PETROLEUM HELICOPTERS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________________ TO ________________

COMMISSION FILE NO. 0-9827

PETROLEUM HELICOPTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

LOUISIANA 72-0395707
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

2001 SE EVANGELINE THRUWAY
LAFAYETTE, LOUISIANA 70508
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (337) 235-2452

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
VOTING COMMON STOCK
NON-VOTING COMMON STOCK
(TITLE OF EACH CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the registrant as of March 8, 2002 was $86,947,144
based upon the last sales price of the Common Stock on March 8, 2002, as
reported on the Nasdaq SmallCap Market.

The number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 2002 was:
Voting Common Stock.........................2,851,866 shares.
Non-Voting Common Stock.....................2,432,609 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 2002
Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-K.

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PETROLEUM HELICOPTERS, INC.

INDEX - FORM 10-K

PART I

Item 1. Business......................................................................................1
Item 2. Properties....................................................................................8
Item 3. Legal Proceedings.............................................................................9
Item 4. Submission of Matters to a Vote of Security Holders..........................................10
Item 4.A. Executive Officers of the Registrant.........................................................10

PART II

Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters..........................................................................11
Item 6. Selected Financial Data......................................................................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................13
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk...................................23
Item 8. Financial Statements and Supplementary Data..................................................24
Petroleum Helicopters, Inc. and Consolidated Subsidiaries:
Independent Auditors' Reports..........................................................24
Consolidated Balance Sheets
- December 31, 2001 and December 31, 2000...........................................26
Consolidated Statements of Operations
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 31, 1999, and Year ended April 30, 1999..........27
Consolidated Statements of Shareholders' Equity
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 31, 1999, and year ended April 30, 1999..........28
Consolidated Statements of Comprehensive Income (Loss)
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 30, 1999, and Year ended April 30, 1999..........28
Consolidated Statements of Cash Flows
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 30, 1999, and Year ended April 30, 1999..........29
Notes to Consolidated Financial Statements.............................................30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures....................................................................47

PART III

Item 10. Directors and Executive Officers of the Registrant...........................................47
Item 11. Executive Compensation.......................................................................47
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................47
Item 13. Certain Relationships and Related Transactions...............................................47

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................48
Signatures...................................................................................50

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PART I

FORWARD-LOOKING STATEMENTS

All statements other than statements of historical fact contained in this Form
10-K and other periodic reports filed by Petroleum Helicopters, Inc. (the
"Company" or "PHI") under the Securities Exchange Act of 1934 and other written
or oral statements made by it or on its behalf, are forward-looking statements.
When used herein, the words "anticipates", "expects", "believes", "goals",
"intends", "plans", or "projects" and similar expressions are intended to
identify forward-looking statements. It is important to note that
forward-looking statements are based on a number of assumptions about future
events and are subject to various risks, uncertainties, and other factors that
may cause the Company's actual results to differ materially from the views,
beliefs, and estimates expressed or implied in such forward-looking statements.
Although the Company believes that the assumptions reflected in forward-looking
statements are reasonable, no assurance can be given that such assumptions will
prove correct. Factors that could cause the Company's results to differ
materially from the results discussed in such forward-looking statements include
but are not limited to the following: flight variances from expectations,
volatility of oil and gas prices, the substantial capital expenditures and
commitments required to acquire aircraft, environmental risks, weather
conditions, competition, government regulation, unionization, operating hazards,
risks related to international operations, the ability to obtain insurance, and
the ability of the Company to implement its business strategy. For a more
detailed description of risks, see the "Risk Factors" section in Item 1 below.
All forward-looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph. PHI undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise.

ITEM 1. BUSINESS

GENERAL

PHI, a Louisiana corporation, was incorporated in 1949. Since its inception, the
Company's primary business has been and continues to be the safe and reliable
transportation of personnel and, to a lesser extent, parts and equipment, to,
from, and among offshore platforms for customers engaged in the oil and gas
exploration, development, and production industry, principally in the Gulf of
Mexico. The Company is a leading provider of helicopter transportation services
in the Gulf of Mexico. PHI also provides helicopter services to the oil and gas
industry internationally, and to non-oil and gas customers such as health care
providers and US governmental agencies such as the National Science Foundation.
The Company also provides helicopter maintenance and repair services. At
December 31, 2001, the Company owned or operated approximately 239 aircraft
domestically and internationally.

In September 2001, Mr. Al A. Gonsoulin purchased in a privately negotiated
transaction the Voting Stock of PHI that was owned by the Suggs Family Fund, LLC
and Mrs. Carroll W. Suggs. The stock acquired in this transaction represented at
the time approximately 28% of the total outstanding common stock and
approximately 52% of the total Voting Common Stock. The transactions did not
involve PHI or any of its officers and directors other than Mrs. Suggs, managing
member of the Suggs Family Fund, LLC, and who was also at that time Chairman of
PHI.

Mr. Gonsoulin, who was elected Chairman of the Company following the
transaction, has 35 years of oil and gas service industry experience as a
manager, owner, and investor. He founded Sea Mar, Inc. in 1977 and served as
President and CEO of that company until he sold Sea Mar to Pool Energy Services
in 1998. Through December 31, 2001, Mr. Gonsoulin continued as President of Sea
Mar, Inc., now a subsidiary of Nabors Industries, Inc.

In September 2000, Mr. Lance F. Bospflug joined the Company as its President. He
previously was President and Chief Executive Officer of T. L. James and Company
from 1999 to 2000. Prior to that, he was Executive Vice President and Chief
Financial Officer. In August 2001, the Board of Directors elected Mr. Bospflug
Chief Executive Officer of the Company, and in November 2001, he was elected to
the board of directors.

Following Mr. Bospflug joining the Company in September 2000, the acquisition by
Mr. Gonsoulin of 52% of the voting common stock, and election of Mr. Gonsoulin
as Chairman of the Company, which occurred in September 2001, the Company
implemented changes at various times to improve profitability, most notably of
which were: an across the board billing rate increase was implemented, a number
of surplus or unprofitable aircraft were sold or otherwise disposed of, a number
of actions were taken regarding some of the Company's unprofitable operations
including the discontinuation of its

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fixed-wing services and certain unprofitable international operations, the
management organizational structure was reorganized to reduce layers of
management and supervisory staff to improve operating efficiency, a reduction in
the Company's work force was implemented, the Technical Services segment's
customer focus was changed, and, lastly, the Company's office located in
Metairie, Louisiana was closed.

PHI increased the rates it charges its customers in 2001 to better align the
pricing of its services with their market value. It announced and began
implementing rate increases in January 2001 and additional rate increases were
implemented in May 2001. The May 2001 increase was the first meaningful increase
in over a decade. It has gradually instituted the higher rate schedules
throughout 2001 in accordance with its contracts and expects to have the revised
rate structure fully implemented in 2002. The Company engaged in significant
communication with customers at the time of the increase to insure they
understood the reasons for the increase, which included historical cost
increases, recent and proposed wage increases for pilots and mechanics in 2001,
and the ability to upgrade and acquire appropriate aircraft.

At various times during 2001, PHI sold or terminated leases for 40 aircraft that
were surplus to the Company's needs, aged, or operated in the Company's
discontinued fixed wing operations.

In June 2001, the Company completed phasing out its Domestic Oil and Gas fixed
wing operations. Also, in June 2001, the Company executed an agreement for the
sale of its 50% equity interest and related assets in Clintondale Aviation, Inc.
("Clintondale"), which operated helicopters and fixed-wing aircraft primarily in
Kazakhstan. (See Notes to Financial Statements Note 7 Other Assets.) In
addition, the Company ceased operations in China, Brazil, and Mexico although
one of its aircraft remains in Brazil. The Company has sold certain of the
aircraft used in these operations and intends either to sell the remaining
aircraft or return them to the US during 2002.

There was a reduction in the work force implemented in February 2001. The total
work force was reduced by approximately 161 personnel in 2001. (See Item 7. --
Management Discussion and Analysis of Financial Condition and Results of
Operations.) In the first quarter of 2002, the Company completed a minimal
reduction in work force and also implemented an early retirement program, which
will be completed in the second quarter 2002.

In addition to those actions described above there were two events which were
also significant to the Company during 2001; a collective bargaining agreement
signed with its US pilots effective June 1, 2001 and the tragic events of
September 11, 2001.

On June 13, 2001, PHI's domestic pilots ratified a three-year collective
bargaining agreement between the Company and the Office & Professional Employees
International Union ("OPEIU"). The agreement was effective retroactively to June
1, 2001. The contract is discussed further in the "Employees" section of this
Item 1.

