Skifield detracts from float of Helicopter Line

Press, 16 April 1986, Page 46

Skifield detracts from float of Helicopter Line

A growing tourist business

By

NEILL BIRSS

The imminent float of the Helicopter Line, Ltd, offers an interesting investment. But how well will the enterprise fly with a skifield aboard? This is one of the aspects would-be buyers of the shares should be examining.

Investors have the chance to buy into a largely tourist venture with the public issue of eight million shares by the Helicopter Line. Stock exchange listing will be sought.

The company emphasises that the 42 helicopters which are the core of the venture spend

only about 30 per cent of their time in tourist work. But the inclusion of a majority stake in the Treble Cone skifield near Wanaka, and the fairly static market for the rest of the helicopters’ work means that the tourist market is central to this float.

The shares are being issued at 40c, with an additional premium of 10c. The public’s shareholding is a quarter stake in the company. The rest of the shares will be held by the owners of the two helicopter firms and the stake of the skifield. These parties, in addition, receive cash payments totalling $1,461,235. Helicopter Line will buy from Whirl-Wide Helicopters, Ltd, 29 helicopters, a fixed-wing aircraft, tourist facilities, hangars, plant, equipment and motorvehicles for a total of $8,055,424 — 14,398,500 fully paid 40c shares at a premium of 10c each, and $856,174 in cash. WhirlWide includes a North Island helicopter subsidiary, Wishart Helicopters (1978), Ltd. It will buy from Alpine Helicopters, Ltd, 13 helicopters, one fixed-wing aircraft, tourist facilities, hangars, plant and equipment, motor-vehicles and other assets for $4,029,561. This will be by 7,199,250 fully paid 40c shares at a premium of 10c each and $429,936 in cash. From Mr Graham Sinclair, a Wanaka lawyer, and Mrs Helen Alexandra Sinclair, and the trustees of their family trusts, Helicopter Line will buy

1,100,000 shares in Treble Cone (Wanaka) Ski Field, Ltd, for $1,375,000. This will be satisfied by the issue of 2,399,750 40c shares at a premium of 10c each and $175,125 in cash. It is difficult to estimate what the helicopter assets of the new company would fetch on the mar-

ket. Motor Holdings (Aviation), Ltd, the distributor for Hughes helicopters and Cessna aircraft, says after studying detailed assessments by the makers of the helicopters in the company, that: ® The 42 helicopters of the two firms are worth not less than $11,037,000. @ Two Cessna aircraft of the firms are worth a total of $185,000. According to the prospectus, the assets of the Treble Cone skifield at October 31, 1985, were $1,862,228. However, Mr Sinclair, the chairman of the skifield company (and a director of both Alpine and Whirl-Wide Helicopters for 11 years) says there has been other expenditure on improving the field since then. This includes earthworks for a beginner slope. The Helicopter Line has one of the most appealing products of any issue. Those who have taken one of its helicopter tours from Glentanner will find it difficult to keep their wallets in their pockets. For $125, the visitor can be whisked from Glentanner around the National Park in an Aerospatiale Squirrel helicopter. The view is superb. The passengers seem to be almost in a glass bubble. It is a 45minute ride through grandeur: over the Hooker Glacier; beside razor ridges, light snow smoking off them; over Mount Tasman and the Fox Glacier; almost through the Hochstetter ice flow with its pressure pinnacles; down through a glacier

canyon of brown rock and snow, with a floor of black ice. The trip includes a landing high in the mountains outside the national park. The helicopter rides at Queenstown are also spectacular. Up and over the barren ranges, looking down on a secluded prospector’s hut, seemingly leaping over the edge of the canyons. The Helicopter Line has established popular tourist services: alpine ski-ing, mostly for foreign visitors, trips linked to jet-boat rides, and services to skifields.

Servicing oil rigs, geological parties, and lighthouses are some of the other tasks. Helicopters are used for laying cable to telephone and power poles in the backblocks, and the management says it could do this cheaper than traditional means in city suburbs, too. Most sheep stations now use helicopters for mustering, says a director, Mr R. D. Spary, of Arrowtown. Typically, a runholder will use a hired helicopter to spy out his stock, and then to drop musterers and dogs at key points for mustering. The growth of horticulture has provided much new work. In the North Island, helicopters are being increasingly used in forestry work, spot spraying, and setting fires for clearing land for trees.

Nevertheless, with the state of the economy, and the future for tourism in New Zealand, it is the tourist business which will provide the growth for helicopter firms.

The hills buzz with competitors, but the Helicopter Line directors are banking on their executives, pilots, and maintenance staff to carry the day. The management of Alpine and Whirl-Wide Helicopters stands comparison with any in the business. The pilots are first class, Including on the tourist side such veterans as Mr Ron Small, branch manager at Tekapo, who won an award for brilliant rescue work on Mount Cook. On the other side of the business are experts such as Mr Bill Black, of Te Anau, renowned in the deep south for his skill in such difficult tasks as cable-laying from the air.

