to take delivery of the AW189s in the fourth quarter of this year which we’ve disclosed will be offset by the planned asset sales in Q4 of this year.

There's really about $24 million in remaining unfunded firm capital expenditures of which approximately $9 million will be required during the remainder of this year, approximately $12 million would be spent in 2017 and the balance which is approximately $3 million would be spent in 2018.

So we view that schedule of capital expenditures is being very manageable for the company given our cash flow..

Yes, sir. Thanks so much..

Thank you..

Pressprich’s Adam Ritzer has our next question..

Hi good morning. I just had a follow-up question on your capital commitments. I think last quarter you guys said the non-cancellable for the rest of 2016 was $13 million and seventeen twelve a million. Yet now you're saying the not cancellable or unfunded is $35 million in 2016 and you just spent like you said another $39 million.

I mean $90 million to two new helicopters.

What am I missing in terms of what's not cancellable and what you're spending?.

Yes, so it's about approximately $20 million which we elected to spend and take delivery of this two $198 million which as we talked about is really going to be effectively cash neutral in terms of the upgrade that we're doing to the fleet because of the sells, the three mediums which are also occurring in Q4.

So the balance is really consistent with what we owed. Q4 of this year and then looking into 2017 and 2018..

So I guess getting back to prior questions back to CHC, clearly Bristow has a significant unutilized aircraft. Why would we spend the money twenty million or one eighty nine, I realize it's cash neutral.

If they're so much excess capacity out there, and potentially you may be able to get better deals from equipment coming out of the CHC bankruptcy or things of Bristol may not need. There are no 189 which are subject to the CHC bankruptcy process.

Looking at the 189 model, we believe that that model will be very well received in the offshore oil and gas industry.

We've been pleased since we've been operating to now since 2015, we've been pleased with the performance metrics of that aircraft with the operating cost profile which is attractive in any environment but particularly in an environment like we have today where everyone is focused on cost and the AW189 can really perform a lot of the missions that for example a 225 could perform not all of them but a lot of them with a very attractive set of economics relative to the 225.

And I think during the suspension of the 225 helicopters, the 189s have really proven their medal and we were optimistic about the long term future of that aircraft.

So what we saw was an opportunity to upgrade and diversify our fleet on really a cash neutral basis and we think that that strengthens our competitive position for the eventual recovery when that does come.

Got it?.

Are those aircraft currently under contract?.

No, the two new aircraft do not have firm contracts in place today. But we believe that the pro-forma fleet mix is a more marketable set of assets than what we had prior to executing the series of transactions..

Got it. And my other question has to do with some of the comments, Charles fabric can made to seek or release I guess last Friday. He was quite negative about the offshore industry talking about brutal conditions in Q4 and Q1. I know it's a boat business, not a helicopter business but a lot of it may have to do with you know rigs entering service.

IHS Petra data recently lowered their rig forecast this year and talked about being a longer turn. And you guys are talking about some stability. Are those, is your commentary that much different than what others are saying and if not why do you guys think we're starting to see some stability..

Sure. I won't specifically comment on Charles' letter. I will refer any questions on that to Charles. I would say that if you look at our industry compared to other sectors like marine vessels, there are some principles that will apply particularly on the demand side.

And there are other principles which are not nearly as applicable for our sector particularly on the supply side. It isn't much difference in supply dynamics between drilling rigs and marine vessels, which can be built in any number of shipyards around the world.

I think probably today – as far as many shipyards in China, they will building those vessels as they’re used to be and the rest of the world combined.

In the helicopter space, there are really just for OEMs who are manufacturing helicopters and Bell hasn't manufactured a new generation helicopter in a number of years, so the supply dynamic and in our sector while challenged during the current MT downturn as we've talked a lot about, we believe is substantially different than other sectors such as vessels and rigs.

.

Okay, what about you know potential demand with rigs. I mean do you guys still see rigs, the rig count going down or do you think that rig count has finally stabilized I guess - that's a key part of the whole supply demand dynamic right..