The Company also adjusted to temporary and permanent business disruptions that
followed the September 11 attacks. After the terrorist attacks on September 11,
2001, the Federal Aviation Administration (the "FAA") suspended all domestic
flights for three days. It also further limited air travel for a number of weeks
thereafter. PHI's flight hours were impacted by these restrictions. In addition
to these temporary disruptions, PHI is incurring ongoing costs resulting from
these attacks that it believes will continue, including higher insurance
premiums relating to risk of war and additional costs in connection with the
implementation of heightened security precautions. The Company received a
reimbursement of $0.8 million from the United States Department of
Transportation under the Air Safety and System Stabilization Act that was a
result of the these events.

DESCRIPTION OF OPERATIONS

PHI operates in four business segments: Domestic Oil and Gas, International,
Aeromedical, and Technical Services. For financial information regarding the
Company's operating segments and the geographic areas in which they operate, see
Note 10 of the Notes to Consolidated Financial Statements included elsewhere in
this Form 10-K. During the year, the Company changed the strategic focus of
Technical Services from providing maintenance and overhaul services to all
customers, to providing such services only to customers that are currently
serviced by the Company's helicopter operations. The Company also plans to
fulfill a contractual obligation to provide maintenance to certain military
aircraft.

DOMESTIC OIL AND GAS. PHI operates approximately 177 owned, leased, and
customer-owned aircraft related to its Domestic Oil and Gas operations from
several bases or heliports in the Gulf of Mexico region and one base in
California.

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The operations in the Gulf of Mexico service customers located offshore
Louisiana, Texas, Alabama, and Mississippi. Operating revenues from the Domestic
Oil and Gas segment accounted for 67%, 64%, 62%, and 64% of consolidated
operating revenues during the years ended December 31, 2001 and December 31,
2000, the eight months ended December 31, 1999, and year ended April 30, 1999,
respectively.

PHI's oil and gas operations derive revenue primarily from the transport of its
customers' workers and equipment to platforms and other offshore locations. Oil
and gas exploration and production companies and other offshore oil service
companies use PHI's services primarily for routine offshore transportation, to
transport personnel during medical and safety emergencies, and to evacuate
personnel during the threat of hurricanes and other adverse weather conditions.
Most of PHI's customers have entered into contracts for transportation services
for a term of one year or longer, although some do hire the Company on an "ad
hoc" or "spot" basis.

Most of the Domestic Oil and Gas aircraft are available for hire by any
customer, but some are dedicated to individual customers. The Company operates
helicopters that have flying ranges of up to 450 miles with a 30-minute fuel
reserve and thus are capable of servicing many of the deepwater oil and gas
operations that are from 50 to 250 miles offshore. (See Item 2. -- Properties,
for specific information by aircraft model.)

INTERNATIONAL. PHI provides helicopter services in Angola, Antarctica,
Democratic Republic of Congo, and Taiwan. The Company operates approximately 21
aircraft internationally. Each aircraft operating internationally is typically
dedicated to one customer. The Company's international customers are mostly oil
and gas customers, including national oil companies and US corporations
operating internationally. However, some international services are also
provided to certain US governmental agencies. Operating revenues from the
Company's International segment accounted for 8% of consolidated operating
revenues during the year ended December 31, 2001 and 10% during each of the year
ended December 31, 2000, the eight months ended December 31, 1999 and the year
ended April 30, 1999.

AEROMEDICAL. The Company, both directly and through its subsidiary, Air Evac
Services, Inc. ("Air Evac"), provides air medical transportation services for
hospitals and medical programs in 13 states using approximately 41 aircraft. The
aircraft dedicated to this segment are specially outfitted to accommodate
emergency patients and emergency medical equipment. In Arizona, Air Evac
operates 10 of the 41 dedicated aeromedical aircraft and offers its services to
many hospitals and medical programs. Each of the other aircraft operated by the
Aeromedical segment are typically dedicated to one hospital or medical program.
The Aeromedical segment's operating revenues accounted for 17%, 19%, 21%, and
19% of consolidated operating revenues during the years ended December 31, 2001
and December 31, 2000, the eight months ended December 31, 1999, and the year
ended April 30, 1999, respectively.

At December 31, 2001, the Company discontinued a contract with an aeromedical
customer. Revenues in 2001 for that contract were $4.1 million. This contract
produced an unacceptable rate of return.

TECHNICAL SERVICES. PHI performs maintenance and repair services at its
Lafayette facility pursuant to an FAA repair station license, primarily for its
existing customers. The license includes authority to repair airframes,
powerplants, accessories, radios, and instruments and to perform specialized
services. During the year the Company changed the strategic focus of Technical
Services from providing maintenance and overhaul services to any third party
customer, to only those customers that are currently serviced by the Company's
helicopter operations. The Company implemented this change to allow the
Technical Services segment to focus on the Company's aircraft and components.
The Company will continue to fulfill its obligation to provide maintenance to
certain military aircraft.

Operating revenues from the Technical Services segment accounted for 8% of
consolidated operating revenues during the year ended December 31, 2001 and 7%
during each of the year ended December 31, 2000, the eight months ended December
31, 1999, and the year ended April 30, 1999.

SEASONAL ASPECTS

Three seasonal related occurrences affect the Company's operations, including
poor weather conditions generally, tropical storm season in the Gulf of Mexico,
and variation in the number of hours of daylight. For a more detailed discussion
of these events, see the "Adverse Weather Conditions" paragraph in the "Risk
Factors" section of this Item 1. The Company's operating results may, and
usually do, vary from quarter to quarter, depending on factors outside of its
control. As a result, full year results are not likely to be a direct multiple
of any particular quarter or combination of quarters.

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INVENTORY

For aircraft maintenance and repair related to both PHI-owned helicopters and
those repaired by the Technical Services segment, the Company carries an
inventory of aircraft parts. Many of these inventory items are parts that have
been removed from aircraft, refurbished according to manufacturers' and FAA
specifications, and returned to inventory. The Company uses systematic
procedures to estimate the valuation of these used parts, which includes
consideration of their condition and continuing utility. As a result, the
carrying values of inventory reported in the Company's financial statements are
impacted by these estimates.

CUSTOMERS

The Company's principal customers are major integrated energy companies and
independent exploration and production companies. The Company also serves oil
and gas service companies, hospitals and medical programs, government agencies,
and other aircraft owners and operators. The Company's largest customer, Shell
Oil Company and its affiliates, accounted for 15%, 12%, 13%, and 17%, of
operating revenues for the years ended December 31, 2001 and December 31, 2000,
the eight months ended December 31, 1999, and the year ended April 30, 1999,
respectively. The Company has entered into contracts with most of its customers
with terms of at least one year, although most include provisions allowing for
earlier termination.

GOVERNMENT REGULATION

PHI is regulated by a number of different federal and state agencies. All of
PHI's flight operations are regulated by the FAA. Aircraft accidents are subject
to the jurisdiction of the National Transportation Safety Board. Standards
relating to the workplace health and safety of PHI's employees are created and
monitored through the federal Occupational Safety and Health Act ("OSHA"). There
are a number of statutes and regulations that govern offshore operations.
Finally, PHI is subject to various federal and state environmental statutes that
are discussed separately in the "Environmental Matters" section below.

The FAA has authority to exercise jurisdiction over many aspects of the
Company's business, including personnel, aircraft, and ground facilities. The
Company requires an Air Taxi Certificate, granted by the FAA, to transport
personnel and property in its helicopters. This certificate contains operating
specifications that allow the Company to conduct its present operations, but
this certificate is subject to amendment, suspension, and revocation in
accordance with procedures set forth in the Federal Aviation Act. The Company is
not required to file tariffs showing rates, fares, and other charges with the
FAA. The FAA is responsible for ensuring that PHI complies with all FAA
regulations relating to the operation of its aviation business. It conducts
regular inspections regarding the safety, training and general regulatory
compliance of PHI's US aviation operations. Additionally, the FAA requires the
Company to file reports confirming its continued compliance.

The FAA's regulations, as currently in effect, require that at least 75% of the
Company's voting securities be owned or controlled by citizens of the United
States or one of its possessions, and that the president and at least two-thirds
of the directors of the Company be United States citizens. The Company's
president and all of its directors are United States citizens, and its
organizational documents provide for the automatic reduction in voting power of
each share of voting common stock owned or controlled by a non-United States
citizen if necessary to comply with these regulations.

