Title: Vector Aerospace soars to new heights

Sub-title: The Department of Defence’s recent announcement of the purchase of 15 Chinook transport helicopters has opened big in-service support opportunities for this Canadian player.


One of the major lessons learned as a result of Canada’s Afghanistan deployment was finally officially acknowledged a few weeks ago when the Department of National Defence announced a $1.2 billion contract to buy 15 Chinook helicopters from Boeing Company.


Delivery of this first class, flexible transport option is only expected to take place after Canadian forces step back from their combat roles in the Asian country that has been dubbed “the graveyard of empires.” However the new air transport capability, - which is crucial to helping modern forces avoid improvised explosive devices, the weapon of choice for asymmetrical warfare practitioners, - will almost certainly be called on regularly during coming years.


As would be expected, the Parliamentary Press gallery and most ordinary Canadians focused primarily on the Chinook aircraft purchases themselves. But what caught the attention of Declan O’Shea, chief executive officer of Toronto-based Vector Aerospace, was the second part of DND’s announcement.


As is the case with most large out-of-country capital equipment purchases these days, DND also committed to procuring a 20-year in-service support and maintenance capability, which could be extended to over the aircraft’s life. The amounts involved are huge. One DND estimate is that the long term ISS contract billings could run as high as $2.2 billion – almost twice the value of the helicopter purchases themselves.


“We are very exited,” says O’Shea. “It provides Vector with an enormous opportunity. Our experience with a board range of helicopters, - including the Chinooks themselves, - coupled with our substantial maintenance repair and overhaul facilities mean we are ideally tailored to deliver the support that DND needs.”


However while he is a natural optimist, O’Shea, who took on the CEO position at Vector early last year, also realises that competition for Chinook in-service support work is likely to be fierce.


During his 30-year career in the aerospace industry, much of which has spent in the maintenance, repair and overhaul sector specifically, O’Shea has seen many such opportunities. As a result he knows full well that having the capabilities is not enough.


To win substantial Chinook ISS contract work, bidders will have to show an existing track record, prove both their detailed planning ability, as well as their in-house flexibility to handle complex requirements or sudden changes. What should serve both this wily veteran and the company he heads well during the bidding process is his UK experience, particularly his in-depth background in Chinook support oversight.


Vector Aerospace: an emerging defence sector player

Vector Aerospace emerged on the map of defence sector stakeholders in 1998, when in-house services of predecessor CHC Corporation were rolled out in a public offering. The company’s services had been organized around three operating divisions: AcroHelipro Global Services, Atlantic Turbines International and Sigma Aerospace. But last year these were all re-branded under the Vector Aerospace identity in a bid to offer a clear promise to current customers and potential customers.


In fact 2008 ended up being a breakout year for Vector on a lot of fronts. For one, Vector’s Engine Services Atlantic Division generated record results, and the company increased its market share in the Pratt & Whitney Canada PW100 and PT6 engine lines. In order to better help service Vector’s global clientele, the company also opened new service centers in Johannesburg South Africa and Nairobi Kenya.


In fact according to O’Shea, market needs are the key drivers of almost everything that Vector does. “Our strategic vision is to set the standard for customer service for the entire industry,” says O’Shea. “By partnering with Original Equipment Manufacturers (OEMs) and adding value as an integrated solution provider we want to set the benchmark against which all MRO businesses are measured.”


John MacDougall, Vector Aerospace’s vice-president (marketing and sales) agrees. “We have set aggressive internal goals which target continued improvement in our operations,” says MacDougall. “Partnerships are a key element in which we have seen major progress.  For example our recent acquisition in the UK has expanded our relationships to include Boeing (for the Chinook work) and AgustaWestland (for the UK division’s Sea King MRO work).”


At first glance, Vector’s stated strategic goals look undeniably impressive. These include meeting commitments to stakeholders, streamlining existing processes and modifying product offerings to develop opportunities to create additional value.


However Vector also believes that expanding market share from its broad base of military, government, commercial and corporate customers around the world and improving balance sheet liquidity will also benefit current customers. That’s because the returns to scale generated by these initiatives coupled with the increased corporate knowledge they will bring can be then leveraged to help better service existing accounts.


However when dealing with the tough just in time demands of defence sector players, O’Shea is also the first to acknowledge that corporate missions and goals can’t just look good on paper.  They need to flow right through to MRO production lines. “We do a lot of maintenance work on Lynx helicopters that operate on sea base platforms so we have learned to adhere to the strictest maintenance schedules,” says O’Shea. “Service is everything in our business. If you deliver a sea-based helicopter one day late, the ship that it is based on could well have left port already.”


