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Saturday, January 1, 2005

EXECUTIVE OUTLOOK

In this fast-paced and ever-changing industry, if you don't keep up with new trends you'll be left behind. To find out what some of those new trends are we asked top industry executives the following question:

"What specific trends do you anticipate in the helicopter industry in 2005, and what effects will they have on the industry?"

Aviall: "Things Are Looking Positive"

This year, 2005, is a tough one to call, when it comes to the health of the overall helicopter industry. However, I can say that things are looking positive for Aviall in the year ahead.

One reason is our LIFT (Logistics Inventory Flight Team) program, which provides helicopter companies with a single-source, customized solution for stocking, managing and ordering parts. Thanks to program like LIFT, we have grown from a $400-million company in 2000 to one approaching $1.2 billion today. We are also putting a lot of effort into adding large OEM product lines to our offering, and negotiating exclusive agreements with suppliers and customers wherever we can. Finally, we are dedicated to delivering value to our customers and suppliers, in everything we do.

Dan Komnenovich, President and COO

Aviall Services, Inc.

CTI: "Pressure to Cut Service Costs Will Rise"

In 2005, third-party rotorcraft maintenance, repair and overhaul (MRO) providers will face more competition and pressure to reduce service costs. The sector has attracted financial investors and helicopter manufacturers, both pursuing an MRO growth-by-acquisition strategy and increasing the competition for customers. Two examples of this are Sikorsky's acquisition of Helicopter Support, Inc. and Bell Helicopter's acquisition of Edwards & Associates. The introduction of new rotorcraft with warranty or power-by-the-hour service agreements adds to the challenge facing third-party MROs.

These forces, plus additional pressure on helicopter operators seeking to cut expenses, will drive continuing cost reductions. MRO providers must find ways to help customers cut direct operating costs, either through reduction of MRO service costs or innovations such as STCs or PMAs. (A significant portion of the MRO cost to the operator is parts, so MROs can reduce parts costs and pass the savings to their customers).

Demand for MRO services increased towards the end of 2004 and should continue in 2005 globally, despite the introduction of new aircraft. U.S. MRO activity for military aircraft should result in increased revenues for MRO providers.

Michael Topa, President

Composite Technology, Inc. (CTI)

Keystone Helicopter:

"The New Business Environment Reality

Last year was a year of volatility, unpredictability and dramatic market changes for third-party maintenance, repair and overhaul (MRO) providers. This is the new business environment reality we all face, which means the best companies will distinguish themselves with diversification, flexibility and responsiveness. Commercial fleet growth for 2005 should be almost flat. Third-party MRO providers will battle for share growth with more competition from OEM-owned facilities and expanded operator capabilities. Additional competitive pressure will come from operators' newer equipment, which will require less maintenance or be covered by tip-to-tail, power-by-the-hour agreements. The result: continuing consolidation of small and mid-size MRO companies into fewer, larger, more capable companies or increasing specialization, with these companies offering fewer services but greater depth. Certification of aftermarket modifications will become even more costly and time-consuming, giving organizations with Designated Alteration Station (DAS) capability, such as Keystone Helicopter, a competitive advantage. We also expect to see a resurgence of traditional, hospital-based aeromedical programs, as the IPM model providers find it increasingly difficult to meet the technical needs of large, tertiary-care facilities.

Wulfsberg Electronics: "Homeland Defense is Good for Business"

The impact of 9/11 is being felt in the industry and at Wulfsberg. Homeland defense funds are finally reaching local public-service providers, and this has been good for business. Multi-band com-munications is now a "must have" feature for any agency required to respond to a local or regional crisis. An increasing number of operators are expanding their capabilities by combining Wulfsberg's powerful multi-band RT-5000 and P-2000 systems.

We are also experiencing a radical change in technology, with digital modulation making analog radios obsolete. This has increased the demand for aircraft-certified tactical communications products, such as those available from Wulfsberg.

Wulfsberg's large portfolio of products, which range from panel-mount transceivers to powerful remote-mount radios, ensures that a system can be designed to meet every individual customer's requirement, as well as those of a rapidly changing world.

Scott Hovelsrud,

Tactical Communication Product Line Manager

Wulfsberg Electronics

Aerospace Filtration Systems:

"Deliver Results Operators Need"

Whether in 2005, or years down the road, helicopter operators will embrace new technology if it delivers the results they need. This is why products that increase performance and decrease operating costs succeed. We have certainly found this to be the case with our Inlet Barrier Filter (IBF) systems. Our unique, desert-proven IBF systems increase performance and reduce operating costs compared to other filtration technologies available today. This is why AFS is supporting the U.S. military's deployment of helicopters in Afghanistan and Iraq with IBF systems, and selling more of these systems to law enforcement, search and rescue, and firefighting helicopter operators.

Given our own experience, I am optimistic about prospects for 2005 in the helicopter industry. Our customers are well-informed, value-driven and technologically adept. This is why they are willing to invest in products that reduce cost and improve performance, no matter what shape the economy is in.

Michael Scimone, President

Aerospace Filtration Systems (AFS)

Center Capital Corp.: "Activity's a Function of Genuine Need"

As we close out 2004 and look ahead to the New Year, we couldn't be more excited. Attendance at shows is up. So too are new financing and trade-in-related refinancing requests. While Bonus Depreciation has certainly inspired some purchasing this past year, it's even more encouraging to know that so much of the activity we are experiencing is a function of genuine need. Clearly, we've come a long way from horrendous events of September 11, 2001.