The Company is subject to OSHA and similar state statutes. The Company has an
extensive health, safety and environmental program. The primary functions of the
safety staff are to develop company policies that meet or exceed the safety
standards set by OSHA, train company personnel, and make inspections of safety
procedures to ensure their compliance with company policies on safety. Employees
are required to attend safety-training meetings at which the importance of full
compliance with safety procedures is emphasized. The Company believes that it
meets or exceeds all OSHA requirements and that its operations do not expose its
employees to unusual health hazards.

The Company is also subject to the Communications Act of 1934 because of its
ownership and operation of a radio communications flight following network
throughout the Gulf of Mexico and off the coast of California.

Numerous other federal statutes and rules regulate the offshore operations of
the Company and the Company's customers, pursuant to which the federal
government has the ability to suspend, curtail, or modify certain or all
offshore operations. A suspension or substantial curtailment of offshore oil and
gas operations for any prolonged period would have an immediate

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and materially adverse effect on the Company. A substantial modification of
current offshore operations could adversely affect the economics of such
operations and result in reduced demand for helicopter services.

COMPETITION

The Company's business is highly competitive in each of its markets. Many of the
Company's contracts are awarded after competitive bidding. The principal aspects
of competition are safety, price, reliability, availability, and service.

The Company is a leading operator of helicopters in the Gulf of Mexico. There
are two major and several small competitors operating in the Gulf of Mexico.
Certain of the Company's customers and potential customers in the oil industry
operate their own helicopter fleets; however, oil and gas companies
traditionally contract for most specialty services associated with offshore
operations, including helicopter services.

In the air medical market, the Company competes against local and national
firms, and there is usually more than one competitor per local market. Most of
the Company's customers are independent hospitals who serve only their region.
Competition in the air medical market continues to increase.

The Technical Services segment competes regionally and nationally against
various small and large repair centers in the United States and Canada.
Competition has intensified with aggressive pricing and acquisitions by several
service providers and original equipment manufacturers and their subsidiaries.

The International segment of PHI's business primarily serves customers in the
oil and gas industry, although it does service some government contracts. Most
of PHI's international contracts are subject to competitive bidding.

EMPLOYEES

As of December 31, 2001, the Company employed a total of 1,778 people, including
approximately 595 pilots and 704 aircraft maintenance and support personnel.
During 2001, PHI reduced its work force by approximately 161 employees,
approximately 120 of which were terminated under a restructuring plan during the
first quarter of 2001. In the first quarter of 2002, the Company completed a
minimal reduction in work force and also implemented an early retirement
program, which will be completed in the second quarter 2002.

On June 13, 2001, the Company's domestic pilots ratified a three-year collective
bargaining agreement between the Company and the OPEIU. The agreement was
effective retroactively to June 1, 2001 and remains effective through May 31,
2004. The agreement includes provisions for automatic pilot base pay increases
and strike protection for the Company. Union membership under the agreement,
which falls under the Railway Labor Act, is voluntary.

ENVIRONMENTAL MATTERS

The Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage, recycling, and
disposal of toxic and hazardous wastes. Operating and maintaining helicopters
requires that the Company use, store, and dispose of materials that are subject
to federal and state environmental regulation. The Company periodically conducts
environmental site surveys at its facilities, and determines whether there is a
need for environmental remediation based on these surveys.

RISK FACTORS

All phases of the Company's operations are subject to a number of uncertainties,
risks, and other influences. Some important factors that could cause actual
results to differ materially from anticipated results or other expectations
include the following:

DEPENDENCE ON THE OIL AND GAS INDUSTRY. Approximately 72% of the Company's 2001
operating revenue is attributable to helicopter support for oil and gas
companies. The Company's business is dependent primarily on the level of
activity by the oil and gas companies, particularly in the Gulf of Mexico. This
level of activity has traditionally been volatile as a result of fluctuations in
oil and natural gas prices and the uncertainty of these prices in the future.
Low oil prices adversely affect demand throughout the oil and natural gas
industry, including the demand for PHI's products and services. As prices

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decline, PHI is affected in two significant ways. First, the funds available to
customers for the purchase of goods and services decline. Second, exploration
and drilling activity declines as companies delay or eliminate projects.
Accordingly, when oil prices are relatively low, the Company's revenues and
income are adversely affected.

ADVERSE WEATHER CONDITIONS/SEASONALITY. Three types of weather-related or
seasonal occurrences impact the Company's business: poor weather conditions
generally, tropical storm season in the Gulf of Mexico, and the number of hours
of daylight.

Poor visibility, high winds, and heavy precipitation can affect the operation of
helicopters and result in a reduced number of flight hours. A significant
portion of the Company's operating revenues is dependent on actual flight hours
and a substantial portion of the Company's direct costs is fixed. Thus,
prolonged periods of adverse weather can materially and adversely affect the
Company's operating revenues and net earnings.

In the Gulf of Mexico, the months of December through February have more days of
adverse weather conditions than the other months of the year. Also in the Gulf
of Mexico, June through November is tropical storm season. When a tropical storm
is about to enter or begins developing in the Gulf of Mexico, flight activity
may increase because of evacuations of offshore workers. However, during
tropical storms, the Company is unable to operate in the area of the storm. In
addition, as most of PHI's facilities are located along the Gulf of Mexico
coast, tropical storms may cause substantial damage to its property, including
helicopters.

The fall and winter months have fewer hours of daylight. Consequently, flight
hours are generally lower at these times, which typically results in a reduction
in operating revenues during those months. The Company currently operates 44
helicopters in its oil and gas operations that are equipped to fly pursuant to
instrument flight rules ("IFR"), which enables these aircraft, when manned by
IFR rated pilots and co-pilots, to operate at times when poor visibility
prevents flights by aircraft that can fly only by visual flight rules ("VFR").

INTERNATIONAL OPERATIONS ARE SUBJECT TO POLITICAL, ECONOMIC AND REGULATORY
UNCERTAINTY. PHI's international operations are subject to a number of risks
inherent in any business operating in foreign countries including, but not
limited to; (i) political, social, and economic instability; (ii) potential
seizure or nationalization of assets; (iii) import-export quotas; (iv) currency
fluctuations; and (v) other forms of governmental regulation.

The Company's results of operations could be susceptible to adverse events
beyond its control that could occur in any particular country in which it is
conducting operations. PHI's contracts to provide services internationally
generally provide for payment in US dollars. To the extent PHI does make
investments in foreign assets or receives revenues in currencies other than US
dollars, the value of the Company's assets and income could be adversely
affected by fluctuations in the value of local currencies.

Additionally, competitiveness in international market areas may be adversely
affected by regulations, including, but not limited to, regulations requiring;
(i) the awarding of contracts to local contractors, (ii) the employment of local
citizens, and (iii) the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local citizens.

CONCENTRATION OF CUSTOMERS IN OIL AND GAS INDUSTRY MAY INCREASE THE COMPANY'S
RISK. The majority of PHI's customers are engaged in the oil and gas industry.
This concentration of customers may impact the Company's overall exposure to
credit risk, either positively or negatively, in that customers may be similarly
affected by changes in economic and industry conditions. PHI does not generally
require collateral in support of trade receivables, but does maintain reserves
for potential credit losses, and, generally, actual losses have historically
been within expectations.

SIGNIFICANT CUSTOMERS. The Company derives a significant amount of its revenue
from a small number of major and independent oil and gas companies. The
Company's loss of one of these significant customers, if not offset by sales to
new or other existing customers, would have a material adverse effect on
business and operations. For more information on customer concentration, see
"Customers" above.

SAFETY AND INSURANCE. The operation of helicopters inherently involves a degree
of risk. Hazards such as aircraft accidents, collisions, fire, and adverse
weather are part of the business of providing helicopter services and may result
in (i) loss of life, (ii) serious injury to employees and third parties, and
(iii) losses of equipment and revenues. The Company's safety record is very
favorable in comparison to the record for all United States operators as
reflected in industry

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publications. A favorable safety record is one of the primary factors a customer
reviews in selecting an aviation provider. Significant emphasis is placed on
safety in the Company and it is a very important factor affecting daily
operations.

The Company maintains hull and liability insurance on its aircraft, which
insures the Company against physical loss of, or damage to, its aircraft and
against certain legal liabilities to others. In addition, the Company carries
war risk, expropriation, confiscation, and nationalization insurance for its
aircraft involved in international operations. In some instances, the Company is
covered by indemnity agreements from its customers in lieu of, or in addition to
its insurance. The Company's aircraft are not insured for loss of use. While the
Company believes it is adequately covered by insurance and indemnification
arrangements, the loss, expropriation or confiscation of, or severe damage to, a
material number of its helicopters could adversely affect revenues and profits.

