Not that long ago, the air transport market faced an economic downturn but was bolstered by the strong sales of commuter/regional jets. The business aircraft market was riding the crest of the economic boom of the 1990s, and the private aircraft market was stimulated by new aircraft designs. The civil aviation marketplace could have been better then but, generally, times were good.
Then came Sept. 11.
Within hours, terrorist attacks with hijacked aircraft brought the air transport industry to its knees and put the future of all air travel in doubt. Every sector of aviation was impacted by that dark Tuesday, particularly in the United States.
So, too, was the ability to clearly view the aviation industry’s future–for two reasons. First, estimating how long the unprecedented terrorist attacks will impact an economy that was already in a slump is difficult. And second, this body blow to the air transport market could well cause fundamental change to the industry as air carriers rethink their business models and as business travelers rethink their modes and frequency of transport. What changes will emerge and how they will impact the avionics industry can not be fully understood in the short term. Still, as this is written, significant victories are being reported from the war Afghanistan, and the economy is showing glimmers of renewed life. Economic recovery may be slow but is nevertheless expected. And new technologies that make aircraft operations safer and more efficient are, perhaps, more critical now than ever before. Business aviation, for example, may grow to be even stronger because of its efficiency and security. And, following years of neglect, the military market appears assured of growth.
For these reasons, Avionics Magazine and its partner in producing this industry outlook, Frost & Sullivan, San Jose, Calif., present an outlook of the aerospace electronics marketplace that, despite setbacks, still shows growth. On Sept. 11, it seemed all was lost. But economies in the developed world are remarkably resilient. And so, too, is the aviation industry.
Air Transport: Regionals to the Rescue
The U.S. and, to a lesser degree, European economies entered a significant slowdown in June 2000. Aircraft orders began declining in third quarter 2000. Because of this and Sept. 11, as well as the tragic Nov. 12 crash of an American Airlines A300, the airline industry lost, by some estimates, as much as $7 billion in 2001.
The air transport sector accounted for about 65 percent of the commercial avionics market in 2000. This amounted to about $3.5 billion in revenue. Frost & Sullivan predicts the air transport avionics segment’s growth in 2002 will be flat, if not slightly negative. Regional aircraft deliveries will increase by about 4 percent over 2001, but this will be offset by a decline in large aircraft deliveries. Boeing reports it will reduce the number of aircraft it will deliver this year from about 515 to 350 or 400. Airbus says it plans to maintain its delivery goal of 300 aircraft.
"The airlines are not canceling orders, but they are juggling them," says a Boeing official, indicating airlines are temporarily holding back from fleet expansion or modernization. Boeing maintains its long-term projections, which project a $4.7-trillion market over 20 years and a worldwide fleet of 33,000 air transport jets by 2020, more than double the current fleet.
F&S predicts the demand for regional jets will remain strong, dominating the commuter airline scene at the expense of turboprop manufacturers. In agreement, regional aircraft manufacturer Embraer estimates that 2,475 aircraft with capacities up to 120 seats will be delivered in the U.S. market by 2010, and a vast majority of them will be jets. The regional aircraft fleet size will continue to grow in Europe, too, as is evident in above-average passenger growth rates–more than a 10 percent annual increase, according to the European Regions Airline Association.
Gerald Bernstein, managing director of the Stanford Transportation Group, which specializes in regional airline forecasting, sees growing interest in the 90-to-110-passenger aircraft–long overlooked because they were too large for the regional carriers and too small for the majors. Today, says Bernstein, some regionals see a need to move up to the 90-to-110-passenger jet, while some of the majors see a rationale for the aircraft size, but as a smaller alternative.
Implementation of communication, navigation, surveillance/air traffic management (CNS/ATM) will continue to drive the modernization of air transport cockpits, according to Frost & Sullivan. U.S. initiatives in this area probably will be delayed, as the airlines strive to regain their footing, yet progress in CNS/ATM implementation in both the United States and Europe is considered essential.
In fact, some industry officials see a bright side to the fact that 20 percent of the U.S. airline fleet was mothballed after Sept. 11. Because the older aircraft were furloughed, the remaining, younger aircraft, with their integrated digital electronics and open systems architectures, are in a much better position for CNS/ATM upgrades. If government agencies can agree and finalize standards, avionics manufacturers will be able to introduce products that meet the CNS/ATM requirements, says Frost & Sullivan.
Although many older commercial aircraft have been mothballed since Sept. 11, the retrofit market isn’t expected to die. A recovery of the economy and of the air transport market will place aircraft back in service. And component obsolescence and the increased cost of maintaining old analog systems will, says Frost & Sullivan, force airlines to consider investing in new avionics systems.
