Oil & Gas
Traversing the Landscape
January 26, 2011 By Frederick K. Larkin
For many Canadians living in urban centres the occasional sight of a helicopter overhead may bring to mind the radio traffic reports that they listen to during their weekday commutes or, perhaps, the unfortunate situation of a patient being airlifted to a downtown hospital.
For many Canadians living in urban centres the occasional sight of a helicopter overhead may bring to mind the radio traffic reports that they listen to during their weekday commutes or, perhaps, the unfortunate situation of a patient being airlifted to a downtown hospital. These same folks likely never give much thought to the role that helicopters play in supporting the country’s natural resource based industries across the vast hinterland.
|Specializing in resource-based industries, government and telecommunications providers, Highland Helicopters is cautiously optimistic 2011 will bring an increase in flying hours. (Photo courtesy Douglas Noblet for Highland Helicopters)
In playing this role, the Canadian helicopter industry’s health is to a meaningful degree dependent upon activity within the resource sector of the domestic economy. Given the financial turmoil experienced during the past two years, it is timely to examine the industry’s current situation to see what may lie in store. Before discussing specific companies, let’s review the recent economic environment and see what the consensus is about the coming year.
2011 Economic Outlook
Following the financial meltdown that began in the final quarter of 2008, the North American economy dragged through 2009 and started to recover in 2010. The outlook for 2011, according to numerous economic forecasters and stock market prognosticators, is for a continued recovery around the world with growth in the global gross domestic product of approximately four per cent. Closer to home, however, a more subdued performance is anticipated. GDP growth in Canada is expected to be between 2.0 and 2.5 per cent, while the U.S. could see growth of between 2.5 and 3.0 per cent.
|Eurocopter Canada is one of the key suppliers to Blackcomb Aviation. Here, an AS-350 B3 lands at a helipad. (Photo courtesy of Zitek Zwada)
Fortunately, the BRIC countries (Brazil, Russia, India and China) are expected to continue to achieve improved economic performance with GDP growth in 2011 of approximately 5.5 per cent, 4.0 per cent, 8.5 per cent and 9.5 per cent, respectively. As a result, their demand for a wide range of commodities is expected to remain firm. This should translate into continued, if not increased, activity within Canada’s natural resource industries.
Natural Resources Canada has forecast that mineral exploration expenditures across the country would be approximately $2.8 billion during 2010, up 44 per cent from the $1.9 billion spent during 2009. The five busiest regions were Ontario, Quebec, British Columbia, Saskatchewan and Nunavut. In its October 2010 forecast, NRC called for mineral exploration in the Northwest Territories to increase to $99 million in 2010, up 125 per cent from $44 million in 2009. Nunavut was expected to experience a 50 per cent improvement to $280 million from $187 million in 2009. The recent strength in the prices of base and precious metals supports the thesis that mining exploration will increase further during 2011.
Another area of opportunity for the domestic helicopter industry is the construction of energy-related infrastructure such as pipelines and hydroelectric facilities. A number of these are in the planning stage, including this titanic trio:
- Northern Gateway – a pair of 1,172-kilometre pipelines proposed by Enbridge to carry blended bitumen westbound and condensate eastbound between Bruderheim, Alta. (near Edmonton), and Kitimat, B.C., on the Pacific coast. Construction, subject to numerous approvals, is scheduled to begin in 2013.
- Mackenzie Gas Project – a 1,200-kilometre pipeline proposed by Imperial Oil, ExxonMobil, ConocoPhillips, Shell Canada and the Aboriginal Pipeline Group to carry natural gas from the Beaufort Sea south to northwestern Alberta. In December, it received National Energy Board approval, with a provision that construction begin by 2015. In the meantime, additional hurdles remain to be crossed before a final go-ahead is given.
- Alaska Pipeline Project – a 2,700-kilometre pipeline proposed by TransCanada and ExxonMobil to carry natural gas from Prudhoe Bay, Alaska, to Caroline, Alta. (near Calgary). Pending various regulatory approvals, it seems doubtful that construction will begin before 2015.
Given the debate surrounding the future levels of demand for northern sourced natural gas in the lower 48 states, the massive development costs, and the potential competition between the latter two projects, it remains to be seen if all three proposals proceed or merely end up being expensive pipe dreams.
There are more than 130 Canadian helicopter operators that have fleets ranging from a single machine to more than 100 machines. To gain some insight into what might be in store for the Canadian helicopter industry, Helicopters contacted numerous participants across the country. The following snapshots provide a synopsis of what 2011 may bring.
Canadian Helicopters Group – Les Cedres, Que.
With its ancestry stretching back almost 64 years to the creation of Okanagan Air Services in April 1947, the company is the largest domestic operator of rotary-wing aircraft. With a fleet of approximately 125 helicopters at more than 35 bases across the country, it serves the oil and gas, mining, forestry, construction and utility industries. In addition, it provides emergency medical services, operates two flight training schools and performs third-party maintenance, repair and overhaul work.