THE PRINCIPAL STOCKHOLDER HAS SUBSTANTIAL CONTROL. Al A. Gonsoulin beneficially
owns stock representing approximately 52% of the total voting power. As a
result, he exercises control over the outcome of matters requiring a stockholder
vote.

THE COMPANY DOES NOT PAY DIVIDENDS. The Company has not paid any dividends on
its common stock since 1999 and does not anticipate that it will pay any
dividends on its common stock in the foreseeable future.

LOW TRADING VOLUME. Both the Company's voting (PHEL) and nonvoting (PHELK)
common stock are listed on the Nasdaq Small Cap Market ("Nasdaq"). However,
neither class of shares has substantial trading volume, and on some days no
shares are traded. Because of this limitation, among others, a shareholder may
not be able to sell shares of the Company at the time, in the amounts, or at the
price desired.

7

ITEM 2. PROPERTIES

AIRCRAFT

Certain information regarding the Company's owned and leased fleet as of
December 31, 2001 is set forth in the following table:

- ----------

(1) Equipped to fly under instrument flight rules ("IFR"). All other types
listed can only fly under visual flight rules ("VFR"). See Item 1.
"Business - Risk Factors, Adverse weather conditions/Seasonality."

(2) Based on maintaining a 30-minute fuel reserve.

Of the 220 aircraft listed, the Company owns 116 and leases 104. Additionally,
the Company operates 19 aircraft that are owned or leased by customers that are
not reflected in the foregoing tables. Most of the owned aircraft collateralize
the Company's long-term debt.

The Company sells aircraft whenever they (i) become obsolescent, (ii) do not fit
into future fleet plans, or (iii) are surplus to the Company's needs. The
Company often sells its aircraft for more than book value.

FACILITIES

The Company's principal facility is located on property leased from The
Lafayette Airport Commission at the Lafayette Regional Airport in Lafayette,
Louisiana. The lease covers approximately 28 acres and two buildings, with an
aggregate of approximately 256,000 square feet, housing the Company's main
operational, executive, and administrative offices and the main repair and
maintenance facility. The lease for this new facility expires in 2021 and
contains three five-year renewal options following the expiration date.

The Company owns its Boothville, Louisiana operating facility. The property has
a 23,000 square foot building, a 7,000 square foot hangar, and landing pads for
35 helicopters.

8

The Company also leases property for 12 additional bases to service the oil and
gas industry throughout the Gulf of Mexico and one base in California. Those
bases that represent a significant investment by the Company in leasehold
improvements or which are particularly important to the Company's operations
are:

The Company's other operations-related facilities in the United States are
located at New Orleans, Cameron, and Lake Charles, Louisiana; at Port O'Connor,
Sabine Pass, and Rockport, Texas; at Theodore, Alabama; and at Santa Barbara,
California.

The Company also operates from offshore platforms that are provided without
charge by the owners of the platforms, although in certain instances the Company
is required to indemnify the owners against loss in connection with the
Company's use thereof.

Bases for the Company's international and air medical operations are generally
furnished by the customer.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to, and its property is not the subject of, any
pending legal proceedings, other than ordinary routine litigation incidental to
its business.

9

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its 2001 Annual Meeting of Stockholders on November 19, 2001.
At the meeting, shareholders elected each of the following persons listed below
to PHI's Board of Directors for a term ending at the Company's 2002 Annual
Meeting of Stockholders. The number of votes cast with respect to the election
of each such person is opposite such person's name. The persons listed below
constitute the entire Board of Directors of the Company.

ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information about the executive officers of PHI is set forth in the
following table and accompanying text:

Mr. Gonsoulin was elected Chairman of the Board in September 2001. Mr. Gonsoulin
has 35 years of oil and gas service industry experience as a manager, owner, and
investor. He is a business graduate of the University of Louisiana at Lafayette.
He founded Sea Mar, Inc. in 1977 and served as President and CEO of that company
until he sold Sea Mar to Pool Energy Services in 1998. Mr. Gonsoulin continued
as President of Sea Mar, Inc. until December 31, 2001.

Mr. Bospflug joined PHI in September 2000 as President. He previously was
President and Chief Executive Officer of T. L. James and Company from 1999 to
2000. Prior to that, he was Executive Vice President and Chief Financial
Officer. Mr. Bospflug holds a business degree from Jamestown College in
Jamestown, North Dakota and a Masters of Business Administration from the
University of South Dakota in Vermillion, South Dakota and is a Chartered
Financial Analyst.

Mr. Bouillion became Director of Health, Safety, and Environment in January
2001. Previously, he was Director of Safety from 1999 to 2000, Assistant
Director of Safety from 1998 to 1999, and Director of Industrial Safety from
1995 to 1998.

Mr. Cornett became Director of Maintenance and Federal Aviation Regulations
("FAR") 145 Maintenance in January 2001. In this position, Mr. Cornett also
directs the Technical Service segment. He has served PHI in various positions
since 1964 and from 1991 to 2000 was Director of FAR 135 Maintenance.

Mr. Craig became Director of Operations in January 2001. In this position, Mr.
Craig directs the Domestic Oil and Gas, International, and Aeromedical segments.
He has been with PHI since 1977 and held the title of Regional Manager of the
Eastern Gulf of Mexico from 1992 until his recent appointment.

Mr. Cummiskey has served as Secretary since 1992 and Director of Risk Management
since 1991. He holds a Bachelor of Science Degree in Business from the
University of New Orleans.

10

Mr. Hurst has served as Chief Pilot since 1994. Mr. Hurst was a Captain in the
US Army and was awarded several flying and service awards and medals.

Mr. McCann has served as Chief Financial Officer ("CFO") and Treasurer since
November 1998. From January 1998 to October 1998, he was the CFO for Global
Industries Ltd. and Chief Administrative Officer ("CAO") from July 1996. Prior
to that, he was CFO for Sub Sea International, Inc. Mr. McCann is a Certified
Public Accountant and holds a Masters of Business Administration from Loyola
University.

Mr. Rovinelli joined the Company in February 1999 as Director of Human Resources
and was also named Chief Administrative Officer in December 1999. From January
1996 to February 1999, he was self-employed. Prior to that, he was Manager,
Human Resources for Arco Alaska, Inc., Headquarters Staff Manager, Human
Resource Services, Arco Oil and Gas Company, as well as numerous other positions
within Arco. Mr. Rovinelli holds a Bachelor of Science Degree in Industrial
Psychology from the University of Houston.

Mr. Sorenson became Director of Marketing and Planning in February 2002.
Previously, he was Director of International, Aeromedical, and Technical
Services beginning in January 2001, after serving as Director of Corporate
Marketing/New Business since 1999 and as General Manager of Aeromedical Services
since November 1995. Mr. Sorenson holds a Bachelor of Science degree in Business
from the University of Wisconsin.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's voting and non-voting common stock trades on The Nasdaq Stock
Market, SmallCap Issuers under the symbols PHEL and PHELK, respectively. The
following table sets forth the range of high and low sales prices per share, as
reported by Nasdaq, for the Company's voting and non-voting common stock for the
fiscal quarters indicated.

The Company did not pay dividends during the last two fiscal years and does not
expect to pay dividends for the foreseeable future. A credit agreement to which
the Company is a party generally restricts the declaration or payment of
dividends to 20% of net earnings for the previous four fiscal quarters. See Item
8. "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements, Note 4."

As of March 14, 2002, there were approximately 1,037 holders of record of the
Company's voting common stock and 93 holders of record of the Company's
non-voting common stock.

11

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below for each of the past six fiscal
periods should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included elsewhere in
this Annual Report. Effective December 31, 1999, the Company changed its fiscal
accounting year-end to December 31 of each year. The table below also presents
comparative information for the twelve months ended December 31, 1999 and the
eight months ended December 31, 1998.

- ----------

(1) Information for the year ended December 31, 1999 and the eight months
ended December 31, 1998 is derived from unaudited financial information
and presented for comparison purposes only.

(2) On December 31, 1997, PHI purchased the net assets of Samaritan
AirEvac. The results of that acquisition are consolidated with the
Company's results effective January 1, 1998.

(3) See Item 8. "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements, Note 1 - Summary of Significant
Accounting Policies (Fiscal Year Change)" and "Note 2 - Special
Charges."

(4) As of the end of the period.

12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the Company's
Consolidated Financial Statements for the years ended December 31, 2001 and
December 31, 2000, the eight months ended December 31, 1999 and the year ended
April 30, 1999 and the related Notes to Consolidated Financial Statements.

OVERVIEW

Net income for the twelve months ended December 31, 2001 was $11.0 million as
compared to a loss for the twelve months ended December 31, 2000 of $12.3
million. Earnings before tax was $17.5 million in 2001 as compared to a loss of
$17.8 million in 2000. Results for 2000 included special charges and adjustments
totaling $7.9 million before tax.