What we - the commentary we made last quarter and carry that forward to this quarter is that if you look at our oil and gas operations in the Gulf of Mexico, we have seen a stabilization of activity and that I think for itself out on the sequential quarter increase in both flight hours and revenues.

So this is that admittedly low levels of activity and we're somewhat bouncing along the bottom, but that's why we use the view that we pick activity in that market has stabilized.

Now there is some seasonality as we always talk about in our business and that Q2 and Q3 just on a seasonal basis tend to be more active in Q4 and Q1 due to longer daylight hours better weather et cetera.

If you then look at our international oil and gas operations, those have actually been a relative bright spot for us and again those revenues increased on a sequential quarter basis. So I think you see there in the numbers why we're taking a view that we - that we see some stability in the market.

And you know it's important if you're looking across the industry also to focus on customer mix. And in the Gulf of Mexico, as an example, we benefited from our customer mix. As we're required to disclose in SEC filings, Anadarko was our largest customer, our second largest customer is BSEE. Anadarko has remained committed to the Gulf of Mexico.

They've enjoyed a lot of success with their portfolio of assets in the Gulf of Mexico.

They reiterated that commitment by buying Freeport-McMoRan and that transaction is expected to close around yearend, which is going to approximately double their production from the Gulf of Mexico and increase the number of offshore production facilities that they operate from 7 to 10.

So, we benefited from Anadarko's level of activity in the Gulf of Mexico.

And also with BSEE, which is our second largest customer, really their activity is not directly tied to the commodity price, they have requirements to perform their mission to go out and inspect on regular intervals, the various offshore facilities that exist in the Gulf of Mexico.

And we're very pleased to have held that relationship with BSEE for the last 10 years and very pleased to have secured the new contract for the next five years, which we see as a validation of our mission to provide safe, efficient and reliable services to our customers..

That's great. Okay. Thanks very much for the color. I appreciate it. Thank you..

Thank you..

[indiscernible]..

This might be senses subject around EC225 are rigging out the value of those assets on a balance sheet basis, have we discussed legal remedies, I never would claim to be a lawyer, but I mean we were contracted by a helicopter to fly missions and it's in a hangar, we can't do anything with it, I mean is there any recourse for these units as they can't return to service?.

We do closely monitor our expenses, the losses and the related damages as a result of the suspension and the underlying root cause of the accident with the 225s. We're not disclosing those amounts due to commercial and legal sensitivities as we do expect to seek recovery of such damages from the manufacturer..

Okay, that's helpful. And this has kind of been asked indirectly, but maybe more direct way of asking it is, what is the best use of our capital at this point in time? The stock continues to trade at a very significant discount, the company is free cash flow positive, we’ve just reworked all our debt covenants.

I think you mentioned we're not precluded from buying back the debt. But then we spent a decent amount of money on some new units, which are strategic, but if you look at that amount of money you spent on helicopters, it's also in context to the market cap of the stock, it's pretty meaningful.

So just give us an update on best use of capital and then maybe prioritize it in a much different bucket, how you are looking at things right now?.

Sure. So we continue to Era’s stock price as an attractive investment opportunity and we will continue to evaluate both potential repurchases of stock and repurchases of bonds, which we've done a lot of, about $55 million of bond repurchases since the beginning of 2015.

That being said, given the uncertainty that exists about the ultimate severity and duration of the downturn, we plan to take a conservative approach and prioritize the strength of our balance sheet and the maintenance of our liquidity position.

And I think we've enhanced that position with the credit facility limit that was secured in October and that's going to continue to be our priority. There may come a time when we will have more visibility on the timing of a recovery and that may change the prioritization of the opportunities.

And so we just plan to be nimble and continue to monitor the developments as they take place and make relative adjustments in the prioritization of the capital allocation accordingly..

Okay. I will ask the same question in a different way.

So we've been paying down the revolver, you didn't buy any bonds, you didn't buy any stock, should I continued to anticipate that the revolving credit facility balance will decline at least for next three to six months?.

