When the global economic crisis blew across the Canadian border in late 2008, the shockwave caused major segments of the Canadian helicopter industry to flame out.
Most of Canada’s commercial helicopter companies have autorotated to terra firma without major incident, but coping with the sudden loss of work and revenues has required strong survival skills. Canada’s resource-based commercial helicopter industry is used to cyclical business phases, but it’s hard to turn a rotor blade when customers have stopped spending and prices for commodities are volatile. With some 220 companies operating 1,752 commercial helicopters (a 34 percent increase since 2001), observers say there are now too many aircraft chasing too little work.
Helicopter demand in 2010 remained flat, but operators across Canada expect a small rebound in 2011, thanks to rising oil prices and more mineral exploration. As Vertical interviewed operators across Canada during mid-February, we encountered optimists, pessimists and realists who highlighted the cutthroat nature of today’s industry.
“It’s a tough grind all over, with no easy money left in the helicopter industry,” said Graydon Kowal, president of Calgary, Alta., based Guardian Helicopters, which flies 15 helicopters. “It took 15 years to get hourly rates up to where they were in 2008, and two years to give it all back. Companies with high debt loads are ‘all in’ this year and are cutting their rates because they have nothing to lose.”
VFR MARKET REPORT
With few barriers to entry since the Canadian industry was deregulated in the early 1980s, the visual flight rules (VFR) charter and contract market has traditionally been the most competitive. The resource sector spins most of the industry’s rotor blades and the outlook is varied depending on the sector. Rising prices and a strong demand for precious metals, base minerals and oil is driving a rebound, while diversification into international markets has brought fresh opportunities.
Most operators Vertical spoke with expected more work this year, but just weren’t sure how much more. Slow-moving megaprojects such as the Mackenzie Valley pipeline and the Lower Churchill River hydroelectric project promise to, one day, support lots of helicopter activity, but for now remain just over the horizon.
Mineral Exploration
One of the bright spots in many regions is the upswing in mining exploration activity. Eight years of rising mineral exploration expenditures peaked in Canada at $3.3 billion Cdn in 2008, before plummeting to $1.9 billion in 2009 and then bouncing back to about $2.8 billion in 2010, according to Natural Resources Canada.
Canada is the world’s top destination for mineral exploration capital, and the recovery of mineral prices and record prices for gold saw a build in the demand for helicopters again. It also helps that Canada is a world leader in the development of airborne geophysics systems, with most new technology first put to work in Northern Canada.
“The airborne survey business has been a challenge for everyone the last couple of years,” said Troy Fisher, operations manager at Questral Helicopters of Ottawa, Ont. “But things are picking up and we’re getting double the number of calls for quotes, and calls from companies we have never done work with before.”
Wayne Woytkiw, assistant operations manager at B.C.’s VIH Helicopters reported that, “Mining exploration has definitely picked up in northwestern B.C. . . . We already have 11 helicopters working the mountains in the Stewart area in February.”
Said Jeff Denomme, president of Great Slave Helicopters of Yellowknife: “The mining cycle in the Northwest Territories was driven by the revolutionary diamond rush. Now, a lot more mineral exploration is taking place in the Yukon and Nunavut, while exploration activity is pretty stagnant in the Northwest Territories because of government processes related to regulations and permits.”
Helicopter flying traditionally peaks in the Yukon in June and July when the days are long, “but last year our busiest flying month was October,” said one Yukon pilot. “There was a staking rush late in the season that kept every helicopter busy.”
Exploration is also on the upswing for base and precious metals in Ontario, but the diamond exploration boom for helicopter operators appears to have peaked when De Beers opened the Victor mine – Ontario’s first diamond mine – in 2008 on the James Bay Lowlands, near the coastal community of the Attawapiskat First Nation.
“Diamond exploration is economy-driven,” observed Chris Selk, president of Sunrise Helicopters of North Bay, Ontario. “If a guy needs to hold on to his used car a little longer . . . he’s not going to go out and buy a diamond ring.”
Most of the old gold mining properties in Ontario have road access, but they are being revisited with helicopter geophysics systems in the hope that the newer technology will identify new gold veins.