Operating revenues for 2001 were $277.1 million compared to $232.1 million for
the prior year, an increase of $45.0 million or a 19.4% increase. The increase
in operating revenue is due to rate increases to customers implemented during
the year. Additionally, there was a reimbursement of $0.8 million received from
the United States Department of Transportation under the Air Safety and System
Stabilization Act that was a result of the events of September 11, 2001, which
the Company recorded in other income.

Flight hours decreased 5% (9,714 hours) in 2001 (192,753 total hours) as
compared to 2000 (202,467 total hours). The decrease in flight hours is due to a
decrease in activity in the Gulf of Mexico, which is the Company's primary
market, but also due to the tragic events of September 11, 2001. Flight hours
for the month of September were 3,513 hours less than the same period prior
year. The Company estimates that it lost approximately 1,350 flight hours as a
result of the three-day suspension of flight operations by the FAA.

The improvement in earnings was primarily due to customer rate increases
implemented during 2001. It was also due in part to cost reduction efforts, sale
or disposal of unprofitable business units and assets, and the discontinuance of
selected unprofitable business initiatives. There were also certain cost
increases, as described in Results of Operations in this Item 1, that occurred
during the year, particularly in compensation costs for the Company's pilot and
mechanic work force.

The Company recorded $1.3 million representing discretionary incentive
compensation for 2001 for non-executive employees. The Company also reduced its
environmental provision by $1.2 million that primarily relates to one site.
Remediation costs at that site are expected to be less than the amount
originally estimated.

In the second quarter the Company recorded the sale of its interest in
Clintondale Aviation, Inc. ("Clintondale") that operated helicopters and
fixed-wing aircraft primarily in Kazakhstan. The Company previously leased four
aircraft to Clintondale. The Company received a promissory note for in exchange
for the previously leased four aircraft, certain amounts receivable from
Clintondale, and the Company's 50% equity interest in Clintondale. (See Notes to
Financial Statements, Note 7 Other Assets.)

The decrease in flight activity, as mentioned above, occurred primarily in the
period after September 11, 2001. The Company expects that it will experience
reduced activity in 2002. Also, the Company expects its insurance costs to
increase in 2002 as a result of the events that occurred September 11, 2001.
Notwithstanding those expectations, the Company is currently reviewing its
insurance program through a competitive bidding process. As a result of the
elimination of certain unprofitable contracts and the sale of certain
operations, the Company's fleet was reduced by 40 aircraft in 2001. The Company
does not expect significant changes to its fleet size in 2002.

During the year the Company changed the strategic focus of Technical Services
from providing maintenance and overhaul services to all customers, to only those
customers that are currently serviced by the Company's helicopter operations.
The Company implemented this change to allow the Technical Services segment to
focus on the Company's aircraft and components. The Company also plans to
fulfill its obligation to provide maintenance to certain military aircraft.

During 2001, the Company commenced a review and conversion of its accounting,
inventory systems, and other systems and processes. The Company will spend
approximately $2 million in 2002 related to this process.

13

On June 1, 2001, the Company entered into a three-year collective bargaining
agreement covering the Company's domestic pilots. This agreement will result in
compensation increases of 5% for the pilots in each of the succeeding three
years.

The Company continues to review its cost structure, certain business segments,
and certain contracts and customer rates. There was an aeromedical contract
terminated late 2001, and a reduction in certain Technical Services activities
as a result of these reviews. Management expects to take actions to implement
cost reductions and achieve increased profitability related to certain areas as
this process continues.

RESULTS OF OPERATIONS

The following tables present segment operating revenues and segment operating
profit before tax, along with certain non-financial operational statistics, for
the years ended December 31, 2001, 2000 and 1999:

(1) Information for the year ended December 31, 1999 is derived from
unaudited financial information and presented for comparison purposes
only.

(2) Includes special charges. See Note 2 of the Consolidated Financial
Statements.

(3) Including gains on disposition of property and equipment, equity in
losses of unconsolidated subsidiaries, and other income.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

For the year ended December 31, 2001, the Company recorded $1.3 million in 2001
for discretionary incentive compensation to be paid to its non-executive
employees. Future incentive compensation expenses are dependant upon the

14

Company achieving desired profit levels. The Company also reduced its
environmental provision by $1.2 million that primarily relates to one site.
Remediation costs at that site are estimated to be less than originally
anticipated.

Additionally, for the year 2001 there was a reimbursement of $0.8 million
received from the United States Department of Transportation under the Air
Safety and System Stabilization Act, which was a result of the events of
September 11, 2001.

For the year ended December 31, 2000, the Company recorded certain significant
adjustments ($4.3 million related to inventory) and special charges ($3.6
million total) that resulted from a reduction in work force, asset write-downs,
and decisions to exit certain operations.

Where appropriate, the above items are allocated to the Company's business
segments and are included in the respective discussion of each segment.

Domestic Oil and Gas

The Domestic Oil and Gas segment revenues increased 24.5% to $185.6 million for
2001 compared to $149.1 million for the prior year. The increase in revenue is
due to customer rate increases implemented in 2001. Flight hours in the Domestic
Oil and Gas segment decreased 6.0% to 148,563 as compared to 158,094 for 2000.
The decrease in flight hour activity was due to decreased activity in the oil
and gas segment and also due to the events of September 11, 2001.

The segment had a $24.7 million operating profit in 2001 compared to a $2.2
million operating loss for the prior year. Operating margin of 13.3% for 2001
compares to (1.5)% for the same period last year. The improvement in earnings in
2001 is a result of customer rate increases implemented in 2001. Also, as
described in Direct Expenses, there were cost reductions, sale or disposal of
unprofitable business units and assets and personnel reductions, but these were
more than offset by other cost increases, primarily increases in compensation of
pilots and mechanics, aircraft parts cost, and other costs. Additionally, the
operating loss in 2000 included a $2.4 million charge for the write-down of
inventory and $0.8 million for severance costs that were included in special
charges.

International

The International segment's revenues increased 4.3% to $22.6 million for 2001
compared to $21.7 million for the prior year. The increase was due to a full
year of operations related to a contract in Taiwan and also due to rate
increases on a contract in West Africa. Flight hours in the International
segment decreased 4.9% to 21,235 as compared to 22,338 for 2000. The decrease in
flight hours was due to decreased demand for flight services in West Africa,
partially offset by the activities in Taiwan.

The International segment had a $0.1 million operating profit for 2001 compared
to a $0.7 million operating loss for the prior year. Operating margin of 0.5%
for 2001 compares to (3.3)% for the prior year. The improvement in earnings is
related to customer rate increases and also due to a full year of operations
related to a contract in Taiwan. Additionally, the operating loss in 2000
included a $0.3 million charge for the write-down of inventory and $0.1 million
for severance costs that were included in special charges.

Aeromedical

The Aeromedical segment's revenue increased 7.3% to $47.5 million for 2001
compared to $44.3 million in the prior year. The increase in revenues is
primarily attributable to a full year operation related to a contract in Grand
Junction, Colorado, rate increases on certain other contracts, and a slight
increase in flight hour activity. Flight hours in the Aeromedical segment
increased 2.4% to 22,005 as compared to 21,490 for 2000.

At December 31, 2001 the Company terminated a contract with an aeromedical
customer. Revenues in 2001 for that contract were $4.1 million. The contract
produced an unacceptable rate of return.

The Aeromedical segment had an operating profit of $0.3 million for 2001
compared to an operating loss of $1.5 million for the prior year. Operating
margin was 0.6% for the year ended December 31, 2001 and compares to (3.3)% for
the prior year. The improvement in earnings is the result of some customer rate
increases. The improvement in earnings was partially offset by cost increases
described in Direct Expenses, including significant increases in compensation of
pilots and

15

mechanics, aircraft parts cost, and other costs. Additionally, the operating
loss in 2000 included a $0.7 million charge for the write-down of inventory.

Technical Services

The Technical Services segment's revenue increased 25.2% to $21.3 million for
2001 compared to $17.0 million in the prior year. The increase in revenues is
primarily attributable to an ongoing contract to provide maintenance to certain
military aircraft and components.

The Company expects revenue from this segment to decrease in 2002. During the
year the Company changed the strategic focus of Technical Services from
providing maintenance and overhaul services to all customers, to only those
customers that are currently serviced by the Company's helicopter operations.
The Company implemented this change to allow the Technical Services segment to
focus on the Company's aircraft and components. The Company also plans to
fulfill its obligation to provide maintenance to certain military aircraft.