I think consistent with the commentary, we will continue to prioritize the debt reduction whether that will come from bond purchases, which we have done a lot of, we bought back more than 25% of the original amount of the issuance or pay down on the revolver, we'll have to see.

We will continue to evaluate market conditions and based upon those factors make a decision as to where we're going to place the capital..

Okay.

And then circling back to the previous line of questioning on the some larger heavy units bouncing around maybe out of those bankruptcies and lease renegotiations, are any of those assets we're interested in, are we think we hold tight with strategy with the AW189s, are we interested at all in any AW139s or S76s or would we maybe be interested in some S92s that we already have a couple of?.

Yeah, of course. It is a good question. And we are again actively monitoring that. We haven't seen as of today a level of distress in the system that have presented asset values at such a distressed place that where we've seen an opportunity to go in and opportunistically purchase those at a discount to fundamental value.

But we're monitoring it for the potential that that could happen, but we just haven't seen that level of distress as of today..

Okay. Thank you..

Thank you..

Sean Sneeden of Oppenheimer has our next question. Please go ahead..

Hi, thank you for taking the questions..

Thank you..

Maybe as a follow-up to some of the ones on capital spending, but maybe asking in a different way, Chris, how do you think of – as you try to plan for 2017, your capital outlays, is the goal generally to be to spend within cash flow, generate free cash flow or how you guys kind of generally speaking are thinking about that?.

Yeah, without providing guidance because we don't do that pursuant to our longstanding disclosure policy. What I will say is we believe that we have a manageable capital expenditure schedule for 2017. As of today, we're required to spend approximately $12 million related to helicopter deliveries that will come in in 2017 and 2018.

Beyond that we usually have a modest amount of additional maintenance capital that applies to things like a facilities, equipment, vehicles and so forth. We don't have any real maintenance expense related to the helicopters that’s capitalized. As you know, we fully burden our P&L with that and expense all maintenance activities on the helicopters.

There is a lot of discretion on those non-helicopter expenses, if we feel like the market environment is getting worse, we have the ability to defer some expenses there. And then if you think about our other cash needs, of course, we have the interest payments that are obligated. We don't expect to be a net federal income tax payer in the U.S.

in the near future. So we're certainly going to prioritize the generation of cash. We've been pleased with our ability throughout the first nine months of 2016 to continue to generate positive cash flow, which is now total $46 million year-to-date in operating cash flow.

So we will from both an operating cash flow and a free cash flow standpoint after CapEx expense continue to prioritize the generation of cash and then the near-term given the uncertainty about the timing of the market recovery as we’ve talked about, the priority for the allocation of that cash will be protecting the balance sheet..

Okay, that’s helpful. Maybe just kind of two follow-ups on that.

One, if we assume somewhat stable activity levels as we have today, can you give us a sense or order of magnitude of what that maintenance capital would look like for kind of the non-aircraft expenditures?.

Well, we don't provide forward-looking guidance pursuant to our policy, but I will say if you look at it historically and we have some disclosure on this I think going back to actually Cowen conference in December of last year about what those non-aircraft maintenance high capital expenses have been in previous years and you'll see that it's really been somewhere on average in the mid-single-digit in terms of millions of dollars in any given year.

But again we have quite a bit of discretion there as to whether or not we need to spend that in a particular period..

Okay, that’s helpful. And then just can you give me a sense of how you guys are thinking about working capital? I think it's been a little bit of a source of cash year-to-date.

How are you guys generally thinking about that kind of going forward? I assume if we think about relatively flat, maybe slightly increasing activity levels, should still be kind of a net generator of cash, is that a fairway to think about it?.

Yeah, Sean, this is Andy. We spoke a little bit about this in our Q2 call that we have so far generated a pretty significant amount of our operating cash flow from kind of the net decrease in working capital just due to our lower activity levels. And we said last quarter that we didn't expect that to continue as the activity levels stabilize.

And so I think that still – that comment still holds true. In Q3, we did generate some additional cash flow from working capital and that was primarily due to the collection of tax receivable that we had in Q2 that was collected during the quarter..

Okay, that’s helpful.

