When tariff talk began wafting up from the United States, Trevor Mitchell was concerned for the Canadian helicopter industry.
As president and CEO of the Helicopter Association of Canada (HAC), Mitchell knows his 450-plus members are already experiencing cost pressures from many different directions – and tariffs only make a bad situation worse.
“We really have to understand these tariffs,” he told Vertical in a recent interview. “We need some consistency; if we could rid ourselves of this back-and-forth application of tariffs via social media post, that would be helpful. Right now, we are in such an unknown state. It makes it very difficult for helicopter operators, OEMs, any ancillary industry – everyone is like deer in the headlights. The current landscape has taken budgeting to an estimating type of situation. It’s impossible to predict the cost of doing business in these conditions.”
For Brad Fandrich, president of Valley Helicopters in Hope, British Columbia, that uncertainty is causing sleepless nights.
“From our side, one of the bigger fears is that parts pricing will go in an uncontrollable direction,” he said. “For the last few years, it’s already gone up significantly for spares, airframe or engine parts. Parts increases are way ahead of inflation. Our industry’s fear is this trend will keep going. We’re trying to figure out how to price our aircraft services for our customers, but it’s challenging to try to plan.”
Fandrich said he is not quoting any jobs or contracts more than a year out.
“One of the things we’ve been reluctant to do is give our customers pricing for long-term contracts that are more than a year away,” he explained. “For example, with aluminum or some other materials that may get mined in Canada, manufactured into parts in the U.S., and shipped back to Canada – they might be tariffed in both directions. We can’t even take a guess at how to budget right now.”
Already, tariff-induced ripples are being felt in Canada’s energy sector.
“The biggest reaction I’ve seen so far was from one of our clients who exports energy to the U.S.,” said Fandrich. “They were very uncertain as to how their client would respond to the tariffs, being an import on the U.S. side. So, they halted some of their capital projects until they have some certainty.”
That means less work for Valley Helicopters, and there is no clue as to when the situation might be clarified. Fandrich said the instability is making clients nervous.
“It’s happening so quickly, it’s hard to see if there will be a trend in less [resource] exploration, or more.”
Fandrich is worried there could be significant government program cutbacks in store, including slashes to firefighting budgets, construction, natural resources and exploration, federal fisheries, and timber supply management.
“When governments cut, helicopters are usually one of the first things to go.”
However, unlike the Covid-19 pandemic (when helicopter operators expected business to contract), he is cautiously optimistic there could be opportunities for expansion. Once again, there is uncertainty about what the next pricing model will look like.
Fandrich wishes a tariff policy would be finalized.
“We need certainty. If they’re going to hit us with a tariff, it would be nice to know what it is and what amount. The instability is really the hard part – it kind of makes you not want to make any moves.”
Jeff Denomme, president of Alpine Aerotech, is also looking for clarity on the tariffs.
As a large maintenance, repair and overhaul (MRO) facility with locations in Kelowna and Abbotsford, British Columbia, Denomme’s company employes about 200 people and is one of the largest MRO shops globally, by both capacity and capability.
He told Vertical that Alpine Aerotech is working to understand the on-again, off-again tariff situation.
“From our perspective, it’s more of an effect on parts coming from the U.S. to Canada because of Canada’s retaliatory tariffs,” said Denomme. “We are trying to navigate through what parts are being tariffed and what are not, and trying to make sure we recover those tariffs, if applicable. We are lucky because we have a full-time logistics manager who understands tariffs. As we learn, we are trying to share that knowledge with our customers.”
Alpine Aerotech has a large parts manufacturing capability, and its manufactured parts are triggering tariffs when they enter the U.S., due to the raw materials they contain.
“We are mandated to disclose to the nth degree what is in every part we sell to the U.S.,” said Denomme. “So, the administrative function to that is ten-fold. We source from vendors to make these manufactured parts. They are made of thousands of pieces; we build an assembly, then send it back to the U.S. Some products could be tariffed twice if they cross the border twice.”
He explained that an American manufacturer that makes helicopter parts for an OEM from raw materials sourced from around the world will see tariffs applied to any applicable materials. That price increase will get passed along to the consumer.
An added complication is inconsistent tariff application. “We are seeing suppliers tacking on a line item called ‘tariff.’ You have to do your homework on whether a tariff is actually applicable to that item. And then you have to go back to them if it isn’t,” said Denomme.
Like Brad Fandrich of Valley Helicopters, Denomme is hesitant to sign any manufacturing contracts with OEMs or other customers due to price instability.
“We don’t know what the price of titanium will be, for example. We can’t sign a five-year contract when we don’t know the price tomorrow. It’s very difficult, especially for companies who are locked into long-term contracts now and have to navigate these price increases.”
The Canadian helicopter industry is already steering through some big challenges, including people shortages, parts shortages, complicated regulations, and increased red tape.
“If this keeps up for the future, it’s only going to mean everything will cost more,” said Denomme of the tariffs.
One possible response from the sales and procurement side is investigating new sources of parts, from countries where tariffs do not apply. However, that type of work requires a lot of time when administrative employees are already spending more hours complying with the dynamic tariff landscape.
“We almost have to check every part we’re selling and see if it’s applicable to a tariff, and collect the money up front,” said Denomme. “It’s not as black and white as people think. The impact to us administratively is big – a lot of people hours are going into tracking this. That affects the bottom line.”