“The peak season for us was in 2008, and then a lot of helicopter companies saw a 40 percent decline in business in 2009,” said Bart Stevenson, president of Forest Helicopters of Kenora, Ont. “We spent the last three summers working in Nunavut, flying up to 10 hours a day with our AStars. There is a lot of gold exploration taking place up there and spending is increasing.”
Aviation entrepreneur Frank Kelner of Thunder Bay chose the bottom of the market to buy two new Eurocopter AS350 B3s in order to expand his mining support work in northern Ontario and Quebec. “My philosophy is that when the economy is bad, it’s not going to be too bad for me. It’s a great time to work very hard.”
Kelner pioneered instrument flight rules Cessna Caravan operations, developed the Canadian market for the Pilatus PC-12, and has years of experience working with local First Nations reserves across the north on aviation ventures.
Meanwhile, on the East Coast, “We’ve had two really lackluster years and now we’re ready for a slow, moderate climb with an increase in mineral exploration,” said Geoff Goodyear, president of Universal Helicopters of Goose Bay, which has four VFR bases throughout Newfoundland and Labrador.
Goodyear said that uranium had been driving exploration activity in Labrador, but then the Nunatsiavut government voted to impose a three-year moratorium on uranium mining in Labrador’s Inuit lands three years ago. The moratorium is currently up for review, said Goodyear, noting that the strong interest in uranium is coming from Europe “where its now seen as a new ‘green’ energy source.”
Onshore Oil-and-Gas
Oil-and-gas exploration activity utilizes winter roads when the ground is firm and helicopters once the ground thaws. Helicopter activity here is starting to regain strength, but with some caveats.
“There is not as much new oil-and-gas exploration taking place in Alberta,” said Mark Halwas, operations manager at Gemini Helicopters of Grande Prairie, Alta. “Seismic dropped off in 2009 and the oil companies are trying to increase production out of the wells that they have [by] using new directional drilling techniques, rather than drilling from five new locations as they did in the past.”
Onshore oil exploration and production has been led by the oil sands in northern Alberta, which comprise more than 97 percent of Canada’s 175 billion barrels of proven oil reserves. The financial crisis and the oil price collapse adversely affected many projects here by making production uneconomical. However, dropping construction and labor costs and a recovery of oil prices has seen a resumption of work.
“The oil sands are driving a lot of the Canadian economy and these are big projects with a lot of front-end exploration work using helicopters,” said Paul Spring, president of Phoenix Heli-Flight of Fort McMurray, Alberta. “Once they have cleared the bush, put in roads and built a mine, our helicopter business shifts to environmental monitoring and executive flights.”
However, changes in the oil-and-gas customer base are increasingly forcing helicopter operators to specialize, observed Spring. “A lot of the international oil companies that are investing in the Alberta oil sands adhere to [the International Association of Oil & Gas Producers] guidelines when it comes to contracting local helicopter services. It’s a game changer, because you either go down that road and make all the required investments in equipment, systems and training, or you don’t.” The high cost of this compliance has also meant local operators no longer chase all the flying work associated with the oil sands.
South of the border, there has been a boom in shallow gas exploration driven by the need for permit-holders to drill properties or lose them. Despite the low price for gas, this has created work for long-line helicopter operators supporting the boom in seismic activity in the northeastern United States. Canadian operators with U.S. arms and those with NAFTA specialty air service licenses have captured a share of the boom.
“We are flying four helicopters moving seismic drills in very hilly areas in eastern Pennsylvania and West Virginia where there is a dense forest canopy of 150-foot high oak and poplar trees,” said Rob Chalifoux, president of Alberta’s HeliQwest Aviation, who has been able to do the work through his U.S. licensed HeliQwest International operation based out of Colorado.
Forestry
With more than 70 percent of Canada’s forest products traditionally going to the U.S. (and even more in recent years), the collapse of the American housing market has knocked the wind out of the Canadian lumber industry. Demand has been further weakened since 2009 by a rising Canadian dollar, which makes Canadian lumber exports more expensive. Wood exports to Asian countries may have partially offset U.S. sales for some companies, but not enough to keep more than a few helicopters logging in British Columbia.
