Wednesday, January 1, 2014
Executive Outlook for 2014...and Beyond
|The outlook for 2014 remains filled with uncertainty,
but most executives have high hopes for their segment
of the rotorcraft market.
The Affordable Care Act, more commonly referred to as “ObamaCare,” after the president of the United States, is intended to put into place “...comprehensive reforms that improve access to affordable health coverage for everyone, and protect consumers from abusive insurance company practices.” Though signed into law in 2010, critics and supporters alike say that the portions of The Act scheduled to take effect in 2014 will likely change the way – and the amount – that healthcare services are reimbursed. And with several segments of the rotorcraft industry being tied to air medical transport, some companies just don’t know if the effects will increase or decrease revenues.
In Shreveport, La., Mike Stanberry, the owner of Metro Aviation, has his eye on what ObamaCare might do to his business,
since 75 percent of it consists of providing helicopters, pilots and related air medical transport services to hospital systems around the country. In addition, a sizable portion of Metro’s helicopter completion operation builds medical interiors for medevac operators. This combination has Stanberry wondering if his business will take a hit.
“A lot of our hospital clients are very guarded on exactly how reimbursements are going to be effected by [ObamaCare],” said Stanberry, who added that 115 of his company-owned aircraft are contracted out for medical transport. He called the subject “scary,” since any decrease in income to the hospitals Metro contracts to could result in less revue for the company.
Tim Rayl is the director of sales and marketing for Cobham Aerospace Communications, whose customers are generally in the civil and para-civil aviation segment. And even though he feels that sequestration had a “much more direct hit on the market” than changes to healthcare will, his outlook remains optimistic where both issues were concerned.
“We see the market as stable, but not a lot of growth in the near term, and a return to growth in the longer term,” said Rayl. “We have very good access to a really wide range of technology across our [Cobham family of] businesses... and that is helping us to fair well in a slowly recovering market.”
FreeFlight Systems of Waco, Texas designs satellite guidance and navigation gear, including ADS-B systems. President and CEO Tim Taylor is paying attention to healthcare-driven factors, but is not making any predictions about its effects.
“We are nowhere near smart enough to know if [ObamaCare] is going to have an impact on us,” Taylor chuckled.
Instead, Taylor’s concern for 2014 lies with cutbacks in government staffing, saying, “One worries that the FAA will become stretched if they can’t resource properly. During the (October 1, 2013) shutdown, we submitted an STC, and we had to just drop it into an empty letter box because there was no one there.”
Taylor’s concerns refer to “sequestration,” a set of spending cuts implemented on March 1, 2013, when Congress failed to reach an agreement on more moderate measures to trim the U.S. government’s budget. The results were massive cancellations of contracts and reductions in the government’s workforce, including a reported $637-million decrease to FAA’s $15 billion fiscal 2013 budget, much of which still remains in place.
|Sikorsky pilot Stacy Sheard and Rotor & Wing
Editor-at-Large Ernie Stephens on the flight deck
of a corporate S-92.
Eric Erickson, general manager of the St. Louis branch of Donaldson Filtration Solutions, predicts that 2014 is going to be a “challenging year” for the industry, citing its continuing move to add more commercial business to its military sales. As for his personal opinion about government cash flowing into the helicopter industry, his view is quite direct.
“If we can solve – as a country – some of those issues and stop just laying blame, I think sequestration can go hand-in-hand with finding some solutions to ensure the long-term security and viability of some of the contractors,” Erickson said thoughtfully. “The uncertainty is what cripples business. I think that has to flush out for the viability of our industry.”
Eric Cardinali, executive vice president of customer support and services at Bell Helicopter, looks at the new year from a macroeconomic standpoint, while keeping an eye on sequestration.
“As with many other companies, the government sequestration and the overall condition of the economy certainly play a role in our planning and thought processes around future support, programs and expenditures,” said Cardinali.
“Strictly speaking, from Bell Helicopter’s viewpoint, the opportunities that accompany the type of global growth we have seen in our commercial market are almost endless.”
