Note 8 — COMMITMENTS AND CONTINGENCIES

Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the next five fiscal years to purchase additional aircraft. As of March 31, 2014, we had 43 aircraft on order and options to acquire an additional 55 aircraft. Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order will provide incremental fleet capacity in terms of revenue and operating income. As discussed in Note 1, we were awarded a contract to provide SAR services for all of the U.K. The SAR configured aircraft on order in the table below are intended to service this contract.



	Fiscal Year Ending March 31,
	2015		2016		2017		2018 and beyond		Total
Commitments as of March 31, 2014: ⁽¹⁾
Number of aircraft:
Medium	10		—		—		—		10
Large ⁽²⁾	13		6		3		—		22
SAR configured	5		6		—		—		11
	28		12		3		—		43
Related expenditures (in thousands)⁽³⁾
Medium and large	$	373,755	$	89,741	$	37,587	$	—	$	501,083
SAR configured	106,704		99,690		—		—		206,394
	$	480,459	$	189,431	$	37,587	$	—	$	707,477
Options as of March 31, 2014: ⁽²⁾
Number of aircraft:
Medium	—		7		7		7		21
Large ⁽²⁾	—		8		14		12		34
	—		15		21		19		55

Related expenditures (in thousands)⁽³⁾	$	88,831	$	350,145	$	422,100	$	263,043	$	1,124,119

_________


⁽¹⁾	Signed client contracts are in place that will utilize 19 of these aircraft.


⁽²⁾	Five large aircraft on order and seven large aircraft under options expected to enter service between fiscal years 2016 and 2019 are subject to the successful development and certification of the aircraft.


⁽³⁾	Includes progress payments on aircraft scheduled to be delivered in future periods.

The following chart presents an analysis of our aircraft orders and options during fiscal years 2014, 2013 and 2012:



	Fiscal Year Ended March 31,
	2014				2013				2012
	Orders		Options		Orders		Options		Orders		Options
Beginning of fiscal year	45		70		15		40		6		31
Aircraft delivered	(21	)	—		(8	)	—		(9	)	—
Aircraft ordered	18		—		26		—		13		—
New options	—		—		—		42		—		31
Exercised options	8		(8	)	12		(12	)	7		(7	)
Expired options	—		(7	)	—		—		—		(15	)
Orders assigned subject to leaseback ⁽¹⁾	(7	)	—		—		—		(2	)	—
End of fiscal year	43		55		45		70		15		40

___________


⁽¹⁾	During fiscal years 2014 and 2012, respectively, we transferred our interest in seven and two aircraft previously ordered in return for $106.1 million and $23.4 million in progress payments previously paid on these aircraft.

We periodically purchase aircraft for which we have no order.

Operating Leases — We have non-cancelable operating leases in connection with the lease of certain equipment, land and facilities, including leases for aircraft. Rental expense incurred under all operating leases, except for those with terms of a month or less that were not renewed, was $105.8 million, $67.4 million and $46.0 million in fiscal years 2014, 2013 and 2012, respectively, which includes rental expense incurred under operating leases for aircraft of $83.5 million, $46.8 million and $27.9 million, respectively. As of March 31, 2014, aggregate future payments under all non-cancelable operating leases that have initial or remaining terms in excess of one year, including leases for 61 aircraft, are as follows (in thousands):



	Aircraft		Other		Total
Fiscal year ending March 31,
2015	$	94,796	$	9,482	$	104,278
2016	87,937		7,711		95,648
2017	83,372		6,675		90,047
2018	66,071		5,596		71,667
2019	44,149		5,343		49,492
Thereafter	44,376		39,899		84,275
	$	420,701	$	74,706	$	495,407

We are using a financing strategy whereby we utilize operating leases to a larger extent than in the past. As part of this operating lease strategy, in fiscal years 2014 and 2013, respectively, we sold 14 and 11 aircraft for $246.4 million and $255.8 million, respectively, and entered into 14 and 11 separate agreements to lease these aircraft back. Additionally, in fiscal year 2014, we received payment of approximately $106.1 million for progress payments we had previously made on seven aircraft under construction and we assigned any future payments due on these construction agreements to the purchaser. We have the obligation and intent to lease the aircraft back from the purchaser upon completion. See Note 1 for further details.