“The market is the worst that I have seen it,” remarked Ernst-Ulrich Maas, president of B.C.’s Transwest Helicopters, which has been a leader in the medium-lift market with its Bell 214B, and is a provider of technical support for the 214B throughout the world. In fact, Maas said the three B.C.-based 214B operators (his company, Black Tusk Helicopter and East-West Transportation) currently were not logging at all.
“Since 2008, a combination of things has seen the heli-logging market in Canada collapse,” said Maas. “We’re looking to diversify and will probably not go back into logging again. We leased a [Eurocopter] EC 130 last summer to test the forestry market and were pleased with the results.”
HeliQwest’s Chalifoux said heli-logging has been a bit kinder to his operation: “We’ve been able to keep one of our Kaman K-Max helicopters logging this winter on Vancouver Island and do ski hill work at other times. . . . It’s a very efficient operation with the K-Max, since it only requires a pilot and a mechanic, compared to a Sikorsky S-61, which you have to crew with two pilots and three mechanics to keep [it] in the air.”
Other types of forestry work are providing revenue for some operators. “We started the company in 2009 on the strength of the aerial spraying business we had lined up,” said Sunrise’s Selk. “Most of our work involves spraying herbicides on cut-over areas where they have planted trees. The work takes us all over Ontario, as far west to Alberta and British Columbia, and south to Florida and Texas. ”
A new aerial application business has recently appeared in Quebec to protect the province’s $200 million-a-year maple syrup industry. Acid rain is causing a rise in the acidity of the soil in sugar maple plantations, killing old and new trees. To reduce the acidity, at least one Quebec helicopter operator flew last year over wood lots to spread solid chemicals formulated to reduce soil acidity.
Wildland Firefighting
When it comes to wildland firefighting, contracts rates have been dropping as a result of the abundant supply of intermediate and medium helicopters idled by the decline in mining, oil-and-gas, and forestry work. For example, AS350 B2s were recently contracted by the Alberta government for $1,090 an hour and AS350 B3s for $1,290 an hour — when the normal casual-hire rates for these helicopters in the oil patch have been running in the $1,800- to $2,495-an-hour range.
When it comes to new innovations, a potential game changer is VIH’s Sikorsky S-61 helitanker concept: two were introduced to the B.C. Ministry of Forests last summer, before they were shipped to Australia for that country’s fire season. The S-61 helitanker concept features an Isolair 3,800-liter (1,000 US gallon) belly tank, which can be refilled in 40 seconds. British Columbia has historically used fixed-wing retardant bombers and bucket-equipped helicopters, but the province is evaluating other options after incurring some extreme fire seasons in recent years.
“The S-61 has the ability to put more water on a fire per hour that other methods, said VIH’s Woytkiw. Another recent firefighting development is VIH’s selection of a Simplex water bucket for the heavy-lifting Kamov Ka-32, which Woytkiw called “bulletproof and very durable.”
As usual, the fortunes of the firefighting sector are tied primarily to the will of Mother Nature. Stevenson of Forest Helicopters summed up the sentiments of many operators when he observed, “A good fire season would be a nice shot in the arm. We haven’t had much of a fire season in Ontario the last four years.”
International
The need to offset the seasonality and cyclical nature of the helicopter business in Canada has driven the search for international work since the 1950s, when Kenting Helicopters went to Pakistan with a Hiller 360 and Spartan Air Services went to Kenya with a Bell 47G.
Today, Canadian helicopters and crews are well represented on contracts around the world. The latest chapter sees VIH with a pair of Kamov Ka-32s and S-61Ns moving oil rigs in Peru, where Great Slave Helicopters and Helicopter Transport Services have also been active, and a half-dozen other operators on seasonal fire contracts in Australia — and these are just the projects we’re aware of.
Heli-Tourism
“The helicopter business is always up and down,” joked Ruedi Hafen, president of Niagara Helicopters, who has logged 35,000 hours of sightseeing flights over the past 30 years. “There are always seven lean years followed by seven fat years, like in the bible.