It is too early to conclude the direction of the airline/cargo avionics upgrade market, according to Frost & Sullivan. Still, UPS and FedEx plan for fleet upgrades and expansion, which is a sign that the air cargo market will continue to experience growth this decade. Boeing’s 20-year prediction of the air cargo market shows 6.4 percent growth worldwide.
Frost & Sullivan believes widebody aircraft, such as DC-10s, A300-310s and B747s, probably will continue to attract the most significant avionics upgrade programs for cargo aircraft, even though the recession may delay systems acquisition. Their installations probably will include flight management systems (FMS), liquid crystal displays (LCDs) and multimode receivers (MMRs).
Business/General Aviation: Still Going Strong
In 2000, business and general aviation accounted for 30 percent of the commercial and civil avionics markets, with total revenues of $1.7 billion. Avionics industry revenues are expected to increase through the end of the decade, says Frost & Sullivan, largely because of an increase in aircraft numbers, primarily business jets. A large backlog of orders for more than 2,700 business jets exists, and Honeywell forecasts a $136-billion market for new business jets through 2011, largely due to the fractional ownership of aircraft.
The safety and efficiency of business aircraft travel became particularly apparent after Sept. 11, when check-in times at airline terminals doubled and long lines awaited the business traveler. Some companies’ appetite for corporate aircraft travel was whetted immediately after Sept. 11, when in desperation to avoid the travails of commercial air travel, they decided to charter aircraft, often for the first time. The Air Charter Guide (ACG), which covers the air charter market, reports that 80 percent of the charter operators saw an average 40 percent increase in business after the Sept. 11 tragedy. Cargo transport accounted for some of the increase, but much revenue came from business travelers, says an ACG official.
The business aviation market peaked in late 2000 and has begun to slow down. But it remains quite healthy, says Frost & Sullivan, and in the second half of the decade, it should witness renewed growth, as the economy recovers and companies seek aircraft with systems for the CNS/ATM environment.
Multifunction displays (MFDs) increasingly will become standard equipment in new, general aviation (GA) aircraft, from single-engine to business jet aircraft, says Frost & Sullivan. The MFD’s popularity among pilots has grown significantly over the past five years, and it probably will continue growing, as systems will provide more functions at lower prices. Meanwhile, aircraft manufacturers, recognizing the MFD’s benefits, now feel confident that the technology has matured sufficiently to be fitted as standard equipment in their new aircraft.
Light, personal airplane sales have been healthy but will slow down during the next five years, according to Frost & Sullivan. Fewer general aviation pilots have entered the marketplace because of the fleet grounding after Sept. 11 and the recession, which reduced disposable income. However, many of the light aircraft sold will have more sophisticated cockpits, which is good news for the avionics industry.
About 1,900 light aircraft deliveries are anticipated in 2002, a 9.5 percent decline from 2001. Cessna benefited from the recent strong economy, but its dominance of the single-engine aircraft market probably will erode in the coming years, as Cirrus Design’s SR-20 and SR-22 models and Lancair’s Columbia 300 and Turbo 400 gain popularity among GA pilots.
Cirrus and Lancair offer newer designs than Cessna, but more important is the contrast in the standard avionics. For example, the MFD remains an option on Cessna’s 172 or 182 but is standard in Cirrus and Lancair models.
Cessna is expected to deliver 800 aircraft in 2002 (excluding the Citation jet family), representing a decrease of 11 percent from 2001, says Frost & Sullivan. Meanwhile, Cirrus is expected to deliver about 210 aircraft in 2002, representing a 12 percent increase over 2001.
The advances in computers and electronics that emerged in the 1980s have found applications in the general aviation market. Data link has entered GA aircraft, and soon weather, airport and traffic information will enter small-aircraft cockpits.
Rockwell Collins and Honeywell dominate the high-end bizjet market but probably will have to make room for Universal Avionics and Goodrich systems, says Frost & Sullivan. For the high-end turboprop, the analyst group adds that Meggitt Avionics’ suite will remain a strong contender but will face growing competition from companies such as Innovative Solutions & Support, Goodrich and Chelton Flight Systems.
Civil Rotorcraft: Look to ENG and Upgrades
In 2000, the world rotorcraft avionics market accounted for 5 percent of the civil avionics markets, with revenues of $308 million. Rotorcraft avionics revenues are expected to increase, according to Frost & Sullivan, despite a relatively weak demand for new airframes, particularly in the North American sector. (Growth for helicopter orders was tabletop flat, at about 2 to 3 percent, in 2000.)