Vector’s Chinook helicopter experience: positioned for an increasing role in Canada

Probably the biggest ongoing change at Vector has been adjusting its focus. That’s because the company had long been predominantly targeting civil aerospace clients. In recent years that balance has shifted and increasing numbers of defence sector contracts are now being signed. In fact according to O’Shea, following Vector’s acquisition of the former UK Ministry of Defence’s DARA (Defence Aviation Repair Agency) facilities at Fleetlands and Almondback, fully half of its business is now on the military side, up from 20 percent just a few years before.


In fact the DARA acquisition, which addes close to 1,300 new employees to the Vector payroll, has substantially boosted Vector’s presence in the helicopter sector, an area where it already showed substantial strength. The rotary wing segment of the DARA acquisition is located at Fleetlands, in Gosford England. There it provides helicopter airframe support, modification and refurbishment services for the UK defence ministry’s Chinooks (CH-47), Lynxs and Sea Kings. The deal also brought with it a component  business located in Almondback Scotland, which services dynamic elements such as gearboxes and rotor-heads.


Vector’s North America Helicopter Services segment services more than 2,000 commercial and private operators and holds OEM licences from key players such as Pratt & Whitney, Rolls Royce, Eurocopter, Sikorsky, General Electric and Turbomeca.  The division offers a variety of helicopter support capabilities for engines, components, avionics, structures, as well as parts manufacturing and accessories. In addition, Vector’s Richmond BC, operation hosts in-house dynamic components text cell capabilities coupled with an extensive spares and rotables inventory.


A strong provider to DND

However Vector’s defence sector account portfolio would get a real shot in the arm if it could land some or all of the ISS work that is expected to flow from the recent Canadian Chinook purchase. For one it would substantially build the company’s visibility. According to an independent analysis, DND’s Chinook acquisition contract is expected to generate significant benefits for local Canadian economies and create as many as 5,500 direct news jobs and up to 15,000 indirect ones. Many of those positions would stem from ISS related work.


In fact according to MacDougall, Vector already boasts a substantial list of maintenance, repair and overhaul contract success with the Department of National Defence. These include dynamic components work on the Sea Kings, airframe, component and engine work on the Griffons as well as engine related work on both the Buffalos and the Cormorants.


At press date there were few details currently available regarding how the Chinook in-service support will be structured. “We expect that a number of RFPs will be issued,” says MacDougall. “Different support packages that deal with things like engines, dynamic components, airframe, line-scheduling, maintenance crew training, pilot crew training and logistical support could be contracted separately.” The good news for Vector is that clearly there will be some partnering involved, likely with Boeing itself. This requirement plays well to the company’s strengths, due to its existing relationship in the UK with the US manufacturer.


Another major Vector strength says MacDougall, stems from the fact that the company is already doing support work on the Canadian Force’s existing Chinooks in Afghanistan. In fact, if Canada’s Afghanistan role continues down the current path, this experience on the ground could increase in value over time.


That’s because although the Canadian government has set numerous target withdrawal dates, (including the current 2011 deadline) these dates are inevitably pushed back or re-scheduled. In fact the dramatic rise in western casualties in Afghanistan in recent months leaves little cause for hope that NATO’s deployment will end any time soon. “The expectation is that NATO will be there for some time to come, though not necessarily in a combat role,” says MacDougall.


Sitting on pins and needles

Of course despite O’Shea’s enthusiasm regarding the Chinook ISS initiative, how well Vector will perform during the DND bidding process remains an open question. Contracts these size tend to attract a lot of attention. However O’Shea will not be just sitting around waiting for that to happen. He has got a lot of other stuff on his plate. “Our operating earnings were very strong in the second quarter,” he told analysts during the company regularly scheduled conference call. “Both the airframe and component segments increased year over year activity levels.”


Furthermore, he expects that success to continue. “In aggregate, we expect the second half of 2009 to be similar to the first half, assuming exchange rates remain stable,” says O’Shea, who remains just as optimistic over the longer term.


“Vector is extremely well positioned for growth as an MRO provider. Ageing fleets and helicopter life extension programs, coupled with the number of military conflicts around the world, will force governments in North America and the UK to continue to boost MRO spending by strong levels for the foreseeable future,” says O’Shea. “This could open a lot of doors for us. It will be up to us to take advantage of these opportunities.”



Company snapshot

Name: Vector Aerospace Corporation

Key contacts: Declan O’Shea, John MacDougall

Phone: 604-375-9644

Web-site: http://www.vectoraerospace.com

Locations: Canada, United States, the United Kingdom

Principal operations: Vector Aerospace Engine Services Atlantic, Vector Aerospace Engine Services UK (Fleetwinds, Almondbank), Vector Aerospace Helicopter Services North America (Richmond), Vector Aerospace International Limited.

Services: Aviation repair and overhaul

Number of employees: 2,500

Sales (2008) $499 million.




Peter Diekmeyer (peter@peterdiekmeyer.com) is Canadian Defence Review’s Quebec bureau chief.






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