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Wednesday, June 1, 2016

Growing Asia Market Still Wrestles With Economy

Helicopter markets in the region hold great promise, but like their global counterparts are hobbled by financial concerns.

By Asian Sky Group

A Papua New Guinea company received an Airbus Helicopters H145 in January. Photo courtesy of Airbus
Markets throughout Asia have not escaped the economic concerns plaguing the U.S., Europe and other regions, leading helicopter operators there and the manufacturers and service providers that support them to search out new opportunities in rising used-aircraft inventories.

The latest analysis of markets in the region by Asian Sky Group finds that utilization of aircraft throughout Asia is increasing and that slightly more operators are considering acquisitions of more used aircraft. But roughly half of operators believe economic conditions in the region may worsen, the Hong Kong-based consultancy said in its first-quarter 2016 analysis.

Given a weaker global economic environment, Asian Sky has reduced its growth estimates for Asia (excluding Japan) to 5.9% from 6.2%. It said growth in gross domestic product is likely to decelerate this year relative for seven of the 10 economies within the region.

“Headwinds from weak external demand are expected to persist, adding further downward pressures on the growth trajectory,” the firm said. Central banks in the region are expected to maintain an easing bias, but the size of any rate cuts is likely to be limited and, in some cases, constrained due to a need to simultaneously also manage exchange rate, interest rates and capital outflows challenges.

The Tokyo Fire Department uses its Airbus EC225s to fight high-rise fires (far left). Waypoint Leasing placed an Airbus Helicopters H145 with a Papua New Guinea company last year (above left). The Japan Coast Guard acquired its sixth H225 for search and rescue missions (above right). Korea Aerospace Industries’ KUH-1 Surion was developed as the maritime variant of its utility counterpart (right). Photos courtesy of Airbus, Mamo and Korea Aerospace Industries
The observations are based on Asian Sky Group’s analysis and its March survey, to which 160 individuals responded. They included operators of both helicopters and fixed-wing aircraft. (Asian Sky Group is backed by the U.S. company SEACOR Holdings Inc. and Avion Pacific Ltd., a mainland China-based general aviation service provider.)

The survey found that 48% of respondents, up three points from 2015’s fourth quarter, “believe the current economic status hasn’t reached the low point,” the firm said. “This indicates that a pessimism still prevails predominately but is also worsening throughout the Asia Pacific Region.”

Overall, 34% of the respondents reported increased utilization, Asian Sky said. That was 15% higher than the last quarter’s survey. In addition, those reporting decreased utilization dropped 11%. The reported utilization increase was greatest in the Oceania countries of Australia and New Zealand (with 38% saying their aircraft flew more) and Greater China (with 33% saying their aircraft did so, an increase of 17% from the previous quarter).

In addition, respondents who said utilization had decreased fell to 26% from 40% in Australia and New Zealand and to 39% from 49% in Greater China. (Asian Sky includes Papua New Guinea with Australia and New Zealand in its Oceania category. It defines Greater China as China, Hong Kong, Macau and Taiwan.)

“These trends reflect a positive outlook regarding the ongoing recovery of Chinese business jet usage [and] are a hopeful indicator of continued improvements during the balance of 2016,” Asian Sky said.

The survey found that utilization was roughly split between increases and decreases in South and East Asian nations, the firm said. Those nations include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, as well as Japan and South Korea. Roughly of respondents in those countries reported utilization was up and a like percentage said it was down. Asian Sky said that the latter group reported utilization declines of less than 20%.

The firm said slightly more potential owners said they were considering purchasing used aircraft (compared to 2015’s fourth quarter), but 57% said their purchase plans are uncertain.

The reasons for that uncertainty were similar to those from the preceding quarter, Asian Sky said. They included “economic uncertainty,” which again was the most cited factor, followed by “government/public opinion” in Greater China and “no need” in other markets in the region.

A new wrinkle was cited by respondents as “financing availability.” The firm noted that financing “appears to be becoming more difficult in the South and East Asia regions.”

The civil helicopter pre-owned inventory for sale has increased by 50% over the last 15 months. Graphic courtesy of Asian Sky Group
At the end of 2015, the Asia Pacific civil helicopter fleet numbered 6,015 helicopters in active service, an increase of 4.5% over year-end 2014.

As with 2014, the growth leader in percentage and number of units was China, with 20% growth and 118 helicopters added by year-end 2015. This, however, represented a slowdown compared with 2014, when growth was 31% and 135 helicopters were added. Overall, of the 34 markets analyzed in this report, only a third experienced growth in 2015, with the other two-thirds either contracting or remaining stagnant.

The Asia Pacific region is currently dominated by four countries and three manufacturers, with 73% of the helicopter fleet based in Australia, New Zealand, Japan and China, and 78% of those units being either a Robinson Helicopter, Airbus Helicopters or Bell Helicopter.