Forecasting low growth until later in the decade, Frost & Sullivan calculates that 3,061 new rotorcraft will have been delivered from 1998 to 2005. Recent surveys and comments from industry officials indicate that the civil helicopter fleet will grow at approximately 3 to 4 percent annually. Presumed economic growth in the United States and Western Europe, coupled with the introduction of new helicopter models, is expected to stimulate a modest demand for new airframes.
High-end helicopters are now equipped with integrated avionics systems, Frost & Sullivan reports. And these systems will become increasingly accepted, and therefore standard, in the industry. The electronic newsgathering (ENG) market, plus a healthy upgrade business, will boost avionics sales. Avionics has dramatically increased as a percentage of the total value of modern rotary-wing airframes, says Frost & Sullivan.
In-Flight-Entertainment: Watch the Trends
Since 1995, the market for in-flight entertainment (IFE) on commercial and business aircraft has grown dramatically, from just under $800 million to over $2 billion in 2000. Mindful of the acquisition delays resulting from Sept. 11, Frost & Sullivan nevertheless expects this market to grow even more dramatically and approach $7.5 billion by 2007.
What will drive such growth? Frost & Sullivan notes several trends in IFE business strategies and in the marketplace.
Frost & Sullivan mentions two formulas from which airlines can seek a return on their IFE investment and predicts the carriers will adopt a hybrid of the two. One formula, pay-per-use, allows all passengers access to e-mail and the Internet, but this will require an electronic payment system, says Frost & Sullivan, to avoid involving the flight attendants. The other formula, subscription-based service, is expected to be used only for in-flight data communications and by business travelers who fly more than two to three times per month.
Airlines were modifying their aircraft acquisition strategy even before Sept. 11. Carriers already had begun ordering long-range narrowbodies and new widebodies (A330, A340 and B777) with smaller seating capacity than the big B747s–which means fewer IFE equipment installations. This trend is partially offset by the fact that in-flight television and in-seat video are making their way into narrowbody aircraft. JetBlue, a relatively new, niche-market airline based at John F. Kennedy International Airport in New York, has in-flight television on an in-seat video system in all 11 of its A320s. Surprisingly, JetBlue claims that the costs to install, operate and maintain its IFE systems is $1 per seat per flight and has a 99.5% rate of reliability.
Like other aerospace electronics sectors, the IFE marketplace is supported by an amalgam of alliances and partnerships, joining hardware, content and service providers. And now, after Sept. 11, another type of partner may enter the mix: the provider of integrated security systems.
The 1990s saw cockpit avionics manufacturers acquire IFE hardware providers. Frost & Sullivan speculates on further merger and acquisition activity within the IFE industry–in the in-flight communications sector. Currently, most competitors in this sector are focused on either voice communications or data communications. In the broader telecommunications market, however, voice and data are merging. So, Frost & Sullivan asks, could the same happen in IFE? Will suppliers of in-flight data communications become acquisition targets of in-flight voice communications vendors?
Air Traffic Control: Challenges Remain
Within just two hours after terrorists hijacked airliners and rammed them into the World Trade Center and the Pentagon on Sept. 11, U.S. air traffic controllers succeeded in safely bringing 2,500 aircraft to the ground. It was a Herculean task requiring the ultimate in professionalism.
But what happens now in the air traffic control (ATC) arena? With U.S. airlines cutting back service by more than 20 percent, does airspace congestion remain a major problem to resolve? The answer is yes, particularly in Europe, where traffic levels remain high, as well as in the United States, where air traffic will undoubtedly return to pre-Sept. 11 levels.
Will there be money to resolve the problem? Again, yes, though in the short term, some funding no doubt will be diverted to enhance air travel security.
An FAA official says his agency plans to proceed with the development and installation of new ground systems, but not to advance programs that require airborne equipage until the airlines get back on their feet. Meanwhile, Eurocontrol is launching its largest program to date on Jan. 24, when reduced vertical separation minima (RVSM) will be applied over European Civil Aviation Conference (ECAC) airspace. A Eurocontrol official says Sept. 11 "did not impact" the agency’s development programs.
Worldwide revenues for the ATC equipment market in 2000 were $1.68 billion, according to Frost & Sullivan. That’s up a moderate 4.1 percent from 1999. Frost & Sullivan estimates that market growth for new ATC equipment will continue through 2007 at an annual rate of 4.6 percent.
