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Thursday, March 1, 2012

Recovery: Real or Imagined?

By Robert Moorman

Bell uncovered its 525 Relentless during Heli-Expo 2012 with a production that resembled a rock concert. Photo by Andrew Parker

2011 was supposed to be the year of recovery for rotorcraft manufacturing, but volatility in the financial markets plus ongoing debt woes for some European countries prompted buyers of all stripes to wait and forecasters to rethink their initial prognostications. Even with noteworthy orders and deliveries in certain segments in 2011, such as the offshore oil and gas business, euphoria was replaced with cautious optimism, prompting a more sober assessment for 2012.

“We think the worst is over, but it will take a while for rotorcraft manufacturers to be in the same position they were before the global financial crisis,” said Douglas Royce, aerospace analyst for Forecast International, who writes an annual report on the Light Commercial Rotorcraft market. [Forecast defines the light commercial rotorcraft segment as helicopters with a maximum gross weight under 15,000 lbs./6,800 kg.]

Forecast International projects that makers of light commercial rotorcraft will ship 16,857 light helicopters worth around $59 billion between 2011 and 2020. The total includes production of more than 5,925 piston-powered and 10,932 turbine-powered rotorcraft. OEMs are forecast to ship 5,959 single-engine turbine and 4,973 twins in the light commercial category over the next decade.

Manufacturers and operators remain hopeful for 2012, but some officials caution readers not to pop the Champagne cork just yet. “It all depends on how you define recovery,” offered Larry Roberts, vice president of the Commercial division for Bell Helicopter, a Textron company. “I don’t think we will ever get back to the 2007 sales level, but we have started to see positive movement in the market.”

Roberts said Bell’s commercial bookings more than doubled in 2011 compared to 2010 and he thinks 2012 will show a further increase in sales.

Heli-Expo will have occurred by the time this article is published, but the show is a good barometer to gauge the health and future direction of the industry. “The major OEMs have indicated to us that they would have major unveilings of new product lines,” said HAI President Matt Zucccaro. “And they have made the largest commitment (in terms of dollars) to the show in years.”

If the recovery for much of the rotorcraft industry occurs during the later half of 2012, it would be due mainly to the oil and gas industry, analysts contend. This market segment threw the OEMs a lifeline in 2011 and is expected to be a major factor in this year’s turnaround.

“The commercial rotorcraft market was hugely cushioned by resource extraction demand for oil and gas,” said Richard Aboulafia, vice president analysis for the Teal Group. The situation runs counter to the history of economic downturns. When the economy sours, resource prices typically drop. Not this time. “This is the first economic downturn where oil and gas have stayed stubbornly expensive,” he said. “This is totally counter-intuitive, but that is the silver lining” for commercial rotorcraft manufacturing.

Another problem: timidity on the part of corporations particularly. “Corporate profits are excellent,” Aboulafia added. “They just need the confidence to start spending money.”

Cash, as a percentage of total corporate assets, has reached a high “of over 7 percent,” Aboulafia said, referring to data compiled by the U.S. Bureau of Economic Analysis. “Corporations are just sitting on gobs of cash.”

Eurocopter CEO Lutz Bertling (left) with representatives from six of the seven launch operators for the EC130T2—Maverick, Papillon, Blue Hawaiian, Scandinavian Helicopter Group, Air Commander, Europavia and Enloe FlightCare. The group ordered a total of 105 helicopters, with 50 of those coming from Maverick.
Not everyone believes that 2011 was a bad year for rotorcraft sales. Eurocopter delivered 503 helicopters in 2011 and posted orders for 457, compared with the 346 helicopters sold in 2010. The 2011 orders included initial firm orders for the new EC175 as well as big bookings for the EC225 from CHC Helicopter, CITIC Offshore Helicopter Co., Bristow Helicopters and RTE. The company also received orders for 25 EC145T2s from German air rescue organization, DRF Luftrettung. Eurocopter also delivered its 1,000th Dauphin, 1,000th EC135 and 100th EC225 in 2011.

Dominique Maudet, executive vice president for business and sales, said Eurocopter too thought 2011 would be a flat year for sales, “but the end of the year was much better. We sold 100 helicopters in December alone.” Eurocopter’s share of the civil market has risen to 45 percent, he added.

American Eurocopter confirmed the sale of 26 helicopters to nine customers in October 2011. From the single-engine product lines, the U.S. subsidiary announced sales of 10 aircraft to operators, which included emergency medical services (HEMS) operators. These included one AS350B3 for EagleMed LLc, four AS350B3s for Air Medical Resource Group and five EC130s for Milestone Aviation.

Robinson Helicopters of Torrance, Calif. is another manufacturer that continues to grow, despite the continued market challenges.

Sales of the R44 and R66 “continue to come in at a steady rate,” said Kurt Robinson, president and chairman.

