Features Operations
From the Rock to the world

The growing worldwide need to mitigate environmental and sovereignty threats should result in continued success for the Provincial Aerospace team.

The sea has traditionally played an important role in the lives of Newfoundlanders. For centuries they have lived beside it and earned a living upon it. Today, there is an entrepreneurial outfit in St. John’s that prospers from the sea, except it does so from far above it. Provincial Aerospace Ltd. (PAL) has evolved over half a century from being a provider of flight training into a diversified collection of aviation-related activities that serve customers around the globe.

In an investment environment where conglomerates are frowned upon and pure plays are deemed to be the best way to run a business, can such a strategy enable continued profitability, let alone growth? Before answering that question, it’s worthwhile reviewing how this organization has developed over time.

Provincial Aerospace: a historical perspective
The Provincial story began in August 1972 with the creation of Aztec Aviation, a flight training and charter outfit in St. John’s. Scheduled passenger services began in 1980, then, in 1983, the company’s name was changed to Atlantic Airways Ltd. Within years, Atlantic’s scheduled network included more than a dozen communities within Newfoundland and Labrador, Quebec, Prince Edward Island and the French islands of St. Pierre and Miquelon. In 1988, Atlantic acquired Eastern Flying Service Ltd., a Halifax-based company headed by Gus Ollerhead. EFS had been formed as a flight training concern in Sydney, N.S., in 1956.

A PAL Dash 8 used for surveillance in the Netherlands Antilles.

Atlantic Airways became Provincial Airlines Ltd. in late 1989. Its fleet included four Beech King Air 200s, four Fairchild Metros and nine Piper Navajos. During the ’90s, it added numerous Labrador coastal communities, as well as Sydney and Halifax, to its route system. In 1995, it began operating some scheduled flights on behalf of Air Nova, an Air Canada connector carrier, using the Interprovincial Airlines brand.

In August 1998, Provincial Airlines and Innu Economic Development formed a joint venture named Innu Mikun Limited Partnership. It began operating as Innu Mikun Airlines with one Twin Otter and performed charters from its base at Goose Bay. Two years later, it initiated scheduled services from Goose Bay to communities along the coast of Labrador. Effective May 28, 2001, Provincial Airlines initiated service with two 31-seat Saab 340As from St. John’s to Deer Lake, Goose Bay, Wabush and St. Anthony. On Jan. 13, 2003, in response to a reduction in capacity by Air Canada’s Jazz Air affiliate, Provincial increased frequencies on its flights to Wabush and Goose Bay.

In late March 2004, Provincial Airlines took delivery of its first DHC-8-100 Dash 8 – appropriately registered “C-GPAL.” The 37-seater was assigned to the St. John’s-St. Anthony-Goose Bay route. The second Dash 8 arrived in November that year and was placed on the St. John’s-Deer Lake-Stephenville run.

In May 2006, Innu Mikun Airlines was awarded a 10-year contract by Voisey’s Bay Nickel Company to provide support for its mining operations in Labrador using a PAL Dash 8.

Provincial continued to spread its wings when it extended its network west to Montreal on Sept. 8, 2006. It now provided direct service to Dorval from Goose Bay via Wabush, as well as non-stop service from Sept-Iles, Que. Effective March 9, 2009, Innu Mikun started service from Montreal to the Quebec North Shore communities of Sept-Iles, Natashuan, La Romaine, St. Augustine and Blanc Sablon using PAL’s Saabs.

While the airline was expanding its footprint across Eastern Canada, the firm’s management team was looking for other opportunities. As might be expected for Newfoundlanders, a significant one came along that was associated with the sea. Every year, thousands of icebergs are calved from glaciers on the west coast of Greenland. Hundreds are carried south in the Labrador Current and end up drifting past Newfoundland along the Grand Banks – some 200 miles from shore. That puts these threatening beasts (some have a mass of one million tonnes) into the great circle shipping lanes between Europe and North America. It also brings them into the region where offshore platforms work the oil fields.

In 1986, the company came up with an idea that would significantly influence its future. It became the first operator to install an X-band radar on a civilian aircraft. Normally used by military forces to hunt submarines, a unit was placed aboard King Air 200 “C-GPCD.” The aircraft proceeded to demonstrate its ability to spot potentially dangerous icebergs. As a result, the company was awarded a surveillance contract from the federal government that year.

Further expansion into the airborne surveillance business occurred in 1996, when Provincial Aviation Maintenance Services Inc. (PAMSI) was established to modify aircraft for maritime patrol missions. In light of the group’s expanding array of aviation activities, Provincial Aerospace Ltd. was created as the organization’s parent company in 2001.