Center Capital is a relative newcomer to the general aviation financing market, but we are far from "new" or lightweight. Center, established in 1987, is a wholly owned subsidiary of Webster Financial (NYSE-WBS). As a dedicated direct lender to the general aviation industry and the owner of a single-investor portfolio, we bring to bear great financial capacity and experienced, professional representation. We value the relationships we are fortunate enough to establish and have been rewarded with an unusually high rate of repeat business.

Bill Allen, Greg Renna, the General Aviation Division support team and the rest of us at Center Capital Corporation look forward with great optimism to the New Year.

Mitchell D. Weiss, CEO

Center Capital Corp.

Eurocopter:

"Growth is Coming in U.S. Markets"

We believe that the U.S. turbine helicopter commercial market will grow in 2005 to approximately 170 deliveries, and we expect the largest growth in the law enforcement market segment. Increased municipal budgets and the stabilization of funding from the U.S. Department of Homeland Security will help spur this market segment.

EMS has been the strongest market in the industry for 2004, and this trend is not expected to change in 2005.

The corporate market is directly linked to the state of the U.S. economy: if the U.S. economy continues to recover from the downturn a few years ago, the market will experience substantial growth. The utility market should remain stable, with saturation of the tourism market.

Finally, the offshore market should experience limited growth due to evolving trends in the market. With the expansion of deep-water exploration and the consolidation of shallow-water production, offshore operators will need aircraft with greater range.

Marc Paganini, President

American Eurocopter

Heli-Dyne Systems: "Activity, Numbers Are Climbing"

The helicopter industry outlook for 2005 is positive.

There will continue to be growth in the activity and number of helicopters operating in the areas of emergency medical services and law enforcement. This growth will equate to new helicopters entering the U.S. fleet as well as a refurbishment push to keep older helicopters performing, and the conversion of existing helicopters to meet these market segment requirements. With the continued weak dollar, European helicopter operators are now looking to U.S. companies for goods and services.

There will be additional consolidations in commercial operations as well as airframe manufacturers. These consolidations will shore up some languishing businesses and provide stability for employees and vendors alike.

Technical labor costs will increase slightly while raw materials for production will continue to rise with China's infrastructure growth. China's growth will also require more helicopters. Many of the manufacturers and suppliers have already positioned themselves to benefit from this expected boon.

David R. Horton, President

Heli-Dyne Systems

Turbomeca:

"Demand for Helicopters Will Be Strong"

Concern for local and national security will continue to elevate demand for vertical-lift platforms. Global civil unrest will place heightened requirements for helicopters in support of interdiction and stabilization efforts. As these military and para-military efforts are merging, national militaries are seeking global resources and concern for national industrial independence is fading into a global marketplace. The civil market became global many years ago and engine selection has been defined by performance and competitive pricing. Airborne law enforcement, air medical services, tour operations and deepwater oil production will place strong demands for helicopters through this decade.

It is Turbomeca's primary objective to remain the world's leader in helicopter propulsion. The strategy is simple: provide the airframe manufacturers with more performance options backed by a strong global network of product support. In the United States, 100 percent of Turbomeca engines destined to equip American helicopters, will be manufactured at TM USA, Turbomeca's American site. Today 23, highly specialized engine types are operated by a world-wide network of more than 2,000 Turbomeca customers in over 140 countries.

Emeric d"Arcimoles, Chairman and CEO

Turbomeca

Precision Heliparts:

"Don't Worry About High Fuel Prices"

For Precision Heliparts, 2005 is already shaping up as a strong year. PHP already has advance purchase orders from customers scheduling parts deliveries next year, and for the first time we have signed contracts to supply Spares Boxes for international operators in 2005. I hate to use this old clich鬠but we are very excited!

The only possible cloud I see on the horizon would be the situation in Iraq deteriorating into a regional war and seriously disrupting fuel supplies. But I think that is unlikely. Everyone expects the price of oil will continue to rise, but that doesn't worry me. We all know that most helicopter operations are not discretionary --we are not going to stop forest firefighting, medevacs, or national security over the price of jet fuel. Instead, high oil prices have the opposite effect on our business, by driving more offshore drilling and new exploration.

Scott James, Marketing Director

Precision Heliparts, Inc

Simplex Manufacturing:

"Prospects Are Good for Firefighting"

Increased demand for more sophisticated technology and changes in the ways fires are fought and funded are fueling growth at Simplex Manufac-turing and may bode well for other companies in the industry. As a result, 2005 is looking promising for our sector.

Specifically, we are seeing larger budgets for firefighting, plus a tendency to attack fires more quickly and aggressively than in the past. As a result, operators are looking for newer, larger and more capable aircraft and systems.

Simplex is responding to these trends by proactively fine-tuning our product line. For aerial firefighting, Simplex is reducing the weight of its tanks by up to 30 percent, and is working to slash fill times by 50 percent or more. Clearly, there are real opportunities to be seized in 2005, and companies such as ours are moving quickly to capitalize on them.

Steven P. Daniels, President and Chief Executive Officer

Simplex Manufacturing

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