In 2011, the company produced 356 helicopters—212 R44s, 88 R66s and 56 R22s, more than double 2010’s production of 162. Because of rising demand, the company continues to increase production.

“Last year, we went from less than one R66 per week to three per week,” Robinson said. “And now we’re trying to produce six per week. We’ve got a little over a year backlog and are trying to reduce that by increasing production.”

With corporations trying to reign in spending, they’re opting for the R66 as opposed to the higher-priced turbine equipment, explained Robinson, when asked about the growing popularity of the R66. “If you compare the R66’s operating costs to the other turbines on the market, it is substantially lower,” he said.

But the real surprise in 2011 was the “tremendous success” in sales of the 15-seat, medium-sized twin-engine AgustaWestland AW139, said Forecast’s Royce.

Weststar Aviation Services of Malaysia signed a contract for 10 AgustaWestland helicopters last year, five AW139s configured for offshore transport and one AW139 for VIP transport, as well as two AW169s and two AW189s. SFS Aviation of Thailand ordered one AW139, while Blueway AS took delivery of the first of five AW139s for offshore transport operations in Nigeria. More sales to offshore operators are expected soon.

At Sikorsky Aircraft, the talk centers on the new S-76D, a variant of the ubiquitous S-76, but with a lot more features.

The S-76D has two more powerful Pratt & Whitney PW210S engines, which received FAA certification in early December 2011. This certification follows the issuance of another on the engines by Transport Canada on Oct. 14. Sikorsky expects to receive European Aviation Safety Agency (EASA) validation of the Canadian type certificate soon.

Other features of the D model include all-composite rotor blades; Thales integrated avionics system and autopilot; health and usage monitoring system (HUMS); and an active vibration control system. An optional Rotor Ice Protection System (RIPS) for all-weather capability is offered.

Delivery of the first aircraft to the launch customer is slated for 2012.

Sikorsky officials said the company is testing three prototype S-76Ds and two others will join the program this year. The S-76D is expected to meet a variety of civil roles, including executive transport, HEMS, and offshore oil and gas.

Sales of the twin-engine medium sized S-92 continue. Sikorsky has delivered 151 S-92s to operators worldwide since 2004, of which 25 are engaged in search and rescue (SAR) operations. In late December 2011, Sikorsky completed production of an S-92 for operations by CHC Helicopter on behalf of the Irish Coast Guard for SAR missions.

Fort Worth, Texas-based Bell’s civil business continues to improve. In 2011, Bell delivered 125 commercial rotorcraft. Among them were 55 Bell 407s and 28 were 429s, according to Textron spokesman David Sylvestre.

In January 2012, Bell announced that the 429 was selected from a field of competitors by the Turkish National Police to enter final negotiations for an award for 15 429s with an option for five additional aircraft.

Also that month, Bell announced that it received Transport Canada approval for a 500-pound weight increase for its Bell 429 that will bring its maximum gross weight to 7,500 pounds. The increased gross weight means greater range and loiter times and should translate into more sales of the 429 to law enforcement and air ambulance operators, which wanted better performance from the 429.

Industry observers were anxious to see whether Bell would launch new rotorcraft to better compete in the civil arena. The company provided additional details about the much-publicized new long-range, 16-passenger 525 Relentless super medium transport, which was revealed at this year’s Heli-Expo in Dallas. Relentless, formerly known as Magellan in the development stages, could help Bell regain some of the commercial market it lost to competitors. While the Relentless launch looks promising, Bell is not expected to announce a replacement for the JetRanger anytime soon.

“We’re trying to determine whether to use existing Bell technology or develop new technology,” Roberts noted. He said the company would want a new helicopter that could exist “reasonably isolated from competition to make it worth the investment.”

Meantime, Bell continues strengthen its operations worldwide. “We have not been as aggressive in the European market, so we’re reestablishing our presence there,” Roberts said.

Bell continues to expand its support facility in Prague by obtaining a Part 145 certificate and training rotorcraft maintenance technicians on various Bell products. The Prague center would soon add completions work.

Later this year, Bell will open its new sales and support facility in Singapore. It’s already opened a new business office in New Delhi and increased the size of its South American sales force.

Asked what is Bell’s current share of the market, Roberts said it depends. If one considers the “installed base”—all Bell helicopters operating worldwide today—the manufacturer has 40 percent of the market. If one considers new sales, Bell is close to 30 percent globally. If one considers deliveries, Bell has between 18 and 20 percent of the market, he said.

As for western-made heavy lift equipment, there’s not much on which to report. Erickson Air-Crane did not sell any heavy lift equipment in 2011 and declined to talk about 2012 orders because the company is in the process of going public.