A significant development for Provincial Aerospace came on July 14, 2006, when it won a contract worth approximately $120 million from the government of the Netherlands. The deal included the design and modification of two DHC-8-100 Dash 8s into maritime patrol configuration by PAMSI and the provision of air reconnaissance flights for the Dutch Caribbean Coastguard (Kustwacht Caraibisch Gebied) for 10 years. Subsequent to the completion of the first aircraft, the surveillance sorties began in October 2007 from Hato, Curacao.

Provincial Aerospace diversified its operations in 2006 to include flying UAVs for special coastal assignments.

Additional diversification of its activities took place on Nov. 23, 2006, when Provincial Aerospace and Memorial University of Newfoundland completed the first commercial flight of an unmanned aerial vehicle (UAV) within Canadian airspace at Clarenville, Nfld. PAMSI expanded its non-civilian work in December 2008, when it began performing midlife structural maintenance on the Canadian Forces’ four CT-142 Dash 8 navigation trainers.

The pace picked up in 2009. The world’s aerospace industry did a double take on Feb. 27, when PAL received a contract valued at approximately $370 million from the United Arab Emirates to convert two Bombardier Q300s into MPAs. Further good news was quick to follow. During April, PAMSI started work on a $4-million contract with Bombardier Aerospace to modify two Bombardier 415s into MPAs for the Malaysian Maritime Enforcement Agency. Soon after, on June 3, PAL was awarded a $75-million follow-on contract by the federal Department of Fisheries and Oceans (DFO) to provide surveillance services for another five years.

Provincial Aerospace today
Today PAL’s operations are divided into two groups: Commercial, and Aerospace and Defence. The businesses that comprise each of the divisions are as follows:

Commercial:

• Scheduled Airlines – Provincial Airlines serves eight communities within Newfoundland and Labrador and two in Quebec. Its route network, that stretches from St. John’s west to Montreal, is served by a 50-seat Dash 8-300, four 37-seat Dash 8-100s and two 31-seat Saab 340As. Innu Mikun Airlines connects six communities along the coast of Labrador from its base at Goose Bay with a fleet of four 19-seat Twin Otters.
• Air Cargo – A Fairchild Metro III provides courier services.
• Air Ambulance – A King Air 200 is operated on behalf of the Emergency Health Services of Nova Scotia out of Halifax, while a Citation S/II jet is flown out of St. John’s for the Government of Newfoundland and Labrador.
• Aircraft Management – Two King Air 350s are operated for private owners in Halifax and Goose Bay.
• Charter Services – Most of the aircraft types mentioned above are available for ad hoc charters.
• Fixed Base Operation – Torbay Aero Services operates the Shell Aerocentre at St. John’s, and Atlantic Sky Service operates the Esso Avitat at Halifax.

Aerospace and Defence:

• Special Mission Operations – PAL utilizes highly modified aircraft to perform a multitude of missions, including flights in support of fisheries surveys, ice reconnaissance and mapping, pollution detection and border patrol. It also supports maritime search-and-rescue efforts and has often been the first respondent on station. Four King Air 200s are operated for the federal DFO from bases at St. John’s, Nfld., Halifax, N.S., and Comox, B.C. Another King Air 200 does ice surveillance flights for oil companies out of St. John’s and two Dash 8-100s fly for the Dutch Caribbean Coastguard out of Curacao.
• Aircraft Modification – The company designs and integrates customized systems that it then installs in special-mission aircraft. It has performed this work on various types including Dash 8-100s, Dash 8-300s, Bombardier 415s, Beech King Air 200s and Fairchild Metros. Typical modifications to a stock airframe include a nose-mounted searchlight; a drop hatch for the deployment of life rafts, smoke markers and sonobuoys; sonobuoy storage for up to 50 units; large bubble observation windows; enlarged side doors; and extended range fuel systems.
• Mission Systems Integration – Special mission and maritime patrol aircraft have a wide range of electronics installed, depending on their intended use. Examples include forward-looking infrared (FLIR) imaging systems; 360-degree maritime radars with 200-mile range; night photography systems with high-intensity lighting and video capability; satellite communications for voice and data transmissions; sonobuoy deployment systems; self-defence systems including radar, laser and missile detectors; pollution monitoring systems; and the associated workstations for sensor operators and managers. PAL not only uses off-the-shelf components, but has developed its own proprietary software. An example of that is its Asynchronous Data Acquisition and Management (ADAM) system that provides in-flight mission management and data collection, real-time mapping, as well as post-mission reports. PAL’s other proprietary systems include its Surveillance Information Server (SIS), the Virtual Radar Control Panel (VRCP) and its Ice Data Network Systems (IDNS). These are used by Provincial aboard its own aircraft and are sold to clients. In other words, they eat their own cooking.
• Maintenance – Provincial Aviation Maintenance Services provides airframe maintenance and repair; avionics maintenance and repair; structural and sheet metal repair and aircraft interior refurbishing. PAMSI has assisted in the completion of six Beech C-12 (King Air 200) MPAs for the U.S. Customs Service. It has also modified 14 Fairchild C-26 (Metro) aircraft for the U.S. State Department.
• Training and Support – For clients that wish to have their own personnel involved in MPA activities, PAL trains both flight crews and onboard technical operators for their specific aircraft. Ongoing support and recurrent training is also provided. PAL operates a Dash 8-300 as a dedicated MPA trainer.