Technical Services operating profit in 2001 was $3.5 million compared to an
operating loss of $0.6 million for the prior year. The operating margin was
16.4% for the year ended December 31, 2001 and (3.2%) in the prior year. The
increased operating profit was due to increased activity. The operating loss in
2000 included a $0.9 million charge for the write-down of inventory and $0.2
million for severance costs that were recorded in Special Charges.

OTHER INCOME AND LOSSES

Gains on property and equipment dispositions were $1.4 million in 2001 as
compared to $4.0 million in 2002. During 2001, the Company reduced its fleet by
40 owned and leased aircraft. The Company does not expect a significant change
in its fleet size in 2002.

Equity in net losses from unconsolidated subsidiaries for 2000, excluding an
impairment charge against the Company's investment in Clintondale that the
Company recorded in special charges, was $0.7 million. The Company recorded no
equity income or losses in 2001. In 2000, the Company recognized an impairment
of its remaining equity investment in Clintondale and, during 2001, sold its 50%
interest in Clintondale. Also, in 2000, the Company closed operations of its
Thailand unconsolidated subsidiary.

Other income for 2001 includes $0.7 million of interest income and $0.8 million
for the reimbursement received from the US Department of Transportation under
the Air Safety and Systems Stabilization Act. During 2001, the Company recorded
interest income for amounts received for interest on prior years tax refunds,
interest credited to the Company on rent prepaid on its new facility, and
interest earned on overnight cash investments.

DIRECT EXPENSES

Direct expenses for 2001 increased $12.6 million or 5.6% to $238.2 million for
2001 compared to $225.6 million for the prior year. The increase was due to
increases in human resource costs, cost of sales related to the Technical
Services segment, insurance costs, aircraft parts costs, helicopter rent, and an
increase in depreciation expense. The most significant of these increases was
the human resource costs. Numerous actions were taken during the year including
closure of certain business operations and a reduction in the Company's work
force, and other actions previously described. These actions reduced the effect
of the cost increases as further described below.

Of the $12.6 million increase in direct expenses, the increase in human resource
costs accounted for 37% of the total increase. This resulted from wage and
benefit increases for the Company's pilot and mechanic work force as well as
certain employees (including a non-executive incentive compensation of $1.3
million) and offset in part by a reduction in the Company's work force
implemented in February 2001. These wage and benefit increases were implemented
to achieve competitive wages in the Company's work force, consistent with the
Company's compensation philosophy to maintain an industry-competitive
compensation package for all of its employees. The Company's total labor work
force at December 31, 2001 was 1,778 compared to 1,939 at December 31, 2000, or
a decrease of 161 personnel.

Cost of sales in the Technical Services segment accounted for 18% of the total
increase in costs. As previously described there was an increase in activity in
the Technical Services segment due to a full year of activity on a certain
contract to perform maintenance, repair and overhaul services for certain
military aircraft and components.

16

The cost of aircraft parts accounts for 11% of the total increase in costs, due
to price increases implemented by the manufacturers in 2001.

The Company's insurance costs increased in 2001 generally reflecting increases
in the industry. In addition, as a result of the tragic events of September 11,
2001, and also the helicopter industry in general, the Company expects those
costs will increase further in 2002. Notwithstanding those expectations, the
Company is currently reviewing its insurance program through a competitive
bidding process.

Helicopter rent also increased for the year related to the number of aircraft on
operating leases, obtained during the latter part of 2000. As previously stated,
in 2001, the Company has bought a number of aircraft that were on operating
leases and the decrease in rent expense will not be reflected until 2002.

Depreciation expense included in direct expenses for 2001 was $13.8 million
compared to $12.5 million in the prior year. Total depreciation expense, which
includes expense charged to selling, general and administrative expense, was
$15.1 million and $13.7 million for the same two periods, respectively.

Depreciation expense increased due to acceleration of depreciation of leasehold
improvements on the Company's Lafayette facilities vacated at the time the
Company moved to the new Lafayette facilities, and also due to the depreciation
of aircraft refurbishments and upgrades accomplished during recent years.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses decreased to $18.0 million for
2001 compared to $18.2 million for the prior year. The decrease in selling,
general, and administrative expense was due to lower compensation and bad debt
expense. However, these decreases were offset by increases in consulting costs
related to a review of the Company's inventory and accounting systems, and legal
costs associated with the union contract negotiation.

SPECIAL CHARGES

In the fourth quarter of 2000, in connection with the plan to restore
profitability, the Company recorded special charges of $3.6 million that
included severance costs of $1.1 million, impairment of an investment in and
receivables from Clintondale Aviation, Inc. totaling $1.7 million, and
impairment of two helicopters of $0.8 million due to pending sales. (See Notes
to Financial Statements, Note 7 Other Assets.)

INTEREST EXPENSE

Interest expense was $6.2 million for the year ended December 31, 2001 and $5.8
million for the year ended December 31, 2000. The increase in interest expense
was due to an increase in the interest rate charged by the Company's lenders.

INCOME TAXES

Income tax expense for the year ended December 31, 2001 was $6.5 million
compared to an income tax benefit in the prior year of $5.5 million. The
effective tax rates were 37% and 30.9% for the years ended December 31, 2001
and 2000, respectively. The lower effective rate for the year ended December
31, 2000 is the result of permanent differences between book income and tax
income and the effect of state income taxes.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH TWELVE MONTHS ENDED DECEMBER 31, 1999
(see Note 1 of the Notes to Consolidated Financial Statements included elsewhere
in this annual report)

For the years ended December 31, 2000 and 1999, the Company recorded significant
and special charges ($3.6 million total) that resulted from a reduction in work
force, asset write-downs, and decisions to exit certain operations. Where
appropriate, the charges are allocated to the Company's business segments and
are included in the respective discussion of each segment.

17

Domestic Oil and Gas

The Domestic Oil & Gas segment revenues increased 8.7% to $149.1 million for
2000 compared to $137.1 million for the same period in 1999. Increased domestic
activity that resulted from increased oil and gas exploration and production
activities in the Gulf of Mexico, increased forest fire-fighting activity, and
rate increases implemented in January 2000 contributed to the increase.

The segment had a $2.2 million operating loss in 2000 compared to a $3.1 million
operating loss for the same period in 1999. The 2000 loss included a $2.4
million charge for the write-down of inventory, $0.9 million for a retroactive
pay adjustment for pilots, and $0.8 million for severance costs that were
included in special charges. The operating loss in 1999 included $1.3 million of
special charges (see Special Charges within this discussion), $1.5 million in
charges for environmental remediation, and $1.7 million for the disposition of
slow-moving inventory. Operating margin of (1.5)% for 2000 compares to (2.2)%
for the same period last year. The decrease in operating loss was primarily due
to increased revenues, lower aircraft depreciation, and rate increases in
January 2000. Increases in pilot compensation, aircraft repairs and maintenance,
fuel, insurance, helicopter rent, and pilot training costs partially offset the
decrease in operating loss. The increased fuel costs were the result of both
increased flight activity and increased fuel prices.

International

The International segment's revenues decreased 2.8% to $21.7 million for 2000
compared to $22.3 million for the same period in 1999. Decreased revenues that
resulted from the closure of certain operations in South America were primarily
responsible for the decrease. Increased revenue of certain other foreign
locations partially offset the decrease.

The International segment had a $0.7 million operating loss for 2000 compared to
a $2.0 million operating loss for the same period in 1999. Operating margin of
(3.3)% for 2000 compares to (9.0)% for the same period last year. The operating
loss in 2000 included a $0.3 million charge for the write-down of inventory,
$0.1 million for a retroactive pay adjustment for pilots, and $0.1 million for
severance costs that were included in special charges. The operating loss in
1999 included $3.5 million of special charges (see Special Charges within this
discussion). In 2000, increased repairs, maintenance, and insurance, and the
decreased revenues also negatively impacted operating profit.

Aeromedical

The Aeromedical segment's revenue decreased 1.8% to $44.3 million for 2000
compared to $45.1 million during the same period in the prior year. The decrease
in revenues is primarily attributable to decreased revenue and activity in the
Company's AirEvac operations in Arizona. In November 1999, the Company
restructured its Arizona operations and reduced the number of its aircraft in
that operation.

The Aeromedical segment had an operating loss of $1.5 million for 2000 compared
to operating income of $0.5 million for the same period in 1999. The operating
loss in 2000 included a $0.7 million charge for the write-down of inventory and
$0.2 million for a retroactive pay adjustment for pilots. Operating margin was
(3.3)% for the year ended December 31, 2000 and compares to 1.1% for the same
period in 1999. In addition to the inventory write-down and the increased pilot
pay, increased repairs and maintenance, fuel, helicopter rental, and pilot
training costs, and the decreased revenues contributed to the lower operating
profit. Lower labor costs that were primarily attributable to AirEvac's
restructuring partially offset the decrease in operating profit.