Value for the dollar
With profit margins already squeezed, operators like Valley Helicopters face another complication in the form of currency exchange. While most bill their clients in Canadian dollars, maintenance and parts-related costs are almost always charged in U.S. dollars.
“Virtually all of our aircraft suppliers charge us in U.S. dollars,” Fandrich explained. “Many of the OEM service centers we deal with, their hourly rates are published in U.S. dollars.”
When the value of the loonie is low, as it is currently, it presents Canadian operators with yet another hurdle: Paying an additional 25 percent (or more) for helicopter parts, components, and services.
For years, there has been discussion within the industry about charging clients in U.S. dollars to even things out, but some operators are reluctant to take that step.
“I personally would not like to charge in U.S. dollars,” said Fandrich. “There is a chance that you set prices in U.S. dollars and then the exchange goes in the wrong direction. Also, the majority of our expenses are in Canadian dollars, and it’s really only the direct aviation expenses that are billed to us in U.S.”
While Alpine Aerotech does bill its customers in U.S. dollars, Jeff Denomme sympathizes with Canada-based operators who charge for their services in Canadian currency. In a business where profit margins are slim, he supports the idea of operators evening the playing field by charging in U.S. – but he understands it would be a challenging transition.
“How do you contractually, for operators, go back to the end user and say you want 25 percent more? That would be an education for our end user customers that we fly for, and a material change for most businesses. There are so many different avenues of work – mining work, forest fire suppression, tourism, heli skiing. Can the consumer withstand that difference?”
Plus, he added, such a policy would have to be “all or nothing” across the industry – otherwise, there would be the potential to undercut.
“Helicopters are vital to our infrastructure and security against wildfire, natural disasters, powerline construction, oil-and-gas – they touch our economy in many, many ways,” noted Denomme. “That’s why I’m a big proponent on how to bridge this gap in the U.S./Canadian dollar. If we were able to make the dollar the same, we could significantly grow and attract people to our industry. So, how do we do that and educate the customer?”
Trevor Mitchell at the Helicopter Association of Canada said these decisions must be made by individual operators, adding the discussion has regained some vigor thanks to the tariffs.
“Perhaps the aircraft need to be charged out in American dollars,” he reflected. “It would bring some parity, but it would be a massive increase to the Canadian customer. However, if we want to maintain a healthy industry that can provide all the things Canadian customers require and demand, that may have to come sooner rather than later.”
Navigating uncertainty
Many aviation customers – both fixed-wing and helicopter – are already dealing with massive tariff-related price increases in the United States, according to the leader of a large U.S.-headquartered global MRO supplier. He requested anonymity in exchange for painting a frank picture of the current market.
“So far, we’ve seen that consumers, operators, airlines, MRO providers – everyone is a little uncertain and nervous about engines, parts and component prices. Will they have to spend 147 percent more for a part, in the case of those coming from China? This is the reality.”
At the end of April, he said his company had eaten US$500,000 in tariffs over the previous three weeks, and has passed along tariffs as high as US$180,000 on some engines.
“That conversation is spreading like wildfire,” he said. “People are deferring maintenance, or robbing Peter to pay Paul by taking an aircraft offline and using it for parts.”
His company has seen a 20 to 25 percent decrease in MRO work in the U.S.
“People are trying to keep their repair work in the country they reside in to avoid tariffs. Luckily, we have repair stations around the world, so we are trying to send more work to our international shops.”
Customers, he said, are understandably unhappy.
“Some people have deferred and not approved their quotes. It’s put our business into a challenging situation where we have a lot of material in our shops; we’ve already allocated labor and parts, but we’re in a holding pattern.”
He and his fellow leaders meet every day to discuss the current tariff situation, gathering reliable information that can be passed along to customers.
“We are working to find out how to navigate this and protect our clients from undue tariffs. It means making sure you import things correctly with the proper coding, so you can back up those charges that get passed to the customer. It’s very cumbersome from an administrative viewpoint, but the last thing we want to do is charge our customers 10 or 15 percent for tariffs, across the board, if they’re not applicable.”
While some companies have implemented a universal tariff fee, this executive feels it’s a money grab.
“For example, if materials were already sitting in storerooms – purchased before the tariffs took effect – there should be no tariff-related charges passed along to the customer,” he said.
He’s also learned way more about where parts come from than he ever imagined – where raw materials come from, where the manufacturer of origin is, even what goes into common aircraft engines.
“The supply chain in aerospace – rotorcraft, fixed-wing and commercial airlines – is robust and global. OEMs manufacture all over the world, which complicates things. It’s just as complicated as the auto industry.”
At the end of the day, keeping mission critical aircraft in the air is his company’s reason for business, and the U.S. executive is frustrated at the thought that some aircraft may not be able to fly when they are needed.
However, “we know who is in control of this particular conversation on tariffs. We are hopeful the relief comes sooner rather than later. Meanwhile, we are trying to be a good resource for our customer in this controlled chaos. Every day, it’s like a fortune cookie: What will we get?”
He shared some advice for other business leaders who are trying to navigate the tariffs.
“Call someone you trust who has been in the space for a long time; maybe they helped you navigate through Covid. Reach out to them. When we attend big shows, we ask people how they are navigating through the tariffs. As an industry, we can be consultative and proactive, and share best practices. We’re all in this together.”