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Norterra attempts to right the corporate ship

Once a northern dynamo, the aboriginal holding company has hit rocky shoals

Nov 1, 2010

by Jack Danylchuk | Illustration by Sophie Casson

There was no public announcement when Carmen Loberg stepped down as president and CEO of NorTerra Inc., no parting acknowledgement for a decade of effort that built the aboriginal-owned holding company into one of Alberta’s top earners.

An internal email announced in April that Loberg would retire at the end of June, but the first word outside the private world of NorTerra that he was no longer in charge came in the form of a career ad early in August. NorTerra’s owners, Nunasi Corp. and the Inuvialuit Development Corp. (IDC) were looking for a president and CEO who could take on the leadership role.

Loberg joined NorTerra after brokering the company’s purchase of airline Canadian North in 1998, and led a campaign of strategic acquisitions, adding Weldco-Beales Manufacturing, which makes truck-mounted cranes and heavy equipment attachments, Braden-Burry Expediting and Northern Industrial Sales, a network of retail industrial supply stores. Revenue topped the $400 million mark in 2007, but for the next two years, the recession, increased competition and operational issues hit earnings hard.

“Like everybody else, I think we’ve had a pretty tough time,” said Wayne Gordon, IDC’s board chairman. He declined to provide details, but IDC’s sister company, Nunasi, reported that revenue fell to $300 million last year from a high of $465 million in 2008 and it lost $12.6 million.

The recession was felt throughout NorTerra subsidiaries, but especially at Northern Transportation Co. Ltd., the first investment by the Inuvialuit and Inuit partnership, Canadian North, and Weldco-Beales.

Canadian North’s rapid growth was driven by increased traffic to Alberta’s booming oil sands, where the airline shuttled workers from all over the country, and demand from northern diamond mines. Most of those gains were wiped out by the recession that brought major projects to a halt just as competitors saw rich, ripe fruit to be harvested right from Canadian North’s table.

Air Canada, followed by WestJet, came North with discounted fares and connections to destinations across the country and around the world. Canadian North president Tracy Medve, complained that timing of the invasion couldn’t have been worse. There was a sense of betrayal, as well.

Medve who along with Loberg was the co-founder of C.T. AeroProjects Inc., the company that brokered the Canadian North sale to NorTerra, had actively courted a partnership with WestJet. But those negotiations were not made subject to a confidentiality agreement to protect sensitive business and competitive information. As a result, Calgary aviation consultant Richard Erickson has no sympathy for Canadian North. Management should blame itself for aggressive new competitors that drastically lowered airfares, Erickson says. After Air Canada Jazz moved into the Yellowknife market several years ago, Erickson says it was clear that national airlines were interested in the North. The airline business “is a rock‘em sock’em world.”

Last year started as one of celebration at NTCL. The iconic company was marking its 75th year in business as the Inuvialuit celebrated the 25th anniversary of their land-claim settlement. It was also a year that NTCL looked to finally break free from a series of calamities that dogged the company through most of the decade and make an effective response to competitors who were nibbling away at the Arctic market.

Instead, 2009 will be remembered for one more stumble at the end of Hay River, N.W.T., as the hub of NTCL operations and the end of David Foster’s term as company president. Foster was tasked with developing a plan first sketched out by Cameron Clement, who moved NTCL headquarters north from Edmonton to Hay River, and with changing the cozy culture that permeated the company. He had the full support of Carmen Loberg, whose view was “if we don’t change, we’ll be left standing on the dock.”

Just before he retired, Clement described a possible future for NTCL based on an ocean-going tug and barge, working summers in the Eastern or Western Arctic and elsewhere in the world during the long Arctic winter. It’s cheaper to ship from Vancouver and around Alaska than to tug and barge bits and pieces north from Hay River through an unpredictable weather window that can disrupt shipping and strand equipment and cargo, as it did in 2006 and 2007, two of the most trying years in the company’s history. NTCL spent millions placating disgruntled customers, but couldn’t do enough to stave off hungry competitors.

The fabled Northwest Passage has been open for the last five shipping seasons, prompting Nunavut Eastern Arctic Shipping to make its first voyage into the Western Arctic last year and DesGagnes Transarctik Inc. to send its first cargo vessel into the Passage in 2008. The ink was barely dry on NTCL’s plan to buy the Arctic Nanabush, a 520-tonne class II tug for the new west coast route when Groupe DesGagnes, Transarctik’s parent company, added another vessel for its growing Arctic service.