In some cases, the company is asked to do everything for a new MPA operator. PAL assists the client in determining which aircraft model would be the best platform, given the requirements of the typical mission. It then procures the aircraft and avionics, modifies the airframe, integrates and installs the customized electronic systems, oversees the airworthiness certification of the completed aircraft, performs the associated ground/flight tests, trains the personnel needed to operate and maintain the airplane and its systems and finally delivers the aircraft to its base. Sometimes, PAL will operate the aircraft, provide ongoing technical training for personnel and perform the maintenance program for the aircraft subsequent to its delivery.

In order to better understand any business model and therefore determine how a company might fare in the future, it is useful to perform a S.W.O.T. analysis (Strengths, Weaknesses, Opportunities and Threats). Doing so with Provincial Aerospace provides the following insights.

S.W.O.T. analysis of Provincial Aerospace Strengths:

• Diversification – Having achieved a meaningful profile in the general aviation industry within its home region, the company expanded into a growing niche of the global aerospace industry by levering off its airborne surveillance activities. The result is a diversified mix of businesses that complement one another, and are in many cases essential services. Included is one that stands to see impressive longer-term growth.
• Vertical integration – PAL’s Aerospace & Defence division is a one-stop shop for customers looking to acquire maritime surveillance capabilities. This unique skill set has enabled it to win international contracts in the face of well-established competition.
• Desirable customer base – Its clients include companies, governments and/or militaries from many countries including Australia, Aruba, Barbados, Canada, Columbia, Ireland, Malaysia, Mexico, the Netherlands, Peru, Trinidad and Tobago, United Arab Emirates and the U.S. Accounts receivable tend not to be an issue with customers such as these.
• Corporate culture – Over the decades, PAL has increased the breadth of its skills and the depth of the talent within its areas of expertise. The resulting team spirit is characterized by a relatively low rate of turnover among its more than 800 employees. Capable human resources will continue to be a treasured commodity going forward.

Weaknesses:

• Location – St. John’s is a beautiful place, but it is somewhat out of the way. That makes getting to and from clients a time-consuming effort. It can also make personnel recruitment a challenge. Having said that, Newfoundland is special. For anyone who appreciates real people and easily partakes in the island’s unique culture, it can become addictive. St. John’s also happens to be the capital city of one of Canada’s “have” provinces.
• Strong Canadian dollar – With the Canadian dollar at parity with its U.S. counterpart, the operating cost advantages of being Canadian in an industry that is generally priced in U.S. dollars are no longer as apparent as they once were.

Opportunities:

• Domestic FWSAR – The Government of Canada is looking to replace its aging fleet of Lockheed CC-130E Hercules and de Havilland CC-115 Buffalo aircraft that are used in fixed-wing search-and-rescue operations. It’s considering shifting the responsibility for some FWSAR flights to the private sector. Given its decades of operational experience and its knowledge of MPA systems design and integration, PAL is well suited for such work.
• Foreign MPA upgrades – Between 1998 and 2001, PAL modified 14 Fairchild C-26 Metros as MPAs on behalf of the U.S. government. Delivered to eight nations within Latin America and the Caribbean, they continue to serve in counter-narcotics, border patrol, as well as search-and-rescue roles. Given their high utilization and the evolution of the associated electronics, these aircraft could be candidates for upgrades or replacement over the next several years.
• New international customers  – Having established “showcase” MPA operations with customers in Canada, the Caribbean and the Middle East, PAL is positioned to provide similar equipment and supporting services for nations that have vulnerable coastlines anywhere in the world.
• UAVs – Unmanned aerial vehicles have the potential to provide a cost-effective surveillance solution for missions related to pipeline patrols, power line monitoring, forest fire prevention, wildlife surveys, and of course, coastal watch activities.