And then maybe just lastly for Chris, I mean, perhaps with that being too specific, but have you guys had any conversation with Anadarko about any kind of future aircraft requirements post-closing of their Freeport deal?.

We, as you might imagine, have dialogue with Anadarko really on a daily basis. I think it's too early at this point to talk about what the change in activity will be. They're expecting to close the acquisition at the end of the year.

I think they will – once they take over control of operations, which we understand will be staged that transition, they will have a better idea for what their additional helicopter needs will be..

Okay, that's fair enough. Thank you very much..

Thank you..

Redwood Capital’s Christopher Hagedorn has our next question. Please go ahead..

Hi, guys, thanks for taking my question. I just had one, I think most it had been asked, but you mentioned that you sold three helicopters – medium helicopters, I think, after quarter end. And I guess just a couple of questions on that.

Am I right in assuming that these are AW139s if you can say?.

Good morning, Chris. We sold two medium helicopters in October, which have closed..

Yeah..

And pursuant to a contractual agreement, we will expect to sell another medium helicopter before yearend. Of the three medium helicopters sold in Q4, to be sold in Q4, two of those are AW139s, and one is an older legacy Bell 424 helicopter..

Got it.

And I guess maybe can you just talk maybe a little bit more generally how this – I mean how this deal came about, like how long it takes to line that up, how easy or difficult you found it to transact on these three, is it like – is it one buyer or several buyers? I don't know to what extent you can talk about it, but I’m just curious to get some more color on how that came about..

Yeah, pursuant to our strategy, we don't comment on specific transactions. We view buying and selling helicopters as one of the ways that we create value for shareholders and we also view it as being really highly competitively sensitive information.

What I can say is that we are very pleased with the values that we were able to realize on the three medium helicopters that will be sold in Q4 and so we were encouraged by the amount of cash that we were able to bring in from those transactions..

Got it. And do you think that this would be sort of, I mean, as you trade off into these AW189s or as you plan, do you think this type of transaction is repeatable, i.e.

you could do more of that and then potentially swap into further AW189s if you choose to or you think it's kind of a one-off-ish event?.

Well, we believe that it has proven to be repeatable over a multi-year period..

To the speakers, we are unable to hear. [Technical Difficulty].

…medium aircraft. So I think that what we've done here is consistent with what has been a long term trend for the company..

Hi, Chris. Sorry, we lost you there for two minutes. So maybe can you….

Yeah, to the speakers, we lost your audio..

Okay.

So as a helpful tip, where was I when we dropped?.

So, I think, I asked the question sort of around the repeatability of this transaction and then really sort of pretty quickly after – I think after the first or second sentence, you start cutting out. So I think pretty early..

Okay. So let me try to recap that again.

We believe what we – the transactions that are being executed in Q4 really consistent with multi-year strategy that dates back to the time that SEACOR acquired the business and has really carried forward through the spin off over the last almost four years now, which is that we've been high grading the fleet by adding what has generally been newer technology, larger aircraft and funding a good portion of those expenditures by selling light aircraft or legacy medium aircraft.

So that's really consistent with what we've done over the years. We think there may very well be continue to be opportunities to do that going forward.

I would posit that as of today given what we've said about our strategy of protecting the balance sheet that if we look at bringing in optional aircraft, so capital that we're not otherwise obligated to spend on new deliveries, it's likely that we would we would be very careful about looking at additional spend for new equipment unless we were able to largely fund that by cash from other sources such as asset sales..

I got it. Thanks. That’s very helpful..

Thanks, Chris..

We will go next to John Schmidt, Schmidt Research [ph]..

Yes, thanks for taking my call.

I had a question regarding the asset values of the helicopters that you guys sell and just if you recall the previous speaker and you know your prior history indicates that usually you sell the helicopters above the book value that we see in your accounts, but in the last quarter it appears that you actually saw them below book value.

I think it was about a couple of $100,000 hit that you guys registered from that sale. I guess my question is whether this is kind of a one-off or what kind of drivers’ maybe you can elaborate are behind that? And is it something that we should see again in the next few quarters or is it something that is just limited to the last quarter? Thank you..