The maintenance facilities are impressive. These will be chiefly at Frankton (Queenstown) and Timaru. The company keeps a large stock of spares, and claims meticulousness in keeping to the letter of the regulations in such matters as overhauls at required hours. Alpine Helicopter aircraft on deer-recovery work will not be brought into the Helicopter Line.

The Helicopter Line forecasts in the prospectus gross revenue for the 11 months ended March 31, 1986, of $9,768,000 and an operating profit of $1,439,913. For the year to March 31, 1987, the forecast is revenue of $12,014,300 and operating profit of $2,636,579; and for the following year, $13,546,400 and $3,526,602. In making the forecasts, the company assumes the annual inflation rate will be 10 per cent, and interest of 16 per cent a year on cash surpluses generated from operations. The Helicopter Line will deviate from standard accounting practice by not charging depreciation each year on its helicopters. In-

stead, the helicopters will be revalued annually. Any decline, or rise, in the value of the machine will be charged or credited to operating profit.

The directors say in the prospectus that they do not expect that the fleet will appreciate in value. The current price of helicopters, affected by the value of the New Zealand dollar, technological developments, and the number of machines on the market will therefore affect the profit of the Helicopter Line.

The terrain of New Zealand is ideal for helicopter firms, and with the records of the constituent firms, the air activities of the Helicopter Line seem a reasonable prospect.

The Treble Cone skifield is harder to assess. It is argued that, in the long run, skifields will be money-spinners. But at present Treble Cone is one of four skifields in Central

Otago competing for local skiers from Otago and Southland, with only a modest population. In international customers, the four compete with fields farther north, such as Mount Hutt. Treble Cone has been regarded as a field for the good-to-expert skier. The earthworks for the learner slope will broaden its appeal, but for the present, at least, it is generally not perceived as a field for the middle-skills skier.

The Sinclair family is not making a fortune out of selling its majority stake in the skifield to the airline. From the prospectus it seems to be, at best, making only a modest capital gain on outlay. But it will be able to unlock capital that has been in an unlisted public company. In the five-year financial review of the Treble Cone (Wanaka) Ski Field, Ltd, included in the Helicopter Line prospectus, revenue for the

field, with, first, net profit, and, second, net assets, is listed as: 1981: revenue $306,898, net profit $42,955, net assets $421,564; 1982: $418,105, $43,243, $449,183; 1983: $439,800, $20,130, $459,689; 1984: $589,185, $15,765, $909,830; 1985: $764,280, $17,914, $912,120. At October 31, 1985, the accumulated losses of Treble Cone wdre $106,653, though this would have been lower if it had not been for the company’s specified preference dividend shares. The problems of skifields are well known: the capital investment, the seasonal revenue, the weather. They depend for growth on the .increase in tourism, and though this growth seems assured, the steadiness of the expansion will depend on factors such as foreign-exchange rates.

The helicopter firms that have joined to form Helicopter Line have had close cooperation with skifield operators throughout the South Island, ferrying customers for heli-ski-ing and developing cross-country ski-ing. The Helicopter Line directors say that in valuing the Treble Cone shares they have taken into account the skifield company’s modest earnings; the fact that it is now better financed (after a doubling of its paid-up capital); and that there is a potential for the revaluing of the assets.

They say that the cash flow from the skifield “fits very comfortably into that of the Helicopter Line.” In favour of the Helicopter Line is an experienced directorate overseeing the experienced executive. The chairman, Mr Reid Jackson, a Dunedin public accountant, is one of the country’s best known directors. He is chairman of Alliance Textiles, Ltd, New Zealand Cement Holdings, Ltd, John Edmond Holdings, Ltd, and Freesia Meats, Ltd, and is on the boards of Computer Consultants, Ltd, Alliance Freezing Company

(Southland), Ltd, Winstone, Ltd, and R. and W. Hellaby, Ltd. He has been chairman of Alpine Helicopters, and its group, including Whirl-Wide, for 11 years. The managing director is Mr Graham Gosney, managing director of Whirl-Wide for 11 years (and a director of Treble Cone). The other board members: Mr Tim Wallis, of Wanaka, is group manager of Alpine, which was formerly Luggate Game Packers, Ltd. He has substantial investments in deer farming. Mr Spaiy, of Arrowtown, the managing director of Alpine Helicopters, is a former British Army officer, and has had many years experience in helicopters, military and civilian. Mr Sinclair, as well as practising law for 28 years, has a number of business interests, including farming and tourism. He is a past world president of Jaycees International.

The directors expect that the share-premium account of the company will stand at almost 53.2 M after the issue. This will be useful for bonus issues. It is not yet clear whether such funds can be used in dividend re-invest-ment schemes.

They say that if the forecast profit levels can be achieved, the company will pay a maiden dividend of not less than 6.25 per cent (2.5 c a share) for the year ended March 31, 1988. The issue will open at 10 a.m. on May 14 and will remain open until 5 p.m. the same day unless earlier subscribed in full. Six million shares have been reserved for allocation to brokers’ clients. A public pool of two million shares will be available for general subscription. The organising brokers, all of Dunedin, are Forsyth Barr and Company; H. Robert Wilson, Greenslade and Company; John Reid and Sons. The issue is being underwritten, at no charge by the directors, except Mr Jackson.