<PAGE>

================================================================================

                                  UNITED STATES
                       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, 2003

                                       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)

         2002 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. |X|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No | |

      The aggregate market value of the voting and non-voting common stock held
by non-affiliates of the registrant as of June 30, 2003 was $166,297,841 based
upon the last sales price of the Common Stock on June 30, 2003, 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 17, 2004 was:

            Voting Common Stock.................      2,851,866 shares.
            Non-Voting Common Stock.............      2,530,511 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's definitive Information Statement for the 2004
Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-K.

================================================================================
<PAGE>
                           PETROLEUM HELICOPTERS, INC.

                                INDEX - FORM 10-K

<TABLE>
<S>                                                                                                        <C>
                                                     PART I

Item 1.   Business.....................................................................................     1
Item 2.   Properties...................................................................................     6
Item 3.   Legal Proceedings............................................................................     8
Item 4.   Submission of Matters to a Vote of Security Holders..........................................     8
Item 4.A. Executive Officers of the Registrant.........................................................     8

                                                    PART II

Item 5.   Market for Registrant's Common Equity and Related
          Shareholder Matters..........................................................................     9
Item 6.   Selected Financial Data......................................................................    10
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations....................................................................    10
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk...................................    21
Item 8.   Financial Statements and Supplementary Data..................................................    22
             Petroleum Helicopters, Inc. and Consolidated Subsidiaries:
                Independent Auditors' Reports..........................................................    22
                Consolidated Balance Sheets
                   - December 31, 2003 and December 31, 2002...........................................    23
                Consolidated Statements of Operations
                   - Year ended December 31, 2003, Year ended December 31, 2002, and
                          Year ended December 31, 2001.................................................    24
                Consolidated Statements of Shareholders' Equity
                   - Year ended December 31, 2003, Year ended December 31, 2002, and
                          Year ended December 31, 2001.................................................    25
                Consolidated Statements of Comprehensive Income (Loss)
                   - Year ended December 31, 2003, Year ended December 31, 2002, and
                          Year ended December 31, 2001.................................................    25
                Consolidated Statements of Cash Flows
                   - Year ended December 31, 2003, Year ended December 31, 2002, and
                          Year ended December 31, 2001.................................................    26
                Notes to Consolidated Financial Statements.............................................    27
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosures....................................................................    48
Item 9.A. Controls and Procedures......................................................................    48

                                                   PART III

Item 10.  Directors and Executive Officers of the Registrant...........................................    49
Item 11.  Executive Compensation.......................................................................    49
Item 12.  Security Ownership of Certain Beneficial Owners and Management...............................    49
Item 13.  Certain Relationships and Related Transactions...............................................    49
Item 14.  Principal Accounting Fees and Services.......................................................    49

                                                    PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................    49
          Signatures...................................................................................    52
</TABLE>
<PAGE>
                                     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 to certain
customers. At December 31, 2003, the Company owned or operated approximately 225
aircraft domestically and internationally.

DESCRIPTION OF OPERATIONS

PHI operates in four business segments: Domestic Oil and Gas, Air Medical,
International, and Technical Services. For financial information regarding the
Company's operating segments and the geographic areas in which they operate, see
Note 9 of the Notes to Consolidated Financial Statements included elsewhere in
this Form 10-K.

DOMESTIC OIL AND GAS. PHI operates approximately 164 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. The operations in the
Gulf of Mexico service customers located in offshore Louisiana, Texas, Alabama,
and Mississippi. Operating revenues from the Domestic Oil and Gas segment
accounted for 68%, 67%, and 68% of consolidated operating revenues during the
years ended December 31, 2003, December 31, 2002, and December 31, 2001,
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


                                       1
<PAGE>
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.)

AIR MEDICAL. The Company, both directly and through its subsidiary, Air Evac
Services, Inc. ("Air Evac"), provides air medical transportation services for
hospitals and medical programs under the independent provider model in 12 states
using approximately 42 aircraft. The aircraft dedicated to this segment are
specially outfitted to accommodate emergency patients and emergency medical
equipment. The Air Medical segment's operating revenues accounted for 17% of
consolidated operating revenues during the years ended December 31, 2003, 2002,
and 2001.

INTERNATIONAL. PHI provides helicopter services in Angola, Antarctica, and the
Democratic Republic of Congo. The Company operates approximately 19 aircraft
internationally. Each aircraft operating internationally is typically dedicated
to one customer. The Company's international customers are mostly oil and gas
customers and US corporations operating internationally. Operating revenues from
the Company's International segment accounted for 8% of consolidated operating
revenues during each of the years ended December 31, 2003, 2002, and 2001.

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. Commencing in late 2001, 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 also continue to provide maintenance to certain
military aircraft under an acceptable rate structure.

Operating revenues from the Technical Services segment accounted for 7% of
consolidated operating revenues for the year ended December 31, 2003, and 8% for
each of the years ended December 31, 2002, and 2001.

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.

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 under the independent
provider model, government agencies, and other aircraft owners and operators.
The Company's largest customer accounted for 15%, 17%, and 14% of operating
revenues for the years ended December 31, 2003, December 31, 2002, and December
31, 2001, 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


                                       2
<PAGE>
Health Act ("OSHA"). There are a number of statutes and regulations that govern
offshore operations. Also, 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 potentially 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 and improve 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.

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 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.

The market in which the Air Medical segment competes is in an independent
provider model and the hospital-based program. Under the independent provider
model, the Company obtains the necessary local approvals to position an aircraft
and personnel in a community and responds on demand to individuals requiring
transport for medical reasons and the Company is paid by either a commercial
insurance company, federal or state agency, or the patient. Under the
hospital-based program, the Company is contracted directly to the hospital and
is paid only by the hospital based on contracted service rates. These contracts
are typically awarded on a bid basis.

The International segment of PHI's business primarily serves customers in the
oil and gas industry. Most of PHI's international contracts are subject to
competitive bidding.


                                       3
<PAGE>
The Technical Services segment competes regionally and nationally against
various small and large repair centers in the United States and Canada. Although
there is aggressive pricing in this market segment, the Technical Service
segment prices its services at profitable levels.

EMPLOYEES

As of December 31, 2003, the Company employed a total of 1,684 full-time
employees and 52 part-time employees, including approximately 500 pilots and
1,000 aircraft maintenance and support personnel. At December 31, 2002, the
Company employed 1,632 full-time employees and 57 part-time employees.

There was a reduction in the employee complement in the quarter ended September
2003 of approximately 60 personnel, some of which are under a planned separation
in early 2004. The reduction consisted primarily of support personnel, and
personnel in the Domestic Oil and Gas segment. Subsequent to that employee
reduction, the Company began adding personnel in the Air Medical segment to
support its expansion of services under the independent provider model.

On June 13, 2001, the Company'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 and remains effective through May 31, 2004. The agreement provides for
automatic base pay increases for pilots 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 76% of the Company's 2003
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.
Traditionally, the level of activity has fluctuated with the price of oil and
gas, however, in current markets commodity prices are high and activity levels
in the Gulf of Mexico are relatively low attributable to economic concerns. The
Company is also expanding its Air Medical business segment, which when fully
implemented, will constitute a larger percentage of operating revenues.

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


                                       4
<PAGE>
property, including helicopters. Additionally, the Company incurs costs in
evacuating its aircraft and bases during tropical storms.

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 and
darkness 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 international operations including, but not limited to; (i)
political, social, and economic instability; (ii) potential seizure or
nationalization of assets; (iii) import-export quotas; and (iv) 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 hazards, which must be managed by providers of 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 favorable in comparison to the record for both United States and
International operators. 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, Chairman of
the Board, beneficially owns stock representing approximately 52% of the total
voting power. As a result, he exercises control over the election of PHI's
directors and 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.


                                       5
<PAGE>
LOW TRADING VOLUME. Both the Company's voting (PHEL) and nonvoting (PHELK)
common stock are listed on the Nasdaq SmallCap Market ("Nasdaq"). However,
neither class of shares has substantial trading volume. 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.

AVAILABILITY OF SEC FILINGS AND OTHER INFORMATION. The Company's annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to any of these reports are available free of charge through
Petroleum Helicopters Inc.'s web site: www.phihelico.com. These reports are
available as soon as reasonably practicable after filing with the SEC.

ITEM 2. PROPERTIES

AIRCRAFT

Certain information regarding the Company's owned and leased fleet as of
December 31, 2003 is set forth in the following table:

<TABLE>
<CAPTION>
                                                                                                      CRUISE             APPR.
                                                 NUMBER IN                                            SPEED             RANGE
MANUFACTURER             TYPE                      FLEET         ENGINE             PASSENGERS        (MPH)           (MILES)(2)
------------             ----                    ---------       ------             ----------        -------         ----------
<S>                      <C>                     <C>             <C>                <C>               <C>           <C>
LIGHT
AIRCRAFT

Bell                     206 / 407                  109          Turbine              4 - 6           103 - 144       300 - 420
Eurocopter               BK-117 / BO-105             23          Twin Turbine         4 - 6                 135       255 - 270
Aerospatiale             AS350 B2 / B3               18          Turbine                  5                 140       337 - 385
MD Helicopter            MD530                        1          Turbine                  4                 120             300

MEDIUM

AIRCRAFT
Bell                     212(1) / 222(1)
                         230(1) / 412(1)             32          Twin Turbine        8 - 13           115 - 160       300 - 370
Sikorsky                 S-76(1) A, A++, C+          17          Twin Turbine            12                 150             400

TRANSPORT
AIRCRAFT

Bell                     214ST(1)                     4          Twin Turbine            18                 155             450

MISCELLANEOUS
AIRCRAFT

Kaman                    K-Max K-1200                 1          Turbine                  1                 100             225
                                                  -------
                         Total Helicopters          205
                                                  -------

FIXED WING

Rockwell                 Aero Commander               2          Turboprop                6           300 - 340     1,200-1,600
Beechcraft               King Air 200(1)              1          Turboprop                6                 300           1,200
Cessna                   Conquest 441(1)              3          Turboprop                6                 330           1,200
                                                  -------
                         Total Fixed Wing             6
                                                  -------

                         Total Aircraft             211
                                                  =======
</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 211 aircraft listed, the Company owns 209 and leases 2. Additionally, the
Company operates 14 aircraft that are owned by customers that are not reflected
in the above table. In total the Company owns or operates 225 aircraft.


                                       6
<PAGE>
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.

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.

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

<TABLE>
<CAPTION>
       FACILITY               LEASE EXPIRATION          AREA                 FACILITIES                       COMMENTS
-------------------         -------------------       --------       ------------------------        ------------------------
<S>                         <C>                       <C>            <C>                             <C>
Morgan City                 June 30, 2008             53 acres       Operational and                 Options to extend to
    (Louisiana)                                                      maintenance facilities,         June 30, 2018
                                                                     landing pads for 46
                                                                     helicopters

Intracoastal City           December 31, 2006         18 acres       Operational and                 Options to extend to
    (Louisiana)                                                      maintenance facilities,         December 31, 2010
                                                                     landing pads for 45
                                                                     helicopters

Houma-Terrebonne            August 31, 2004           14 acres       Operational and                 Six renewal options to
Airport (Louisiana)                                                  maintenance facilities,         extend for one year each
                                                                     landing pads for 30
                                                                     helicopters

Galveston (Texas)           May 31, 2021              4 acres        Operational and                 Lease period to May 31,
                                                                     maintenance facilities,         2021 with certain
                                                                     landing pads for 30             cancellation provisions
                                                                     helicopters

Fourchon                    May 31, 2006              8 acres        Operational and                 Facility under three
    (Louisiana)                                                      maintenance facilities,         separate leases, of
                                                                     landing pads for 10             which two contain
                                                                     helicopters                     options to extend thru
                                                                                                     2026 and 2028.
</TABLE>

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; and at Theodore, Alabama.

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.

The Company also leases facilities for its Air Medical operations in Phoenix,
Arizona, and for other Air Medical bases in California, Kentucky, New Mexico,
Texas and Virginia. Other bases for the Company's International and other Air
Medical operations are generally furnished by the customer.


                                       7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

The Company is named as a defendant in various legal actions that have arisen in
the ordinary course of its business and have not been finally adjudicated. The
amount, if any, of ultimate liability with respect to such matters cannot be
determined. In the opinion of management, the amount of the ultimate liability
with respect to these actions will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.

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

None.

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:

<TABLE>
<CAPTION>
           Name                        Age                     Position
           ----                        ---                     --------
<S>                                     <C>        <S>
  Al A. Gonsoulin                       61         Chairman of the Board
  Lance F. Bospflug                     49         President and Chief Executive Officer
  Michael J. McCann                     56         Chief Financial Officer, Secretary and Treasurer
  Richard A. Rovinelli                  55         Chief Administrative Officer and Director of Human Resources
  William P. Sorenson                   54         Director of Marketing and Planning
</TABLE>

Mr. Gonsoulin was elected Chairman of the Board in September 2001. Mr. Gonsoulin
had 35 years of oil and gas service industry experience as a manager, owner, and
investor prior to becoming Chairman of PHI. 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 December 2001. In 1998 he sold
Sea Mar to Pool Energy Services, which was subsequently merged into Nabors
Industries, Inc. in 1999.

Mr. Bospflug joined PHI in September 2000 as President and was also named Chief
Executive Officer in August 2001. 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. 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. He served in the U.S. Marine Corps 1969 to 1970, after which he
served in the active Marine reserve until 1975 as Captain.

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, Air Medical, and Technical
Services beginning in January 2001, after serving as Director of Corporate
Marketing/New Business since 1999 and as General Manager of Air Medical Services
since November 1995. Mr. Sorenson holds a Bachelor of Science degree in Business
from the University of Wisconsin.


                                       8
<PAGE>
                                     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.

<TABLE>
<CAPTION>
                                                       VOTING                  NON-VOTING
                                               --------------------      --------------------
                   PERIOD                        HIGH         LOW          HIGH         LOW
                   ------                      -------      -------      -------      -------
<S>                                            <C>          <C>          <C>          <C>
     January 1, 2003 to March 31, 2003         $ 30.13      $ 26.44      $ 29.90      $ 26.30
       April 1, 2003 to June 30, 2003            31.96        24.41        30.15        24.35
     July 1, 2003 to September 30, 2003          34.50        26.83        33.25        27.01
    October 1, 2003 to December 31, 2003         32.58        23.01        30.00        23.75

     January 1, 2002 to March 31, 2002         $ 25.75      $ 19.20      $ 26.40      $ 19.48
       April 1, 2002 to June 30, 2002            33.70        24.30        30.75        23.89
     July 1, 2002 to September 30, 2002          32.99        25.51        30.99        25.35
    October 1, 2002 to December 31, 2003         31.10        25.75        30.30        25.25
</TABLE>

The Company has not paid dividends since 1999 and does not expect to pay
dividends in the foreseeable future.

In addition, the Notes and a revolving credit facility with a commercial bank
restrict the payment of dividends by the Company. See Item 8. "Financial
Statements and Supplementary Data - Notes to the Consolidated Financial
Statements, Note 3.

As of February 17, 2004, there were approximately 1,009 holders of record of the
Company's voting common stock and 77 holders of record of the Company's
non-voting common stock.

Information regarding the Company's stock based compensation plan is included in
Item 8, Notes to Consolidated Financial Statements Note (5) EMPLOYEE BENEFIT
PLANS - Stock Based Compensation.

On April 23, 2002, the Company issued $200 million in aggregate principal amount
of 9 3/8% Senior Unsecured Notes that mature on May 1, 2009 in an offering made
pursuant to Rule 144A and Regulation S of the Securities Act of 1933. The net
proceeds from the issuance of Senior Notes were approximately $194.2 million
(net of underwriting discounts and other issuance costs). The net proceeds were
used to purchase leased aircraft and aircraft on capital lease ($118.0 million),
reduce outstanding borrowings under a working capital facility ($44.5 million),
and reduce outstanding borrowings under a term debt facility ($16.3 million),
settlement of interest rate Swap agreements ($1.6 million), and the remainder
for general corporate purposes. In May 2002, the Company filed a registration
statement for an offer to exchange these Notes for debt securities with
identical terms.


                                       9
<PAGE>
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.