Just over two years ago, Canadian Helicopters was awarded its first contract from the United States Transportation Command, the single manager of America’s global defence transportation system. It involved the movement of supplies and passengers to military forward operating locations in Afghanistan. On Oct. 1, 2010, the company received additional business from USTRANSCOM related to Afghanistan. As a result it now operates 11 aircraft there, including four Sikorsky S-61s and seven Bell 212s. The contract has multiple renewal options that could see it extended to June 30, 2016.
Also on Oct. 1, the company announced that its contract with Ornge, the Ontario government’s air ambulance service, would come to an end on March 31, 2012. In the meantime, Canadian Helicopters will continue to operate S-76As for Ornge until they are phased out in conjunction with the arrival of 10 new AgustaWestland AW-139s that will be flown by Ornge crews.
With 10 types of aircraft in its fleet, from Robinson R22s to Sikorsky S-61Ns, Canadian Helicopters is equipped to handle diverse missions. Commenting on the company’s outlook after the release of its third-quarter results, Don Wall (Canadian’s president and CEO) noted, “We remain well positioned to sustain long-term growth by aggressively pursuing market opportunities given our strong balance sheet, solid reputation, as well as high-quality assets and personnel.”
Great Slave Helicopters – Yellowknife, N.W.T.
Great Slave Helicopters is Canada’s second largest VFR helicopter operator, with a fleet of almost 70 machines. It supports mining and oil/gas seismic and exploration work, forest fire suppression, aerial construction and environmental impact surveys, and performs precision external load operations. Besides its head office, it has bases at Fort Simpson, Norman Wells, Inuvik and Fort Liard in the Northwest Territories; Calgary; Churchill, Man.; and Dryden, Ont.
|Great Slave Helicopters is Canada’s
second largest VFR helicopter operator, with almost 70 helicopters
stretching across eight bases throughout the Canadian North. (Photo
courtesy of Great Slave Helicopters)
A new development for the company has been its move into the international arena. Last May, it signed a one-year agreement to support oil and gas seismic exploration activities in Peru with five aircraft including Bell 212s and Aerospatiale AS-350s. This geographic expansion assists overall asset utilization.
Great Slave Helicopters is optimistic about 2011, as the tone of its mining clients is upbeat. Exploration budgets are increasing and that should mean more flying activity this year. When asked about the company’s prospects, president Jeff Denomme said, “The outlook for 2011 is exciting and we are looking at a very busy summer season. We continue to work on diversification with increased utilization internationally, and we’ll work as a team to enjoy a safe and profitable year ahead.”
Highland Helicopters – Richmond, B.C.
With a fleet of more than 40 aircraft, primarily Bell 206s and Aerospatiale AS-350s, the 51-year-old company operates from 21 bases in British Columbia, Alberta and the Northwest Territories. Its customers include resource-based industries, governments, telecommunications providers and the motion picture industry.
Simon Laight, marketing manager for Highland Helicopters, is encouraged about the near-term prospects for oil-related business, nervous about gas-oriented activity and hopeful for forestry flying. While it would be great to see the hourly rates back as they were in 2008, he maintains that the market in Western Canada is still suffering from an oversupply of helicopters. “We are cautiously optimistic about 2011 and hope for a modest increase in hours flown,” he said. “Highland is positioned to withstand another slow year, as well as to capitalize on an uptick in the market.”
Eagle Copters – Calgary, Alta.
Founded in 1975, Eagle Copters leases its inventory of more than 50 helicopters nationally and abroad. It supports its fleet and operators with engine, component and accessory exchange programs. From its 60,000-square-foot facility at YYC, Eagle performs maintenance and overhauls on engines, components, structures and avionics. Its warehouse is stocked with more than 26,000 line items that provide parts support.
|With the petroleum and mining sectors showing signs of recovery, Eagle Copters’ management is cautiously optimistic the economy could be on the move. (Photo courtesy Eagle Copters)
In order to serve the Latin American market, Eagle has an office in Santiago, Chile. Eagle’s president Mike O’Reilly told Helicopters that a couple years ago the company had little trouble keeping its fleet fully utilized. “Pre-2008, it didn’t matter what we had – someone would sign up to lease it. We are in different times now.” He noted that during the past year, there were too many helicopters and not enough work. He is hopeful that the conditions will improve a bit during 2011, as the petroleum and mining industries “are showing small signs of recovery.”
The wild card could be aerial firefighting. Should there be a dry summer this year, he said, “you could well see a significant improvement in hours.” Expressing caution, he said, “Our outlook, or hope, is for basic stability in 2011. No further decline and no excessive expansion.” For a com-pany that has been around for 35 years, such pragmatic thinking comes with experience.
Eurocopter Canada – Fort Erie, Ont.
The Canadian subsidiary of Eurocopter employs a team of approximately 200. In addition to marketing the parent’s range of helicopters, it operates a training centre for its customers. Its 135,000-square-foot facility in Fort Erie has an engineering department that is certified to develop and flight-test options and modifications on Eurocopter models. It also houses an avionics shop, a blade shop, a repair and overhaul operation, a paint shop, a non-destructive testing lab and a composite shop that produces horizontal stabilizers and endplates for all EC-135, AS-365 and EC-155 models built.