The transition to a CNS/ATM environment is progressing, but like virtually all transitions, it begets a certain amount of awkwardness. Consider the navigation sector. The goal is to make navigation simple, with space-based GPS, Wide Area and Local Area Augmentation Systems (WAAS and LAAS) supplanting many costly ground navaids. This hasn’t happened as scheduled, and now we have VOR, DME, NDB, ILS, MLS and Loran-C, as well as GPS and satnav augmentation. Hardly simple.
But what it has taken from the goal to achieve navigational simplicity, this abundance of navaids has given business to the many small companies that still support systems meant for the chopping block. And they will probably retain some level of business for a number of years to come.
CNS/ATM faces other obstacles, as well. For example, the airlines often don’t see the return on investment in new CNS/ATM airborne equipment. Frost & Sullivan says the onus is on equipment manufacturers and ATC agencies to develop credible business cases.
Privatization remains a burning issue in the ATC arena. Many fear that the privitized air traffic services providers’ quest for profits may override their obligation to maintain safety. However, if privatization progresses successfully, Frost & Sullivan predicts further consolidation and privatization between service providers and major ATC product manufacturers.
Frost & Sullivan has found that some in the ATC industry believe that privatization, involving the competitive commercial sector, will interfere with harmonization efforts and the adoption of common interoperable solutions for air traffic management (ATM) systems. And they suspect equipment providers will compete against each other to prove that their products are superior. If so, Eurocontrol’s work to develop a seamless ATM system could be jeopardized.
Nevertheless, despite some problems, many in the industry also believe that, generally, ATC systems will improve faster and more efficiently under private control, and new equipment deliveries will be accelerated.
More efficiency, says Frost & Sullivan, also will derive from a greater global presence by the major ATC product and service providers, such as Thales ATM, Lockheed Martin, Raytheon ATM and Alenia Marconi. Their comprehensive capabilities will help solve problems in regions that sorely need modernization. Both Lockheed Martin and Thales ATM, for example, seek lead roles in multinational modernization efforts in Africa.
Frost & Sullivan sees further trends in the ATC arena, for example:
- Delays in the introduction of surveillance technologies, primarily because a data link has yet to be selected for automatic dependent surveillance-broadcast (ADS-B),
- The use of ground-based surveillance systems to fight runway incursions until an ADS-B infrastructure is available by end of this decade, and
- Even if LAAS and WAAS become fully operational in the 2004-2006 timeframe, satellite landing systems probably will complement, rather than supplant, ground-based instrument landing systems during this decade.
Military Avionics: Fighters and Upgrades
A new U.S. administration, a new war, new threats to the Western World: What does this all mean for military avionics this decade? The military avionics industry is experiencing growth after years of budget cuts induced by the end of the Cold War. The growing demand for military aircraft upgrades and the availability of new technologies and systems have produced a new generation of advanced avionics designs, particularly in the fighter segment of the industry.
In 2000, fighter aircraft avionics equipment accounted for 57 percent of the total military non-mission avionics market, amounting to $1.4 billion in revenues, says Frost & Sullivan. The fighter aircraft market is experiencing slow to moderate growth. It is expected to remain near level from 2003 to 2006 at a 1 to 5 percent annual rate and then pick up strongly, as the F-35 Joint Strike Fighter begins to join other new models in service, says Frost & Sullivan.
Several new fighters will have entered service during this decade. The U.S. will proceed with preproduction models of the F-22A and F-35 and receive more F-18Es; and the first Eurofighter Typhoons will enter service this year. In addition Dassault will proceed with Rafale M deliveries. These programs alone account for more than 700 aircraft delivered by the 2005-06 timeframe.
The Lockheed Martin/Northrop Grumman/British Aerospace team gained the biggest plum when it was selected on Oct. 26, 2001, over a Boeing-led team to produce the multinational Joint Strike Fighter. Frost & Sullivan estimates that the Lockheed team will glean $300 billion to $350 billion from the F-35’s development and sales. Of that, about $30 to $35 billion in revenues will go to avionics manufacturers over the next 15 years. Among the winners are Northrop Grumman (radar and distributed infrared system), Lockheed Martin Sanders (electronic warfare suite) and Honeywell (onboard oxygen generating system, power and thermo management system and lighting system). Also producing F-35 avionics and mission systems are TRW, Rockwell Collins (including Kaiser Electronics), BAe Systems, Litton Advanced Systems and Harris Corp.
The U.S. Department of Defense (DoD) and UK Ministry of Defence (MoD) are the F-35’s two main customers; however, Canada, Norway, Belgium and Israel are considered prime candidates to purchase the aircraft. More than 3,000 F-35s are expected to be ordered over the next 25 years. Deliveries to DoD are to begin in about 2008.