The aircraft leases range from base terms of five to 84 months with renewal options of up to 108 months in some cases, include purchase options upon expiration and some include early purchase options. The leases contain terms customary in transactions of this type, including provisions that allow the lessor to repossess the aircraft and require us to pay a stipulated amount if we default on our obligations under the agreements. These leases are included in the amounts disclosed above. The following is a summary of the terms related to aircraft leased under operating leases with original or remaining terms in excess of one year:



End of Lease Term	Number of Aircraft	Monthly Lease Payment (in thousands)
Fiscal year 2015 to fiscal year 2016	9	$	1,023
Fiscal year 2017 to fiscal year 2019	26	4,264
Fiscal year 2020 to fiscal year 2024	26	2,751
	61	$	8,038

Employee Agreements — Approximately 52% of our employees are represented by collective bargaining agreements and/or unions. These agreements generally include annual escalations of up to 12%. Periodically, certain groups of our employees who are not covered by a collective bargaining agreement consider entering into such an agreement.

During fiscal year 2014, we recognized $2.9 million in severance expense included in direct costs and general and administrative expense in our North America business unit primarily as a result of our planned closure of our Alaska operations. During fiscal years 2014 and 2013, we recognized $2.1 million and $2.2 million, respectively, in compensation expense included in direct cost related to severance costs as a result of the termination of two separate contracts in the Southern North Sea. Also, during fiscals year 2014, 2013 and 2012, we recognized approximately $2.9 million, and $2.0 million, and $2.3 million, respectively, in compensation expense (including expenses recorded for the acceleration of unvested stock options and restricted stock), included in general and administrative expense, related to the separation between us and officers. We also have employee agreements with other members of senior management. For further details on the retirement of our President and Chief Executive Officer, see Note 10.

Nigerian Litigation — In November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company, Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria. The claimants allege that an agreement between the parties was terminated without justification and seek damages of $16.3 million. We responded to this claim in early 2006. There has been minimal activity on this claim since then.

Environmental Contingencies — The U.S. Environmental Protection Agency, also referred to as the EPA, has in the past notified us that we are a potential responsible party, or PRP, at three former waste disposal facilities that are on the National Priorities List of contaminated sites. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, also known as the Superfund law, persons who are identified as PRPs may be subject to strict, joint and several liability for the costs of cleaning up environmental contamination resulting from releases of hazardous substances at National Priorities List sites. Although we have not yet obtained a formal release of liability from the EPA with respect to any of the sites, we believe that our potential liability in connection with the sites is not likely to have a material adverse effect on our business, financial condition or results of operations.

Other Purchase Obligations — As of March 31, 2014, we had $55.0 million of other purchase obligations representing unfilled purchase orders for aircraft parts, commitments associated with upgrading facilities at our bases and non-cancelable power-by-the-hour maintenance commitments.

Other Matters — Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to deductible, self-insured retention and loss sensitive factors.

On October 5, 2012, a Bell 407 helicopter operated by a U.S. subsidiary of ours was involved in an accident in which the pilot was fatally injured. There were no other passengers onboard. We are currently working with authorities in their investigation.

On October 22, 2012, an incident occurred with an Airbus Helicopters EC225 Super Puma helicopter operated by another helicopter company, which resulted in a controlled ditching of the aircraft on the North Sea, south of the Shetland Isles, U.K. Following the ditching, all 19 passengers and crew were recovered safely and without injuries.