The coming year will be eventful for the company formerly known as Eurocopter “due to our transformation into Airbus Helicopters,” noted President and CEO Guillaume Faury. “With that in mind, I have focused our company priorities on customer satisfaction as we make this evolution – a commitment that will shape our future, next year and beyond.”
Airbus Helicopters “opens this new era with significant deliveries in almost every region of the world last year, as the global market rebounds from its low point in 2011,” he added. “Overall, the fundamentals of the helicopter market are strong. Established markets need helicopters to replace aging civil and parapublic fleets, while regions such as China and the Middle East have enormous potential for future growth across a variety of missions.”
Breeze-Eastern, builders of winches, hoists and cargo hooks, is also keeping tabs on U.S. budgetary matters.
“As a supplier to the U.S. military and original equipment manufacturers, the fallout from sequestration efforts and other budgetary constraints is something that we are watching very closely for 2014... and in the future,” said Brad Pedersen, president and CEO of Breeze-Eastern. “Lighter-weight materials, more aerodynamic designs and ever-challenging mission requirements are all areas where companies like [us] have to really be looking forward in order to compete.”
At MD Helicopters, Craig Kitchen, chief commercial officer, wrapped ObamaCare and sequestration together in his view for 2014.
“I think there are going to be a lot of issues here domestically in the U.S. because of [sequestration and ObamaCare] that will affect other companies,” said Kitchen. “But for us, we don’t see that as big of an issue,” referring to MD’s recent successes in foreign markets, and its plans to continue its sales drives in places like Asia, South Africa, and South America throughout 2014. (The company also has plans to open an office in Shanghai.)
Last, but not least, were the executives whose views on 2014 were less focused on sequestration and healthcare, and looked towards the economy at large.
“Here in the United States, the economy is recovering a little bit, and obviously loans are easier to get,” said Kurt Robinson, president of Robinson Helicopter, whose company sold a combined total of 500 aircraft in 2013. “But there’s still not that wild abandon that we saw years ago in sales of helicopters. I expect going into  we’ll see more of the same.”
Gary Tenison, group vice present for business development at Kaman Aerospace, however, is expecting anything but sameness, thanks in part to its robust engineering and fabrication operation. As a component subcontractor to virtually every major aircraft manufacturer in the world, it is not under the thumb of any single aviation sector or national economy.
“We have two facilities coming online the first quarter of 2014. One facility is a specialty bearings group [in] Hochstadt, Germany, and we have a new greenfield tooling facility for large tooling manufacture in Burnley, [Lancashire, England],” reported Tenison. “And then we have two facilities we’re counting on to increase our competitiveness. One is our metals facility supporting our aerospace operation in Chihuahua, Mexico. The other is our joint [facility] in Goa, India, for low-cost composites and offsets.”
Representatives from similar companies that design and produce components for new aircraft, or after-market items for operational aircraft, are also expecting the 2014 to be very good for their outfits.
“I would say that 2014 is going to be a good year for the economy and a good year for the helicopter industry,” said Rex Kamphefner, president of Aerometals, a company that specializes in aftermarket metal components, as well as filtering systems. “I have nothing but expansion in mind,” he added, explaining that military helicopters returning to the U.S. from the Middle East will need components from his continually improving parts business. “They need everything!”
With its 2013 acquisition by Chongqing Helicopter Investment Group, Enstrom Helicopter has shifted its primary focus abroad, and is enjoying a sharp increase in sales of its single-engine piston and single-engine turbine helicopters. Now, the company is building a $9-million facility next to its plant in Menominee, Mich., to handle the work.
“We knew that the Asian market was going to explode one of these days,” said Jerry Mullins, president of Entrom. “So we’re sitting pretty good for the Chinese market, and mainly all of Asia. If someone hasn’t expanded into the international market, they’re going to be hurting [in 2014].”