Meanwhile, in 2000, transport aircraft avionics equipment accounted for 28 percent of the total military non-mission avionics market, amounting to $661 million in revenues. The market is experiencing moderate growth but is expected to slowly decline by the middle of this decade, when upgrade programs for the C-5 and C-130 end.
Avionics retrofits dominate the military air transport market, with programs such as Global Air Navigation System/Global Air Traffic Management (GANS/GATM). Commercial-off-the-shelf (COTS) avionics also are penetrating the military transport aircraft, and open architectures are reducing military avionics development time, as many new systems take advantage of commercial research and development. Commercial products, such as terrain and traffic warning systems, have found a home in military aircraft, according to Frost & Sullivan.
The transport aircraft category will see a new entry: Airbus Military’s A400M. If the estimated 308 aircraft are ordered by the seven countries participating in the program, the A400M’s unit price will be $80 million per aircraft, according to Airbus Military.
Thales Avionics will develop the A400M flight deck, adapting the avionics it produces for the commercial Airbus A320/340 family of aircraft. Like the Lockheed Martin C-130J, the A400M’s primary flight instrument will be its head-up display (HUD). EADS Aerospatiale is integrating the HUD to the cockpit.
The number of trainer aircraft has steadily declined over the past 25 years, according to Frost & Sullivan. The end of the Cold War and the reduction in air forces’ fleets are primarily responsible for the shrinking fleet, but so, too, are the advances in simulation.
The goal in trainer aircraft is to make avionics modular and reflect the advanced glass cockpits in operational aircraft. Frost & Sullivan lists the following programs to watch, as militaries strive to build up their post-Cold War trainer fleet.
The U.S. Air Force’s T-38C Talon program will extend the life of some 500 aircraft. The T-38 is to remain in service until 2025. Its avionics suite includes MFDs, HUD, TCAS, electronic engine instruments and GPS/inertial navigation.
The new Mig AT is a possible candidate for service with the Indian Air Force if negotiations for the sale of 60 BAe Hawks fail. Selection of the aircraft would be motivated by avionics similarities with the Indian Air Force Su-30s and future Mig 29s. Thales Avionics’ involvement in the Mig AT’s production phase has not yet been finalized.
ï‚‰ï€ The Alpha Jet–in service for more than 20 years with the French Air Force–will receive, as an upgrade, Thales Avionics’ Topflight integrated modular avionics package. The new Alpha Jet cockpit will include two multifunction displays, a new HUD, HOTAS (hands on throttle and stick) system and GPS, all linked to a 1553 data bus.
Overall, Frost & Sullivan sees a bright future for the military avionics market, and the following factors will help to make it so:
The growing number of aging aircraft will bring, if not orders for new aircraft, a steady stream of retrofit activity. The suppliers of older, analog systems are diminishing, and the cost of maintaining older aircraft and their systems is escalating.
The move toward commercial certification standards rather than military specifications is a logical extension of the use of COTS equipment. Using one set of standards for COTS products helps to streamline the avionics certification process and establish a common standard for the military and commercial avionics industry.
Data link communication is playing an increasingly prominent role in military aircraft. With secure data links, fighter groups can control wider areas with advanced missiles. The use of radar may be discarded as fighter groups rely instead on the information transmitted by AWACS (Airborne Warning and Control System) aircraft and advanced unmanned reconnaissance vehicles.
Helmet-mounted displays (HMDs) should provide a lucrative market, in which Rockwell Collins and Elbit appear well-positioned. First employed in the 1970s, HMDs will come of age in the F-35, which will not have a HUD but instead will have flight and targeting information fed into the HMD, says Frost & Sullivan.
Perhaps most promising for the military avionics industry is the unmanned air vehicle (UAV) market, which demonstrated reconnaissance capabilities during the Afghanistan conflict and is entering a combat role with missiles, such as Hellfire.
Industry Soothsayers
Avionics Magazine contacted many sources–associations, companies, government agencies, etc.–for this forecast of the avionics industry. But Frost & Sullivan was the primary source of information–and for good reason. Frost & Sullivan has provided high-tech industry research, analysis and marketing consultation, since 1961. Headquartered in New York, it has offices in London and Beijing. Its research in aerospace is conducted at its San Jose, Calif., division.
We worked with Frost & Sullivan’s expert in avionics, Michel Merluzeau. A pilot, as well as a senior industry analyst, Merluzeau gathered data from a myriad of sources. For more on Frost & Sullivan, visit www.frost.com.