<TABLE>
<CAPTION>
                                                         Year Ended                             Eight Months Ended    Year Ended
                                                         December 31,                              December 31,        April 30,
                                       ---------------------------------------------------     --------------------   ----------
                                         2003      2002      2001       2000       1999(1)        1999      1998(1)      1999
                                       --------  --------  --------  ---------   ---------     ---------   --------   ----------
                                                              (Thousands of dollars, except per share data)
<S>                                    <C>       <C>       <C>       <C>         <C>           <C>         <C>        <C>
Income Statement Data
   Operating revenues                  $269,392  $283,751  $282,437  $ 236,843   $ 227,058     $ 149,077   $173,185    $251,165
   Net earnings(loss)(2)                  1,139     9,231    11,020    (12,294)     (5,019)       (2,699)     5,194       2,988
   Net earnings(loss) per share
        Basic                              0.21      1.73      2.12      (2.38)      (0.97)        (0.52)      1.01        0.58
        Diluted                            0.21      1.70      2.08      (2.38)      (0.97)        (0.52)      0.99        0.57
   Cash dividends declared per share         --        --        --         --        0.15          0.05       0.10        0.20

Balance Sheet Data(3)
   Total assets                        $377,454  $366,707  $225,645  $ 222,755   $ 223,056     $ 223,056   $238,011    $231,575
   Total debt                           200,000   200,000    66,616     74,819      77,640        77,640     81,836      80,296
   Working capital                       70,300    72,751    46,987     41,547      54,699        54,699     52,486      51,030
   Shareholders' equity                 105,993   104,854    91,872     81,622      93,623        93,623     99,440      96,581
</TABLE>

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

(3)   As of the end of the period.

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, 2003,
December 31, 2002, and December 31, 2001 and the related Notes to Consolidated
Financial Statements.

                                    OVERVIEW

Operating revenues for 2003 were $269.4 million compared to $283.8 million for
2002, a decrease of $14.4 million. The decrease in operating revenue was due to
a decrease in Technical Services segment revenue ($5.5 million) due to
completion of a contract in the prior year for the upgrade and refurbishment of
two aircraft for a customer, a decrease in flight hour activity in the Domestic
Oil and Gas segment as flight hours were 114,769 in 2003 compared to 136,237 in
2002 that resulted in a net decrease in operating revenues in that segment ($5.6
million). The effect in 2003 of customer rate increases implemented in 2002
offset in part the decrease in flight hours in the Domestic Oil and Gas segment.
There was also a net decrease in Air Medical operating revenues ($2.0 million)
resulting from the termination of certain traditional Air Medical contracts that
were hospital-based offset in part by an increase in the average rate for
patient transports under the independent provider model. Under the independent
provider model, the Company responds to individual patient demands for air
transport services and is paid by either a commercial insurance company, federal
or state agency, or the patient. There was also a decrease in the International
segment operating revenues ($1.2 million) due to a decrease in flight hour
activity.

Flight hours were 141,127 for 2003 compared to 170,462 for 2002, a decrease of
29,335 flight hours. The number of aircraft at December 31, 2003 was 225
compared to 236 at December 31, 2002.


                                       10
<PAGE>
Direct operating expense was $230.2 million for 2003 compared to $235.2 million
for 2002, a decrease of $5.0 million. The decrease was due to a decrease in
aircraft parts consumed and in component repairs ($6.5 million), a decrease in
helicopter rent ($5.3 million) due to the purchase of leased aircraft in 2002,
and a decrease in Technical Services' segment costs ($5.7 million) due to
completion in 2002 of a contract in the prior year for the upgrade and
refurbishment of two aircraft for a customer. These decreases were offset in
part by a net increase in employee compensation due to increases in compensation
($3.7 million) and severance charges recorded in 2003 ($1.9 million), an
increase in depreciation expense due to the purchase of leased aircraft in 2002
($3.6 million), and an increase in insurance expense ($3.1 million) due to
additional insurance premiums under the terms of the Company's policy related to
loss experience. Insurance expense will increase through the first quarter of
2004, by approximately $0.5 million per quarter, which will then be subject to
renewal.

Selling, general and administrative expense was $20.0 million for 2003 compared
to $18.2 million for 2002, an increase of $1.8 million. The increase is due to
an increase in selling, general and administrative expense in the Air Medical
segment ($2.5 million), as the Company has expanded operations in the Air
Medical segment. There is further discussion below on this expansion.

Interest expense was $20.0 million for 2003 compared to $17.3 million for 2002.
The increase was due to interest on the Notes issuance described below.

On April 23, 2002, the Company issued $200 million in 9 3/8% Notes due May 1,
2009. The proceeds from the offering were used to retire $62.3 million of
existing bank debt and certain swap arrangements, and to acquire 101 aircraft
for $118.1 million, that the Company previously leased. Also on April 23, 2002,
the Company entered into a new $50 million revolving credit facility with a
commercial bank to be available through July 2004. As of December 31, 2003, the
Company had no borrowings and a $1.4 million letter of credit outstanding under
the revolving credit facility related to the Company's workmen's compensation
policy. It is the Company's intention to renew the revolving credit facility
upon expiration in July 2004.

During 2003, the Company began to expand its Air Medical operations. This
expansion is under the independent provider model whereby the Company responds
to medical facilities requiring intrafacility transfers, or to patients
requiring air medical transport and is paid by either a commercial insurance
company, federal or state agency, or the patient. The number of aircraft in this
segment at December 31, 2003 was 42 compared to 26 at December 31, 2002, an
increase of 16 aircraft. In the fourth quarter of 2003, the Company incurred
operating costs of $1.7 million related to this expansion, while the additional
Air Medical programs generated $0.6 million of revenue. Additional operating
costs will be incurred in the first quarter of 2004 related to these programs.
In addition to operating costs, the Company also incurred capital expenditures
of $15.0 million related to the purchase of additional aircraft and installation
of medical interiors in those aircraft. The Company anticipates these additional
programs being fully operational by mid-2004.

The Company is replacing the software system that controls tracking of aircraft
parts and inventory, purchasing, maintenance, and aircraft records. In addition,
the Company has also installed a system for its medical billing and collection
processes. This was necessitated by the growth in this segment. Management
believes these actions will provide greater efficiency throughout the
organization.

In 2004, the Company will take delivery of two additional medium transport
category aircraft. These aircraft will be dedicated to providing transportation
services to deep water projects in the Gulf of Mexico. The aircraft will be
financed under an operating lease agreement for a ten year term with a
commercial finance company.


                                       11
<PAGE>
                              RESULTS OF OPERATIONS

The following table presents segment operating revenues and segment operating
profit before tax, along with certain non-financial operational statistics, for
the years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                                                  YEAR ENDED
                                                                                                  DECEMBER 31,
                                                                                  -------------------------------------------
                                                                                     2003             2002            2001
                                                                                  ---------        ---------        ---------
                                                                                            (Thousands of dollars)
<S>                                                                               <C>              <C>              <C>
      Segment operating revenues
         Domestic Oil and Gas                                                     $ 183,849        $ 189,480        $ 190,991
         Air Medical                                                                 46,674           48,664           47,493
         International                                                               21,247           22,474           22,634
         Technical Services                                                          17,622           23,133           21,319
                                                                                  ---------        ---------        ---------
             Total operating revenues                                               269,392          283,751          282,437
                                                                                  ---------        ---------        ---------

      Segment direct expense
         Domestic Oil and Gas                                                       163,328          161,711          160,293
         Air Medical                                                                 32,782           34,223           44,280
         International                                                               21,093           20,568           21,453
         Technical Services                                                          13,026           18,687           17,512
                                                                                  ---------        ---------        ---------
             Total direct expense                                                   230,229          235,189          243,538

      Segment selling, general and administrative expense
         Domestic Oil and Gas                                                         1,494              795            1,639
         Air Medical                                                                  4,480            1,978            1,710
         International                                                                  214              146              469
         Technical Services                                                              12              149              317
                                                                                  ---------        ---------        ---------
             Total selling, general and administrative expenses                       6,200            3,068            4,135
                                                                                  ---------        ---------        ---------
      Total direct and selling, general and administrative expense                  236,429          238,257          247,673
                                                                                  ---------        ---------        ---------

      Net segment profit
         Domestic Oil and Gas                                                        19,027           26,974           29,059
         Air Medical                                                                  9,412           12,463            1,503
         International                                                                  (60)           1,760              712
         Technical Services                                                           4,584            4,297            3,490
                                                                                  ---------        ---------        ---------
             Total                                                                   32,963           45,494           34,764

      Other, net (1)                                                                  2,674            2,261            2,812
      Unallocated selling, general and administrative costs                         (13,783)         (15,121)         (13,894)
      Interest expense                                                              (19,952)         (17,250)          (6,190)
                                                                                  ---------        ---------        ---------
      Earnings before income taxes                                                $   1,902        $  15,384        $  17,492
                                                                                  =========        =========        =========

      Flight hours
         Domestic Oil and Gas                                                       114,769          136,237          148,563
         Air Medical                                                                 11,542           15,780           22,005
         International                                                               14,816           18,292           21,235
         Other                                                                           --              153              950
                                                                                  ---------        ---------        ---------
             Total                                                                  141,127          170,462          192,753
                                                                                  =========        =========        =========

      Aircraft operated at period end
         Domestic Oil and Gas                                                           164              190              177
         Air Medical                                                                     42               26               41
         International                                                                   19               20               21
                                                                                  ---------        ---------        ---------
             Total (2)                                                                  225              236              239
                                                                                  =========        =========        =========
</TABLE>

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

(2)   Includes 14, 13, and 19 aircraft as of December 31, 2003, 2002 and 2001,
      respectively that are customer owned or leased by customers.


                                       12
<PAGE>
YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002

COMBINED OPERATIONS

REVENUES - Operating revenues for 2003 were $269.4 million compared to $283.8
million for 2002, a decrease of $14.4 million. The decrease in operating revenue
was due to a decrease in Technical Services segment revenue ($5.5 million) due
to completion of a contract in the prior year for the upgrade and refurbishment
of two aircraft for a customer, a decrease in flight hour activity in the
Domestic Oil and Gas segment as flight hours were 114,769 in 2003 compared to
136,237 in 2002 that resulted in a net decrease in operating revenues in that
segment ($5.6 million). The effect in 2003 of customer rate increases
implemented in 2002 offset in part the decrease in flight hours in the Domestic
Oil and Gas segment. There was also a net decrease in Air Medical operating
revenues ($2.0 million) resulting from the termination of certain traditional
Air Medical contracts that were hospital-based, offset in part by an increase in
the average rate for patient transports under independent provider model. (Under
independent provider model, the Company responds to individual patient demands
for air transport services and is paid by either a commercial insurance company,
federal or state agency, or the patient.) There was also a decrease in the
International segment operating revenues ($1.2 million) due to a decrease in
flight hour activity.

Flight hours were 141,127 for 2003 compared to 170,462 for 2002, a decrease of
29,335 flight hours. The number of aircraft at December 31, 2003 was 225
compared to 236 at December 31, 2002.

OTHER INCOME AND LOSSES - Gain (loss) on equipment dispositions was $2.0 million
for 2003 compared to $0.6 million for 2002, an increase of $1.4 million. This
increase was due to the sale or disposal of aircraft.

Other income was $0.7 million for 2003 compared to $1.7 million for 2002.
Included in 2002 is a gain ($0.7 million) related to the favorable settlement in
2002 of a note receivable from a previous joint venture sold in 2001.

DIRECT EXPENSES - Direct expense was $230.2 million for 2003 compared to $235.2
million for 2002, a decrease of $5.0 million. The decrease was due to a decrease
in aircraft parts usage and in component repairs ($6.5 million), due primarily
to decreased flight activity, a decrease in helicopter rent ($5.3 million) due
to the purchase of leased aircraft in 2002, and a decrease in Technical
Services' segment costs ($5.7 million) due to completion in 2002 of a contract
in the prior year for the upgrade and refurbishment of two aircraft for a
customer. These decreases were offset in part by a net increase in employee
compensation due to increases in compensation rates offset by a decrease in
incentive compensation ($3.7 million), net severance charges recorded in 2003
compared to 2002 ($0.7 million), an increase in depreciation expense due to the
purchase of leased aircraft in 2002 ($3.6 million), an increase in insurance
expense ($3.1 million) due to additional insurance premiums under the terms of
the Company's policy related to loss experience, and an increase in costs at
operational field bases which includes various supplies, base repairs, and other
operating costs, ($1.0 million). Insurance expense will increase through the
first quarter of 2004, by approximately $0.5 million per quarter, which will
then be subject to renewal.

Included in the direct expense cost categories above, is $1.7 million in total
related to implementation of additional Air Medical operations.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expense was $20.0 million for 2003 compared to $18.2 for 2002.
The increase was due to an increase in selling, general and administrative
expense in the Air Medical segment ($2.5 million) as the Company expanded
operations in that segment. This necessitated additional management and
supervisory personnel and other related expenditures.

INTEREST EXPENSE - Interest expense was $20.0 million for 2003 compared to $17.3
million for 2002. The increase was due to interest on the Notes issuance
previously described.

INCOME TAXES - Income tax expense for 2003 was $0.8 million, compared to $6.2
million for 2002. The effective tax-rate was 40% for both years.

EARNINGS - The Company's net earnings for 2003 were $1.1 million, compared to
$9.2 million for 2002. Earnings before tax for 2003 were $1.9 million compared
to $15.4 million in 2002. Earnings per diluted share were $0.21 as compared to
$1.70 per diluted share for 2002. The decline in domestic flight hour activity,
the additional costs associated with the Air Medical expansion, and the increase
in interest cost are the principal reasons for the earnings decline.


                                       13
<PAGE>
SEGMENT DISCUSSION

Effective July 1, 2002, the Company no longer allocates interest expense to its
segments when evaluating operating performance. All results prior to July 1,
2002 have been restated to remove interest expense from the segment operating
results.

Domestic Oil and Gas - Domestic Oil and Gas segment revenues were $183.8 million
for 2003, compared to $189.5 million for 2002, a decrease of $5.7 million. This
decrease was due to a decrease in flight hour activity as flight hours declined
to 114,769 in 2003 from 136,237 flight hours in 2002. The effect in 2003 of
customer rate increases implemented in 2002 offset in part the effect of the
decrease in flight hours in the Domestic Oil and Gas segment. The number of
aircraft in the segment at December 31, 2003 was 164 compared to 190 aircraft at
December 31, 2002.

Direct expenses in the Domestic Oil and Gas segment was $163.3 million for the
year ended December 31, 2003 compared to $161.7 million for the year ended
December 31, 2002. Employee compensation cost in the segment increased $3.7
million due to an increase in human resource costs due primarily to increases in
compensation rates for pilots and mechanics and to pilots and mechanics in the
Air Medical segment being reassigned to the Domestic Oil and Gas segment related
to the termination of certain Air Medical contracts as a result of proposed rate
increases by the Company. In the fourth quarter 2003, there were some transfers
of pilots and mechanics in the Domestic Oil and Gas segment back to the Air
Medical segment with the addition of Air Medical operations. There was also a
net increase in severance costs in 2003 compared to 2002 ($0.7 million). In
addition, depreciation expense increased ($5.6 million) due to the purchase of
leased aircraft in 2002, insurance cost increased ($3.4 million) due to
additional premiums under the Company's policies related to loss experience.
These amounts were partially offset by a decrease in aircraft parts usage and
component repairs ($7.0 million), and a decrease in helicopter rent due to the
purchase of the leased aircraft ($4.7 million). Additionally, there was a
decrease due to other items, net ($0.2 million).

Selling, general and administrative expense was $1.5 million for 2003 compared
to $0.8 million for 2002. The increase was due to an increase in operational
field base supplies and also repairs at field bases.

The Domestic Oil and Gas segment operating income decreased ($7.9 million) due
primarily to the decrease in flight hour activity, and the increase in costs.

Air Medical - Air Medical segment revenues were $46.7 million for 2003 compared
to $48.7 million for 2002. The decrease in Air Medical revenues is due to the
termination of certain Air Medical contracts as a result of increases in rates.
The contracts terminated were hospital-based contracts. This decrease was offset
in part by an increase in rates on remaining Air Medical operations. The number
of aircraft in the segment was 42 at December 31, 2003, compared to 26 at
December 31, 2002.

Direct expenses in the Air Medical segment was $32.8 million for December 31,
2003 compared to $34.2 million for December 31, 2002. Direct expense decreased
due to the termination of certain Air Medical contracts that were
hospital-based, that resulted in a decrease in aircraft parts usage ($0.9
million), a decrease in aircraft rent ($0.6 million), and a decrease in
depreciation ($0.2 million). In addition, there was an increase in other items,
net ($0.3 million). Included in direct expense and the above direct expense
changes, is an increase in total of $1.7 million related to additional Air
Medical operations implemented in the fourth quarter 2003.

Selling, general and administrative expense was $4.5 million for 2003 compared
to $2.0 million for 2002. The increase of $2.5 million in selling, general and
administrative expense was due to increased operations related to implementation
of additional community-based Air Medical operations under which the patient or
the patient's insurance carrier is invoiced for services. This increase was
specifically in employee compensation cost due to increased management and
supervisory personnel which are charged to selling, general and administrative
expense. There were also increased costs related to additional office locations.

