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Wednesday, January 1, 2014

2014 is Here: Pick a Lane

By Ernie Stephens

estephens@accessintel.com

In this month’s issue, we share what we call the “Executive Outlook.” It is a compilation of what the rotorcraft industry’s top executives think the year 2014 will bring to the helicopter world, including the “Rotorcraft Outlook Panel” (see page 18), which is a group of leaders from companies that participate in Rotor & Wing’s Annual Reports section starting on page 24. Their observations and predictions were gathered from telephone interviews and written responses, with their exact words being used as often as possible.

After absorbing their comments, I leaned back in my chair and considered how difficult it must be to deal with the uncertainties of the future, especially if the success of your company and the livelihoods of your employees depend on how well you deal with those uncertainties. I liken it to driving along a highway en route to an important appointment. You know how the traffic has been so far, and where the jams were the last time you traveled that road. But that was then, and today is today. Will you run into something you’ve successfully dealt with in the past, or come upon something you neither expected nor prepared for?

Nobody in the rotorcraft industry saw the tragic events of Sept. 11, 2001 coming, nor the economic boon that was in full swing a year later as the federal government pumped huge grants into state and local governments for the purposes of boosting homeland security. That money went to new helicopters for many agencies, and state-of-the-art aircraft upgrades for others. It also created a myriad of lucrative contracts for sales, support, research and development in the defense sector as the global war on terror commenced. Business in the rotorcraft world was good.

In 2008, though, an equally unexpected turn of events had the same effect on the helicopter business that an unmarked sinkhole has on a dark interstate highway. The U.S. housing market crashed almost overnight, taking state and local government revenues to an all-time low as a result of plummeting tax revenues. The consequences to the helicopter industry were severe drops in sales to public safety organizations. Even the private aviation sector caught a tremendous amount of fallout from the weakened economy. By 2013, the economy – and the aviation industry – were beginning to show signs of returning to normal. All was not well, but things seemed to be on the mend, particularly in the private and public sectors. For those with military customers, the withdrawal of troops and their aircraft from war zones caused some concern, but there was no reason to lose sleep over it.

And then came something called “sequestration.” Sequestration was a nice term for a yet-to-be-invented four-letter curse word for “trouble.” It was a sweeping set of budget cuts designed to be so painful that U.S. lawmakers would agree upon more sensible ones. But on March 1, 2013, with no meeting of the minds in place, sequestration was implemented, and funding was brutally slashed to a number of government operations. (Just months before, as CEOs pondered what 2013 would bring, I’ll bet none of them really expected that their historically safe government contracts would be hacked or canceled with such little warning.)

So, here we are at the start of a new calendar year, which is, in effect, just another lap around a circular highway. The highs of the early 2000s are fading in the rear view mirror, the lows of the economic crash are a little ways back, and the effects of government budget issues are still stuck to the undercarriage.

Some of the executives I spoke to have made serious adjustments to their routes to compensate for fluctuations in the portion of the highway their market segment is in. Others are betting that if they stay in their lane, they’ll do better than trying to maneuver around every bump in the road. All are squinting and looking as far ahead as they can to see if their plan will have to be tweaked.

The best executives surround themselves with smart people who will feed them with dozens of scenarios and ways to deal with them. They’ll keep those scenarios coming for the following 365 days, since market catastrophes can’t read calendars, or grasp the concept of a “fiscal year.” After that, it’s all about riding with the top down so they can take full advantage of a sunny season, while keeping that seat belt cinched tightly around their middle, just in case the wheels fall off.

I’m not a CEO, but with the world’s economies fluctuating as they are, war footings changing, and all of the other stuff that nobody can see around the bend, I personally think 2014 is going to be a time for traveling in the center lane, staying just a little above the posted speed limit, and keeping both hands on the wheel, just in case. After all, like most helicopter professionals, I subscribe to the notion that if nothing bad is happening, it is surely about to.

On behalf of everyone here at Rotor & Wing, please have a safe, profitable, and Happy New Year!

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