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Exploits of an Enduring Enterprise

A position report on Helijet

Written by Frederick K. Larkin   
22
 
Helijet currently operates 11 aircraft including one S-61N, five S-76As, two Bell 206L LongRangers, one Robinson R22 Beta and two Learjet 31As.
 
Making The Concept A Reality
Since the dawn of aviation, the scheduled airline has been a business model that has challenged entrepreneurs and professional managers alike and has resulted in the failures of many. If operating a scheduled carrier with fixed-wing aircraft is so daunting, imagine the adrenaline rush that comes with using rotary-wing machines.

The concept of a scheduled helicopter airline has existed in North America since the late 1940s, when New York Airways and Los Angeles Airways began operating. They were later joined by Chicago Helicopter Airways and San Francisco & Oakland Helicopter Airlines. Initially flying piston-powered aircraft such as Vertol 44s  and Sikorsky S-55s and S-58s, they transitioned into the turbine-era in the early-60s with the acquisition of Boeing-Vertol107s, and Sikorsky S-61s and S-62s.

These four pioneering airlines were gone by 1980, but sked-helo carriers remained aloft during that decade with the birth of several new companies. Air Spur Helicopters flew Westland 30s in the Los Angeles market, Omniflight operated Bell 222s and Westland 30s (both in the Pan Am livery) in the New York area and New York Helicopter shuttled between Manhattan and the key area airports with its SA360 Dauphins and S-58ETs.  These carriers also flew into history not long after.

Today, only two scheduled helicopter airlines exist in North America. U.S. Helicopter, which began flights in March 2006, operates three Sikorsky S-76Bs from two Manhattan Heliports to the Kennedy and Newark Liberty airports near New York.

The other company is Helijet International of Vancouver, BC.  Having passed its 22nd anniversary, it is clearly the marathon runner in an industry that has seen many a sprinter come and go. Nonetheless, in light of the deteriorating economy, it is timely to ask:

“Is Helijet positioned to make it through the cyclical downturn that is upon us?” Before we attempt to answer that, a review of its history is helpful.

That Was Then …
Back in 1981, 25-year old Daniel Sitnam teamed up with Alistair Maclennan to form W.M. Aviation in Langley, BC. The company targeted the executive charter market in greater Vancouver with its Sud SA341G Gazelle. Three years later, in an effort to differentiate their operation from the competition, they created W.M. Helijet Airways.

The goal was to serve urban markets by developing a scheduled helicopter airline. After two years of planning, that included obtaining government approvals and defeating skeptical detractors, the new operation was ready to go.

On November 27, 1986, Helijet Airways initiated scheduled service between the Vancouver Harbour Heliport and the Camel Point Public Heliport in downtown Victoria with a 13-seat Bell 412. It flew six roundtrips each weekday on what would be the company’s “core route.” In June 1987 the 412 was replaced by a  12-seat Sikorsky S-76A that offered a smoother ride, a slightly shorter block time, and a more passenger-friendly cabin. The new machine flew eight roundtrips each weekday.

Three months later a second S-76A joined the fleet, enabling the weekday frequency to be increased to a dozen roundtrips. With the arrival of a third S-76A, Helijet initiated scheduled service between Vancouver International Airport (CYVR) and downtown Victoria on November 2, 1987 with six return trips per weekday.

The next expansion of the scheduled network came in January 1990, when flights began to the resort town of Whistler from both CYVR and downtown Vancouver. Service to Whistler proved to be something of a challenge, largely due to difficult weather conditions that often impacted the schedule. As a result of an economic slump, Helijet suspended the CYVR-downtown Victoria route on January 16, 1991. When the economy rebounded, the route was reinstated on October 1, 1992 with three return flights per weekday - half the original frequency.
In January 1995, Helijet expanded its presence in its hometown, when it acquired Vancouver Heliport Services - the manager of the Vancouver Harbour Heliport. A year later, on January 25, 1996, the competitive environment changed slightly when West Coast Air took over the Vancouver harbour-Victoria harbour scheduled floatplane service of Air BC (an Air Canada affiliate). Not long after that, on May 6, Harbour Air initiated scheduled floatplane flights between the two cities. There were now three carriers on the route - a competitive dynamic that remains to this day.