The Air Medical segment operating income was $9.4 million for December 31, 2003
compared to $12.5 million for December 31, 2002. The decrease was due primarily
to increased direct expense and increased selling, general and administrative
expense related to implementation of additional Air Medical operations.


                                       14
<PAGE>
As previously discussed, the Company is expanding in the Air Medical segment
under the independent provider model. Operating costs of $1.7 million were
incurred in the fourth quarter of 2003, and these costs will continue in 2004
until the current expanded programs become fully operational.

International - International segment revenues were $21.2 million for 2003,
compared to $22.5 million for 2002. The decrease in revenue was due to the
decrease in flight hours. Flight hours were 14,816 for 2003 as compared to
18,292 for 2002. The number of aircraft in the segment was 19 at December 31,
2003 and 20 at December 31, 2002.

Direct expenses in the International segment was $21.1 million for the year
ended December 31, 2003 compared to $20.6 million for the year ended December
31, 2002. There was an increase in component repairs during 2003 ($1.4 million),
offset in part by a decrease in depreciation expense ($0.9 million) due to fewer
aircraft in the segment in 2003.

Selling, general and administrative expense was $0.2 million for 2003 compared
to $0.1 million for 2002. The increase was less than $0.1 million and was due
primarily to increased travel to certain locations.

International segment operating loss for 2003 was less than $0.1 million
compared to operating income of $1.8 million in 2002. The decrease in flight
activity and increase in cost accounts for the change in operating income.

Technical Services - Technical Services segment revenues for 2003 were $17.6
million compared to $23.1 million for 2002. The decrease in Technical Services
revenues was related to revenue from a contract for the refurbishment and
upgrade of two aircraft completed in the first half of 2002.

Direct expenses in the Technical Services segment was $13.0 million for December
31, 2003 compared to $18.7 million for December 31, 2002. The decrease in direct
expense ($5.7 million) in the Technical Services segment due to the contract
previously mentioned.

Selling, general and administrative expense was less than $0.1 million for
December 31, 2003, compared to $0.1 million for December 31, 2002.

The Technical Services segment had operating income of $4.6 million for December
31, 2003, compared to $4.3 million for December 31 2002. The increase in
operating income was due to an increase in rates on a continuing contract.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

COMBINED OPERATIONS

REVENUES - Operating revenues for 2002 were $283.8 million compared to $282.4
million for the prior year, an increase of $1.4 million. The increase in
operating revenue was due to an increase of $1.8 million in Technical Services
revenues due to completion of a project for the upgrade and refurbishment of a
customer's aircraft during the year and also due to an increase of $1.2 million
in the Air Medical segment. Although Technical Services revenues increased in
2002, the strategic focus of that segment is limited to maintenance services
primarily for certain military aircraft, flight operations customers, and
original equipment manufacturers. As a result, the Company anticipates that
revenues in this segment will decline in future years. Air Medical segment
revenues increased due to an improvement in rates on retained Air Medical
contracts, offset by a reduction in revenue due to the termination of certain
other Air Medical contracts. Domestic Oil and Gas revenues decreased $1.5
million due to a decrease in activity in the Gulf of Mexico, offset in part by
an increase in rates implemented in 2001.

Flight hours were 170,462 for 2002 compared to 192,753 for 2001, a decrease of
22,291 flight hours (11.6% decrease). The Domestic Oil and Gas segment had a
decrease of 12,326 flight hours due to decreased activity in the Gulf of Mexico,
and the Air Medical segment had a decrease of 6,225 flight hours due to the
termination of certain Air Medical contracts that were the result of increases
in rates to customers unwilling to absorb those increases.

OTHER INCOME AND LOSSES - Gain (loss) on equipment dispositions was $0.6 million
for 2002 compared to $1.4 million for 2001, a decrease of $0.8 million. This
decrease was due to a decrease in the sale of aircraft as compared to the prior
year.

Other income was $1.7 million for 2002 compared to $1.5 million for 2001. The
current year includes a gain related to the favorable settlement of a note
receivable from a previous joint venture sold in the prior year in which the
Company accepted


                                       15
<PAGE>
a note receivable for the proceeds ($0.7 million), and the balance of other
income primarily being interest income ($0.9 million). The prior year included a
reimbursement received from the U.S. Department of Transportation under the Air
Safety Stabilization Act ($0.8 million), and interest income ($0.7 million).

DIRECT EXPENSES - Direct operating expense was $235.2 million for 2002 compared
to $243.5 million for 2001, a decrease of $8.3 million. Employee compensation
costs decreased ($2.0 million) due to decreased headcount in 2002 compared to
2001. Additionally, included in employee compensation costs in direct expenses
for 2002 are severance costs ($1.4 million) and a management bonus ($0.3
million). No significant severance costs or bonuses were recorded in 2001.
Helicopter rent decreased ($10.7 million) due to the purchase of leased aircraft
as previously discussed. Aircraft fuel decreased as a result of decreased
activity ($1.8 million), insurance expense decreased due in part to a decrease
in the number of aircraft the Company operates ($1.4 million), and a decrease in
maintenance costs ($0.5 million). Depreciation expense increased ($5.6 million)
due to the purchase of leased aircraft. Technical Services costs increased ($1.0
million) due to costs related to a project for the refurbishment and upgrade of
a customer's aircraft completed in 2002, and there was an increase, net, of
other items ($1.5 million).

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expense was $18.2 million for 2002 compared to $18.0 for 2001.
Selling, general and administrative expense for 2002 includes a severance charge
($0.3 million), and a management bonus ($0.8 million). After deducting the
severance charges and management bonus, selling, general and administrative
expense decreased due to employee compensation costs as a result of a decrease
in headcount, and also due to a decrease in legal costs.

INTEREST EXPENSE - Interest expense was $17.3 million for 2002 compared to $6.2
million for 2001. The increase was due to interest on the Notes issuance
previously described, and $1.9 million of costs incurred in the second quarter
of 2002 related to the retirement of the Company's bank debt and liquidation of
the Company's interest rate Swap agreements, which is a contract to fix interest
rates on the Company's bank debt, which were charged to interest expense.

INCOME TAXES - Income tax expense for 2002 was $6.2 million, compared to $6.5
million for 2001. The effective tax-rate was 40% for 2002, and 37% for 2001. The
increase in the effective tax rate is primarily due to increased state income
taxes and permanent book and tax differences.

EARNINGS - The Company's net earnings for 2002 were $9.2 million, compared to
$11.0 million for 2001. Earnings before tax for 2002 were $15.4 million compared
to $17.5 million in 2001. Earnings per diluted share were $1.70 as compared to
$2.08 per diluted share for 2001. Although there was a decline in flight hour
activity, the principal reason for the earnings decline was the increase in
interest expense, described above.

SEGMENT DISCUSSION

Effective July 1, 2002, the Company no longer allocates interest expense to its
segments when evaluating operating performance. All results prior to July 1,
2002 have been restated to remove interest expense from the segment operating
results.

Domestic Oil and Gas - Domestic Oil and Gas segment revenues were $189.5 million
for 2002, compared to $191.0 million for 2001, a decrease of $1.5 million. There
was a decrease in flight activity due to reduced oil and gas activity in the
Gulf of Mexico, as indicated by a decrease of 12,326 flight hours for the year.
This was offset in part by an increase in rates implemented in 2001. The number
of aircraft in the segment was 190 at December 31, 2002 as compared to 177 at
December 31, 2001. Certain aircraft were acquired during the year and certain
other aircraft models that can be configured to meet customers' deepwater
service requirements were also transferred from the Air Medical segment upon
termination of certain Air Medical contracts.

Direct expenses in the Domestic Oil and Gas segment increased $1.4 million due
to an increase in human resource cost due primarily to certain of the pilot and
mechanic employees in the Air Medical segment being reassigned to the Domestic
Oil and Gas segment ($2.3 million), increased depreciation expense ($5.6
million) due to the purchase of leased aircraft, an increase in maintenance
costs ($0.5 million), and an increase in workers' compensation expense ($0.3
million). These amounts were offset by a decrease in helicopter rent due to the
purchase of the leased aircraft ($7.3 million), a decrease in fuel cost due to
decreased activity ($1.1 million), and a decrease in insurance cost due in part
to a decrease in the number of aircraft the Company operates in total that
benefited the segment ($0.7 million). The Company also reduced its environmental
reserve ($0.3 million), primarily due to costs at one site being less than
anticipated. Additionally, there was


                                       16
<PAGE>
an increase due to other items, net ($1.0 million), which consists primarily of
supplies and base operating costs and facility repairs.

Selling, general and administrative expense in the Domestic Oil and Gas segment
was $0.8 million for December 31, 2002 compared to $1.6 million for December 31,
2001.

The Domestic Oil and Gas segment operating income decreased ($2.1 million) due
in part to a decrease in activity and also due in part to the transfer of
certain pilots and mechanics from the Air Medical segment. Operating margin was
14.2% for the year compared to 15.2% in the prior year.

Air Medical - Air Medical segment revenues were $48.7 million for 2002 compared
to $47.5 million for 2001. The increase in Air Medical revenues is due to an
increase in rates substantially offset by a decrease in flight hour activity of
6,225 flight hours due to the termination of certain Air Medical contracts as a
result of increases in rates. The number of aircraft in the segment was 26 in
2002 compared to 41 for 2001.

Direct expenses in the Air Medical segment for 2002 decreased ($10.1 million)
due to a decrease in headcount ($4.1 million), a decrease in helicopter rent
($3.4 million) due to a decrease in the number of aircraft in the segment and to
the purchase of leased aircraft, a decrease in maintenance cost ($1.0 million)
and insurance cost ($0.4 million), both due to fewer aircraft in the segment, a
decrease in fuel costs ($0.7 million), and other items, net, decreased ($0.3
million), which is primarily base operating costs.

Selling, general and administrative expense in the Air Medical segment was $2.0
million for December 31, 2002 compared to $1.7 million for December 31, 2001.
The increase was due primarily to changes in management personnel and severance
costs.

The Air Medical segment operating income increased ($11.0 million) for the year.
Operating margin was 25.6% for 2002 and compares to 3.2% for 2001. The increase
in operating income and operating margin is attributable to an increase in
customer rates on retained Air Medical contracts, and also due to a reduction in
direct expense as a result of reduced aircraft, reduced personnel, and other
related costs caused by the termination of certain Air Medical contracts as
mentioned above. Flight hours for the 2002 were 15,780 compared to 22,005 for
2001.

International - International segment revenues were $22.5 million for 2002,
compared to $22.6 million for 2001. The number of aircraft in the segment was 20
at December 31, 2002 and 21 at December 31, 2001. Flight hours were 18,292 for
2002 as compared to 21,235 for 2001. The decrease in revenue due to a decrease
in activity was offset by an improvement in rates.

Direct expenses in the International segment decreased for the year ($0.9
million) due to a decrease in human resource cost ($0.5 million), a decrease in
insurance cost ($0.3 million), and a decrease, net, of other items ($0.1
million).

Selling, general and administrative expense in the International segment was
$0.1 million for December 31, 2002 compared to $0.5 million for December 31,
2001. The decrease was due primarily to a decrease and change in management
personnel.

International segment operating income increased for 2002 ($1.0 million).
Operating margin of 7.8% for the year compares to 3.1% for the prior year. The
improvement in operating income and operating margin was due to an increase in
customer rates and a decrease in direct expenses.

In October 2002, the Company exited a contract in Taiwan that included one
aircraft.

Technical Services - Technical Services segment revenues for 2002 were $23.1
million compared to $21.3 million for 2001. The increase in Technical Services
revenues was related to revenue from a contract for the refurbishment and
upgrade of two aircraft completed in the first half of 2002. The strategic focus
of the Technical Services segment is discussed below and will result in a
reduction in that segment's revenues in future years.

There was an increase in direct expense ($1.2 million) in the Technical Services
segment due to the contract previously mentioned.


                                       17
<PAGE>
Selling, general and administrative expense in the Technical Services segment
was $0.2 million for December 31, 2002 compared to $0.3 million for December 31,
2001.

The Technical Services segment had operating income of $4.3 million for 2002,
compared to $3.5 million for 2001. The operating margin was 18.6% for 2002,
compared to 16.4% in the prior year. The improvement in operating income and
operating margin was due to increases in rates on continuing activities.

                         LIQUIDITY AND CAPITAL RESOURCES

The Company's cash position at December 31, 2003 was $19.9 million, compared to
$17.7 million at December 31, 2002. Working capital was $70.3 million at
December 31, 2003, as compared to $72.8 million at December 31, 2002, a decrease
of $2.5 million. At December 31, 2003, the Company recorded in current
liabilities an accrual for severance charges and also an accrual for additional
insurance premiums. These items accounted for the decrease in working capital.

Net cash provided by operating activities was $29.4 million for the twelve
months ended December 31, 2003, compared to $39.5 million for the same period
ended December 31, 2002. The primary reason for the decrease was the decrease in
earnings. As discussed below, capital expenditures were $36.9 million and gross
proceeds of aircraft sales of $7.6 million for the twelve months ended December
31, 2003, compared to capital expenditures of $41.4 million and gross proceeds
of aircraft sales of $3.3 million for the twelve months ended December 31, 2002.

On April 23, 2002, the Company issued Notes of $200 million that carry an
interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each
year that commenced on November 1, 2002, and mature in May 2009. The Notes
contain certain covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of
proceeds of asset sales, and mergers and consolidations or sales of assets. As
of December 31, 2003, the Company was in compliance with these covenants.

Proceeds from the Notes, net of $5.8 million of fees and expenses, were used to
retire the Company's $16.3 million term credit facility and $44.5 million
revolving credit facility, and to terminate the related swap agreements for $1.6
million. The Company also purchased 101 aircraft, which were previously leased,
for $118.1 million.

Also, on April 23, 2002, the Company executed a new credit agreement with a
commercial bank for a $50 million revolving credit facility to be available
through July 2004. As of December 31, 2003, the Company had no borrowings and a
$1.4 million letter of credit outstanding under the revolving credit facility.
The credit agreement includes covenants related to working capital, funded debt
to net worth, and consolidated net worth. As of December 31, 2003, the Company
was in compliance with these covenants. It is the Company's intention to renew
the revolving credit facility upon expiration in July 2004.

Capital expenditures totaled $36.9 million for the twelve months ended December
31, 2003 as compared to $41.4 million for the twelve months ended December 31,
2002. Capital expenditures primarily include amounts for the upgrade of
capability and renewals of certain aircraft, and the purchase of aircraft during
the year. As discussed above, in 2002, the Company also purchased $118.1 million
of aircraft it previously leased. At December 31, 2003, the Company had
commitments of $4.5 million for the purchase of aircraft.

The Company believes that cash flow from operations will be sufficient to fund
required working capital needs, interest payments on the Notes and capital
expenditures for the next twelve months.

The table below sets out the contractual obligations of the Company related to
operating lease obligations and the Senior Notes issued in 2002. 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. The Company leases two aircraft
included in the lease obligations below. The operating lease obligations
primarily relate to the Company's facilities in Lafayette, Louisiana.


                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                                       Payment Due by Year
                                            ----------------------------------------------------------------------
                                                                                                           Beyond
                                Total        2004        2005        2006        2007         2008          2008
                              --------      ------      ------      ------      ------      --------      --------
                                                                      (Thousands of dollars)
<S>                           <C>           <C>         <C>         <C>         <C>         <C>           <C>
      Operating lease
         obligations          $ 22,835      $2,733      $2,407      $2,137      $1,837      $  1,751      $ 11,970

      Long term debt           200,000          --          --          --          --            --       200,000
                              --------      ------      ------      ------      ------      --------      --------
                              $222,835      $2,733      $2,407      $2,137      $1,837      $  1,751      $211,970
                              ========      ======      ======      ======      ======      ========      ========
</TABLE>

The amounts above exclude approximately $19.0 million of required annual
interest payments on the Notes.

On February 13, 2004, the Company terminated an aircraft operating lease
agreement with the sale of the aircraft under that operating lease. The
contractual obligation for that operating lease is included in the above
schedule. The amounts included in the above table as a result of the termination
of that lease are reflected below.

<TABLE>
<CAPTION>
                                                                                Payment Due by Year
                                                    --------------------------------------------------------------------------
                                                                                                                       Beyond
                                         Total         2004        2005         2006          2007         2008         2008
                                       ---------    ---------    ---------    ---------    ---------    ---------    ---------
                                                                               (Thousands of dollars)
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>          <C>
      Operating lease
        obligations                    $   5,108    $     724    $     724    $     724    $     724    $     724    $   1,488
</TABLE>

In addition to the above obligations, the Company intends to execute an
operating lease agreement for a term of ten years upon delivery of two medium
transport category aircraft in 2004, at cost of $2.7 million per year.