Sure. So you are correct that if you look at our history, our track record of selling aircraft and we've done over 100 plus aircraft sales over the last 10 years, generally speaking, we've – on average, we've done that at a significant gain over book value. Having said that, each transaction is distinct and has its own characteristics.

If you look at the one helicopter that we did sell during Q3 of 2016, it was a single engine helicopter that we actually acquired when we bought the Sicher business in Colombia. That is almost a 30 old machine, it had not been really operated in quite some time.

And so we were very pleased with the cash that was able to be raised from selling this aircraft, which again was really a non-strategic older single-engine aircraft that had not flown in quite a while. And the value recognized relative to book value is, I think, reflective of the characteristics that I just described..

Okay.

Are there a lot of assets like that in your fleet that you're looking to dispose of over the next 12 months or is this more of a one-off legacy helicopter?.

Yeah, the short answer is that this is more of a one off helicopter. Again, we picked it up when we bought the Sicher business in Colombia in April of 2015. If you look at the rest of the fleet, really whether we would sell other aircraft that are either single-engine or a light aircraft just depends on the opportunity.

We don't have specific helicopters that are held for sell.

The way that we manage our portfolio of assets is that when an asset is available, we will generally evaluate three alternatives, what we can generate in cash flows operating it ourselves for our own in customers; secondly, what we could generate in cash flow by leasing it out to another operator; and thirdly, what we can generate by monetizing the asset in the secondary market.

We generally evaluate those and pursue the highest net present value option of the available alternatives..

Okay, that's helpful. Thank you..

Thank you..

We'll go next to James West with a follow-up question again from Evercore ISI..

Hi, guys. This is Kim [ph]..

Hi, Kim. Good morning..

Can you just discuss process behind exiting the PBH programs and the 225s and how those credits were calculated?.

Sure. We exited two different PBH programs, one related to the airframes on the 225s, one related to the engines on the 225s. Those were with separate counter parties. We were owed certain credits, which relate to the flight hours that existed on the aircraft at the time of the exit relative to the PBH – previous PBH payments, which has been made.

And so, $5.7 million of credits related to the removal of those helicopters from those PBH programs were recognized in Q3. There's an additional $3.8 million of credits related to the exit of that PBH coverage that we expect to recognize over the next five to six quarters..

Okay.

And so netted against the other OpEx – the normalized OpEx number is closer to $46 million is that right?.

For Q3, yeah, without the impact of that $5.7 million..

Okay, got it.

And on the sale of these mediums, two that have already occurred in one contract, were those within the market or outside of oil and gas?.

We don't make commentary on the specific transactions. What we will say for the purposes of addressing your question is that not all of the helicopters were sold into oil and gas end markets..

Okay.

Lastly, I don't know if you will be able to comment, but was there any material changes to the renewed BSEE contract?.

So we're very pleased to have the renewal of the BSEE contract. In terms of changes, it will really depend upon the exercise of any on call or optional aircraft over the life of the contract and how that compares to the utilization of such aircraft over the previous five years.

If you look at just the exclusive use helicopters that are contracted, the new contract, the renewal is one less, one fewer aircraft than the contract that expired at the end of September. That being said, for the first time in the life of the contract one of the exclusive use helicopters is going to be a medium helicopter.

So the relative fleet mix of the new contract is actually a slight net positive compared to the relative fleet mix of the expiring contract..

Okay. Thanks guys..

Thank you..

And it appears that is all the time we have for questions today. I’d like to turn the conference back over to our speakers for any additional or closing remarks..

Thank you, Sarah, and thanks everyone for joining the call. We were pleased to secure the additional flexibility with the amendment on our credit facility and again very encouraged by the strong support we received from our bank group there.

Continued to be pleased with our ability to generate cash flow throughout the downturn to date and we're going to continue to prioritize protecting our balance sheet and placing the company in a more favorable competitive position for the eventual recovery. Thanks again and we'll talk to you again next quarter..

And again that does conclude today's conference. We thank you all for joining..