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Tuesday, January 1, 2008

Executive Outlook

One of the best parts of running Rotor & Wing is the chance to step back every now and then and take in the "Big Picture" of the helicopter industry. This latest edition of our Annual Reports special section offers such a chance.

Read through this collection of views from the industry’s top executives of prospects and challenges for the coming months and you’ll find confirmation that we’re going gangbusters and likely to keep doing that for some time. That won’t surprise, but it provides some comfort that a) the consensus of continued, perhaps moderating, growth is holding and b) there’s hardly a concern that this may soon change.

Here though, you’ll also find some nuggets that we think point to the coming year as a possible turning point for this industry. A number of executives speak of supply-chain challenges and how those challenges may make or break the year in light of increasing rotorcraft production...especially as new aircraft delivered in the last 3-4 years begin to come off warranty and take their maintenance needs to the competitive aftermarket. Just as important is the growing appetite for useful data on individual aircraft operations. Such data, born from operators seeking greater efficiency from their machines and raised by vendors recognizing a new market, will require monitoring systems whose output will form a new foundation for measuring day-to-day and long-term safety. This data will also help mitigate the risk of rotary-wing flight and raise standards of performance and behavior in the air. And that in turn, will drive demand for improved simulation and training. All of this indicates 2008 will be another very interesting year.

Randy Jones

Publisher

"One of the best parts of running Rotor & Wing is the chance to step back every now and then and take in the ‘Big Picture.’"

FlightSafety International

"Increasingly, Training Keys On Specific Rotorcraft Missions"

We expect another year of strong growth in the helicopter industry. As our safety record continues to improve, the private sector looks more and more to rotorcraft to provide the optimal solutions to an expanding list of challenges.

One important factor in that improving record is the development of mission-specific training, which acknowledges the widely varying situations that helicopter pilots and crews face on a daily basis. An EMS pilot, for example, must react to far different circumstances than the crew of an offshore transport. With mission-specific training, the scenarios reflect those differences, preparing pilots and crew to respond appropriately when problems arise.

FlightSafety offers mission-specific training for EMS, offshore, law enforcement and newsgathering. We expect this lifesaving training to grow in number and in scope as more segments of the industry recognize its critical importance.

George Ferito

Director, Rotorcraft Business Development

FlightSafety International, Fort Worth Bell Learning Center

Paradigm Aerospace

"Lead Times, Pricing, and FAA Approvals Pose Challenges for Completions Centers"

The worldwide demand for new helicopters continues to outpace manufacturers’ production. As a facility that specializes in helicopter customizing/completions, we are asked to quote on work that is not only scheduled to deliver in 2008, but we are commonly requested to quote on work that is 24 – 36 months out. As a result, it is very challenging to provide accurate pricing for customers.

Another factor that is associated with that challenge is the supply chain of spare parts, avionics, and kits. It is very difficult for customers to understand that the lead times for some common items is often greater than 120 days from the placement of the order.

Finally, the dynamic nature of the FAA’s policy on approving installations of new avionics equipment presents a difficult trend that helicopter completion/customizing centers will be facing in 2008.

Ed Pears

President

Paradigm Aerospace

AeroSimulators

"Simulation is Also Seeing Incredible Growth"

The outlook for the helicopter industry in general and for any helicopter-associated OEM simply looks terrific. Helicopter operations over the last five years have seen exponential growth. With technology advances in helicopters, the aviation industry has fully embraced the versatility of the helicopter and has further recognized that people and organizations are willing to spend real money to acquire the capabilities that only helicopters offer.

The helicopter simulation industry, like the helicopter industry, is also seeing incredible growth. Advances in technology have occurred at the same time that the cost of these devices has decreased. In fact, today’s low-cost devices are equivalent to yesterday’s full-flight simulators. Further advances in technology with the ability to do full crew resource management (CRM) training for law enforcement, emergency medical services (EMS), and heavy lift will bring forth a new breed of simulators with even more capability. The future looks bright indeed.

Mike Coligny

CEO

AeroSimulators U.S

Sagem Avionics

"Growing Demand for Aids to Safety Improvements"

Sagem Avionics is seeing demand trend in the direction of less hardware being required to achieve the same desired goals, as well as greater capabilities.

Sagem Avionics supports and foresees needs for aviation safety, operating cost reductions, and support for agencies who oversee safety. We remain committed to providing in-flight data acquisition units (IFDAU), flight operations quality assurance (FOQA), and maintenance operations quality assurance (MOQA) recording and trend-monitoring equipment for all operations. This is a particular focus of operators in areas of high public trust operations (emergency medical services, etc.), who are already or will soon (to their credit) voluntarily participate in installations to make data of this nature available. Accurate information can be obtained almost immediately.