Over at Honeywell, the avionics giant headquartered in Morristown, N.J., Tom Hart, vice president of defense and space sales, predicts the helicopter industry will be looking for a few specifics in avionics in the new year.
“What Honeywell sees for 2014 in the helicopter industry is a continuing trend. Operators are going to continue to want increased connectivity in their aircraft, as well as enhanced safety systems and efficient operations,” explained Hart. “We’re looking at connected aircraft, safety systems, and efficiency. And we’re positioning our products on those three areas.”
John Frasca, president and CEO of Frasca International, doesn’t foresee a lot of changes to his Urbana, Ill.-based business. As a manufacturer of flight simulators, the periodic rises in the cost of aviation fuel frequently drives the demand for training outside of a real aircraft.
“For 2013, we were running flat-out at our full capacity,” reported Frasca, whose simulation products are split evenly between rotorcraft and fixed-wing trainers. “And I would think in 2014 we’re forecasting that same level – maybe not growing, but operating at the same level.”
Jim Sensale heads Aviation Instrument Services, located in Miami, Fla. He believes that careful, in-house fiscal planning remains the best way to succeed in 2014.
“In today’s unpredictable economy, most companies must keep a close eye on cash flow and remain cautious with expenditures,” said Sensale. “In our fluctuating business environment, companies must adapt and utilize their resources in smart and strategic manners.”
Dave Marone is the vice president of sales and marketing for BLR Aerospace of Everett, Wash. He sees 2014 from a very wide perspective.
“There is an ever-widening gap between the incremental cost and incremental capability of new production helicopters, so cost containment is an ongoing challenge for the rotorcraft industry as a whole,” said Marone. “For some niche market operators, the cost of new aircraft simply may not be viable and, unfortunately, we will see some of the least-lucrative missions go the way of the dinosaurs. With so many factors impacting their profitability,” he continued, “operators are looking for every competitive advantage. And performance enhancements are an effective way to increase productivity when a new aircraft is not an option.”
Ed Dolanski, president and CEO of Aviall, a leading distributor of new aviation parts and fluids, also sees older fleets as a key factor in the rotorcraft industry’s future.
“The replacement of legacy aircraft and the trend in Europe to fly only multi-engine rotorcraft in metropolitan areas are points of interest that will impact our company,” Dolanski explained. “There are a lot of great things on the horizon for many of our helicopter OEMs, such as Bell, MD, Enstrom and Robinson.”
President and CEO John Bent runs DeVore Aviation Corp. of America, the Albuquerque, N.M.-based aircraft lighting manufacturer. His staff of 42 people build lighting systems for all segments of the worldwide rotorcraft community.
“I think we’ll see some continued moderate growth. I don’t see anything to change [that], short of a major conflict, or something going on in the economic end of things,” said Bent. “There’s still just a lot of uncertainty out there, I think, in all aspects of the world economy. Probably the tough end of the rotorcraft business will be law enforcement, since tight budgets are going to continue.”
Along with the new year and all of its uncertainties will come a brand new helicopter, the Skye SH09. Martin Stucki is the CEO of Marenco Swisshelicopter, an 80-person company based in Niederurnen, Switzerland, that is developing the light, single-engine turbine helicopter that will soon make its initial ground-run testing.
“2014 will bring the first flight of our new helicopter,” said Stucki. “Our success is already high, so our expectation is also very high.”
Tom Mepham, senior vice president for controls and sensing systems for UTC Aerospace Systems, noted that while the U.S. military helicopter market has experienced a downturn, “industry experts project modest growth in the civil helicopter market driven by replacement of older fleets, energy industry needs, emergency medical services and growth in emerging markets. Asia Pacific, Latin America and the Middle East are expected to see an uptick in new equipment orders to support offshore oil and gas exploration, law enforcement, public safety and VIP or air taxi transport.”
No one I spoke to, however, summed up these executive outlooks better than DeVore’s John Bent, who with a combination of staunch conviction and calm resignation said: “It’s better than going through 2009, 2010 and 2011 again!”