Technical Services

Technical Services segment operating revenues for 2000 were $17.0 million
compared to $18.6 million in the prior year, a decrease of 8.4%. The decrease in
operating revenues was primarily attributable to work performed on two large
contracts for the refurbishment and overhaul of two helicopters and a large
parts sale, all occurring during the year ended December 31, 1999. An ongoing
contract to provide maintenance to certain military aircraft commenced in the
second quarter of 2000, which partially offset the decrease.

Technical Services operating profit decreased to a $0.6 million operating loss
for the year compared to $3.0 million operating profit for 1999. The operating
loss in 2000 included a $0.9 million charge for the write-down of inventory and
$0.2 million for severance costs that were recorded in Special Charges. The
operating margin was (3.2)% in the year ended December 31, 2000 and 16.0% in the
year ended December 31, 1999.

18

OTHER INCOME AND LOSSES

Gains on property and equipment dispositions were $4.0 million in 2000 as
compared to $8.7 million for the prior twelve months.

Equity in net losses from unconsolidated subsidiaries for 2000, excluding an
impairment charge against the Company's investment in Clintondale that the
Company recorded in special charges, was $0.7 million. Equity in net losses from
unconsolidated subsidiaries was $0.8 million for the twelve months ended
December 31, 1999.

DIRECT EXPENSES

Direct expenses for 2000 increased by $15.8 million, or 7.5%, to $225.6 million
compared to $209.8 million in the prior year. The direct expenses in 2000
included a $4.3 million charge for the write-down of inventory and $1.2 million
for a retroactive pay adjustment for pilots. In 1999, there were $1.5 million in
charges for environmental remediation and a $1.7 million charge for the
disposition of slow-moving inventory. The increase in 2000 was also due to the
increase in flight activity and higher repairs and maintenance, fuel, insurance,
helicopter rental, and pilot training costs.

Depreciation expense included in direct expenses for 2000 was $12.5 million
compared to $14.1 million in the prior year. Total depreciation expense was
$13.7 million and $15.3 million for the same two periods, respectively. The
decrease was attributable to a reduction in the number of owned aircraft and to
the change in estimated useful lives and residual values implemented in May
1999. (See Note 1 of the Notes to Consolidated Financial Statements included
elsewhere in this annual report).

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses for the year ended December 31,
2000 decreased by 1.6% to $18.2 million compared to $18.5 million in the same
period in the prior year. Selling, general, and administrative expense in 1999
included severance costs totaling $1.1 million. Adjusting for such severance
costs, selling, general, and administrative expense increased $0.8 million in
2000, which was mostly the result of higher bad debt provisions.

SPECIAL CHARGES

In the fourth quarter of 2000, in connection with the plan to restore
profitability, the Company recorded Special Charges of $3.6 million that
included severance costs of $1.1 million, impairment of an investment in and
receivables from a joint venture totaling $1.7 million, and impairment of
property and equipment of $0.8 million.

In April 1999, in connection with expense reduction efforts and management's
decision to recognize the impairment of assets as a result of decreased
activity, the Company recorded Special Charges of $4.8 million. The Special
Charges included impairment of certain foreign based joint ventures amounting to
$2.5 million, severance costs of $1.3 million, impairment of property and
equipment of $0.4 million, and other charges of $0.6 million.

INTEREST EXPENSE

Interest expense was $5.8 million for the year ended December 31, 2000 and $5.9
million for the year ended December 31, 1999. Lower debt levels during 2000,
compared to the debt levels in 1999, offset the effect of increased interest
rates in 2000.

INCOME TAXES

Income tax benefit for the year ended December 31, 2000 increased $2.6 million
to $5.5 million. The effective tax rates were 30.9% and 36.6% for the years
ended December 31, 2000 and 1999, respectively. The lower effective rate for the
year ended December 31, 2000 is the result of permanent differences between book
income and tax income and the effect of state income taxes.

19

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash position on December 31, 2001 was $5.4 million compared to
$0.9 million at December 31, 2000. Working capital increased $5.5 million to
$47.0 million at December 31, 2001 from $41.5 million at December 31, 2000. Net
cash of $18.7 million provided by operating activities during 2001 and $24.3
million of asset sales funded debt service requirements and capital
expenditures.

Total long-term debt, including capital lease commitments and the current
portion of debt and lease commitments, decreased $8.2 million from December 31,
2000 to $66.6 million at December 31, 2001. In July 2001, the Company executed a
revised credit agreement with its lending group, which originally provided for a
$45.0 million revolving credit facility and a $25.5 million secured term credit
facility, secured by substantially all of the Company's assets. At December 31,
2001, $19 million was outstanding on the secured term credit facility, and $44.5
million was outstanding on the revolving credit facility, and no further
borrowing is permitted under either facility, nor is other borrowing permitted.
The current interest rate on these facilities is LIBOR plus 2.5%, an effective
rate of 6.86% at February 5, 2002 including the effect of interest rate swaps.

The secured term credit facility is payable in equal installments of $1.9
million payable quarterly beginning on March 31, 2002, and a final payment of
$0.3 million due on September 30, 2004. No payments are due on the revolving
credit facility in 2002, but the facility converts to a term loan on January 31,
2003, with scheduled quarterly installments of approximately $2.2 million,
payable beginning March 31, 2003 and a final balance of $35.6 million due
January 31, 2004. The Company intends to restructure its debt as discussed
below.

Capital expenditures in 2001 totaled $29.5 million and primarily consisted of
purchase and completion of aircraft improvements and engines. Also included in
capital expenditures were the exercise of purchase options on certain leased
aircraft ($5.4 million), purchase of a number of aircraft on operating leases
for resale ($5.2 million), equipment and leasehold improvements related to the
new Lafayette facility ($2.0 million) and purchase of customer-specified new
aircraft ($3.0 million).

In addition to debt service and capital expenditures, the Company funded $4.0
million of construction costs in 2001 for its new operating facility, pursuant
to the terms of a 20-year lease of the facility that became effective September
2001. The funding is treated under the lease as prepaid rent and amortized over
10 years at 7% per annum, thus reducing PHI's monthly cash lease payments for
the first 10 years of the lease. PHI has no additional funding commitments under
the lease.

In 2001 the Company's cash flow was substantially augmented from the proceeds of
the sale of aircraft. The Company expects the fleet size to remain substantially
unchanged in 2002, but may have some sales to strategically adjust the fleet of
aircraft. Nonetheless, the Company believes that cash flow from operations will
be sufficient to fund required debt service and the reduced level of capital
expenditures during 2002.

20

The table below sets out the cash contractual obligations of the Company. The
operating leases are not recorded as liabilities on the balance sheet, but
payments are treated as an expense as incurred. Each contractual obligation
included in the table contains various terms, conditions, and covenants which,
if violated, accelerate the payment of that obligation.

(1) The Company's revolving line of credit converts to term debt on January
31, 2003, at which time quarterly payments equal to 5% of the total
outstanding become payable quarterly, but in any case must be paid in
full on the revolver maturity date, which is January 31, 2004.

PHI's borrowing capacity and cash flows from operations have not historically
provided sufficient capital to acquire additional aircraft needed to support the
Company's customers. To meet these needs, the Company has obtained aircraft
under operating and capital lease arrangements, which are more expensive to the
Company as compared to the purchase of the aircraft, and the Company had 104
aircraft on such lease arrangements at December 31, 2001. The Company believes
that its recent improved operating performance may enable it to obtain
additional financing, which would allow it to (i) reduce significantly its
number of, and reliance on, operating leases, and (ii) repay outstanding amounts
under the bank credit facility. The Company is currently reviewing financing
alternatives including the possible issuance of debt securities or obtaining
alternative commercial bank financing. There is no assurance when or if the
Company would be able to obtain additional debt financing, in which case the
Company's ability to acquire additional aircraft will continue to be constrained
by existing and future operating leases, and also by the Company's current bank
credit facility.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these consolidated financial
statements require the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to allowances for
doubtful accounts, inventory valuation, long-lived assets and self-insurance
liabilities. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The Company believes the following critical
accounting policies affect its more significant judgments and estimates used in
preparation of its consolidated financial statements.