Finally, integrated autopilot systems are desired. Although previously seen as a luxury, the autopilot could soon become as standard as cruise control in automobiles.

Jean Baudin

President and CEO

Sagem Avionics

Keystone Helicopter

"Greater Demand for Sophisticated Maintenance Services"

The past several years have been exceptional not only for OEMs, but also for completion houses. Most had a record year in 2007 in terms of the number of completions performed. The next two years are forecast to continue at the current or slightly higher volume in the completion business.

However, the big news for Keystone and other MRO providers is that all the new equipment delivered in the past three years are now exiting their warranty period and entering the extended maintenance stage. Keystone has invested heavily in building additional capacity and in honing our processes in anticipation of this.

As the sophistication of helicopters has increased, the demands on MRO facilities, in terms of investment in training, facilities and tooling have grown dramatically. Only companies that offer world-class services, at quantifiable value, will excel in this new marketplace.

David Ford

President

Keystone Helicopter

Aviall

"Demand for Helicopter Services Increases Globally"

In 2007 we completed a major expansion, doubling the capacity of Aviall’s headquarters in Dallas. We also increased sales support for Latin and South America. Combined with recent expansions of service operations in Amsterdam and New Jersey, and our innovative cooperative store concept in place at Keystone Helicopter’s headquarters in Pennsylvania, we have continued to improve our regional support and provide solutions to meet our rotary customers’ needs.

Customers operating helicopters benefit from Aviall’s efficient supply capabilities and broad product offering. Earlier this year we were proud to announce the extension of our worldwide aftermarket support program with Rolls-Royce for genuine Rolls-Royce Model 250 engine parts. Our full-service aftermarket services program, known as LIFT, allows helicopter operators to focus their working capital and time on staffing, training, fuel costs, quality and safety.

As the demand for helicopter services increases globally, Aviall pledges to continually enhance its support to help fleets operate efficiently and at maximum capacity.

Dan Komnenovich

President and COO

Aviall Services, Inc.

Turbomeca

"Adding Capacity and Moving Resources Closer to Customers"

Wherever our customers fly, they have noticed one thing: helicopter transportation is in greater demand than it has ever been.

To better meet the growing market demands, we launched a new site on American soil: Turbomeca Manufacturing Inc. in North Carolina. This very first production site outside of France will be dedicated to turbine-parts manufacturing and will be operational in 2008. With Turbomeca USA and Turbomeca Canada, Turbomeca Manufacturing is our third site on the North American continent.

The company’s repair and overhaul network capacity has also dramatically increased. Its regional units now operate more autonomously, enabling work to be directed where it can be most quickly accomplished.

At Turbomeca, we consider it a priority to put our resources closer to our customers. As our customers’ partner in providing safe, reliable and cost efficient transportation, we are continually improving our processes to provide them with the highest standard of customer support. Our ultimate objective is to develop products and services that contribute to helping our customers focus on their core business: flying.

Emeric d’Arcimoles

Chairman and CEO

Turbomeca

Aviation Instrument Services

"Ever More Demand for Components and Instruments"

Helicopters remain a strong and vital industry, one that has enjoyed solid growth over the past few years. I expect this trend to continue in 2008. Rotorcraft are needed more than ever for homeland security, military missions, air medical services, charters, and corporate transport. This means ever more demand for components and instruments to keep these craft flying.

Since Aviation Instrument Services was founded 31 years ago, our determination to develop a reputation for service excellence has not flagged. This is why Aviation Instrument Services has grown into a company that sells and exchanges instruments for helicopters and general aviation aircraft, and why we help out by managing consignment sales for our global customers, including the handling of component repairs and overhauls. 2008 looks good for us, and the industry that we serve.

Jim Sensale

President and Founder

Aviation Instrument Services

Aerometals

"Managing Growth is the Major Challenge"

We anticipate increasing interest in parts manufacturer approval (PMA) spare parts. Our PMA sales are up $1 million over last year and continuing strongly. Of course, new products we bring to market, such as the new supplemental type certificate (STC) we received for the MD Helicopters MD-500 vertical stabilizer, only help. Aerometals has increased its factory floor space to 75,000 sq ft, earned AS9100 certification, and added more engineers to help us meet these increased demands.