                   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.

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.


                                       19
<PAGE>
The Company's principal long-lived assets are aircraft. 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 that program. The Company also carries deductibles on its
workers' compensation program and aircraft hull and liability insurance and
estimates periodic expenses related to the retained portion of those risks.
Significant changes in estimates due to poor experience or higher accident rates
could result in additional recorded losses.

                          NEW ACCOUNTING PRONOUNCEMENTS

For a discussion of new accounting pronouncements applicable to the Company, see
Note 1 to the Financials Statements.

                              ENVIRONMENTAL MATTERS

The Company has an aggregate estimated liability of $0.6 million as of December
31, 2003 for environmental remediation costs that are probable and estimable.
The Company has conducted environmental surveys of the Lafayette facility, which
it vacated in 2001, 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 the Company's
consolidated financial position, results of operations or liquidity.

During 2003, the Company obtained favorable sampling results at certain
locations. As a result of these samples and responses received from regulatory
agencies, the Company determined that the cost of remediation at these locations
would be less than originally anticipated, resulting in a reduction of the
estimated environmental liability of $0.3 million. The Company also received a
"No Further Action" letter on its Morgan City site resulting in a reduction of
the environmental reserve of $0.2 million. During the year, the estimated
environmental liability has also been reduced by payments of $0.4 million.


                                       20
<PAGE>
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company was exposed to market risks associated with interest rates and prior
to April 23, 2002, made limited use of derivative financial instruments to
manage that risk. When used, all derivatives 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.

On April 23, 2002, the Company paid its Terminated Loan Agreement. The
Terminated Loan Agreement had variable interest rates. In conjunction with the
payment of the Terminated Loan Agreement, the Company settled its interest rate
Swap agreements by paying $1.6 million to the counterparties.

Also on April 23, 2002, the Company issued Notes of $200 million that have an
interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each
year, beginning November 1, 2002, and mature in May 2009. The market value of
the Notes will vary as changes occur to general market interest rates, the
remaining maturity of the Notes, and the Company's credit worthiness. At
December 31, 2003, the market value of the Notes was $212.5 million. A
hypothetical 100 basis-point increase to the Notes' imputed interest rate at
December 31, 2003 would have resulted in a market value decline to approximately
$205.4 million.


                                       21
<PAGE>
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, 2003 and 2002, and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for each of the three years in the
period ended December 31, 2003. Our audits also included the financial statement
schedule for each of the three years in the period ended December 31, 2003,
listed in the Index at Item 15. 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, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement schedule
for each of the three years in the period ended December 31, 2003, 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 11, 2004


                                       22
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                          DECEMBER 31,   DECEMBER 31,
                                                              2003          2002
                                                          ------------   ------------
<S>                                                       <C>            <C>
                           ASSETS
Current Assets:
    Cash and cash equivalents                              $   19,872     $   17,674
    Accounts receivable - net of allowance:
       Trade                                                   41,743         40,234
       Other                                                    1,315            579
    Inventory                                                  40,405         37,375
    Other current assets                                        6,575          5,753
    Refundable income taxes                                       225          2,236
                                                           ----------     ----------
                Total current assets                          110,135        103,851

Other                                                           8,793         10,279
Property and equipment, net                                   258,526        252,577
                                                           ----------     ----------
                Total Assets                               $  377,454     $  366,707
                                                           ==========     ==========

            LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Accounts payable                                       $   18,837     $   14,772
    Accrued liabilities                                        15,598         11,893
    Accrued vacation payable                                    3,400          3,931
    Income taxes payable                                           --            504
    Notes payable                                               2,000             --
                                                           ----------     ----------
                Total current liabilities                      39,835         31,100

Long-term debt                                                200,000        200,000
Deferred income taxes                                          25,597         24,249
Other long-term liabilities                                     6,029          6,504
Commitments and contingencies (Note 8)
Shareholders' Equity:
    Voting common stock - par value of $0.10;
       authorized shares of 12,500,000                            285            285
    Non-voting common stock - par value of $0.10;
       authorized shares of 12,500,000                            253            253
    Additional paid-in capital                                 15,088         15,062
    Retained earnings                                          90,367         89,254
                                                           ----------     ----------
                Total shareholders' equity                    105,993        104,854
                                                           ----------     ----------
       Total Liabilities and Shareholders' Equity          $  377,454     $  366,707
                                                           ==========     ==========
</TABLE>

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


                                       23
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            (THOUSANDS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                              YEAR ENDED       YEAR ENDED       YEAR ENDED
                                             DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                                                  2003            2002             2001
                                             ------------     ------------     ------------
<S>                                          <C>              <C>              <C>
Operating revenues                           $    269,392     $    283,751     $    282,437
Gain, net on disposition of property
     and equipment                                  1,988              586            1,351
Other                                                 686            1,675            1,461
                                             ------------     ------------     ------------
                                                  272,066          286,012          285,249
Expenses:
     Direct expenses                              230,229          235,189          243,538
     Selling, general and administrative           19,983           18,189           18,029
     Interest expense                              19,952           17,250            6,190
                                             ------------     ------------     ------------
                                                  270,164          270,628          267,757
                                             ------------     ------------     ------------

Earnings before income taxes                        1,902           15,384           17,492
Income taxes                                          763            6,153            6,472
                                             ------------     ------------     ------------

Net earnings                                 $      1,139     $      9,231     $     11,020
                                             ============     ============     ============

Earnings per share:
     Basic                                   $       0.21     $       1.73     $       2.12
     Diluted                                 $       0.21     $       1.70     $       2.08

Weighted average shares outstanding                 5,383            5,334            5,199
Incremental shares                                    103              104              106
                                             ------------     ------------     ------------
Weighted average shares and
     equivalents                                    5,486            5,438            5,305
                                             ============     ============     ============
</TABLE>

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


                                       24
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (THOUSANDS OF DOLLARS AND SHARES)

<TABLE>
<CAPTION>
                                                                                                         ACCUMULATED
                                             VOTING                   NON-VOTING                          OTHER COM-
                                          COMMON STOCK               COMMON STOCK          ADDITIONAL     PREHENSIVE
                                    -----------------------     -----------------------      PAID-IN        INCOME        RETAINED
                                      SHARES       AMOUNT         SHARES        AMOUNT       CAPITAL        (LOSS)        EARNINGS
                                    ---------     ---------     ---------     ---------    ----------    -----------     ---------
<S>                                 <C>           <C>           <C>           <C>          <C>           <C>             <C>
Balance at Dec. 31, 2000                2,793     $     279         2,373     $     237     $  12,045     $      --      $  69,061
   Stock options exercised                 59             6             1            --           820            --             --
   Stock issued to employees               --            --            31             3           111            --             --
   Other                                   --            --             8             1           351            --            (32)
   Cumulative effect of
       adopting SFAS No. 133               --            --            --            --            --            38             --
   Unrecognized loss on
       interest swaps                      --            --            --            --            --        (2,068)            --
   Net Earnings                            --            --            --            --            --            --         11,020
                                    ---------     ---------     ---------     ---------     ---------     ---------      ---------
Balance at Dec. 31, 2001                2,852           285         2,413           241        13,327        (2,030)        80,049
   Stock options exercised                 --            --           113            12         1,735            --             --
   Other                                   --            --            --            --            --            --            (26)
   Unrecognized gain on
       interest swaps                      --            --            --            --            --           455             --
   Reclassification
       adjustments for losses
       included in net earnings            --            --            --            --            --         1,575             --
   Net earnings                            --            --            --            --            --            --          9,231
                                    ---------     ---------     ---------     ---------     ---------     ---------      ---------
Balance at Dec. 31, 2002                2,852     $     285         2,526     $     253     $  15,062     $      --      $  89,254
   Stock options exercised                 --            --             5            --            26            --             --
   Other                                   --            --            --            --            --            --            (26)
   Net earnings                            --            --            --            --            --            --          1,139
                                    ---------     ---------     ---------     ---------     ---------     ---------      ---------
Balance at Dec. 31, 2003                2,852     $     285         2,531     $     253     $  15,088     $      --      $  90,367
                                    =========     =========     =========     =========     =========     =========      =========
</TABLE>

                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                              YEAR ENDED       YEAR ENDED       YEAR ENDED
                                             DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                                                 2003             2002             2001
                                             ------------     ------------     ------------
<S>                                          <C>              <C>              <C>
Net earnings                                 $      1,139     $      9,231     $     11,020
Other comprehensive income (loss)
     Cumulative effect of adopting
         SFAS No. 133                                  --               --               38
     Unrecognized gain (loss) on
         interest rate swaps                           --              455           (2,068)
Add reclassification adjustments for
         losses included in net earnings               --            1,575               --
                                             ------------     ------------     ------------
Comprehensive income                         $      1,139     $     11,261     $      8,990
                                             ============     ============     ============
</TABLE>

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


                                       25
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                      YEAR ENDED        YEAR ENDED        YEAR ENDED
                                                     DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                                                         2003              2002               2001
                                                     ------------      ------------      ------------
<S>                                                  <C>               <C>               <C>
Cash flows from operating activities:
    Net earnings                                     $      1,139      $      9,231      $     11,020
    Adjustments to reconcile net earnings to
      net cash provided by operating activities:
       Depreciation                                        25,209            21,048            15,082
       Deferred income taxes                                 (293)            7,325              (385)
       Gain on asset dispositions                          (1,988)             (586)           (1,351)
       Bad debt allowance related to notes
         receivable                                            --              (731)              575
       Other                                                 (323)            1,100               218
    Changes in operating assets and liabilities:
      Accounts receivable                                  (2,245)            6,928            (4,121)
      Inventory                                            (3,030)           (2,993)              793
      Refundable income taxes                               2,011            (2,236)            3,852
      Other assets                                          3,021             3,228            (6,753)
      Accounts payable, accrued liabilities and
         vacation payable                                   7,239            (4,671)           (1,333)
      Income taxes payable                                   (504)           (1,924)            2,428
      Other long-term liabilities                            (821)            3,810            (1,345)
                                                     ------------      ------------      ------------
    Net cash provided by operating activities              29,415            39,529            18,680
                                                     ------------      ------------      ------------

Cash flows from investing activities:
    Proceeds from notes receivable                             --             1,629               350
    Purchase of property and equipment                    (36,863)          (41,351)          (29,502)
    Purchases of aircraft previously leased                    --          (118,076)               --
    Proceeds from asset dispositions                        7,620             3,263            24,304
                                                     ------------      ------------      ------------
    Net cash used in investing activities                 (29,243)         (154,535)           (4,848)
                                                     ------------      ------------      ------------

Cash flows from financing activities:
    Proceeds from Notes and long-term debt                  2,000           200,000             2,851
    Less related fees & expenses                               --            (5,835)               --
    Payments on long-term debt and capital lease
        obligations                                            --            (5,845)          (12,850)
    Payments on long-term debt from Notes
        proceeds                                               --           (60,771)               --
    Payment of interest rate swap settlement                   --            (1,575)               --
    Proceeds from exercise of stock options                    50             1,271               739
    Other                                                     (24)               --                --
                                                     ------------      ------------      ------------
    Net cash provided by (used in) financing
      activities                                            2,026           127,245            (9,260)
                                                     ------------      ------------      ------------

Increase in cash and cash equivalents                       2,198            12,239             4,572
Cash and cash equivalents, beginning of year               17,674             5,435               863
                                                     ------------      ------------      ------------
Cash and cash equivalents, end of year               $     19,872      $     17,674      $      5,435
                                                     ============      ============      ============
</TABLE>

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


                                       26
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Nature of Operations, Basis of Consolidation, and Other General Principles

      Since its inception, Petroleum Helicopters, Inc.'s primary business has
      been to transport personnel and, to a lesser extent, parts and equipment,
      to, from and among offshore facilities for customers engaged in the oil
      and gas exploration, development, and production industry. The Company
      also provides air medical transportation services for hospitals, medical
      programs, and aircraft maintenance services to third parties.

      The consolidated financial statements include the accounts of Petroleum
      Helicopters, Inc. and its subsidiaries ("PHI" or the "Company") after the
      elimination of all significant intercompany accounts and transactions. For
      its investments of 20% to 50% in affiliates, which are primarily foreign
      affiliates, the Company uses the equity method of accounting.

      Revenue Recognition

      The Company recognizes revenue related to aviation transportation services
      after the services are performed or the contractual obligations are met.
      Aircraft maintenance service revenues are generally recognized at the time
      the repair or service work is completed. Revenues related to emergency
      flights generated by the Company's subsidiary, Air Evac Services, Inc.
      ("Air Evac") are recorded net of contractual allowances under agreements
      with third party payors when the services are provided.

      Use of Estimates

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and the disclosure of contingent assets
      and liabilities at the date of the financial statements, as well as
      reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates.

      Cash Equivalents

      The Company considers cash equivalents to include demand deposits and
      investments with original maturity dates of three months or less.

      Inventories

      The Company's inventories are stated at the lower of average cost or
      market and consist primarily of spare parts. Portions of the Company's
      inventories are used parts that are often exchanged with parts removed
      from aircraft, reworked to a useable condition according to manufacturers'
      and FAA specifications, and returned to inventory. The Company uses
      systematic procedures to estimate the valuation of the used parts, which
      includes consideration of their condition and continuing utility. The
      Company also records an allowance for obsolescent and slow-moving parts,
      relying principally on specific identification of such inventory.
      Valuation reserves related to obsolescence and slow-moving inventory were
      $5.5 million and $4.8 million at December 31, 2003 and 2002, respectively.

      Property and Equipment

      The Company records its property and equipment at cost less accumulated
      depreciation. For financial reporting purposes, the Company uses the
      straight-line method to compute depreciation based upon estimated useful
      lives of five to fifteen years for flight equipment and three to ten years
      for other equipment. The Company uses accelerated depreciation methods for
      tax purposes. Upon selling or otherwise disposing of property and
      equipment, the


                                       27
<PAGE>
      Company removes the cost and accumulated depreciation from the accounts
      and reflects any resulting gain or loss in earnings at the time of sale or
      other disposition.

      Effective January 1, 2003, the Company changed the estimated residual
      value of certain aircraft (77 aircraft of the total fleet) from 30% to
      40%. The Company believes the revised amounts reflect their historical
      experience and more appropriately matches costs over the estimated useful
      lives and salvage values of these assets. The effect of this change for
      the year ended December 31, 2003 was a reduction in depreciation expense
      of $0.8 million ($0.05 million after tax or $0.09 per diluted share).

      The Company reviews its long-lived assets and certain identifiable
      intangibles 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 its 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.

      Self-Insurance

      The Company maintains a self-insurance program for a portion of its health
      care costs. Self-insurance costs are accrued based upon the aggregate of
      the liability for reported claims and the estimated liability for claims
      incurred but not reported. As of December 31, 2003 and 2002, the Company
      had $1.3 million and $1.1 million, respectively, of accrued liabilities
      related to health care claims.

      Concentration of Credit Risk

      Financial instruments that potentially expose the Company to
      concentrations of credit risk consist primarily of cash and cash
      equivalents and trade accounts receivable. The Company places its
      short-term invested cash and cash equivalents on deposit with a major
      financial institution. Cash equivalents include Commercial paper of
      companies with high credit ratings and money market securities. The
      Company does not believe significant credit risk exists with respect to
      these securities at December 31, 2003.

      PHI conducts a majority of its business with major and independent oil and
      gas exploration and production companies with operations in the Gulf of
      Mexico. The Company also provides services to the medical centers and US
      governmental agencies. The Company continually evaluates the financial
      strength of its customers but generally does not require collateral to
      support the customer receivables. The Company establishes an allowance for
      doubtful accounts based upon factors surrounding the credit risk of
      specific customers, current market conditions, and other information. The
      allowance for doubtful accounts was $0.1 million and $0.2 million at
      December 31, 2003 and December 31, 2002, respectively. The Company's
      largest domestic oil and gas customer accounted for 15%, 17%, and 14%, of
      consolidated operating revenues for years ended December 31, 2003, 2002,
      and 2001, respectively. The Company also carried accounts receivable from
      this same customer totaling 15% and 22%, of net trade accounts receivable
      on December 31, 2003 and 2002, respectively.

      Stock Compensation

      The Company uses the intrinsic value method of accounting for employee
      stock-based compensation prescribed by Accounting Principles Board (APB)
      Opinion No. 25 and, accordingly, follows the disclosure-only provisions of
      Statement of Financial Accounting Standards No. 123, "Accounting for
      Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 encourages the
      use of a fair value based method of accounting for compensation expense
      associated with stock option and similar plans. However, SFAS No. 123
      permits the continued use of the intrinsic value based method prescribed
      by Opinion No. 25 but requires additional disclosures, including pro forma
      calculations of net earnings and earnings per share as if the fair value
      method of accounting prescribed by SFAS No. 123 had been applied.