Guillaume Leprince, vice-president, marketing and sales, Eurocopter Canada, noted that his customers are cautiously optimistic about their prospects in 2011. With improved commodity prices in the petroleum and mining industries, signs are pointing towards increased flying this year. One concern, however, is the level of the tariffs, given the amount of competition. That could well be key to how the industry fares this year.
Noting that our southern neighbours still have some economic challenges, Leprince said, “Canada can expect a stronger increase in growth than the U.S. market.” Within the domestic industry he maintains there is room for some restructuring. “Mergers and acquisitions and, unfortunately, a few bankruptcies will be seen.”
Bell Helicopter Textron Canada – Mirabel, Que.
Since 1986, BHTC has manufactured more than 3,700 helicopters. Today its workforce of 1,800 produces four models at the 656,000-square-foot facility. Those include the 206L-4 LongRanger IV, 407, 412EP and the new 429.
The Mirabel facility also has about 50 product support engineers who provide technical assistance over the telephone to operators around the world. In looking at how this year may play out, Barry Kohler, BHTC’s president, noted that the company will continue to focus on product development and upgrades in 2011 and beyond. He added that Textron, the parent company, has increased its investment in Bell Helicopter’s R&D program by 50 per cent over the next five years. That has to be a good sign for both the company and the helicopter industry.
As with any business, two key challenges face helicopter operators: winning business and keeping costs under control. Some of the individuals we spoke with were mildly bullish about their outfits’ prospects in 2011; however, others were less enthusiastic. One marketing executive from a medium-sized operator, with a fleet of 25, noted that during the past year there have been more helicopter industry representatives attending mining conferences across the country. To his mind there are more players chasing a decreasing amount of work. Another concern is that major projects, such as pipelines and hydroelectric developments, are not coming on stream as fast as the industry would like.
The CEO of a smaller company, with a fleet of 10, noted that they are not expecting to fly more hours in 2011 than they did last year. He summed up the mood of his clients by saying that the situation was, “Wait and see. Very quiet.”
Some common opinions expressed by other senior managers included:
- there are too many aircraft in Canada, given the size of the domestic market;
- as a result, rates are unlikely to move higher in the near term;
- firefighting may be seasonal, but it certainly isn’t guaranteed work; and
- international markets, be they for commercial or military missions, offer opportunities as well as risks.
The bottom line: A given company’s level of optimism/pessimism about 2011 appears to be based on its primary geographic market, the financial fitness of the industries it serves, and how many other players there are in its sandbox.
|On the Horizon
As 2010 ended, crude oil prices were back up to US$90 per barrel and indications were that the global petroleum industry was planning record exploration expenditures in the new year. Offshore deep-water development is expected to represent a growing portion of overall exploration budgets in 2011.
In light of these developments, four of the major helicopter OEMs have recently introduced or are developing new models that will meet the needs of the offshore drillers, as well as the requirements of the expanding emergency medical services market. Here are summaries of the newest models from the five leading manufacturers:
Eurocopter EC-175 – The EC-175 is a joint venture between Eurocopter and the Aviation Industry Corporation of China. Its fuselage is to be built in Harbin, China, then shipped to Marignane, France, for final assembly. With 114 orders from 14 customers already booked, it has captured the market’s attention.
AgustaWestland AW-169 – Designed to fill the niche between the smaller AW-109 and the larger AW-139, the AW-169 is targeted to sell 1,000 units over the next two decades.
Sikorsky S-76D – This is the latest variant of the successful S-76 family, of which nearly 800 units have been produced. Its fuselage is built by Aero Vodochody in the Czech Republic, then shipped to the Sikorsky Global Helicopters facility at Coatesville, Pa., for final assembly.
Bell 429 – Originally dubbed the GlobalRanger, the 429 looks like a 206L LongRanger on steroids. Currently in production, more than 30 had been produced by the end of 2010. With more than 100 ordered, it looks to be the next in a long line of winning designs from Bell.
Robinson R66 – Having produced approximately 9,000 single-piston-engine helicopters in 30 years, Robinson has gone turbine with its new R66. By the end of 2010, 10 R66s had been completed and deliveries had just begun.
Bell/Agusta BA-609 Tilt Rotor – The tilt-rotor design is revolutionary, but it has suffered delays in its development. At one point the model reportedly had orders for over 80 units from more than 40 customers in 20 countries.
Eurocopter X3 – Based on the airframe of the AS-365 Dauphin, the X3 has an aft horizontal stabilizer with twin fins, the five-blade main rotor system of the EC-155, the main gearbox module of the EC-175, and two five-blade propellers attached to short-span fixed wings (with pronounced anhedral) extending outward from above the passenger cabin.
While both of these aircraft are truly exciting designs, ultimately market demand will decide their fate. Development costs will likely be key in determining their eventual selling price. Whether or not end users will pay rates that make the services provided compensatory remains to be seen. In the meantime, these are both handsome examples of aeronautical designs that are capable of generating dreams – if not revenues.