That same month Helijet moved to capture a share of the local light helicopter charter market,  when it acquired Vancouver Helicopters. Helijet became the first ever scheduled helicopter service between Canada and the U.S. on May 20, 1997, when it began flights between downtown Victoria and King County International Airport (KBFI) in Seattle, WA. Its S-76As provided three round trips  per weekday. The route would be suspended in mid-2003, due to weak load factors and the seat capacity was redirected onto the core route.
A further move to diversify the revenue base was made in the summer of 1998, when Helijet entered into a joint venture with Hawaii Helicopters of Kahului, Hawaii. Under the agreement, Helijet would provide one S-76A+ for tourist sightseeing flights on the island of Maui. That arrangement would continue until August 31, 2000.

An additional source of revenue, that continues today, began in October 1998 when Helijet began flying for the British Columbia Ambulance Service (BCAS) using a dedicated S-76A. Five years later, the contract was extended for another five years and a second S-76A was added. The company started the new millennium with a modernized identity, when it introduced its updated logotype and changed its name from Helijet Airways to Helijet International on February 14, 2000.

That summer, the company introduced its largest aircraft. On June 6, a 21-seat Sikorsky S-61N Helipro Short started flying during peak hours on the core route. It would remain doing so until November 2001, when its seat capacity was deemed to be excessive and it departed the fleet.

In an effort to expand the scheduled helicopter airline, Helijet introduced service to the provincial capital via the Fraser Valley. On October 1, 2001, it started flying a S-76A on a downtown Vancouver-Langley-Abbotsford-downtown Victoria route, providing three roundtrips per weekday. While it was innovative, the Fraser Valley service failed to achieve better than break-even passenger load factors and was dropped in early 2003.

A new stage in Helijet’s life was reached on April 21, 2003, when it introduced its first fixed-wing aircraft. An 18-seat Beech 1900D turboprop flew three return trips per weekday between Campbell River, BC and Seattle (KBFI). On September 29 that year, after the tourist season, the 1900D was redeployed on three new routes: Victoria (CYYJ)-Abbotsford (two roundtrips per weekday),  CYYJ-Campbell River (one roundtrip per weekday), and Abbotsford-Campbell River (one roundtrip per weekday). The Campbell River-Seattle route was maintained, but with only one roundtrip per weekday. 

The following spring, on April 19, 2004, the 1900D was put to work exclusively on the CYYJ-KBFI run with six roundtrips per weekday. This service replaced the S-76As operating between KBFI and downtown Victoria. That service came to an end on July 26, 2004, when the turboprop went back onto the Campbell River-KBFI route with a weekday frequency of six roundtrips. That fall, the route was dropped and the use of a fixed-wing aircraft in its scheduled ops came to an end.

That didn’t mean that Helijet was finished with fixed-wing machines. In February 2005, it added a pair of Beech B200 King Airs to meet the requirements of its expanded mandate with BCAS. Those two aircraft would be replaced by a pair of Learjet 31As in early 2007.

Helijet reintroduced large equipment to its core route, when it placed a 23-seat S-61N (leased from Coulson Aircrane of Port Alberni, BC) into service on September 19, 2005. During 2006, Helijet created a new source of revenues when it began operating the S-61N and a S-76A to three fishing resorts in the Queen Charlotte Islands from Sandspit and Masset between May and September.

This Is Now…
Helijet currently operates eleven aircraft including one S-61N, five S-76As, two Bell 206L LongRangers, one Robinson R22 Beta and two Learjet 31As. Its non-unionized team of 135 employees includes 55 flight crew and 20 engineers. The scheduled airline operates three of the S-76As and the S-61N on two routes - downtown Vancouver to downtown Victoria, and CYVR to downtown Victoria. During the summer, one of those S-76As, the S-61N and one of the LongRangers transport tourists within the Queen Charlotte Islands. The other two S-76As and the Lears operate as ambulances for the BCAS, while the R22 performs aerial traffic watch duties in Calgary. The LongRangers have been used for a variety of purposes including sightseeing, photography, pipeline patrols and corporate charters. Pacific Heliport Services, Helijet’s only subsidiary, owns and operates the downtown heliports in Vancouver and Victoria.