Threats:

• Competition – Since 1996, Field Aviation of Mississauga, Ont., has modified more than 30 Bombardier Dash8/Q Series aircraft into MPAs for customers in Australia, Iceland, Japan, Sweden, and the U.S. One distinct advantage that PAL brings to potential customers is operational experience, as it has flown more than 20,000 maritime patrol missions during the past 25 years. That represents more than 130,000 incident-free hours of flight, often performed in extreme conditions. It therefore has the ability to advise which electronic systems, cabin layout, aircraft performance and crew training requirements would best suit a client’s specific needs.
• Defence budget cuts – Some have speculated that reductions in defence spending might have an impact on the procurement of MPAs. Given their relatively low acquisition cost and their role in providing border protection, it seems more likely that MPAs would work well with the defensive strategies of many nations.

Putting it into perspective
Having recognized the advantages of using military technology to significantly enhance the effectiveness of civilian maritime surveillance, Provincial Aerospace has become a leading player in the design of MPAs. Based on the methodologies honed from its own operations, it also provides related services (flight operations, maintenance and training) to a growing list of customers around the world. PAL has become a turnkey provider of airborne surveillance solutions to problems related to homeland security and environmental oversight. In the process, it has transformed the company from primarily being a scheduled regional air carrier.

Today the Commercial operations represent approximately 30 per cent of the group’s total revenues, while its Aerospace and Defence activities generate about 70 per cent of its sales. It is clear that the ability to win MPA-related business is dependent upon the provision of a dependable system that gathers strategic data quickly and accurately in a cost-effective manner. Given its history of designing and delivering such systems, as well as its extensive operating track record, PAL is positioned to receive similar contracts.

What does the future hold?
News headlines constantly feature environmental and homeland security issues. Environmental concerns include pollution/oil spills, illegal fishing and the hazards associated with iceberg movements. Homeland security events include terrorism, drug smuggling, illegal immigration, human trafficking and foreign military movements. None of these threats appear to be abating anywhere on the planet.

Back at home, there is a growing level of interest in Canada’s SAR resources – particularly in remote regions. With increased air and maritime traffic in the far north will come a greater risk of related emergencies. The Royal Canadian Air Force (RCAF) currently performs FWSAR flights with 10 Hercules and six Buffalo aircraft that are due to be retired in 2015. In 2006, the Department of National Defence (DND) produced a Statement of Operational Requirements (SOR) related to the acquisition of replacement FWSAR aircraft that would serve over 30 years. In 2009, the federal Department of Public Works and Government Services (PWGSC) contracted National Research Council Canada (NRC) to review the SOR. On March 12, 2010, the NRC released its 57-page report that put forward many recommendations including the following:

• the SOR should be capability-based rather than platform-centric;
• it should outline the levels of SAR service that need to be delivered and detail the corresponding times required to do so;
• new FWSAR aircraft must be equipped with electro-optical and infrared sensors, search radar, night vision imaging systems and a rear ramp;
• multiple aircraft types may be an attractive alternative to a single-model fleet;
• the four existing SAR bases (Greenwood, N.S.; Trenton, Ont.; Winnipeg, Man.; and Comox, B.C.) may not be the most suitable locations.

While the Alenia C-27J Spartan and the Airbus Military C-295 have been considered the leading new platform candidates, there is now a stated desire to have maximum Canadian content in any aircraft that is/are eventually selected.

On Aug. 16, 2011, the federal government hosted an industry consultation day in Ottawa to update private-sector players on the status of the FWSAR aircraft replacement program, provide a summary of the revised requirements and discuss the potential procurement strategies, including alternative service delivery (ASD) options. Industry attendees had until Sept. 16 to provide the government with their feedback and proposals regarding their potential ASD participation. These submissions are to be analyzed by DND officials, with assistance and support from staff at PWGSC and Industry Canada. Once this is completed, recommendations on the proposed FWSAR strategy (structure and procurement) will be made to the government for its review and approval. Given that the NRC has recommended an integrated sensor suite and high Canadian content for the new FWSAR platform, and that PAL offers FWSAR proven integrated mission management technology, this program falls right into Provincial Aerospace’s wheelhouse.

Final thoughts
A revealing sentiment expressed by Gus Ollerhead, PAL’s chief executive officer, is that the company has three guiding principles: quality, innovation and dedication. Quality of the work is best when it exceeds a customer’s expectations. Innovation translates into leading-edge designs that are constantly being refined for improved performance and efficiency. Dedication is the spirit demonstrated by the team’s staff members, who reflect the pride of being with a successful firm. Combining that philosophy with the growing worldwide need to mitigate environmental and sovereignty threats should result in continued success for the team at Torbay.