Watching the Markets
March 5, 2015 By Corey Taylor
Having just attended the RoundUp mining show in Vancouver, and confirmed the dearth of upbeat news from the marketplace, I have been pondering the question, “Are things getting better”?
Having just attended the RoundUp mining show in Vancouver, and confirmed the dearth of upbeat news from the marketplace, I have been pondering the question, “Are things getting better”? Unfortunately I ran across a good friend, who is also a client and a cheerful fellow, who assured me that things would definitely be getting worse. If that prediction has any legs at all I think it’s time to accentuate the positive and try to make the best of a difficult situation.
The helicopter business has always gone through cycles, and these cycles generally tend to parallel or lag slightly behind the price of various commodities. When metal prices go up, exploration activity goes up and therefore more helicopters are required. Oil and gas exploration is a little more complex because of the way budgets are set, but it still follows the basic pattern. With current oil prices at a decade low (but 100-year average!), natural gas recently plunging, metal prices depressed and new ways of investing impacting the Junior Mining Companies’ ability to raise funds, is there even a glimmer of good news? The short answer is, yes, but it will take some work to capitalize on the opportunity.
The current downtrend has reduced the demand for helicopters in Canada, and by extension the number of pilots and engineers required. This is bad in some ways, but I think it’s generally agreed that the rapidity with which our industry grew over the last decade and a half was unsustainable. Year after year of unprecedented economic growth caused many people to believe that things would never stop and when you combine Alan Greenspan’s “irrational exuberance” with wiling bankers, almost anyone could buy their own helicopter in the not too distant past. Helicopters require crew, and since crews require experience, a vicious cycle was occurring within the industry. Clients’ standards exacerbated this cycle by moving the experience goalpost further and further until now many want at least 2,000 hours PIC time for the most basic of tasks.
Just a couple of years ago the only way that many companies were able to flesh out their rosters was with Temporary Foreign Workers and/or a willingness to offer signing bonuses and big paydays. Even with all of that, many companies were still shorthanded during the peak season. The further impact from this for many operators was the disproportionate effect on the Light Helicopter market.
For the first 50 years or so of the helicopter industry, there was a graduated scale of remuneration based on the more experience one gained, the “bigger” the helicopter one flew and the higher the wages one earned. The majority of pilots started in a Bell 206 or a Hughes 500 (except for the pioneers who started in Bell 47s!) and worked their way up the scale of larger helicopters and higher wages.
The current client demands for many year’s worth of experience (measured in hours) even in the basic jobs, means that there really isn’t a sliding scale anymore between helicopter types, except in certain circumstances. While this is good in some ways, as wage disparity for equal work isn’t something to aspire to, it essentially hurts the profitability of the smaller aircraft. Wages are a far larger cost for commercial helicopter operations than the Direct Operating Cost of the components, so if the revenue generated is double or triple between helicopter types, yet the wages remain more or less on par, the larger aircraft provide a far greater chance of profitability. Of course if one were to read many of the comments posted on online forums, one could conclude that operators simply need to charge more and fly more and all will be well. It’s easier said than done, but we can dream.
This downturn has eased pressure on filling seats with the experienced pilots the clients are demanding. Conversely, it is creating tremendous pressure on helicopter rates as clients are slashing budgets everywhere across the board. This should be an opportunity to offer clients breaks on helicopter rates if they will simply rationalize their demands and accept pilots who don’t measure up to their prescriptive hourly requirements but are fully competent for the tasks at hand. This would provide clients with better rates, while enabling new pilots to gain much-needed experience to advance their careers and earn higher rates of pay. There won’t be any way to create a homegrown solution to the pilot shortage if somebody doesn’t bend.
Corey Taylor is VP, Global Business and Product Development for Great Slave Helicopters. This is his inaugural column for Helicopters.