NTCL was forced to lease a tug when the Nanabush was found to need more extensive repairs than estimated. Re-named the Michael Amos, its first mission was to tow a new 12,000-ton barge from the British Oil Shipyard in Batam, Indonesia, but it has yet to sail under the NTCL flag. The new barge was towed by NTCL’s Alex Gordon to Vancouver and finally made its way into Arctic waters in August.

To ease the strain created by Alberta’s overheated economy in 2006, Weldco-Beales bought Bateman Manufacturing in Barrie, Ont., and shifted some production east, only to find that shipping costs consumed the advantage of cheaper overhead in Ontario. New business from mining operations in Quebec and the Maritimes was slow to materialize. Through the recession and the downturn in oil prices, the number of employees was halved to 300.

“It’s been a tough couple of years, very challenging,” said Doug Schindel, Weldco-Beales president, “but it’s coming back. One division, truck-mounted cranes is doing well because of demand in oil and gas exploration. We’re not going to be at 2006 levels this year or in 2011, but by 2012, we should be there.”

Canadian North regained its charter business to the oil sands, signing a five-year contract with the Kearl oil sands project, but rather than meet WestJet and Jazz head-on, it dropped flights to Calgary, making its seats less attractive to travellers looking to connect with Alberta’s busiest airport.

In the months preceding his retirement, Loberg fired Foster and Trevor Troake, NTCL’s vice-president of finance, eliminated eight jobs in Hay River and moved the tug and barge company’s head office back to Edmonton. His management style was described by one observer as “hands-on,” and Gordon said the recruiting committee is looking for someone with the same traits.

Just as NorTerra launched its search for Loberg’s replacement, NTCL announced the appointment of William Duffy as its new president. Duffy, vice-president of operations at McKeil Marine Ltd., in Hamilton, was greeted with a bit of unhappy news. Customers
on the west coast of Hudson Bay were fuming over another delay in deliveries after a tug failed an inspection and had to be pulled from service, delaying shipments and stalling projects.

Investment analyst Lelio Lato of Industrial Alliance Securities Inc. said the typical response to setbacks for companies like NorTerra is to sell off or re-allocate assets to more profitable business. For Sale signs appeared on NTCL properties in Hay River and other northern communities in late summer, but it may be a long wait for buyers and Loberg’s replacement.
“I’m not sure someone would be eager to take on the role,” said Lato. “There is a lot of hard work to be done and tough decisions to be made. It’s not everybody who can do that.” Gordon said NorTerra might take as long as a year to find a new president and CEO for NorTerra. “We want to make sure we get the right person.”

The new man will inherit a package of recommendations prepared by Paul Leroux, the company’s chief operating officer. Hired on contract last March to tweak the operations of NorTerra subsidiaries, Leroux departed in September. “It was an interim position,” said Tanis Thomas, vice-president and corporate secretary for NorTerra. Until the new CEO arrives, Art Russell, chief financial officer for the past 19 years, will head up the company as interim president.

Eddie Dillon, a former chairman of NorTerra, said the current slate of directors must share responsibility with management for the company’s performance. “It’s disheartening from the shareholders’ perspective to see such an asset taken to such a low level. It was poor management and poor oversight by the board of directors.”

The strategy of growth through acquisition was a good one, Dillon said, but the timing was off. Subsidiaries spent on projects that didn’t perform and all proved vulnerable to the recession. A consortium of banks provided NorTerra with a $250 million line of credit in 2007 “and they used $133 million of that without having any revenue to pay the interest, so the shareholders had to put in $10 million each this year,” he said.

“The goose that laid the golden egg, NTCL, wasn’t pampered,” said Dillon, revealing an Inuit’s deep attachment to the company that is the supply line for remote communities, a reliable employer and source of pride.

“When we bought NTCL in 1985, we didn’t use any land-claims money. It all came from conventional financing. We paid it off two years ahead of schedule in 1997 and from there it was improper planning, spreading too fast without due diligence and then more poor business planning. NorTerra outgrew itself and worked itself into loans that can’t be serviced from operations.”

Dillon’s remedy is “look at assets and see which ones are bringing in returns. If they’re not, scrap them and try and salvage what you can. I think they have to make a mainstay of their bread and butter which is NTCL.” To his dismay, it is NTCL assets that are on the block. “Wherever they operate, docks and facilities are up for sale. They are selling off what brought them to the dance.”

NorTerra’s fortunes have been tied to northern resource development and Gordon said directors are discussing where they might focus company resources in future. “It’s still in progress, so I don’t want to comment on it,” he said. “It’s our business to handle; it is a private company, owned by the Inuvialuit and the Inuit. We’re trying to take care of business.”

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