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AIRM - Air Methods Corporation


Guest Schwab711
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Business:

Provides air medical emergency transport services and systems in the United States. The company operates in the Air Medical Services (AMS), Tourism, and United Rotorcraft (UR) segments.

  • The AMS segment provides air medical transportation services to the general population as an independent service, as well as to hospitals and other institutions under exclusive operating agreements. AIRM has 280 company-owned aircraft and 111 leased aircraft.
  • The Tourism segment provides aerial tours and charter flights, primarily focusing on Grand Canyon and Hawaiian Island tours. It operates 56 helicopters under three Part 135 Air Carrier Certificates.
  • The UR segment designs, manufactures, installs, and certifies modular medical interiors, multi-mission interiors, and other aerospace and medical transport products for domestic and international customers. This segment also offers quality assurance and certification services.

 

AIRM is basically a roll-up of medical flight businesses throughout the country (local monopolies with capital economies of scale). AIRM has ~30% market share (pre-Tri-State Care Flight acquisition). This market has a lot of pricing power because of the local monopoly aspects of the business and the barriers to entry. They cannot charge whatever they want but they can probably raise prices faster than inflation.

 

Performance/Valuation:

Morningstar valuation summary

 

Margins:

40% GM

27% EBITDA

20% EBIT

10% NM

 

Other metrics:

Over the past 10 years:

revenue growth of +14% (compounded)

ROE of 18%-20%

ROIC ~10%

ROA ~7.5%

 

Valuation:

TTM P/E:          15.4x

proj FY16 P/E:  13.4x

EV/EBITDA:      8.1x

EV/EBIT:          11.5x

Debt/Equity:      ~1x

FCF is consistently positive. However, FCF has been lower than NI nearly every year. I'm not sure why CapEx is so high relative to D&A.

 

Other:

*There's talk of an offer to take AIRM private a few months ago. This certainly seems like a P-E investment.

 

http://www.zacks.com/stock/news/190465/air-methods-up-on-going-private-proposal-from-voce-capital

http://www.morningstar.com/news/business-wire/BWIPREM_20151020006038/voce-capital-sends-letter-to-board-of-air-methods-corporation-reiterating-call-for-urgent-action.html

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Seems like a pretty interesting idea, especially if Voce is able to effect the takeout they seem to want to pursue. Have you been following that little drama at all?

 

I'd be hesitant to look at this as a very long-term investment --the vast majority of medical air transports are medically unnecessary, and even a chunk of medically justifiable flights are probably not 10-grand-justifiable. Seems like the industry is just small enough to fly under the political radar. It does seem like a pretty difficult problem to resolve with regulation. But I'd want to increase my confidence in that hunch by about 100-fold before diving in.

 

What are your thoughts on this?

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I've been looking for emergency vs non-emergency breakdown for AIRM or the industry and so far I haven't found anything relevant. I don't know much about the industry or how it ties in to healthcare as a whole. If the large majority of flights are emergency or non-emergency, paid-in-cash, then I think it could be a great investment. There's an obvious need for the service and regulations have picked up dramatically in the last 5-10 years (because they were under the radar for a few decades), which has raised the barriers to entry.

 

I just don't know what I don't know right now. Hopefully others have some insight. I like the industry, in theory.

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