Russian Helicopters JSC, a holding company of the Russian rotorcraft industry, was forthcoming about recent news. The subsidiary of UIC Oboronprom opened an office in the Socialist Republic of Vietnam and the Ka-32A11BC helicopter received a type certificate in Brazil. The company also appointed Emirates Corporation Trading Agencies to provide sales, marketing and technical support for the Mi-34C1 light single-engine helicopter. The company is actively marketing the Mi-34C1, Ka-226T, Ka-32A11Bc, Mi-171A2 and Mi-38 helicopters for rescue and firefighting roles in the Middle East and North Africa.

Russian Helicopters produced 260 rotorcraft in 2011, of which 130 are civil models intended for commercial use, according to company spokesman Roman Kirillov.

Details on the modernization of its bestseller Mi-171A2 were scheduled to be divulged during Heli-Expo. The company also intends to soon market for commercial use the Mi-38, Ka-62 and light Ansat.

Traditional markets for Russian made helicopters are India, China, South America, Africa and South Asia. “We hope to broaden activities in Europe, where the Ka-32A11BC was certified in 2009 for commercial use,” Kirillov said.

Market Opportunities

Roberto Garavaglia, AgustaWestland senior vp of marketing, with the AW189 at Heli-Expo.
The energy markets remain strong. Consequently, the offshore oil and gas business will continue to be the leading market segment for rotorcraft sales in 2012, according to several industry experts. But the experts also contend that aerial law enforcement/surveillance will see a resurgence in sales in 2012. This market suffered last year due to declining local, state and federal budgets. But budgets are expected to improve and the need for EMS equipment remains strong.

“We are in the midst of a very strong sales trend for the S-92 for offshore oil,” said Sikorsky’s Bob Kokorda, vice president of sales and marketing. “We saw a significant increase last year over the prior year. We saw an increase not only in volume but also in the number of aircraft ordered in each sale. And we are seeing new fleet buyers ordering the aircraft.”

Sikorsky declined to provide exact sales figures for 2011 and orders for 2012, but Kokorda said there has been “more than a three-fold increase in 2011 versus 2010. And we’re seeing that trend continue in 2012.”

Helicopters such as the S-92 are becoming more popular with the energy companies because rigs are being built further out into the ocean and they need transport that can carry several rig workers as far out as 200 nautical miles, he said.

Sikorsky has frequently updated the S-92 since it was first introduced into service in November 2007. The S-92 rotor protection system, which is very popular with North Sea operators, is now operating with over 98 percent reliability, Kokorda reports. The manufacturer also continues to improve the aircraft’s HUMS onboard the aircraft.

As for new opportunities, Sikorsky is tapping into the Brazilian offshore oil industry market. The Gulf of Thailand, which is opening up to oil exploration because of soon-to-be-signed treaties, and the Arctic are two other regions in which the S-92 will do well, he said.

One trend worth noting: state and local governments are buying helicopters to augment federal border patrol efforts. The U.S. government is now using unmanned aerial vehicles to patrol the southern border with Mexico and helicopters will augment those efforts, according to Foley.

The same story of need-versus-available-funding also applies to the HEMS market, which has stabilized, analysts contend. EMS grew quickly between 2000 and 2008, in part, because of changes in insurance regulations that made it easier to get into the EMS business. The market suffered during the recession, but has since stabilized, which should prompt additional sales in 2012, Royce said.

As for geographic opportunities for rotorcraft, it depends on whom you ask. North America, Europe and Latin America had 30, 30 and 20 percent, respectively, of the civil rotorcraft market, according to Honeywell’s 2011 rotorcraft forecast. But those percentages are likely to change (see page 18).

Eurocopter’s Maudet believes that sales of rotorcraft in North America and Europe will remain flat in 2012, while the biggest growth for Eurocopter will occur in Latin America, Eastern Europe, Asia and Australia.

For Bell, “we see much more aggressive movement in the Asia Pacific region, which includes India and China,” noted Roberts. Latin America will remain a good market for Bell helicopters.

Several analysts queried believe China will be good for helicopter sales, in part, because of the Chinese government announced plans to liberalize the low-altitude restrictions. But the lack of maintenance and service capabilities throughout China remains an impediment to increased sales.

“I don’t think you’re going to see large orders for rotorcraft in China coming in the next five years,” said Royce.

“Everyone keeps saying that China is open” to sales and operations of western made helicopters, said Robinson. But the operating altitudes and areas in which to operate rotorcraft “is still very restricted,” he said. “China is expected to go through another ‘evolution’ in 2015. We will see,” he added.

Robinson Helicopters sold several helicopters to Australia, New Zealand, Brazil, South Africa and Russia, and the company expects these countries will continue to buy its equipment, said the president.

Pent up demand in the corporate world, continued need for offshore transport by the very profitable oil and gas business, and the slow recovery of EMS, law enforcement and other sectors will most likely make 2012 a better year for makers of commercial rotorcraft. But we’ve heard that message before. For now, the safest prognosis is cautious optimism.

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