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                                           YEAR ENDED             YEAR ENDED             YEAR ENDED
                                                          DECEMBER 31,           DECEMBER 31,           DECEMBER 31,
                                                              2003                   2002                    2001
                                                          ------------           ------------           ------------
                                                            (Thousands of dollars and shares, except per share data)
<S>                                                       <C>                    <C>                    <C>
       Net earnings (loss) - as reported                  $      1,139           $      9,231           $     11,020
       Add stock-based employee compensation
           expense included in reported net income,
           net of related tax effects                              300                    178                    202
       Deduct total stock-based employee
           compensation expense determined under
           fair value based method for all awards,
           net of related tax effects,                              --                   (161)                  (568)
                                                          ------------           ------------           ------------
       Net earnings - pro forma                                  1,439                  9,248                 10,654
                                                          ============           ============           ============

       Earnings per share
           Basic - as reported                                    0.21                   1.73                   2.12
           Basic - pro forma                                      0.27                   1.73                   2.05
           Diluted -- as reported                                 0.21                   1.70                   2.08
           Diluted -- pro forma                                   0.26                   1.70                   2.00
       Average fair value of grants during the year                N/A                    N/A                   6.18

       Black-Sholes option pricing model
         assumptions:
            Risk-free interest rate                                N/A                    N/A                   6.00%
            Expected life (years)                                  N/A                    N/A                    6.0
            Volatility                                             N/A                    N/A                  50.64%
            Dividend yield                                         N/A                    N/A                     --
</TABLE>

      Income Taxes

      The Company provides for income taxes using the asset and liability method
      under which deferred tax assets and liabilities are recognized for the
      future tax consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases. The deferred tax assets and liabilities measurement
      uses enacted tax rates that are expected to apply to taxable income in the
      years in which those temporary differences are expected to be recovered or
      settled. The Company recognizes the effect of any tax rate changes in
      income of the period that included the enactment date.

      Earnings per Share

      The Company computes basic earnings per share by dividing income available
      to common stockholders by the weighted average number of common shares
      outstanding during the period. The diluted earnings per share computation
      uses the weighted average number of shares outstanding adjusted for
      incremental shares attributed to dilutive outstanding options to purchase
      common stock and non-vested restricted stock awards.

      Derivative Financial Instruments

      The Company adopted SFAS No. 133, "Accounting for Derivative Instruments
      and Hedging Activities," as amended by SFAS No. 138, "Accounting for
      Certain Derivative Instruments and Certain Hedging Activities," on January
      1, 2001. The Company recorded a cumulative effect to Comprehensive Income
      (Loss) of $38,000 in the first quarter of 2001 in connection with the
      initial adoption of SFAS No. 133.

      Proir to April 2002, the Company used interest rate Swap agreements to
      manage its interest rate exposure. The Company specifically designated
      these agreements as hedges of debt instruments and recognized interest
      differentials as adjustments to interest expense in the period the
      differentials occur. Under the interest rate Swap


                                       29
<PAGE>
      agreements, the Company agreed with other parties to exchange, at specific
      intervals, the difference between fixed-rate and variable-rate interest
      amounts calculated by reference to an agreed-upon notional principal
      amount. On April 23, 2002, the Company settled its outstanding interest
      rate Swap agreement for $1.6 million. See Note 3 of these consolidated
      financial statements.

      New Accounting Pronouncements

      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 implemented SFAS No. 143
      on January 1, 2003, and determined that this statement did not have a
      material impact on its consolidated financial position or results of
      operations.

      In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
      Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
      Technical Corrections." SFAS No. 145 eliminates SFAS No. 4 and as a
      result, gains and losses from extinguishments of debt should be classified
      as extraordinary items only if they meet the criteria in APB Opinion No.
      30. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to eliminate
      an inconsistency between the required accounting for sale-leaseback
      transactions and the required accounting for certain lease modifications
      that have economic effects that are similar to sale-leaseback
      transactions. SFAS No. 145 also updates and amends existing authoritative
      pronouncements to make various technical corrections, clarify meanings, or
      describe their applicability under changed conditions. The Company
      implemented SFAS No. 145 on January 1, 2003, and determined that this
      statement did not have a material impact on its consolidated financial
      statements.

      In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
      Associated with Exit or Disposal Activities," which is effective for
      fiscal periods after December 31, 2002. SFAS No. 146 requires companies to
      recognize costs associated with restructurings, discontinued operations,
      plant closings, or other exit or disposal activities, when incurred rather
      than at the date a plan is committed to. The Company will implement the
      provisions of this statement on a prospective basis for exit or disposal
      activities that are initiated after December 31, 2002.

      In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the
      disclosures to be made by a guarantor about its obligations under certain
      guarantees. It also clarifies that a guarantor is required to recognize,
      at the inception of a guarantee, a liability for the fair value of the
      obligation undertaken in issuing the guarantee. As required, the Company
      adopted the disclosure requirements of FIN 45 as of December 31, 2002. The
      Company has adopted the initial recognition and measurement provisions on
      a prospective basis for guarantees issued or modified after December 31,
      2002 and it did not have a material impact on the Company's consolidated
      financial position or results of operations.

      In January 2003, FASB issued Interpretation No. 46, "Consolidation of
      Variable Interest Entities" ("FIN 46"). FIN 46 requires that companies
      that control another entity through interest other than voting interests
      should consolidate the controlled entity. FIN 46 became effective
      immediately for variable interest entities created after January 31, 2003.
      For entities created before January 31, 2003, the provisions of FIN 46
      were delayed until December 31, 2003. The Company does not believe that
      the Company has interests that would be considered variable interest
      entities under FIN 46.

      Reclassifications

      Certain reclassifications have been made in the prior period financial
      statements in order to conform to the classifications adopted for
      reporting in 2003.


                                       30
<PAGE>
(2)   PROPERTY AND EQUIPMENT

      The following table summarizes the Company's property and equipment at
      December 31, 2003 and December 31, 2002.

<TABLE>
<CAPTION>
                                                 DECEMBER 31,      DECEMBER 31,
                                                     2003              2002
                                                 ------------      ------------
                                                     (Thousands of dollars)
<S>                                              <C>               <C>
              Flight equipment                   $    346,914      $    324,476
              Other                                    50,334            48,696
                                                 ------------      ------------
                                                      397,248           373,172
              Less accumulated depreciation          (138,722)         (120,595)
                                                 ------------      ------------
                 Property and equipment, net     $    258,526      $    252,577
                                                 ============      ============
</TABLE>

      Property and equipment at December 31, 2003 and 2002 included aircraft
      with a net book value of $7.2 million and $4.3 million, respectively that
      was held for sale.

      During 2002, the Company used $118.1 million of proceeds from the issuance
      of the Notes to acquire aircraft that it had previously leased.

(3)   LONG-TERM DEBT

      On April 23, 2002, the Company issued Senior Unsecured Notes (the "Notes")
      of $200 million that have an interest rate of 9 3/8% payable semi-annually
      on May 1 and November 1 of each year, beginning November 1, 2002, and
      mature in May 2009. The Notes are fully and unconditionally guaranteed on
      a senior basis, jointly and severally, by all of the Company's existing
      100% owned operating subsidiaries. The proceeds of the Notes were used to
      retire existing bank debt, interest rate Swap agreements, and to purchase
      101 aircraft previously under lease. The Notes contain certain covenants,
      including limitations on indebtedness, liens, dividends, repurchases of
      capital stock and other payments affecting restricted subsidiaries,
      issuance and sales of restricted subsidiary stock, dispositions of
      proceeds of asset sales, and mergers and consolidations or sales of
      assets. As of December 31, 2003, the Company was in compliance with these
      covenants.

      Also on April 23, 2002, the Company entered into a new credit agreement
      with a commercial bank for a $50 million revolving credit and letter of
      credit facility. The credit agreement permits both prime rate based
      borrowings and "LIBOR" rate borrowings plus a spread. The spread for LIBOR
      borrowings is from 2.0% to 3.0%. Any amounts outstanding under the
      revolving credit facility are due July 31, 2004. The Company will pay an
      annual 0.375% commitment fee on the unused portion of the revolving credit
      facility. The Company may also obtain letters of credit issued under the
      credit facility up to $5.0 million with a 0.125% fee payable on the amount
      of letters of credit issued. At December 31, 2003 and 2002, the Company
      had no borrowings under the revolving credit facility. As of December 31,
      2003 and 2002, the Company had two letters of credit for $0.8 million and
      $0.6 million outstanding under the revolving credit facility. It is the
      Company's intention to renew the revolving credit facility upon expiration
      in July 2004.

      The Company is subject to certain financial covenants under the credit
      agreement. These covenants include maintaining certain levels of working
      capital and shareholders' equity and contain other provisions including a
      restriction on purchases of the Company's stock and payment of dividends.
      The credit agreement also limits the creation, incurrence, or assumption
      of Funded Debt (as defined, which includes long-term debt) and the
      acquisition of investments in unconsolidated subsidiaries. As of December
      31, 2003, the Company was in compliance with these covenants.

      During the year ended December 31, 2003, the Company entered into a
      purchase agreement for two aircraft at a combined cost of $32.4 million to
      be delivered in 2004. The Company has made a $2.0 million progress payment
      under an interim finance agreement with a commercial lender and intends to
      finance the remainder of the acquisition through an operating lease
      transaction with the same lender. The $2.0 million is recorded as a
      current note payable at December 31, 2003.

      As discussed in Note 1, until April 2002, the Company used derivative
      instruments on a limited basis to manage risks related to interest rates.
      At December 31, 2001, the Company had interest rate Swap agreements, which
      were


                                       31
<PAGE>
      contracts to fix interest rates associated with the Company's bank debt,
      with notional amounts totaling $40.0 million that served to convert an
      equal amount of variable rate long-term debt to fixed rates. The Swap
      agreements were scheduled to mature in 2004 and required the Company to
      pay a weighted-average interest rate of 5.78% over their composite lives
      and to receive a variable rate, which was 4.77% at December 31, 2001.
      Using the accrual/settlement method of accounting, the Company recorded
      the net amount to be received or paid under the Swap agreements as part of
      interest expense in the Consolidated Statements of Operations. The
      interest rate Swap agreements had the effect of increasing interest
      expense by $0.5 million and $0.6 million for years ended December 31,
      2002, and 2001, respectively. On April 23, 2002, the Company settled its
      outstanding interest rate Swap agreements for $1.6 million.

      Cash paid for interest, net of amounts paid or received in connection with
      the interest rate Swap agreements, was $19.0 million, $11.9 million, and
      $6.6 million, for the years ended December 31, 2003, 2002, and 2001,
      respectively.

(4)   INCOME TAXES

      Income tax expense (benefit) is composed of the following:

<TABLE>
<CAPTION>
                                                  YEAR ENDED        YEAR ENDED       YEAR ENDED
                                                 DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                                                     2003               2002             2001
                                                 ------------      ------------      ------------
                                                             (Thousands of dollars)
<S>                                              <C>               <C>               <C>
              Current:
                   Federal                       $         --      $     (2,009)     $      5,645
                   State                                  102               (79)              308
                   Foreign                                954               916               904
              Deferred - principally Federal             (293)            7,325              (385)
                                                 ------------      ------------      ------------
                    Total                        $        763      $      6,153      $      6,472
                                                 ============      ============      ============
</TABLE>

      Income tax expense (benefit) as a percentage of pre-tax earnings varies
      from the effective Federal statutory rate of 34% as a result of the
      following:

<TABLE>
<CAPTION>
                                             YEAR ENDED            YEAR ENDED            YEAR ENDED
                                         DECEMBER 31, 2003      DECEMBER 31, 2002     DECEMBER 31, 2001
                                         -----------------      -----------------     -----------------
                                              (Thousands of dollars, except percentage amounts)
                                         Amount         %       Amount        %       Amount         %
                                         ------       ----      -------     -----     ------      -----
<S>                                      <C>          <C>       <C>         <C>       <C>         <C>
      Income taxes at statutory rate     $  647         34      $ 5,231        34     $ 5,947        34
      Increase (decrease) in taxes
        resulting from:
        Effect of state income taxes        195         10          615         4         472         3
        Other items - net                   (79)        (4)         307         2          53        --
                                         ------       ----      -------     -----     -------     -----
            Total                        $  763         40      $ 6,153        40     $ 6,472        37
                                         ======       ====      =======     =====     =======     =====
</TABLE>


                                       32
<PAGE>
      The tax effects of temporary differences that give rise to significant
      portions of the deferred tax assets and deferred tax liabilities at
      December 31, 2003 and 2002 are presented below:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,      DECEMBER 31,
                                                                         2003              2002
                                                                     ------------      ------------
                                                                         (Thousands of dollars)
<S>                                                                  <C>               <C>
              Deferred tax assets:
                 Deferred compensation                               $      1,292      $      1,125
                 Tax credits                                                2,169             1,214
                 Vacation accrual                                           1,451             1,593
                 Inventory valuation                                        2,818             1,784
                 Workman's compensation reserve                               447               130
                 Allowance for uncollectible accounts                         781                --
                 Other                                                        362             1,881
                 Net operating loss                                        18,322             3,685
                                                                     ------------      ------------
                   Total deferred tax assets                               27,642            11,412
                                                                     ------------      ------------
              Deferred tax liabilities:
                 Tax depreciation in excess of book depreciation          (47,115)          (31,683)
                 Valuation allowance-tax credit carryforwards              (1,092)             (574)
                 Allowance for uncollectible accounts                          --               (13)
                                                                     ------------      ------------
                   Total deferred tax liabilities                         (48,207)          (32,270)
                                                                     ------------      ------------
                       Net deferred tax liabilities                  $    (20,565)     $    (20,858)
                                                                     ============      ============
</TABLE>

      No valuation allowance was recorded against the deferred tax assets,
      except for a portion of the foreign tax credit carryforwards, because
      management believes that the deferred tax assets will more than likely be
      realized in full through future operating results and the reversal of
      taxable temporary differences. At December 31, 2003 and 2002, other
      current assets include $5.0 million and $3.4 million, respectively, of
      deferred tax assets.

      For Federal income tax purposes, the Company has foreign tax credits of
      approximately $2.1 million, which expire in 2005 through 2008. The Company
      also has net operating loss carryforwards ("NOLs"), of approximately $49.5
      million that, if not used will expire beginning in 2022 through 2023.
      Additionally, for state income tax purposes, the Company has NOLs of
      approximately $40.3 million available to reduce future state
      taxable income. These NOLs expire in varying amounts beginning in 2007
      through 2023, the majority of which expire in 2017 and 2018.

      Income taxes paid were approximately $1.4 million, $4.6 million, and $0.6
      million, for the years ended December 31, 2003, 2002 and 2001,
      respectively. The Company received income tax refunds of approximately
      $2.0 million, $1.6 million and $0.2 million during the years ended
      December 31, 2003, 2002 and 2001, respectively.

(5)   EMPLOYEE BENEFIT PLANS

      Savings and Retirement Plans

      The Company maintains an Employee Savings Plan under Section 401(k) of the
      Internal Revenue Code. The Company matches 2% for every 1% of an
      employee's salary deferral contribution, not to exceed 3% of the
      employee's compensation. The Company's contributions were $4.3 million for
      the year ended December 31, 2003 and $4.5 million for the years ended
      December 31, 2002 and 2001.

      The Company maintains a Supplemental Executive Retirement Plan ("SERP").
      The nonqualified and unfunded plan provides certain senior management with
      supplemental retirement and death benefits at age 65. The SERP plan
      provides supplemental retirement benefits that are based on each
      participant's salary at the time of entrance into the plan. The benefit is
      one-third of each participant's annual salary of $200,000 or less, plus
      one-half of each participant's annual salary that is in excess of
      $200,000, if applicable. The plan does not provide for automatic benefit
      increases. During 2000, the Company's board of directors amended the plan
      to provide for partial vesting. The Company recorded the following plan
      costs for the years ended December 31, 2003, 2002, and 2001.