In terms of replacement cost, the “big four” OEMs (Airbus, Bell, Sikorsky and AgustaWestland) make up nearly 90% of the market, with Airbus leading at 46% and the other three at 42% total.

Australia represents the largest market overall and is the largest market for Robinson and Bell. In terms of unit numbers, New Zealand is next and is the largest market for MD Helicopters. These are followed by Japan, which is the largest market for AgustaWestland and Airbus, and China, the fastest growing market and the largest for Sikorsky.

In terms of units, about 45% of the Asia Pacific fleet operates in a multi-mission role, followed by corporate or private missions at 28%, and offshore operations at 6%. In terms of replacement cost, offshore operations make up about 20% of the market.

At year-end 2015, helicopters used for offshore oil and gas support in the Asia Pacific region numbered 356 out of a total 6,015 (unchanged from 2014) and made up 6% of total fleet by numbers but 20% in terms of replacement cost.

When excluding the Oceania fleet of nearly 3,000, the number of offshore-configured helicopters represent more than 10% of the total Asia Pacific fleet. In Southeast Asia alone, the offshore-configured fleet represents more than 15% of the fleet by numbers and 40% by replacement cost.

Between 2012 and 2014 one of the main growth drivers for the Asia Pacific fleet was helicopter deliveries to offshore oil and gas service providers and operators. However, toward the end of 2015, oil and gas helicopter utilization decreased significantly, a trend that will impact growth severely in the short term.

Capital spending on exploration and production in Asia Pacific is expected to be down 20% in 2016, following an already reduced spending rate in 2015. This reduction reflects lower capital expenditures from several projects reaching completion in 2015, while anticipated new projects are deferred across the region and primarily in Indonesia, Malaysia, Myanmar, India, China and Australia.

Operator difficulties have been compounded by the global nature of the downturn and the oversupply of helicopters in most markets, limiting their opportunities to sell aircraft or find work for these helicopters in other markets. Helicopter values have consequently come under tremendous pressure.

In Greater China, growth slowed in 2015 due a number of factors including the overall economic environment, expected currency depreciation, the downturn in oil and gas activity, negative sentiment resulting from certain government actions, and airspace taking longer to open up than previously anticipated. China will continue to see growth in the number of helicopters delivered during 2016, but at a much more moderate pace compared to prior years.

The Japanese fleet contracted 3% in 2015, with only Sikorsky and AgustaWestland showing increases. This occurred due to greater numbers of older piston, single engine and medium size helicopters either being retired or replaced by fewer but newer helicopter models like the S-76D and AW139. The net decrease was 20 helicopters, though the overall market size grew in terms of replacement cost.

In August 2015, the Royal Thai Air Force received four Airbus Helicopters EC725s for use in search-and-rescue efforts. Photo courtesy of Airbus
Despite South Korea’s advanced aviation industry, there has been only moderate growth in the Korean fleet over the past few years, with 2015 being no exception at just 2%. The largest portion of the fleet is used in a multi-mission role, with 50% used in firefighting operations and being primarily Kamov and Mil helicopters.

Thailand saw a net increase of only one helicopter in 2015, predominantly the result of importation restrictions on helicopters older than 5 years, while the oil and gas market and political factors also contributed to slower growth.

In the Philippines, growth in 2015 was a healthy 8% with 14 net helicopters added, which mostly consisted of single and piston categories operated by individuals or corporations. Last month’s elections should play a significant factor in the country’s helicopter market, as will overall economic conditions.

Malaysia’s fleet contracted slightly in 2015, which was expected, given that nearly a third of the total fleet is configured for offshore oil and gas support. Malaysian offshore operators faced significant challenges during the later part 2015 and will likely attempt to move into other missions or other countries in 2016.

Growth in Indonesia’s fleet last year was almost 8% with 14 net helicopters added to the fleet. However, new regulations restricting in-service helicopters to fewer than 30 years of age and restricting new imported helicopters to fewer than five years of age, combined with the downturn in offshore oil and gas, may cause growth in the fleet to stagnate in 2016.

Australia’s fleet grew at just a modest 3% in 2015, but is not expected to grow further in 2016 due to the negative impact of a significantly weakened Australian dollar, the rapid decrease in mineral exports and the downturn in oil and gas prices. The country has a staggering 1,017 operators, including many individuals and corporations, with an average of two helicopters per operator (one of which on average is a Robinson), and many of them are very sensitive to changes in the economic conditions and currency movements.

Growth in New Zealand last year was a healthy 7%, with a net 53 helicopters added to the market. Pre-owned helicopters made up 81% of the additions, which is characteristic of the New Zealand market. New Zealand has the largest fleet of MD helicopters in Asia Pacific, most of which are utilized for multi-mission operations.

Papua New Guinea’s fleet grew 9% in 2015. A typical helicopter there can be characterized as pre-owned, aging and a single-engine turbine from either Bell or Airbus, and engaged in multi-mission applications. However this profile might begin to change in 2016, with several new helicopters already set for delivery.

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