“The future of the Canadian tourism industry is in Asia. There are 1.3 billion people in China who now have the ability to leave their country . . . . And 100 million of them will be [travelling] to North America in the next 10 years. Canada relaxed the visa requirements for outbound Chinese tourists last year and 60 to 90 days later they started rolling in.
“Five to seven years ago, we started developing our relationships with outbound tour operators in China and India. Both these countries are going to be major a major source of customers for us, but it takes five to seven years of developing relationships before they start to send business your way.”
With the weak U.S. economy, high Canadian dollar and new passport requirements, tourists from the U.S. have dwindled. Increasingly, the heli-tour sector in Canada — which includes heli-skiing in the winter and heli-fishing in the summer, especially in British Columbia — has looked more to international markets for customers.
IFR Market Report
Instrument flight rules (IFR) helicopter activity is concentrated in the high Arctic, off the east coast, and across Ontario, Alberta and British Columbia, led by offshore oil support, helicopter emergency medical services, scheduled helicopter airline operations and military support contracts.
Offshore Oil-and-Gas
The first 25 years of offshore oil-and-gas flying in Canada supported exploration activity, but the picture changed in 1992 when the Cohasset program off Nova Scotia became Canada’s first offshore production project. Since then, most of the flying off Halifax, Nova Scotia, and St. John’s, Newfoundland, has been in support of development programs.
“There is no excess helicopter capacity in the Canadian offshore market,” said Hank Williams, general manager of Cougar Helicopters of St. John’s. “Any new flying that comes along will require additional equipment.”
An international leader in heavy IFR operations in harsh-weather environments, Cougar flies five Sikorsky S-92s from St. John’s, one from Halifax and one from a base in Galliano, Louisiana, on NAFTA specialty air services missions for major oil companies working offshore in the Gulf of Mexico.
Cougar S-92 passenger flights out of St. John’s support five offshore installations that accommodate a total of 1,000 people who are rotated every 21 days. Since mid-2010, the St. John’s base has also been home for a Sikorsky S-92 on dedicated 24-hour standby for search-and-rescue missions.
“For the last three of four years, we’ve also supported seasonal exploration drilling programs by Statoil, ConocoPhillips and Chevron,” said Williams.
Three noteworthy recent developments for Cougar were the resumption of offshore flying out of Halifax, Nova Scotia, in 2009, after a five-year hiatus; the start-up of Cougar’s first international contract in Greenland in 2010 and its return there in 2011; and the upcoming start of construction, in June 2011, of a new $6.5-million hangar and passenger terminal at Halifax Stanfield International Airport.
CHC Helicopter Corp. of Vancouver, British Columbia (and its predecessors Sealand Helicopters and Okanagan Helicopters) was once the leading offshore company in Canada, until Cougar Helicopters appeared on the offshore scene in the 1990s and captured the coveted Hibernia production contract. Globally, CHC remains one of the world’s top two offshore operators, but only about three percent of its of US$1.34 billion in revenues comes from Canadian operations. (In 2008, CHC became an American controlled company when it was sold to First Reserve Corp., resulting in government restrictions on its ability to pursue helicopter contracts in Canada and limits capping its Canadian registered fleet at 29 aircraft.) In September 2010, the CHC Global Operations base in Halifax was sold to CHC Helicopters Canada Inc., a new company controlled by Sylvan Allard (former president and chief executive officer of CHC Helicopter Corp.), with CHC Helicopter a minority shareholder. The new company has 34 employees and its own operating certificate and aircraft maintenance organization certificate.
“We’re currently flying a [Eurocopter] AS 332L Super Puma out of Halifax in support of the Sable Offshore Energy Project [SOEP],” reported Halifax base manager Sean Tucker. “We started this contract back in 1998 with a Sikorsky S-76 and S-61N and upgraded to a single Super Puma in 2007.”
The contract with SOEP operator ExxonMobil was grandfathered when the nationality of the helicopter company changed in 2008. Today, the single Super Puma supports the Thebaud platform and four unmanned platforms located between 144 and 176 nautical miles offshore from Halifax.
“We’re dedicated to the offshore IFR sector, but will not ignore other opportunities,” said Tucker. “We’re out looking for opportunities to grow our business, not globally, but in Canada.”