                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                               ---------------------------------
                                                 2003         2002         2001
                                               -------      -------      -------
                                                     (Thousands of dollars)
<S>                                            <C>          <C>          <C>
              Service cost                     $   369      $   268      $   356
              Interest cost                         95          110          122
              Recognized actuarial gain            (36)         (42)         (42)
                                               -------      -------      -------
                    Net periodic plan cost         428          336      $   436
                                               =======      =======      =======
</TABLE>

      The benefit obligation, funded status, assumptions of the plan on December
      31, 2003 and 2002 were as follows:

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                         ---------------------
                                                                           2003          2002
                                                                         -------       -------
                                                                         (Thousands of dollars)
<S>                                                                      <C>           <C>
              Change in benefit obligation:
                 Benefit obligation at the beginning of the year         $ 2,080       $ 1,659
                 Service cost                                                369           268
                 Interest cost                                                95           110
                 Actuarial (gain) loss                                       130           155
                 Benefits paid                                               (65)         (112)
                                                                         -------       -------
                   Benefit obligation at the end of the year               2,609         2,080
                                                                         -------       -------
              Reconciliation of funded status:
                 Unfunded status                                          (2,609)       (2,080)
                 Unrecognized actuarial gain                                (359)         (345)
                                                                         -------       -------
                   Total liability included in other long-term
                      liabilities on the consolidated balance sheets     $(2,968)      $(2,425)
                                                                         =======       =======
              Weighted average assumptions:
                 Discount rate                                               4.7%         5.15%
                 Employee turnover/early retirement rate                      --            --
</TABLE>

      The SERP plan is an unfunded arrangement. However, the Company has
      purchased life insurance contracts in anticipation of using the life
      insurance's cash values and death benefits to help fulfill the obligations
      of the plan. The Company may sell or redeem the contracts at any time
      without any obligation to the plan participants. During each of the years
      ended December 31, 2003, 2002, and 2001, the Company recorded expenses of
      approximately $0.1 million related to the life insurance contracts. Cash
      values of the life insurance contracts, recorded in other assets, are $0.6
      million at December 31, 2003 and $0.4 million at December 31, 2002.

      The Board of Director has resolved to terminate the SERP, subject to any
      vested participant rights, and plans to offer participants a transfer of a
      present value participant interest into the Officer's Deferred
      Compensation Plan.

      The Company maintains an Officer Deferred Compensation Plan that permits
      key officers to defer a portion of their compensation. The plan is
      nonqualified and unfunded. However, the Company has established a book
      reserve account for each participant, which is deemed to be invested and
      reinvested from time to time in investments that the participant selects
      from a list of eligible investment choices. Earnings and losses on the
      book reserve accounts accrue to the plan participants. The Company has
      deposited funds in a brokerage account equal to amounts deferred under the
      plan. The Company may sell or redeem the investments at any time without
      any obligation to the plan participants. Liabilities for the plan are
      included in other long-term liabilities, and the corresponding book
      reserve accounts are included in other assets. Aggregate amounts deferred
      under the plans were $0.8 million and $0.6 million, respectively, for the
      years December 31, 2003 and 2002.


                                       34
<PAGE>
      In 2002, the Company terminated its Director Deferred Compensation Plan.
      The unfunded plan permitted all directors to defer a portion of their
      compensation. At December 31, 2001, other long-term liabilities included
      $0.1 million for amounts payable under the plan, which the Company paid in
      2002.

      Stock Based Compensation

      Under the PHI 1995 Incentive Plan (the "1995 Plan"), the Company is
      authorized to issue up to 175,000 shares of voting common stock and
      575,000 shares of non-voting common stock. The Compensation Committee of
      the Board of Directors is authorized under the 1995 Plan to grant stock
      options, restricted stock, stock appreciation rights, performance shares,
      stock awards, and cash awards. The exercise prices of the stock option
      grants are equal to the fair market value of the underlying stock at the
      date of grant. The 1995 Plan also allows awards under the plan to fully
      vest upon a change in control of the Company. In September of 2001, the
      Company underwent a change of control as defined in the 1995 plan and as a
      result, all awards issued prior to the change of control became fully
      vested.

      During the year ended December 31, 2001, the Company granted 20,000
      non-voting restricted shares and 150,000 non-voting stock options under
      the 1995 Plan. The non-voting restricted shares had a fair value of $11.06
      on the date of issue and became unrestricted during 2001. The non-voting
      stock options are 100% vested and expire on September 1, 2010. During the
      years ended December 31, 2003 and 2002, the Company did not issue any
      shares, options or rights under the 1995 Plan.

      At December 31, 2003, there were 116,520 voting shares and 190,876
      non-voting shares available for issuance under the 1995 Plan. The Company
      recorded compensation expense related to the 1995 Plan of $0.4 million for
      December 31, 2003 and $0.3 million in each of the years ended December 31,
      2002 and 2001. There was no unearned stock compensation expense at
      December 31, 2003 and 2002.

      During 2001, the Company's Board of Directors repealed the Directors Stock
      Compensation Plan (the "Director's Plan"). Previously, under the Directors
      Plan, each non-employee director ("Director") received his or her annual
      retainer in the form of PHI's non-voting common stock. Each Director could
      voluntarily defer all or a portion of the stock awards or fees otherwise
      payable. The Directors Plan also provided for the automatic annual grant
      of options to Directors to purchase 2,000 shares of non-voting common
      stock. During 2001, The Company issued no stock or deferred stock awards
      under the plan. The Company issued 547 shares and 2,388 deferred stock
      awards during the year ended December 31, 2000. The Company issued no
      stock options under the plan during 2001. During the year ended December
      31, 2000, the Company issued 4,165 options to purchase non-voting common
      stock.


                                       35
<PAGE>
            The following table summarizes employee and director stock option
            activities for the years ended December 31, 2003, 2002, and 2001.
            All of the options were issued with an exercise price equal to or
            greater than the market price of the stock at the time of issue.

<TABLE>
<CAPTION>
                                                       1995 Plan Options
                                  Director             -----------------                Weighted
                                   Plan -                     Non-                       Average
                                 Non-Voting      Voting      Voting         Total    Exercise Price
                                 ----------      ------      ------         -----    --------------
<S>                              <C>            <C>          <C>          <C>        <C>
Balance outstanding at
  December 31, 2000                 20,165       58,480      215,717       294,362        11.89
Options granted or reinstated           --           --      154,853       154,853        10.98
Options lapsed/canceled                 --           --       (9,250)       (9,250)       12.75
Options exercised                       --      (58,480)      (1,250)      (59,730)       12.35
                                  --------      -------     --------      --------
Balance outstanding at
  December 31, 2001                 20,165           --      360,070       380,235        11.43
Options settled for cash                --           --      (17,730)      (17,730)       11.44
Options lapsed/canceled                 --           --       (4,853)       (4,853)        8.50
Options exercised                  (20,165)          --      (92,864)     (113,029)       11.22
                                  --------      -------     --------      --------
Balance outstanding at
  December 31, 2002                     --           --      244,623       244,623        11.58
Options settled for cash                --           --      (21,250)      (21,250)       11.75
Options exercised                       --           --       (5,670)       (5,670)        9.06
                                  --------      -------     --------      --------
Balance outstanding at
  December 31, 2003                     --           --      217,703       217,703        11.63
                                  ========      =======     ========      ========
Shares exercisable at
  December 31, 2003                     --           --      217,703       217,703        11.63
                                  ========      =======     ========      ========
  December 31, 2002                     --           --      244,623       244,623        11.58
                                  ========      =======     ========      ========
  December 31, 2001                 20,165           --      360,070       380,235        11.43
                                  ========      =======     ========      ========
</TABLE>

      The following table summarizes information about stock options outstanding
      as of December 31, 2003. All of the outstanding stock options are
      exercisable.

<TABLE>
<CAPTION>
                          Options Outstanding and Exercisable
                                       Remaining
                       Number         Contractual       Exercise
                    Outstanding       Life (Years)        Price
                    -----------       ------------     ---------
<S>                                   <C>              <C>
                       10,203             1.4          $    8.50
                      150,000             6.7              11.06
                       42,500             5.5              12.75
                       15,000             4.8              16.25
                      -------
                      217,703             6.0(1)           11.63(1)
                      =======
</TABLE>

                  (1)   Weighted Average

      Incentive Compensation

      During 2002, the Company implemented an incentive plan for non-executive
      and non-represented employees. The plan allows the Company to pay up to 7%
      of earnings before tax, net of incentive compensation. Pursuant to the
      incentive plan for non-executives, the Company recorded $0.9 million of
      compensation expense in 2002 and a related liability in accrued
      liabilities at December 31, 2002. The Company did not record incentive
      compensation expense for the year ended December 31, 2003, as certain
      requirements under the incentive plan established in 2002 were not met.


                                       36
<PAGE>
      During 2002, the Company recorded $1.1 million of compensation expense for
      a discretionary incentive bonus paid to certain executive employees.

      For the year ended December 31, 2001, the Company recorded $1.3 million of
      compensation expense for a discretionary incentive bonus it paid in 2002
      to non-represented employees.

(6)   OTHER ASSETS

      The following table summarizes the Company's other assets at December 31,
      2003 and 2002.

                                              DECEMBER 31,     DECEMBER 31,
                                                  2003             2002
                                              ------------     ------------
                                                  (Thousands of dollars)
            Security deposits on aircraft     $      2,600     $         --
            Prepaid rent                                --            3,683
            Deferred financing cost                  4,508            5,404
            Other                                    1,685            1,192
                                              ------------     ------------
               Total                          $      8,793     $     10,279
                                              ============     ============

      During 2003, the Company placed security deposits on 2 aircraft to be
      leased, and 6 aircraft to be purchased. Upon delivery of the aircraft, the
      deposits will be applied to the lease or purchase.

(7)   FINANCIAL INSTRUMENTS

      Fair Value - The following table presents the carrying amounts and
      estimated fair values of financial instruments held by the Company at
      December 31, 2003 and December 2002. The table excludes cash and cash
      equivalents, accounts receivable, accounts payable, and accrued
      liabilities, all of which had fair values approximating carrying amounts.

<TABLE>
<CAPTION>
                                               DECEMBER 31, 2003             DECEMBER 31, 2002
                                           ------------------------      -------------------------
                                            Carrying      Estimated       Carrying      Estimated
                                             Amount       Fair Value        Amount      Fair Value
                                                             (Thousands of dollars)
<S>                                        <C>            <C>            <C>            <C>
            Long-term debt and capital
               lease obligations           $  200,000     $  212,500     $  200,000     $  209,000
</TABLE>

      At December 31, 2003 and 2002, the fair value of long-term debt is based
      on quoted market indications.

(8)   COMMITMENTS AND CONTINGENCIES

      Operating Leases - The Company leases certain aircraft, facilities, and
      equipment used in its operations. The related lease agreements, which
      include both non-cancelable and month-to-month terms, generally provide
      for fixed monthly rentals and, for certain real estate leases, renewal
      options. The Company generally pays all insurance, taxes, and maintenance
      expenses associated with these aircraft and some of these leases contain
      renewal and purchase options. Rental expense incurred under these leases
      consisted of the following:

<TABLE>
<CAPTION>
                           YEAR ENDED       YEAR ENDED       YEAR ENDED
                          DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                               2003             2002            2001
                          ------------     ------------     ------------
                                   (Thousands of dollars)
<S>                       <C>              <C>              <C>
            Aircraft      $      1,094     $      5,604     $     16,994
            Other                3,033            2,909            2,977
                          ------------     ------------     ------------
                Total     $      4,127     $      8,513     $     19,971
                          ============     ============     ============
</TABLE>

      During 2002, the Company acquired 99 aircraft that it had previously
      leased under operating leases. See Notes 2 and 3. The Company began
      leasing a new principal operating facility for twenty years, effective
      September 2001.


                                       37
<PAGE>
      The lease expires in 2021 and has three five-year renewal options.

      During the year ended December 31, 2003, the Company entered into a
      purchase agreement for two aircraft at a combined cost of $32.4 million to
      be delivered in 2004. The Company has made a $2.0 million progress payment
      under an interim finance agreement with a commercial lender and intends to
      finance the remainder of the acquisition through an operating lease
      transaction with the same lender.

      The following table presents the remaining aggregate lease commitments
      under operating leases having initial non-cancelable terms in excess of
      one year. The table includes renewal periods on the principal operation
      facility lease.

<TABLE>
<CAPTION>
                                       Aircraft(1)      Other
                                       ----------     ---------
                                         (Thousands of dollars)
                     <S>               <C>            <C>
                     2004               $    843      $   1,890
                     2005                    724          1,683
                     2006                    724          1,413
                     2007                    724          1,113
                     2008                    724          1,027
                     Thereafter            1,448         10,522
                                        --------      ---------
                                        $  5,187      $  17,648
                                        ========      =========
</TABLE>

            1)    All amounts for Aircraft lease commitments for 2004 and
                  forward, represent primarily one aircraft which was sold in
                  early 2004 and the lease terminated.

      Environmental Matters - The Company has an aggregate estimated liability
      of $0.6 million as of December 31, 2003 for environmental remediation
      costs that are probable and estimable. The Company has conducted
      environmental surveys of the Lafayette facility, which it vacated in 2001,
      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 the Company's
      consolidated financial position, results of operations or liquidity.

      During 2003, the Company obtained favorable sampling results at certain
      locations. As a result of these samples and responses received from
      regulatory agencies, the Company determined that the cost of remediation
      at these locations would be less than originally anticipated, resulting in
      a reduction of the estimated environmental liability of $0.3 million. The
      Company also received a "No Further Action" letter on its Morgan City site
      resulting in a reduction of the environmental reserve of $0.2 million.
      During the year, the estimated environmental liability has also been
      reduced by payments of $0.4 million.

      Legal Matters - The Company is named as a defendant in various legal
      actions that have arisen in the ordinary course of its business and have
      not been finally adjudicated. The amount, if any, of ultimate liability
      with respect to such matters cannot be determined. In the opinion of
      management, the amount of the ultimate liability with respect to these
      actions will not have a material adverse effect on the Company's
      consolidated financial position, results of operations or liquidity.

      Purchase Commitments - At December 31, 2003, the Company had commitments
      of $4.5 million for the purchase of certain aircraft. The Company expects
      to complete the purchase commitments during 2004.


                                       38
<PAGE>
(9)   BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

      PHI is primarily a provider of helicopter services, including helicopter
      maintenance and repair services. The Company has used a combination of
      factors to identify its reportable segments as required by Statement of
      Financial Accounting Standards No. 131, "Disclosures about Segments of an
      Enterprise and Related Information" ("SFAS 131"). The overriding
      determination of the Company's segments is based on how the chief
      operating decision-maker of the Company evaluates the Company's results of
      operations. The underlying factors include customer bases, types of
      service, operational management, physical locations, and underlying
      economic characteristics of the types of work the Company performs. The
      Company identifies four segments that meet the requirements of SFAS 131
      for disclosure. The reportable segments are Domestic Oil and Gas, Air
      Medical, International, and Technical Services.

      The Domestic Oil and Gas segment provides helicopter services to oil and
      gas customers operating in the Gulf of Mexico. Prior to 2001, the Domestic
      Oil and Gas segment also provided helicopter services to certain domestic
      governmental agencies involved with forest-fire fighting activities. The
      International segment provides helicopters in various foreign countries to
      oil and gas customers. The Air Medical segment provides helicopter
      services to hospitals and medical programs in several U.S. states, and
      also to individuals under which the Company is paid by either a commercial
      insurance company, federal or state agency, or the patient. The Company's
      Air Evac subsidiary is included in the Air Medical segment. The Technical
      Services segment provides helicopter repair and overhaul services for
      existing flight operations customers and for an existing long-term
      contract with one customer.

      Effective July 1, 2002, the Company no longer allocates interest expense
      to its segments when evaluating operating performance. All results prior
      to July 1, 2002 have been restated to remove interest expense from the
      segment operating results.

      The following table shows information about the profit or loss and assets
      of each of the Company's reportable segments for the years ended December
      31, 2003, 2002, and 2001. The information contains certain allocations,
      including allocations of depreciation, rents, insurance, and overhead
      expenses that the Company deems reasonable and appropriate for the
      evaluation of results of operations. The Company does not allocate gains
      on dispositions of property and equipment, equity in losses of
      unconsolidated subsidiaries, other income, interest expense, and corporate
      selling, general, and administrative costs to the segments. Where
      applicable, the tables present the unallocated amounts to reconcile the
      totals to the Company's consolidated financial statements. Segment assets
      are determined by where they are situated at period-end. Corporate assets
      are principally cash and cash equivalents, short-term investments, other
      current assets, and certain property, plant, and equipment.