Aerometals’ contracts for U.S. Air Force aircraft components are also way up, so managing the growth of it all is our major challenge. The problem of sustaining the war effort is causing increases in lead times for some of our vendors. For example, we’re seeing 52-week lead times for some bearings. I anticipate this will cause spot shortages of some spare parts for civilian operators in the coming year.

Rex Kamphefner

President

Aerometals

Air Comm

"Growth at a More Measured Pace"

Air Comm’s sales and our product range continued the same rapid growth in 2007 that we experienced in 2006. Late in 2007, we completed an excellent addition to our product line with the certification of our AS350 air conditioner. This system provides the same outstanding performance as our other air conditioners, which have become the standard of the industry. Of course, it is backed by Air Comm’s uncompromising support.

While the overall economic outlook is uncertain, I expect growth in the industry to remain strong, but perhaps continue at a more measured pace. Our customers use their aircraft as tools, for offshore support, EMS, corporate VIP. All of these customers now demand a higher level of sophistication in their aircraft, including state-of-the-art climate control. Air Comm will continue to support these requirements to the highest degree.

Keith Steiner

President

Air Comm Corp.

Simplex Manufacturing

"Hot Markets: Firefighting, Powerline Maintenance"

Simplex continues to see the worldwide helicopter firefighting market expanding into new areas with more advanced technologies. New programs are being initiated or expanded in countries that have never had formal programs in the past or that were not adequately funded. This trend is also carrying into newer helicopter platforms. Historically, it was older-generation helicopters, some of which were 30 or more years old. In 2008, we anticipate more new-generation helicopter platforms added to the worldwide firefighting fleet.

A second market that we see expanding in 2008 is the electrical power-generation and -transmission maintenance market. We believe 2008 will be the start of a major upswing in powerline maintenance and repair as older electrical grids struggle to keep up with power demand. This trend appears to be a focus for markets outside of North America as well with strong interests in Asia, the Mediterranean, and Eastern Europe.

Steven P. Daniels

President and CEO

Simplex Manufacturing Co.

Sky Connect

"Developing Technology That Aids Growth"

As helicopter operators worldwide accept ever-increasing challenges in the missions they undertake, they continue to demand more and more from their equipment. Experienced satellite communications (SATCOM) suppliers such as Sky Connect are on notice to bring to market the technology that fosters meaningful results.

By developing new technology that keeps operators in immediate touch with their far-flung operations, we are leading the industry in Iridium-based communications. Sky Connect technology ensures that fast and easy voice, text, and tracking communications — critical requirements for offshore oil, EMS and mineral-development operations — are available worldwide.

In addition to the new technology, we are refining and improving existing communications tools, such as our MMU-II dialer and TRACKER map to assure aircraft crew and dispatcher that operational status is clearly communicated.

Wiley Loughran

Senior Vice President

Sales and Marketing

Sky Connect

Eurocopter

"Renewing Fleets and Meeting New Needs Around the World"

The helicopter market is experiencing high growth in all different segments. This increased activity is the result of two different phenomena: The renewal of aging fleets coupled with a global increase in needs.

Let’s take a look at the oil and gas segment, for example. Old machines are being replaced, while at the same time the sector is undergoing change. The price of oil remains high, and oil companies will be searching for new resources farther and farther from the coasts and exploring the subsoil of countries that have never seen an oil derrick. What’s more, the "homeland security" concept that has been developed in the United States has had an influence elsewhere.

Lutz Bertling

President and CEO

Eurocopter

Center Capital Corp.

"Access to a Reliable Lender More Important Than Ever"

When it comes to the helicopter market, sales of new and used rotorcraft have been stable to strong, meaning values are holding and/or growing. Why? Operators’ businesses are growing, while there is a limited supply of good used ships. Meanwhile, manufacturers order backlogs are long and they’re producing as fast as they can.

Given these market facts, having access to a reliable lender is more important than ever.

Of course, capital can be hard to raise from traditional lenders, who just don’t "get" the helicopter market. But Center Capital does. That’s why we were busier than ever in 2007, and expect to be even busier in the year ahead.

Greg Renna

Senior Vice President, General Manager

General Aviation Div.

Center Capital Corp.

CMC Electronics

"More Interest in Safety Gains, Risk Mitigation"

Through the work of the International Helicopter Safety Team (IHST), whose goal is to reduce by 80 percent the helicopter accident rate worldwide by 2016, CMC Electronics expects helicopter operators to place increasing emphasis on training, safety-enhancing tools and risk-mitigation measures. We have seen this trend, started in 2006, pick up momentum in 2007, and we expect it to gain substantial momentum in 2008 and 2009.