Helicopter Emergency Medical Service (HEMS)
In 2011, three of four dedicated HEMS programs in Canada will undergo significant upgrades with introduction of new helicopter types. Unlike the U.S., most of the patient transfers in Canada are partially or fully-funded by provincial healthcare budgets, with patients rarely receiving a bill.
In Ontario, the first of Ornge’s new AgustaWestland AW139s went online the morning of Dec. 28, 2010. The province’s HEMS provider has 10 AW139s on order to replace its current fleet of 11 Sikorsky S-76As. The second AW139 base was scheduled to open in London in mid-February, followed by the third AW139 base in Ottawa in the spring. Both the Sudbury and London bases will be assigned two AW139s to ensure 24-hour availability during the start-up phase.
Canadian Helicopters Ltd. has another year left in its contract to provide flight operations, pilots and maintenance support to Ornge. The contract, worth about C$26.5 million in its final year, will end in March 2012, at which time Ornge is expected to have its own operating certificate and aircraft maintenance organization certificate in place.
Meanwhile, the Shock Trauma Air Rescue Society (STARS) HEMS program in Alberta has postponed the entry into service of its two new AW139s, electing to trade a AW139 previously delivered and painted in STARS colors for a newer aircraft that has been upgraded and certified to fly in known icing conditions.
The first of STARS’ new AW139s is expected to be operational out of the Edmonton base in fall 2011, and the second is scheduled to go into service in Calgary soon afterward.
Meanwhile, Saskatchewan is moving forward with plans to develop a helicopter air ambulance program modeled on and with help from STARS. The program was an election promise and government officials recently estimated the up-front capital costs would be at about $35 million, double the amount originally announced last fall.
Plans were moving slowly until Alberta-based Crescent Point Energy announced a four-year, $5 million commitment to help accelerate developments. Other corporate commitments are expected and could result in the first helicopter flying in Regina, Sask., by spring 2012 and then one in Saskatoon, Sask., in fall 2012. Saskatchewan newspaper reports say both programs would initially use BK-117s from Alberta’s STARS, with new AW139s introduced as early as 2013.
Heading west across the mountains to Vancouver, Helijet International Inc. is forecasting increased cash flow once its new eight-year contract with the B.C. Air Ambulance Service commences on April 1, 2011. The contract is valued at $94.7 million and includes a four-year extension option. Helijet will be acquiring three Sikorsky S-76C+s for the contract, which provide enhanced performance — compared to its current S-76A fleet — in the coastal mountains.
More known for its scheduled helicopter airline service, Helijet has flown 1.9 million passengers since it began operating in 1986. But, the weak national and provincial economy has a resulted in a tightening of business and government travel budgets, which sustains its scheduled route linking downtown Vancouver and Victoria. To balance IFR operations, last year Helijet purchased VIH Helicopters’ long established charter base at Sandspit Airport on Haida Gwaii (formerly the Queen Charlotte Islands).
Beyond the provincially-funded HEMS programs, other companies are using twin-engine helicopters to provide HEMS on a charter basis in British Columbia. Big Horn Helicopters in Cranbrook recently acquired an MBB BK-117, Qwest Helicopters of Fort Nelson added a pair of AS 365N1 Dauphins in 2009, and Dam Helicopters of Nelson upgraded to a MBB Bo.105LS a couple of years ago. (Although, Dam and Qwest are using their ships for utility work, as well.)
The Outlook
Veterans who have been around the Canadian helicopter industry for a few decades will surely notice familiar patterns that repeat themselves over and over again. Boom markets encourage risk-taking, and slow markets trigger innovation. The need to put idle helicopters to work sharpens business skills and forces companies to step out of their comfort zone to market their expertise. Some companies will fade because of the recent hard times, but the survivors will be better off for the challenge. And, in a market that many are saying is oversaturated, a shake-up may be just what’s needed to ensure the next boom.
Ken Swartz is an award-winning helicopter industry journalist who has covered the market for 35 years. He has spent most of his career as an international marketing and media relations manager with airlines and a leading commercial aircraft manufacturer. He runs Aeromedia Communications, a marketing and PR agency, and can be reached at kennethswartz@me.com.