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED
                                                                                       DECEMBER 31,
                                                                           ----------------------------------
                                                                              2003        2002         2001
                                                                           --------     --------     --------
                                                                                  (Thousands of dollars)
<S>                                                                        <C>          <C>          <C>
      Segment operating revenues
         Domestic Oil and Gas                                              $183,849     $189,480     $190,991
         Air Medical                                                         46,674       48,664       47,493
         International                                                       21,247       22,474       22,634
         Technical Services                                                  17,622       23,133       21,319
                                                                           --------     --------     --------
             Total operating revenues                                       269,392      283,751      282,437
                                                                           --------     --------     --------

      Segment direct expense
         Domestic Oil and Gas                                               163,328      161,711      160,293
         Air Medical                                                         32,782       34,223       44,280
         International                                                       21,093       20,568       21,453
         Technical Services                                                  13,026       18,687       17,512
                                                                           --------     --------     --------
             Total direct expense                                           230,229      235,189      243,538
      Segment selling, general and administrative expense
         Domestic Oil and Gas                                                 1,494          795        1,639
         Air Medical                                                          4,480        1,978        1,710
         International                                                          214          146          469
         Technical Services                                                      12          149          317
                                                                           --------     --------     --------
             Total selling, general and administrative expense                6,200        3,068        4,135
                                                                           --------     --------     --------
          Total direct and selling, general and administrative expense      236,429      238,257      247,673
                                                                           --------     --------     --------
</TABLE>


                                       39
<PAGE>
<TABLE>
<CAPTION>
                                                                            YEAR ENDED
                                                                           DECEMBER 31,
                                                                ------------------------------------
                                                                  2003          2002          2001
                                                                --------      --------      --------
                                                                       (Thousands of dollars)
<S>                                                             <C>           <C>           <C>
      Net segment profit
         Domestic Oil and Gas                                     19,027        26,974        29,059
         Air Medical                                               9,412        12,463         1,503
         International                                               (60)        1,760           712
         Technical Services                                        4,584         4,297         3,490
                                                                --------      --------      --------
             Total                                                32,963        45,494        34,764

      Other, net(1)                                                2,674         2,261         2,812
      Unallocated selling, general and administrative costs      (13,783)      (15,121)      (13,894)
      Interest expense                                           (19,952)      (17,250)       (6,190)
                                                                --------      --------      --------
      Earnings before income taxes                              $  1,902      $ 15,384      $ 17,492
                                                                ========      ========      ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                           YEAR ENDED
                                                          DECEMBER 31,
                                               2003           2002            2001
                                            ----------     ----------     ----------
                                                    (Thousands of dollars)
<S>                                         <C>           <C>             <C>
            EXPENDITURES FOR LONG-LIVED
              ASSETS (1)
                 Domestic Oil and Gas       $   20,086     $  144,973     $   24,201
                 Air Medical                    12,881         10,072          2,373
                 International                     276          1,996          2,067
                 Technical Services                 --             16            462
                 Corporate                       3,620          2,370            399
                                            ----------     ----------     ----------
                     TOTAL                  $   36,863     $  159,427     $   29,502
                                            ==========     ==========     ==========
             DEPRECIATION AND
              AMORTIZATION
                 Domestic Oil and Gas       $   19,042     $   15,676     $    9,825
                 Air Medical                     2,031          2,347          2,487
                 International                   1,928          1,638          1,250
                 Technical Services                127            102            331
                 Corporate                       2,081          1,285          1,189
                                            ----------     ----------     ----------
                     TOTAL                  $   25,209     $   21,048     $   15,082
                                            ==========     ==========     ==========

            ASSETS
                 Domestic Oil and Gas       $  253,064     $  250,215     $  148,616
                 Air Medical                    49,672         30,796         23,328
                 International                  14,733         14,994         19,912
                 Technical Services             12,176         23,076         13,704
                 Corporate                      47,809         47,626         20,085
                                            ----------     ----------     ----------
                     TOTAL                  $  377,454     $  366,707     $  225,645
                                            ==========     ==========     ==========
</TABLE>

      (1)   Includes the acquisition of aircraft from leasing companies and
            financial institutions as discussed in Note 3.


                                       40
<PAGE>
      The following table presents the Company's revenues from external
      customers attributed to operations in the United States and foreign areas
      and long-lived assets in the United States and foreign areas.

<TABLE>
<CAPTION>
                                     YEAR ENDED       YEAR ENDED       YEAR ENDED
                                    DECEMBER 31,     DECEMBER 31,     DECEMBER 31,
                                         2003            2002              2001
                                    ------------     ------------     ------------
                                              (Thousands of dollars)
<S>                                 <C>              <C>              <C>
            OPERATING REVENUES:
                 United States      $    248,145     $    261,277     $    259,803
                 International            21,247           22,474           22,634
                                    ------------     ------------     ------------
                     TOTAL          $    269,392     $    283,751     $    282,437
                                    ============     ============     ============

            LONG-LIVED ASSETS:
                 United States      $    248,211     $    242,883     $    105,703
                 International            10,315            9,694           16,465
                                    ------------     ------------     ------------
                     TOTAL          $    258,526     $    252,577     $    122,168
                                    ============     ============     ============
</TABLE>

(10)  RELATED PARTY TRANSACTIONS

      In 2002, the Company leased a fixed wing aircraft from a senior executive
      for total lease payments of $386,000. In the latter part of 2002, the
      Company purchased the aircraft from the same senior executive for
      $695,000. The purchase of the aircraft was reviewed and approved by the
      Audit Committee.


(11)  SEVERANCE LIABILITY

      During the year ended December 31, 2003, the Company recorded costs of
      approximately $1.9 million related to a plan of termination and early
      retirement covering approximately 60 employees. At December 31, 2003, the
      Company had an outstanding severance liability of $1.3 million for
      certain of these employees who have already terminated employment, or are
      scheduled to terminate employment and who have elected payment of the
      severance benefits at a later date. The Company expects to pay the
      remaining severance liability, for certain of these employees, by March
      31, 2004.

(12)  QUARTERLY FINANCIAL DATA (UNAUDITED)

      The summarized quarterly results of operations for the years ended
      December 31, 2003 and December 31, 2002 (in thousands of dollars, except
      per share data) are as follows:

<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                                       --------------------------------------------------------------------------
                                         MARCH 31,            JUNE 30,          SEPTEMBER 30,        DECEMBER 31,
                                           2003                 2003                 2003                2003
                                       ------------        ------------         -------------        ------------
                                                     (Thousands of dollars, except per share data)
<S>                                    <C>                 <C>                  <C>                  <C>
      Operating revenues               $     64,607        $     66,339         $     69,640         $     68,806
      Gross profit                           10,032              10,109                9,688                9,334
      Net earnings (loss)                       731                 602                   56                 (250)
      Net earnings per share
       Basic                                   0.14                0.11                 0.01                (0.04)
       Diluted                                 0.13                0.11                 0.01                (0.04)
</TABLE>

<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                                       --------------------------------------------------------------------------
                                         MARCH 31,           JUNE 30,           SEPTEMBER 30,        DECEMBER 31,
                                           2002                2002                 2002                2002
                                       ------------        ------------         -------------        ------------
                                                      (Thousands of dollars, except per share data)
<S>                                    <C>                 <C>                  <C>                  <C>
      Operating revenues               $     68,179        $     71,136         $     69,664         $     74,772
      Gross profit                            8,765              12,629               14,419               12,749
      Net earnings                            2,028               1,580                3,310                2,313
      Net earnings per share
       Basic                                   0.38                0.30                 0.62                 0.43
      Diluted                                  0.38                0.29                 0.61                 0.42
</TABLE>


                                       41
<PAGE>
(12)  SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION

      On April 23, 2002, the Company issued Notes of $200 million that are fully
      and unconditionally guaranteed on a senior basis, jointly and severally,
      by all of the Company's existing 100% owned operating subsidiaries
      ("Guarantor Subsidiaries").

      The following supplemental condensed financial information sets forth, on
      a consolidating basis, the balance sheet, statement of operations, and
      statement of cash flows information for Petroleum Helicopters, Inc.
      ("Parent Company Only") and the Guarantor Subsidiaries. The principal
      eliminating entries eliminate investments in subsidiaries, intercompany
      balances, and intercompany revenues and expenses.


                                       42
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATING BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                           DECEMBER 31, 2003
                                                 ----------------------------------------------------------------
                                                   PARENT
                                                   COMPANY         GUARANTOR
                                                    ONLY          SUBSIDIARIES     ELIMINATIONS      CONSOLIDATED
                                                 ------------     ------------     ------------      ------------
<S>                                              <C>              <C>              <C>               <C>
                    ASSETS
Current Assets:
    Cash and cash equivalents                    $     19,821     $         51     $         --      $     19,872
    Accounts receivable - net of allowance             36,831            6,227               --            43,058
    Inventory                                          40,405               --               --            40,405
    Other current assets                                6,526               49               --             6,575
    Refundable income taxes                               225               --               --               225
                                                 ------------     ------------     ------------      ------------
       Total current assets                           103,808            6,327               --           110,135

Investment in subsidiaries and other                   18,545           22,739          (32,491)            8,793
Property and equipment, net                           254,447            4,079               --           258,526
                                                 ------------     ------------     ------------      ------------
           Total Assets                          $    376,800     $     33,145     $    (32,491)     $    377,454
                                                 ============     ============     ============      ============

                LIABILITIES AND
             SHAREHOLDERS' EQUITY
Current Liabilities:
    Accounts payable and accrued liabilities     $     41,041     $      3,504     $    (10,110)     $     34,435
    Accrued vacation payable                            3,144              256               --             3,400
    Notes payable                                       2,000               --               --             2,000
                                                 ------------     ------------     ------------      ------------
       Total current liabilities                       46,185            3,760          (10,110)           39,835

Long-term debt net of current maturities              200,000               --               --           200,000
Deferred income taxes and other long-term
  liabilities                                          24,622            7,004               --            31,626
Shareholders' Equity:
    Paid-in capital                                    15,626            4,402           (4,402)           15,626
    Retained earnings                                  90,367           17,979          (17,979)           90,367
                                                 ------------     ------------     ------------      ------------
       Total shareholders' equity                     105,993           22,381          (22,381)          105,993
                                                 ------------     ------------     ------------      ------------
             Total Liabilities and
               Shareholders' Equity              $    376,800     $     33,145     $    (32,491)     $    377,454
                                                 ============     ============     ============      ============
</TABLE>


                                       43
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATING BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                       DECEMBER 31, 2002
                                                 ----------------------------------------------------------------
                                                     PARENT
                                                    COMPANY        GUARANTOR
                                                      ONLY        SUBSIDIARIES     ELIMINATIONS      CONSOLIDATED
                                                 ------------     ------------     ------------      ------------
<S>                                              <C>              <C>              <C>               <C>
                    ASSETS
Current Assets:
    Cash and cash equivalents                    $     17,652     $         22     $         --      $     17,674
    Accounts receivable - net of allowance             36,488            4,325               --            40,813
    Inventory                                          37,232              143               --            37,375
    Other current assets                                5,743               10               --             5,753
    Refundable income taxes                             2,236               --               --             2,236
                                                 ------------     ------------     ------------      ------------
       Total current assets                            99,351            4,500               --           103,851

Investment in subsidiaries and other                   20,958           14,036          (24,715)           10,279
Property and equipment, net                           248,982            3,595               --           252,577
                                                 ------------     ------------     ------------      ------------
           Total Assets                          $    369,291     $     22,131     $    (24,715)     $    366,707
                                                 ============     ============     ============      ============

                LIABILITIES AND
             SHAREHOLDERS' EQUITY
Current Liabilities:
    Accounts payable and accrued liabilities     $     33,114     $      3,314     $     (9,763)     $     26,665
    Accrued vacation payable                            3,675              256               --             3,931
    Income taxes payable                                   --              504               --               504
                                                 ------------     ------------     ------------      ------------
       Total current liabilities                       36,789            4,074           (9,763)           31,100

Long-term debt net of current maturities              200,000               --               --           200,000
Deferred income taxes and other long-term
  liabilities                                          27,648            2,817              288            30,753
Shareholders' Equity:
    Paid-in capital                                    15,600            4,402           (4,402)           15,600
    Retained earnings                                  89,254           10,838          (10,838)           89,254
                                                 ------------     ------------     ------------      ------------
       Total shareholders' equity                     104,854           15,240          (15,240)          104,854
                                                 ------------     ------------     ------------      ------------
             Total Liabilities and
               Shareholders' Equity              $    369,291     $     22,131     $    (24,715)     $    366,707
                                                 ============     ============     ============      ============
</TABLE>


                                       44
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                 PARENT
                                                 COMPANY         GUARANTOR
                                                  ONLY          SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                              ------------      ------------      ------------      ------------

                                                            FOR THE YEAR ENDED DECEMBER 31, 2003
                                              ------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>
Operating revenues                            $    218,273      $     51,119      $         --      $    269,392
Management fees                                      3,763                --            (3,763)               --
Gain on dispositions of property and
  equipment                                          1,988                --                --             1,988
Other                                                  686                --                --               686
                                              ------------      ------------      ------------      ------------
                                                   224,710            51,119            (3,763)          272,066
                                              ------------      ------------      ------------      ------------
Expenses:
     Direct expenses                               198,159            32,070                --           230,229
     Management fees                                    --             3,763            (3,763)               --
     Selling, general, and administrative           16,600             3,383                --            19,983
     Equity in net income of consolidated
        subsidiaries                                (7,141)               --             7,141                --
     Interest expense                               19,952                --                --            19,952
                                              ------------      ------------      ------------      ------------
                                                   227,570            39,216             3,378           270,164
                                              ------------      ------------      ------------      ------------

Earnings before income taxes                        (2,860)           11,903            (7,141)            1,902
Income taxes                                        (3,999)            4,762                --               763
                                              ------------      ------------      ------------      ------------

Net earnings                                  $      1,139      $      7,141      $     (7,141)     $      1,139
                                              ============      ============      ============      ============
</TABLE>

<TABLE>
<CAPTION>
                                                               FOR THE YEAR ENDED DECEMBER 31, 2002
                                              ------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>
Operating revenues                            $    230,031      $     53,720      $         --      $    283,751
Management fees                                      5,447                --            (5,447)               --
Gain on dispositions of property and
  equipment                                            586                --                --               586
Other                                                1,335               340                --             1,675
                                              ------------      ------------      ------------      ------------
                                                   237,399            54,060            (5,447)          286,012
                                              ------------      ------------      ------------      ------------
Expenses:
     Direct expenses                               200,085            35,104                --           235,189
     Management fees                                    --             5,447            (5,447)               --
     Selling, general, and administrative           16,358             1,831                --            18,189
     Equity in net income of consolidated
        subsidiaries                                (7,061)               --             7,061                --
     Interest expense                               17,192                58                --            17,250
                                              ------------      ------------      ------------      ------------
                                                   226,574            42,440             1,614           270,628
                                              ------------      ------------      ------------      ------------

Earnings before income taxes                        10,825            11,620            (7,061)           15,384
Income taxes                                         1,594             4,559                --             6,153
                                              ------------      ------------      ------------      ------------

Net earnings                                  $      9,231      $      7,061      $     (7,061)     $      9,231
                                              ============      ============      ============      ============
</TABLE>


                                       45
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                 PARENT
                                                 COMPANY         GUARANTOR
                                                  ONLY          SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                              ------------      ------------      ------------      ------------

                                                              FOR THE YEAR ENDED DECEMBER 31, 2001
                                              ------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>
Operating revenues                            $    231,934      $     50,503      $         --      $    282,437
Management fees                                      5,195                --            (5,195)               --
Gain on dispositions of property and
  equipment                                          1,351                --                --             1,351
Other                                                1,417                44                --             1,461
                                              ------------      ------------      ------------      ------------
                                                   239,897            50,547            (5,195)          285,249
                                              ------------      ------------      ------------      ------------
Expenses:
     Direct expenses                               202,143            41,395                --           243,538
     Management fees                                    --             5,195            (5,195)               --
     Selling, general, and administrative           16,434             1,595                --            18,029
     Equity in net income of consolidated
         subsidiaries                               (1,354)               --             1,354                --
     Interest expense                                5,951               239                --             6,190
                                              ------------      ------------      ------------      ------------
                                                   223,174            48,424            (3,841)          267,757
                                              ------------      ------------      ------------      ------------

Earnings before income taxes                        16,723             2,123            (1,354)           17,492
Income taxes                                         5,703               769                --             6,472
                                              ------------      ------------      ------------      ------------

Net earnings                                  $     11,020      $      1,354      $     (1,354)     $     11,020
                                              ============      ============      ============      ============
</TABLE>


                                       46
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                     PARENT
                                                     COMPANY          GUARANTOR
                                                      ONLY          SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                  ------------      ------------     ------------     ------------

                                                                 FOR THE YEAR ENDED DECEMBER 31, 2003
                                                    --------------------------------------------------------------
<S>                                               <C>               <C>              <C>              <C>
Net cash provided by operating activities         $     29,386      $         29     $         --     $     29,415

Cash flows from investing activities:
    Purchase of property and equipment                 (36,863)               --               --          (36,863)
    Proceeds from asset dispositions                     7,620                --               --            7,620
                                                  ------------      ------------     ------------     ------------
    Net cash used in investing activities              (29,243)               --               --          (29,243)
                                                  ------------      ------------     ------------     ------------