In order to gain a better understanding of any business model and therefore appreciate how a company may perform in the future, it is useful to perform a  S.W.O.T. analysis (Strengths, Weaknesses, Opportunities and Threats).  Doing so with Helijet International yields the following insights:

S.W.O.T.  ANALYSIS OF HELIJET INTERNATIONAL
strength  
STRENGTHS:
Local Geography - The key business air route within British Columbia is between its commercial centre (Vancouver) and its political centre (Victoria). Because a large stretch of water separates the two, ships and aircraft are the only possible modes of transport.  Given that ferries are slow and large aircraft need to use airports that aren’t convenient to the core of either city, helicopters and floatplanes offer the best solution to time-conscious commuters.

Diversity of Business - The company has developed a healthy mix of business from the private (35%) and public (65%) sectors. Besides its scheduled airline, it has exposure to the expanding health care industry through its air ambulance contract, participates in the growing tourism business and manages aviation infrastructure via its heliports. Important to note, is the fact that Helijet does very little on demand charter work. Its non-sked aircraft are all under contract, thereby providing reasonably better revenue visibility.

Strategic Flexibility - Management has demonstrated a willingness to be creative by initiating unorthodox routes for the airline. It has also exercised discipline in dropping routes that have proven to be non-commercial. Furthermore, it introduced fixed-wing aircraft to its scheduled operations when it made sense to do so. As well, the company redeploys assets on a seasonal basis in order to maximize revenue generation.

Safe and Reliable Operations - For more than 22 years, the company has operated without a serious incident, thanks to its skilled flight crew and diligent efforts in maintaining its fleet. The company gets high marks from Sikorsky Aircraft, since Helijet has flown more than 140,000 hours on S-76As and has achieved a dispatch reliability of greater than 97%. A Sikorsky representative recently referred to Helijet as a “showcase operator.”

Strong Corporate Culture - One of the company’s strengths is its people, as a result of the attention paid in attracting and retaining skilled personnel that have a positive attitude. The average length of employment of its team exceeds five years and in the case of its senior managers the average is 15 years.

weakness  
WEAKNESSES:  
Dominant Customer - Approximately 40% of the company’s revenues is derived from the government of British Columbia. This business encompasses the air ambulance work, but also includes contributions from Helijet’s other businesses. While government related business is cyclical, it tends to be less volatile than revenues associated with the private sector.

Financial Track Record - Helijet’s financial performance during its past dozen fiscal years is summarized in the following table.

st  

Although the company has doubled its top line over that period, it has not been able to expand its bottom line.  Despite that, Helijet has done something over the past two decades that many aviation companies have not been able to — survive. By doing so, Helijet has created employment and in turn has been a steady source of business for its suppliers.

opp  
OPPORTUNITIES:
Lower Fuel Costs - With the price of jet fuel down more than 50% from its peak level last summer, an improvement in the company’s operating margin is expected this fiscal year.

2010 Winter Olympics - The 2010 Olympics are to be held in Vancouver from February 12-28, followed by the 2010 Paralympic Games from March 12-21. Although bookings related to these events are not expected until this fall, it is hoped that a revenue bump will be experienced. Helijet expects to base one of the three S-76As used on the scheduled services at Whistler for medevac duty.

National Expansion - Given its experience with the BC Ambulance Service, Helijet may seek out air ambulance opportunities in other parts of the country through joint ventures and/or acquisitions. This could be accomplished with helicopters and/or fixed-wing aircraft.

threats
 
THREATS:
Economic Environment - A weakened economy effects the level of traffic on the scheduled services, as well as some of the company’s other businesses. It does not, however, tend to have any meaningful impact on the air ambulance business.