This incident resulted in the CAAs in the U.K. and Norway issuing safety directives in October 2012, requiring operators to suspend operations of the affected aircraft and our cessation of operations a total of sixteen large Airbus Helicopters aircraft for a period of time pending determination of the root cause of the gear shaft failure that resulted in the incident. The gear shaft has been redesigned and, in April 2014, Airbus Helicopters advised us that the European Aviation Safety Authority (the “EASA”) has certified the new shaft with the expectation that the global oil and gas fleet will have the new shaft installed in the next twelve months. However, in July 2013 the EASA issued an airworthiness directive providing for interim solutions involving minor aircraft modifications and new maintenance/operating procedures for mitigating shaft failure and enhancing early detection which allows the EC225 to safely fly without the new shaft. We commenced return to operational service of our EC225 fleet in the third quarter of fiscal year 2014. We currently operate 20 of these aircraft including 14 owned and six leased aircraft. Nine of the 11 aircraft in the U.K. have returned to service with another two aircraft expected to return to service in the first quarter of fiscal year 2014 which will be fitted with the new shafts. Three aircraft in Norway are currently back in operation. Five aircraft have returned to service in Australia and another aircraft is expected to return to service in June. Until the fleet is again fully operational and under commercial arrangements similar to before the operational suspension, this situation could have a material adverse effect on our future business, financial condition and results of operations.

On August 23, 2013, an AS332L2, operated by another helicopter company in our industry, ditched near Sumburgh Airport in the U.K. resulting in the loss of four lives. To date, the investigation has not found any evidence of a technical fault and the ongoing work by the U.K. Air Accidents Investigation Branch continues to focus on the operational aspects of the flight.

Following the August 2013 accident and in conjunction with two other helicopter operators in the U.K., we have established a Joint Operator’s Review of Safety to review current processes, procedures and equipment in order to identify best practice in the offshore helicopter industry, with a view to further enhancing safety for our clients and crew. Bristow Helicopters also separately participated in a United Kingdom Parliamentary Inquiry on helicopter safety (the “Inquiry”) which commenced November 6, 2013 with written submissions made on December 20, 2013 and oral hearings held January 27, 2014. We expect an official Inquiry report to be issued in the coming months.

On February 20, 2014, the U.K. Civil Aviation Authority issued a report detailing the findings and recommendations from its review of helicopter transport operations serving offshore installations in the U.K. The report, commonly referred to as CAP 1145, contains more than 60 safety actions and recommendations to improve the safety of offshore helicopter transport. Ten of the recommendations are designed to improve the survivability of passengers and crew following a ditching or impact in water.

One safety directive, which will go into effect on September 1, 2014, will restrict seating capacity on some aircraft in the North Sea until new breathing systems are available or side floats are installed. Further requirements, will be implemented over the next 12 months, including operational restrictions when sea states are above a certain prescribed level, or the flight prohibition of individuals whose size exceeds the dimensions of emergency egress windows.

On October 27, 2012, in the course of routine operations, a Bell 206 operated by a subsidiary of ours, performed a controlled sea ditching in Nigeria. All four people on board were uninjured and safe and the aircraft has been recovered. We are currently working with authorities in their investigation.

On January 21, 2014, in the course of a routine pilot training maneuver, a Schweizer 300CBi operated by Bristow Academy, experienced a rollover damaging the aircraft. Both individuals on board the aircraft were uninjured. We are currently working with authorities in their investigation.

In March 2014, we had a fire in our Port Harcourt, Nigeria aircraft hangar. Two aircraft were damaged and $11.1 million of inventory spare parts were destroyed. The aircraft hangar was partially damaged. We wrote off $11.1 million of inventory destroyed in the fire, which was offset by a receivable recorded of $11.1 million for insurance proceeds. The repairs required on the aircraft and the hangar are insured and therefore will have no impact on our results in future periods.

We are a defendant in certain claims and litigation arising out of operations in the normal course of business. In the opinion of management, uninsured losses, if any, will not be material to our financial position, results of operations or cash flows.