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Thursday, February 4, 2010

Growth Opportunity in Avionics Upgrades

John Persinos

Avionics upgrades represent a promising area of opportunity in 2010, according to sources in the industry.

Clayton Jones, Chairman, President, and Chief Executive Officer, Rockwell Collins, stated in a first quarter earnings call last week that he sees stabilization and modest growth in demand for avionics upgrades.

“Additionally, our avionic dealer network has noted an increase in the number of calls for quotes in information on avionics and cabin upgrades,” he said. “While these calls have not yet translated to sales, they are indicative of operators getting information to set their budgets in place and present potential future retrofit opportunity.”

Jones noted that Rockwell Collins expects to see greater overall flight hours of out-of-warranty aircraft and an associated increase in the company’s maintenance and repair business in the second half of the year.

“Finally, about 65 percent of the organic revenues for the rest of the year are under contracted in backlog,” he pointed out. “A significant portion of these relate to our strength in open systems architecture and consists of program such the KC-135 Block 45, international C-130 upgrades, avionics for high-demand CH-47 and electronics upgrades for other surveillance aircrafts.”

He said that the indicators suggest that across the board, for air transport as well as business, retrofits and MRO work, Rockwell Collins is “just not seeing a lot of increase in activity there but we are seeing stabilization of activity meaning its on a fairly constant level.”

This growth will especially manifest itself in the military sector, for such aircraft as the Lockheed Martin C-130, the primary tactical aircraft for transporting troops and equipment for the USAF and allied nations. Rockwell Collins' avionics and display systems have been selected to provide Communication, Navigation and Surveillance/Global Air Traffic Management (CNS/GATM) cockpit upgrades for several C-130 aircraft customers.

Rockwell Collins directly supplies the C-130 with flight management systems, displays, autopilot, weather radar, Traffic Alert Collision Avoidance System (TCAS) and a complete suite of radio communications/navigation equipment.

According to G2 Solutions, an aerospace consulting firm, business aviation avionics markets also remain very dynamic, despite the fact that a slow down of demand in the United States and European markets will hamper sales over the next three years. (See related story.)

G2’s analysts assert that the avionics sector remains the most innovative in aviation, in terms of new technology adoption and experimentation. G2 expects Rockwell Collins, Honeywell and Universal Avionics to continue dominating the medium to higher market segments, with Garmin establishing a solid foothold at the lower end of the market with emerging light jet programs.

The demand for avionics upgrades shows no signs of slowing among civilian airliners. Notably, equipping for Automatic Dependent Surveillance-Broadcast (ADS-B) in European airspace will be mandatory starting in 2015 — five years earlier than in the United States — under the European Commission’s Surveillance Performance and Interoperability Implementing Rule. The final rule is expected in late 2010.

Paul Leighton, editor-in-chief, Aircraft Value News, points out that these mandates affect aircraft values. “One of the major concerns surrounding values of older equipment is the introduction of these new air traffic control requirements,” Leighton said. “France, Germany and the United Kingdom are mandating the carriage and operation of Mode S Enhanced Surveillance equipment. Switzerland and the Euro control region of Maastricht, encompassing Benelux, are also pursuing a similar mandate.”

He noted that Enhanced Mode S provides for the transmission of aircraft parameters known as Downlink Airborne Parameters (DAPs). It provide air traffic control with information on not only the identity and altitude of aircraft, but also their heading, speed and selected flight level. Aircraft currently in production and those featuring digital avionics are able to achieve compliance. However, those aircraft featuring analog systems will be more difficult to equip and the outlook is far from certain.

“Older aircraft will not be permitted to travel within an area encompassing most of France, Benelux, Germany, Switzerland, and the United Kingdom unless the avionics are upgraded to digital,” he said. “Only a few companies are able to offer the upgrade, which is likely to be a costly affair.”

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