Weaker Canadian Dollar - Since aircraft parts and components are primarily priced in U.S. dollars, a weaker Canadian dollar results in increased expense for Helijet. During the latter half of calendar 2008, the Canadian dollar fell from being at par with its U.S. counterpart to US$0.80. Given that the Canadian dollar tends to move in concert with commodity prices, there may not be a recovery in the currency until there are higher oil and gold values.

Seaplane Competitors - Harbour Air and West Coast Air each operate scheduled services between the harbours of Vancouver and Victoria using floatplanes. The former uses 14-seat DHC-3T Turbine Otters, while the latter flies 18-seat DHC-6 Twin Otters. During the busy summer season, the two carriers provide a total of 42 flights in each direction on weekdays. During the winter, the weekday frequency is lowered to 26 roundtrips due to reduced demand and fewer hours of daylight.

Helijet, which typically operates 12 roundtrip flights per weekday (year round) offers fewer available seats than its competition. However, should VFR conditions deteriorate, Helijet flights depart--as its aircraft are IFR capable. The standard one-way air fares of the two seaplane operators are almost half those of Helijet. Given that the flight times between harbours are similar for the seaplanes and helicopters, it could be argued that Helijet’s higher fare  reflects the somewhat smoother ride, the greater certainty of departures and the higher operating costs of the helicopters.

What Does This All Mean?
The concept of a scheduled helicopter airline has captured the imagination of entrepreneurs for sixty years. Unfortunately, it has proven to be a difficult business model by which to make money. Having established a scheduled route between BC’s two key business cities, Helijet has thought “out of the box” in its efforts to expand the scheduled network by adding destinations that seemingly stood to benefit from the service. Due to ever changing economic conditions and shifting consumer demand, these new routes achieved varying degrees of success. Wisely, the company responded to the market’s requirements and adjusted its system accordingly.
Recognizing the need to reach into additional markets, Helijet has acquired a light helicopter operator, taken on the management of the most strategic heliports in Vancouver and Victoria, and has tapped into the long-term growth prospects of the healthcare industry. While the company has adroitly adjusted course numerous times, it continues to get buffeted by external factors such as fuel costs, currency exchange rates and lower-fare competitors.

What Does The Future Hold?
Assuming the North American economy experiences a prolonged recession, and not the depression espoused by some gloomsters, the skies should eventually clear again. In the near term, Helijet will likely stay the course with its scheduled carrier continuing to operate its two routes, its ambulance business serving a recession proof market and its other aircraft meeting the obligations of their contracts.

Looking out five years, we could see Helijet operating more aircraft (rotary and fixed wing) in more locations across Canada.  Air ambulance would likely be a key driver to that growth. Given the company’s successful record of operating medium and large IFR twin-turbine helicopters, there may be other applications that
provide it with opportunities in the future.

What about the longer-term prospects of sked-helo carriers in general? Will they ever be more than a niche market mode of transport?  Danny Sitnam, Helijet’s president and CEO,  acknowledges that the scheduled helicopter airline is a challenging business model. The relatively high direct operating costs, the shortage of convenient urban heliports, and competitive air fares have conspired to prevent most sked operators from enjoying commercial longevity. He summed up the situation by saying, “It’s a tough go, for little dough.” 
Having said that, a more optimistic scenario is foreseen. Ken Glaze, Helijet’s vice president Business Development, believes the next generation of rotary-wing technology should enable the development of more scheduled VTOL services. The evolution of tilt rotor aircraft, such as the Bell/Agusta  BA609, could be key to the development of commercially viable routes. By providing shorter block times over greater stage lengths, such as a 45 minute jaunt between Seattle and Whistler, travelers would probably respond to such a convenient offering. While such a futuristic vision is enthralling, we are returned to reality by recognizing that such an aircraft is probably several years away from being available.  

Conclusion
The reality is that for more than two decades the Helijet team has navigated the company through some turbulent times and survived. Given what the financial radar is painting, that experience will likely be tested again over the next year. If anyone can get through the storm successfully, it should be Captain Sitnam and his crew.