Cash flows from financing activities:
    Proceeds from long-term debt, net                    2,000                --               --            2,000
    Proceeds from exercise of stock options                 50                --               --               50
    Other                                                  (24)               --               --              (24)
                                                  ------------      ------------     ------------     ------------
    Net cash provided by financing activities            2,026                --               --            2,026
                                                  ------------      ------------     ------------     ------------

Increase in cash and cash equivalents                    2,169                29               --            2,198
Cash and cash equivalents, beginning of year            17,652                22               --           17,674
                                                  ------------      ------------     ------------     ------------
Cash and cash equivalents, end of year            $     19,821      $         51     $         --     $     19,872
                                                  ============      ============     ============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                                 FOR THE YEAR ENDED DECEMBER 31, 2002
                                                  -----------------------------------------------------------------
<S>                                               <C>               <C>               <C>              <C>
Net cash provided by operating activities         $     39,417      $        112      $         --     $     39,529

Cash flows from investing activities:
    Proceeds from notes receivable                       1,629                --                --            1,629
    Purchase of property and equipment                 (41,247)             (104)               --          (41,351)
    Purchase of aircraft previously leased            (118,076)               --                --         (118,076)
    Proceeds from asset dispositions                     3,263                --                --            3,263
                                                  ------------      ------------      ------------     ------------
    Net cash used in investing activities             (154,431)             (104)               --         (154,535)
                                                  ------------      ------------      ------------     ------------

Cash flows from financing activities:
    Proceeds from long-term debt, net                  194,165                --                --          194,165
    Payments on long-term debt                          (5,845)               --                --           (5,845)
    Payment of long-term debt with bond
        proceeds                                       (60,771)               --                --          (60,771)
    Payment of interest rate swap settlement            (1,575)               --                --           (1,575)
    Proceeds from exercise of stock options              1,271                --                --            1,271
                                                  ------------      ------------      ------------     ------------
    Net cash provided by financing activities          127,245                --                --          127,245
                                                  ------------      ------------      ------------     ------------

Increase in cash and cash equivalents                   12,231                 8                --           12,239
Cash and cash equivalents, beginning of year             5,422                13                --            5,435
                                                  ------------      ------------      ------------     ------------
Cash and cash equivalents, end of year            $     17,653      $         21      $         --     $     17,674
                                                  ============      ============      ============     ============
</TABLE>


                                       47
<PAGE>
                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                    PARENT
                                                    COMPANY          GUARANTOR
                                                     ONLY          SUBSIDIARIES      ELIMINATIONS     CONSOLIDATED
                                                 ------------      ------------      ------------     ------------

                                                               FOR THE YEAR ENDED DECEMBER 31, 2001
                                                 -----------------------------------------------------------------
<S>                                              <C>               <C>               <C>              <C>
Net cash provided by operating activities        $     18,178      $        502      $         --     $     18,680

Cash flows from investing activities:
    Purchase of property and equipment                (29,494)               (8)               --          (29,502)
    Proceeds from asset dispositions                   24,304                --                --           24,304
    Other                                                 350                --                --              350
                                                 ------------      ------------      ------------     ------------
    Net cash used in investing activities              (4,840)               (8)               --           (4,848)
                                                 ------------      ------------      ------------     ------------

Cash flows from financing activities:
    Proceeds from long-term debt                        2,851                --                --            2,851
    Payments on long-term debt                        (12,350)             (500)               --          (12,850)
     Other                                                739                --                --              739
                                                 ------------      ------------      ------------     ------------
    Net cash used in financing activities              (8,760)             (500)               --           (9,260)
                                                 ------------      ------------      ------------     ------------

Increase (decrease) in cash and cash
  equivalents                                           4,578                (6)               --            4,572
Cash and cash equivalents, beginning of year              844                19                --              863
                                                 ------------      ------------      ------------     ------------
Cash and cash equivalents, end of year           $      5,422      $         13      $         --     $      5,435
                                                 ============      ============      ============     ============
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

      None.

ITEM 9.A. CONTROLS AND PROCEDURES

      The Company's Chief Executive Officer and Chief Financial Officer have
      evaluated the effectiveness of the Company's disclosure controls and
      procedures (as is defined in Rules 13a-14(c) and 15d-14(c) under the
      Securities Exchange Act of 1934 (the "Exchange Act")) as of a date within
      90 days before the filing date of this report (the "Evaluation Date").
      Based on such evaluation, such officers have concluded that, as of the
      Evaluation Date, the Company's disclosure controls and procedures are
      effective in alerting them on a timely basis to material information
      relating to the Company (including its consolidated subsidiaries) required
      to be included in the Company's periodic filings under the Exchange Act.

      Since the Evaluation Date, there have not been any significant changes in
      the Company's internal controls or in other factors that could
      significantly affect such controls.


                                       48
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information concerning Directors required by this item will be included in
      the Company's definitive information statement in connection with its 2004
      Annual Meeting of Shareholders and is incorporated herein by reference.
      Information concerning Executive Officers is included as Item 4. (a)
      "Executive officers of the registrant."

ITEM 11. EXECUTIVE COMPENSATION

      Information required by this item will be included in the Company's
      definitive information statement in connection with its 2004 Annual
      Meeting of Shareholders and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information required by this item will be included in the Company's
      definitive information statement in connection with its 2004 Annual
      Meeting of Shareholders and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information required by this item will be included in the Company's
      definitive information statement in connection with its 2004 Annual
      Meeting of Shareholders and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

      Information required by this item will be included in the Company's
      definitive information statement in connection with its 2004 Annual
      Meeting of Shareholders and is incorporated herein by reference.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1. Financial Statements

           Included in Part II of this report:
              Independent Auditors' Reports.
              Consolidated Balance Sheets - December 31, 2003 and
                   December 31, 2002.
              Consolidated  Statements of Operations for the years ended
                   December 31, 2003, December 31, 2002, and December 31, 2001.
              Consolidated Statements of Shareholders' Equity for the years
                   ended December 31, 2003, December 31, 2002, and
                   December 31, 2001.
              Consolidated Statements of Comprehensive Income (Loss) for the
                   years ended December 31, 2003, December 31, 2002, and
                   December 31, 2001.
              Consolidated  Statements of Cash Flows for the years ended
                   December 31, 2003,  December 31, 2002, and December 31, 2001.
              Notes to Consolidated Financial Statements.

      2. Financial Statement Schedules

           Schedule II - Valuation and Qualifying accounts for the years
           ended December 31, 2003, December 31, 2002, and December 31, 2001.


                                       49
<PAGE>
3.    Exhibits

<TABLE>
<S>             <C>
      3         Articles of Incorporation and By-laws

      3.1       (i)     Articles of Incorporation of the Company (incorporated
                        by reference to Exhibit No. 3.1(i) to PHI's Report on
                        Form 10-Q for the quarterly period ended October 31,
                        1994).

                (ii)    By-laws of the Company as amended (incorporated by
                        reference to Exhibit No. 3.1 (ii) to PHI's Report on
                        Form 10-Q for the quarterly period ended March 31,
                        2002).

      4         Instruments defining the rights of security holders, including
                indentures

      4.1       Indenture dated April 23, 2002 among Petroleum Helicopters,
                Inc., the Subsidiary Guarantors named therein and The Bank of
                New York, as Trustee (incorporated by reference to Exhibit 4.1
                to PHI's Registration Statement on Form S-4, filed on April 30,
                2002, File Nos. 333-87288 through 333-87288-08).

      4.2       Form of 9 3/8% Senior Note (incorporated by reference to Exhibit
                4.1 to PHI's Registration Statement on Form S-4, filed on April
                30, 2002, File Nos. 333-87288 through 333-87288-08).

      4.3       Loan Agreement dated as of April 23, 2002 by and among Petroleum
                Helicopters, Inc., Air Evac Services, Inc., Evangeline
                Airmotive, Inc., and International Helicopter Transport, Inc.
                and Whitney National Bank (incorporated by reference to Exhibit
                10.3 to PHI's Report on Form 10-Q for the quarterly period ended
                June 30, 2002).

      10        Material Contracts

      10.2      The Petroleum Helicopters, Inc. 401(k) Retirement Plan effective
                July 1, 1989 (incorporated by reference to Exhibit No. 10.4 to
                PHI's Report on Form 10-K dated April 30, 1990).

      10.3      Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive
                Compensation Plan adopted by PHI's Board effective July 11, 1995
                and approved by the shareholders of PHI on September 22, 1995
                (incorporated by reference to Exhibit No 10.12 to PHI's Report
                on Form 10-K dated April 30, 1996).

      10.4      Form of Non-Qualified Stock Option Agreement under the Petroleum
                Helicopters, Inc. 1995 Incentive Compensation Plan between PHI
                and certain of its key employees (incorporated by reference to
                Exhibit No. 10.13 to PHI's Report on Form 10-K dated April 30,
                1996).

      10.5      Supplemental Executive Retirement Plan adopted by PHI's Board
                effective September 14, 2000 (incorporated by reference to
                Exhibit 10.23 to PHI's Report on Form 10-Q dated September 30,
                2000).

      10.6      Amendment to the Supplemental Executive Retirement Plan dated
                May 24, 2001 (incorporated by reference to Exhibit 10.25 to
                PHI's Report on Form 10-Q dated June 30, 2001).

      10.7      Officer Deferred Compensation Plan adopted by PHI's Board
                effective January 1, 2001 (incorporated by reference to Exhibit
                10.21 to PHI's Report on Form 10-K dated December 31, 2001).

      10.8      Articles of Agreement Between Petroleum Helicopters, Inc. &
                Office & Professional Employees International Union and its
                Local 108 dated June 13, 2001 (incorporated by reference to
                Exhibit 10.24 to PHI's Report on Form 10-Q dated June 30, 2001).

      10.9      Employment letter agreement between PHI and Lance F. Bospflug
                dated August 24, 2000 (incorporated by reference to Exhibit
                10.22 to PHI's Report on Form 10-KA dated December 31, 2001).

      21        Subsidiaries of the Registrant

      23.1      Consent of Deloitte & Touche LLP

      31.1      Certification pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002 by Lance F. Bospflug, Chief Executive Officer.

      31.2      Certification pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002 by Michael J. McCann, Chief Financial Officer.

      32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002 by Lance F. Bospflug, Chief Executive Officer.

      32.2      Certification pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002 by Michael J. McCann, Chief Financial Officer.
</TABLE>


                                       50
<PAGE>
(b)   Reports on Form 8-K

      On November 17, 2003, the Company filed a Form 8-K, reporting in Item 5,
      the Company's earnings for the third quarter ended September 30, 2003.

                  PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                 Additions
                                                                -----------
                                                 Balance at      Charged to                       Balance
                                                 Beginning       Costs and                        at End
     Description                                   of Year        Expenses       Deductions       of Year
     -----------                                 ---------       ----------      -----------     ---------
<S>                                              <C>             <C>             <C>             <C>
Year ended December 31, 2003:
     Allowance for doubtful accounts             $     158        $     --        $     38       $     120
     Allowance for obsolescent inventory             4,822             731              17           5,536

Year ended December 31, 2002:
     Allowance for doubtful accounts             $     444        $    249        $    535       $     158
     Allowance for obsolescent inventory             4,340             994             512           4,822

Year ended December 31, 2001:
     Allowance for doubtful accounts             $   2,156        $    107        $  1,819       $     444
     Allowance for obsolescent inventory             3,721             978             359           4,340
</TABLE>


                                       51
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                        PETROLEUM HELICOPTERS, INC.


                                        By: /s/  Michael J. McCann
                                           -------------------------------------
                                                Michael J. McCann
                                                Chief Financial Officer
                                                (Principal Financial and
                                                  Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
               Signature                            Title                              Date
               ---------                            -----                              ----
<S>                                    <C>                                         <C>
 /s/  Al A. Gonsoulin                        Chairman of the Board                 March 15, 2004
-----------------------------
      Al A. Gonsoulin                            and Director


/s/   Lance F. Bospflug                   President, Chief Executive               March 15, 2004
-----------------------------           Officer and Director, (Principal
      Lance F. Bospflug                        Executive Officer)


/s/   Arthur J. Breault, Jr.                       Director                        March 15, 2004
-----------------------------
      Arthur J. Breault, Jr.


/s/   Thomas H. Murphy                             Director                        March 15, 2004
-----------------------------
      Thomas H. Murphy


/s/   Richard H. Matzke                            Director                        March 15, 2004
-----------------------------
      Richard H. Matzke


/s/   C. Russell Luigs                             Director                        March 15, 2004
-----------------------------
      C. Russell Luigs


/s/   Michael J. McCann                     Chief Financial Officer                March 15, 2004
-----------------------------              (Principal Financial and
      Michael J. McCann                       Accounting Officer)
</TABLE>


                                       52
<PAGE>
                                 Exhibit Index

3.    Exhibits

<TABLE>
<S>             <C>
      3         Articles of Incorporation and By-laws

      3.1       (i)     Articles of Incorporation of the Company (incorporated
                        by reference to Exhibit No. 3.1(i) to PHI's Report on
                        Form 10-Q for the quarterly period ended October 31,
                        1994).

                (ii)    By-laws of the Company as amended (incorporated by
                        reference to Exhibit No. 3.1 (ii) to PHI's Report on
                        Form 10-Q for the quarterly period ended March 31,
                        2002).

      4         Instruments defining the rights of security holders, including
                indentures

      4.1       Indenture dated April 23, 2002 among Petroleum Helicopters,
                Inc., the Subsidiary Guarantors named therein and The Bank of
                New York, as Trustee (incorporated by reference to Exhibit 4.1
                to PHI's Registration Statement on Form S-4, filed on April 30,
                2002, File Nos. 333-87288 through 333-87288-08).

      4.2       Form of 9 3/8% Senior Note (incorporated by reference to Exhibit
                4.1 to PHI's Registration Statement on Form S-4, filed on April
                30, 2002, File Nos. 333-87288 through 333-87288-08).

      4.3       Loan Agreement dated as of April 23, 2002 by and among Petroleum
                Helicopters, Inc., Air Evac Services, Inc., Evangeline
                Airmotive, Inc., and International Helicopter Transport, Inc.
                and Whitney National Bank (incorporated by reference to Exhibit
                10.3 to PHI's Report on Form 10-Q for the quarterly period ended
                June 30, 2002).

      10        Material Contracts

      10.2      The Petroleum Helicopters, Inc. 401(k) Retirement Plan effective
                July 1, 1989 (incorporated by reference to Exhibit No. 10.4 to
                PHI's Report on Form 10-K dated April 30, 1990).

      10.3      Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive
                Compensation Plan adopted by PHI's Board effective July 11, 1995
                and approved by the shareholders of PHI on September 22, 1995
                (incorporated by reference to Exhibit No 10.12 to PHI's Report
                on Form 10-K dated April 30, 1996).

      10.4      Form of Non-Qualified Stock Option Agreement under the Petroleum
                Helicopters, Inc. 1995 Incentive Compensation Plan between PHI
                and certain of its key employees (incorporated by reference to
                Exhibit No. 10.13 to PHI's Report on Form 10-K dated April 30,
                1996).

      10.5      Supplemental Executive Retirement Plan adopted by PHI's Board
                effective September 14, 2000 (incorporated by reference to
                Exhibit 10.23 to PHI's Report on Form 10-Q dated September 30,
                2000).

      10.6      Amendment to the Supplemental Executive Retirement Plan dated
                May 24, 2001 (incorporated by reference to Exhibit 10.25 to
                PHI's Report on Form 10-Q dated June 30, 2001).

      10.7      Officer Deferred Compensation Plan adopted by PHI's Board
                effective January 1, 2001 (incorporated by reference to Exhibit
                10.21 to PHI's Report on Form 10-K dated December 31, 2001).

      10.8      Articles of Agreement Between Petroleum Helicopters, Inc. &
                Office & Professional Employees International Union and its
                Local 108 dated June 13, 2001 (incorporated by reference to
                Exhibit 10.24 to PHI's Report on Form 10-Q dated June 30, 2001).

      10.9      Employment letter agreement between PHI and Lance F. Bospflug
                dated August 24, 2000 (incorporated by reference to Exhibit
                10.22 to PHI's Report on Form 10-KA dated December 31, 2001).

      21        Subsidiaries of the Registrant

      23.1      Consent of Deloitte & Touche LLP

      31.1      Certification pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002 by Lance F. Bospflug, Chief Executive Officer.

      31.2      Certification pursuant to Section 302 of the Sarbanes-Oxley Act
                of 2002 by Michael J. McCann, Chief Financial Officer.

      32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002 by Lance F. Bospflug, Chief Executive Officer.
</TABLE>
<PAGE>
<TABLE>
<S>             <C>
      32.2      Certification pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002 by Michael J. McCann, Chief Financial Officer.
</TABLE>