PHI estimates its allowance for doubtful accounts receivable based on an
evaluation of individual customer financial strength, current market conditions,
and other information. If the Company's evaluation of its significant customers'
and debtors' creditworthiness should change or prove incorrect, then the Company
may have to recognize additional allowances in the period that it identifies the
risk of loss.

21

PHI maintains inventory to service its own aircraft and the aircraft and
components of customers. Portions of that inventory are used parts that are
often exchanged with parts removed from aircraft or components and reworked to a
useable condition. The Company uses systematic procedures to estimate the
valuation of the used parts, which includes consideration of their condition and
continuing utility. If the Company's valuation of these parts should be
significantly different from amounts ultimately realizable or if it discontinues
using or servicing certain aircraft models, then the Company may have to record
a write-down of its inventory. The Company also records provisions against
inventory for obsolescent and slow-moving parts, relying principally on specific
identification of such inventory. If the Company fails to identify such parts,
additional provisions may be necessary.

The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company measures recoverability of assets to be held and
used by comparing the carrying amount of an asset to future undiscounted net
cash flows that it expects the asset to generate. When an asset is determined to
be impaired, the Company recognizes the impairment amount, which is measured by
the amount that the carrying value of the asset exceeds fair value. Similarly,
the Company reports assets that it expects to sell at the lower of the carrying
amount or fair value less costs to sell. Future adverse market conditions or
poor operating results could result in the inability to recover the current
carrying value of the long-lived asset, thereby possibly requiring an impairment
charge in the future.

The Company must make estimates for certain of its liabilities and expenses,
losses, and gains related to self-insured programs, insurance deductibles, and
good-experience premium returns. The Company's group medical insurance program
is largely self-insured, and the Company uses estimates to record its periodic
expenses related to the program. The Company also carries deductibles on its
aircraft hull and liability insurance and estimates periodic expenses related to
the retained portion of hull and liability risk. For its workers' compensation
and certain other insurance, the Company receives a return premium if its
accident experience is favorable, and the Company recognizes reductions in
insurance expense when it believes return premiums are likely based on accident
rates and actual accident experiences. If actual experience under any of the
Company's insurance programs is significantly different from estimated, then the
Company may have to record losses when it identifies the risk of additional
loss. Conversely, if return premiums are larger than originally projected, then
the Company may have to record gains when it identifies the excess return
premiums.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133. SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and for
hedging activities. SFAS No. 133 requires the Company to measure all derivatives
at fair value and to recognize them in the balance sheet as an asset or
liability, depending on the Company's rights or obligations under the applicable
derivative contract.

The Company uses interest rate swaps to hedge its cash flow related to interest.
Effective January 1, 2001, the Company began accounting for its interest rate
swaps in accordance with SFAS No. 133, as amended and has designated the
interest rate swaps as cash flow hedges. The cumulative effect of adopting SFAS
No. 133, as amended on January 1, 2001 resulted in an increase of $38,000 to
other comprehensive income. As of December 31, 2001, the fair market value of
these interest rate swaps was a $2.0 million liability and is included in other
long-term liabilities on the balance sheet.

On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. The Company
implemented SFAS No. 141 on July 1, 2001 and it has determined that this
statement did not have a material impact on its consolidated financial position
or results of operations.

On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January 1, 2002 and it has determined that this statement will have no material
impact on its consolidated financial position or results of operation.

22

SFAS No. 143, Accounting for Asset Retirement Obligations, requires the
recording of liabilities for all legal obligations associated with the
retirement of long-lived assets that result from the normal operation of those
assets. These liabilities are required to be recorded at their fair values
(which are likely to be the present values of the estimated future cash flows)
in the period in which they are incurred. SFAS No. 143 requires the associated
asset retirement costs to be capitalized as part of the carrying amount of the
long-lived asset. The asset retirement obligation will be accreted each year
through a charge to expense. The amounts added to the carrying amounts of the
assets will be depreciated over the useful lives of the assets. The Company is
required to implement SFAS No. 143 on January 1, 2003, and it has not determined
the impact that this statement will have on its consolidated financial position
or results of operations.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets,
promulgates standards for measuring and recording impairments of long-lived
assets. Additionally, this standard establishes requirements for classifying an
asset as held for sale, and changes existing accounting and reporting standards
for discontinued operations and exchanges for long-lived assets. The Company is
required to implement SFAS No. 144 on January 1, 2002, and it does not expect
the implementation of this standard to have a material effect on the Company's
financial position or results of operations.

ENVIRONMENTAL MATTERS

The Company has an aggregate estimated liability of $1.8 million as of December
31, 2001 for environmental remediation costs that are probable and estimable. In
the fourth quarter of 2001, the Company reduced its recorded estimated liability
by $1.2 million as the result of a comprehensive re-evaluation of environmental
exposure at all of its operating sites and lowered remediation cost estimates
primarily at its Morgan City, Louisiana facility. The Company has conducted
environmental surveys of the Lafayette facility which it recently vacated, and,
has determined that contamination exists at that facility. To date, borings have
been installed to determine the type and extent of contamination. Preliminary
results indicate limited soil and groundwater impacts. Once the extent and type
of contamination are fully defined, a risk evaluation in accordance with the
Louisiana Risk Evaluation/Corrective Action Plan ("RECAP") standard will be
submitted and evaluated by Louisiana Department of Environmental Quality
("LDEQ"). At that point, LDEQ will establish what cleanup standards must be met
at the site. When the process is complete, the Company will be in a position to
develop the appropriate remediation plan and the resulting cost of remediation.
However the Company has not recorded any estimated liability for remediation of
contamination and, based on preliminary surveys and ongoing monitoring, the
Company believes the ultimate remediation costs for the Lafayette facility will
not be material.

To date, the Company has expended $0.1 million on conducting facility
environmental surveys and expects to spend an additional $0.1 million performing
follow-up work in 2002.

ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks associated with interest rates and makes
limited use of derivative financial instruments to manage that risk. All
derivatives used for risk management are closely monitored by the Company's
senior management. The Company does not hold derivatives for trading purposes
and it does not use derivatives with leveraged or complex features. Derivative
instruments are transacted either with creditworthy major financial institutions
or over national exchanges.

At December 31, 2001, the Company was a party to interest rate swaps with
notional amounts totaling $40.0 million that were designed to convert a similar
amount of variable-rate debt to fixed rates. The swaps mature in 2003 and
require the Company to pay an average interest rate of 5.78% on the notional
amount and, in turn, receive LIBOR interest rates. The variable interest rate
received by the Company under each swap contract is repriced quarterly. The
Company considers these swaps to be a hedge against potentially higher future
interest rates. As described in Note 8 to the consolidated financial statements,
the estimated fair value of these interest rate swaps was a $2.0 million
liability at December 31, 2001.

At December 31, 2001, $63.5 million of the Company's long-term debt had variable
interest rates of which $40.0 million was effectively converted to fixed
interest rates through the interest rate swaps. Based on debt outstanding and
interest rate swap agreements in place at December 31, 2001, a 100 basis point
increase in variable interest rates would increase the Company's interest
expense in the year ending 2002 by $0.2 million.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent Auditors' Report

To the Board of Directors and Shareholders of
Petroleum Helicopters, Inc.

We have audited the accompanying consolidated balance sheets of Petroleum
Helicopters, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for the years ended December 31, 2001
and 2000, and the eight months ended December 31, 1999. Our audits also included
the financial statement schedule for the years ended December 31, 2001 and 2000,
and the eight months ended December 31, 1999 listed in the Index at Item 14.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Petroleum Helicopters, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for the years ended December 31, 2001 and 2000, and the eight
months ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule for the years ended December 31, 2001 and
2000, and the eight months ended December 31, 1999, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2001 the
Company adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivatives Instruments and Hedging Activities," as amended.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana
March 22, 2002

24

Independent Auditors' Report

The Board of Directors and Shareholders
Petroleum Helicopters, Inc.

We have audited the consolidated statements of operations, shareholders' equity,
and cash flows of Petroleum Helicopters, Inc. and subsidiaries for the year
ended April 30, 1999. In connection with our audit of the consolidated financial
statements, we also have audited the accompanying financial statement schedule,
"Valuation and Qualifying Accounts," for the year ended April 30, 1999. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of Petroleum Helicopters, Inc. and
subsidiaries' operations and their cash flows for the year ended April 30, 1999,
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

As discussed in Note 1 to the consolidated financial statements, in fiscal 1999
the Company adopted the method of accounting for computer software costs
prescribed by Statement of Position 98-1.

/s/ KPMG LLP

KPMG LLP
New Orleans, Louisiana
June 11, 1999

25

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)

The accompanying notes are an integral part of these consolidated financial
statements.

26

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)