One particular area of interest is the growing acceptance of the enhanced-vision system as a supplemental means to enhance helicopter pilots’ situational awareness in adverse visual conditions (night flights to unfamiliar locations, flight into light to medium fog and whiteout).

We have seen operators decide to make substantial commitments to this safety-enhancing tool over the past two years, and with their growing market presence, expect the trend to accelerate in 2008 and 2009."

Jean-Pierre Mortreux

President and CEO

CMC Electronics

Precision Heliparts

"Offshore Support, EMS, and Military Segments Spur Growth"

Following another strong year of growth in 2007, we believe that the turbine-powered helicopter market will continue to grow in 2008. We see the specific growth segments for our companies, as well as the industry, in the offshore support, EMS, and military segments. Continued growth in worldwide natura-resource exploration, globalization of the world economy, and an expanding world military market will continue to increase aircraft utilization rates. This will continue to drive demand for the products and services we provide.

Our proven business model of Inventory Supported Maintenance Repair and Overhaul (ISMRO) focuses on our customer’s needs. In response to those needs, in 2008 we will expand our facilities in the United States and Canada by over 50 percent, grow our technical ranks by 20 percent, make significant investments in inventory, and expand our service capabilities.

David B. Mast

President

PHP/PHP-Canada

Goodrich

"Helicopter’s Importance on the Rise in Defense, Civil Markets"

The continued support of helicopters in the U.S. defense budget underscores their importance in missions. A robust industry focused on developing new and derivative platforms with advanced technology will assure sustainment of current and future operations. For example, the U.S. Marine Corps’ new CH-53K will support future lift requirements with state-of-the-art technology and reduced life-cycle costs provided throughout the supply chain.

On the commercial side, the same forces that uplift the business jet market are working today in the helicopter market. More businesses and individuals are looking to helicopters for the added convenience and access to fast air travel, and we expect this trend to persist. Helicopters also continue to prove their value in firefighting, rescue, and police work, in part due to expanded capability from industry.

With ever-tightening government and private budgets, industry must constantly evolve to provide the best value that will help our customers succeed.

Jerry Witowski

Segment President, Electronic Systems

Goodrich Corp.

Chelton Flight Systems

"Low-Cost, Lightweight Autopilot/SAS Most Influential"

From an avionics standpoint, FAA certification of our HeliSAS helicopter autopilot and stability augmentation system stands to be one of the most influential events that will affect the helicopter market in 2008. The very low cost and light weight of the system will bring autopilot and SAS capability down into the single and light-twin market — aircraft that previously have not been able to justify the cost or weight penalty to take advantage of the workload reduction an SAS/autopilot provides.

We can also expect the FAA and NTSB to continue working diligently toward a safety improvement initiative for air medical operators in the form of enhanced equipment requirements like helicopter terrain awareness and warning systems, synthetic vision, and night-vision goggles, combined with increased operating limitations and additional crew training requirements.

Finally, as Robinson’s R66 takes flight, the market will redefine its price/performance expectations.

Cobham Avionics & Surveillance is pleased to be a major supplier to the helicopter market during these exciting times.

Charlie Stuff

CEO

Chelton Flight Systems

FEC Heliports

"More Hospital Heliports Around the World"

At FEC Heliports, we believe that with congestion becoming a major problem in towns and cities, the unique and growing role helicopters are able to fulfill will drive public and private health services and governments to increase the rate of development of hospital heliports through 2008 and beyond. The reduction in patient-transfer time available via hospital rooftop heliports means that such facilities will soon be an essential requirement for all modern hospitals treating severe trauma.

In its "Year of Helicopters 2008," the Indian subcontinent represents an exciting challenge in the development of infrastructure capable of keeping pace with the growth in helicopter usage. FEC Heliports Worldwide Ltd is committed to India’s "Year of Helicopters 2008" and will be attending Heli-Power 2008 in February with our local agent, United Aeronautical Services, to get 2008 in India off to a flying start.

Colin A. Little

Director

FEC Heliports Worldwide Ltd.

BLR Aerospace

"Helping Customers Leverage Rotorcraft Investments"

As a technology-driven company, BLR’s success is achieved by helping our customers leverage their rotorcraft investment. By developing technology that improves the performance of your helicopters, BLR plays a major role in the success of operators around the world. That’s our mission!

Our FastFin technology will enable dramatic increases in the payload of Bell Helicopter 212s and 412s. This is significant news for operators who strive daily for the utmost in performance and maximum return for their business.

This new technology directly follows the performance-enhancing developments we have brought to the market and to your rotorcraft for years in the past. Continue to look to BLR for innovations that will boost your bottom line.

Dave Marone

Director of Sales and Marketing

BLR Aerospace

Heli-Mart

"Growth, Both Organic and Through Acquisition"

Heli-Mart’s outlook for our industry in 2008 is positive. Growth, both organic and through acquisition, is occurring on a regular basis in our industry, and Heli-Mart is no exception.

A resurgent MD Helicopters, Inc., is boosting demand for Heli-Mart’s large inventory of MD parts, and our parts sales have increased significantly. All signs point to a strong and successful future for the MD product line and we are pleased to be part of revitalizing this iconic brand that has played such an important role in our industry.

We’re equally enthusiastic about our recent acquisition of Phoenix Heliparts. It enables us to now offer a total solution that will fully meet the support needs of MD Helicopters operators worldwide.

Today’s busy operator can’t afford to spend time on the ground or to move from supplier to supplier for various support. Heli-Mart’s total solution — where operators benefit from a full range of parts and services provided by one source — will be our business model of choice as our industry continues to consolidate and thrive.

Don Nichols

President

Heli-Mart

Aerospace Filtration Systems

"Protecting the Engine Becomes Forethought, vs. Afterthought"

2007 was an exciting year for AFS, starting with Donaldson ownership and ending with substantial increases in commercial sales. The outlook for 2008 is more exciting, with expanded commercial products and forecasted sales.

While military products have dominated revenue in the past, commercial products are overtaking their olive-green brethren. The new saying, "If its spins, its working," is being felt by everybody producing and rebuilding helicopters and components. Legacy helicopters are working hard; in 2007, one of AFS’s best sellers was its Huey/Bell 205 system.

The word is out that you can fly with the best inlet protection and not compromise performance. AFS/Donaldson leads the industry with innovation and is producing engine-protection systems for Bell’s 429 and ARH-70 and Sikorsky Aircraft’s new CH-53K. Certification efforts will be completed in 2008 for the Eurocopter EC130, Bell 430, and AgustaWestland AW139.

Helicopter operators are embracing new technology and realizing reduced operating costs. Our products are the best engineered and with our new Donaldson ownership we will survive the test of time, AFS is here long term.

Michael Scimone

President

Aerospace Filtration Systems

Banc of America Leasing

"Key Challenges: Financing, Insurance, Infrastructure"

The most encouraging trend is the extended manufacturer backlog, currently surpassing the 12-24 month mark. This has been a very positive market indicator in the fixed-wing sector and should prove favorable for helicopters as well, providing for sustainable growth, as well as buoying helicopter values.

Another positive sign is new technology at the high end of production, providing upgrade options to larger operators looking to replace older models.

Challenges fall into two categories: financing and infrastructure. Current well-publicized credit-markets challenges mean financing options will be uncertain, particularly for smaller operators. The high cost of insurance, especially for special-mission units, is another financing concern.

The major infrastructure concerns are the continued lack of heliports in metropolitan markets and the shortage of qualified helicopter pilots. The Helicopter Assn. International is a key player in addressing both issues, but may benefit from partnering with the National Business Aviation Assn. to generate the political horsepower needed to make progress on the heliport front.

Michael T. Amalfitano, Sr.

Sr. Vice President, Division Executive

Banc of America Leasing – Corporate Aircraft

Kaman Helicopters

"Innovation, Engineering, and Integration Expertise"

Kaman’s future is clearly linked to the innovation, engineering, and integration expertise we have developed throughout our more than 60-year history. As the rotorcraft industry struggles to meet the ever-increasing demands for new innovations in vertical flight, Kaman’s background as a manufacturer, designer, and integrator of helicopters for civil and military use becomes even more critical.

It is a service we are fully prepared to provide.

Kaman’s HeliworX™ full-service support center is a key element of our future importance to the industry. Prime contractors are seeking us to support and supplement their major programs because they know we deliver.

In other areas, we are teaming with Lockheed Martin, the world’s largest defense contractor, to develop and deliver advanced manned and unmanned helicopter systems based on our solid-performing K-MAX aerial truck. Its unprecedented ability as a vertical-replenishment vehicle is a prime element of this program.

Sal Bordonaro

President

Kaman Helicopters

As we embark on a new year filled with promise and uncertainty, we asked top industry executives:

"What important trends do you see on the horizon that might significantly impact the helicopter market in 2008?"

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