It probably is appropriate that this industry forecast is being written several weeks after Halloween. As we look down the shadowy lane of 2003, a year predicted to be economically flat for the civil aviation market, we see light glimmering in distant 2004. But we also are mindful of an ominous war-in-Iraq goblin ready to jump out in our path.
Under normal circumstances, the civil aviation industry’s fortunes would be fairly easy to forecast. The industry routinely advances through economic cycles, and its financial health is quite closely aligned with the health of the world economy. But that goblin remains out there. One analyst recently gave a fairly predictable, civil industry forecast, but concluded by saying that if the United States enters into war with Iraq, "all bets are off."
Regardless, Avionics Magazine offers its annual outlook of the aviation industry in general and the aviation electronics market in particular. It does so with the assumption that if the United States and its allies do invade Iraq, the conflict will be brief and not cause the global economy to collapse, fuel prices to skyrocket or terrorism to intensify. It also looks at the military marketplace, which clearly is expanding, as the world becomes more volatile.
Our data comes from various sources: Boeing, Honeywell, Forecast International/DMS, the International Civil Aviation Organization (ICAO) and others. However, the bulk of our information comes from the aerospace industry analysts with Frost & Sullivan (F&S).
Most U.S. carriers still are bathing in red ink, and this has affected new aircraft sales. The impact of Sept. 11, 2001, lingers and, combined with a sagging world economy, continues to stifle growth for airlines. The growth rate for 2003 is expected be negative–minus 4 percent for the airlines–according to Michel Merluzeau, a senior consulting analyst-defense and aerospace with F&S. However, major industry suppliers believe (or certainly hope) the market will hit bottom in 2003. Indeed, the active worldwide fleet has been expanding (after many aircraft were mothballed following the 9/11 terrorist attack) and is near the pre-9/11 level of some 14,700 aircraft.
ICAO officials believe global passenger traffic "stabilized" in 2002 after 9/11 and will rebound with 7.1 percent growth in 2003, followed by further growth of 5.6 percent in 2004. ICAO’s optimism is based on the view that "the economic slowdown has bottomed out, mainly in the United States and to a lesser extent in Europe and some countries in Asia, [and that] economic growth therefore is expected to start regaining momentum," according to an ICAO forecast.
And longer-term estimates for the air transport market appear brighter. "By 2004 and 2005, we see a serious uptick," says Merluzeau, "with a growth rate of 3 to 4 percent annually for airlines through 2007." This, in turn, should encourage airlines to buy aircraft. Over the next 20 years, Boeing forecasts $4.9 trillion in new airliner sales and predicts the commercial fleet will double to almost 33,000 jets.
But Boeing also notes a shift within the air transport market. "Passenger preference for more frequent, nonstop flights with shorter trip times, will continue to drive market evolution and airline strategies," says Randy Baseler, Boeing vice president-marketing. Supporting evidence is Boeing’s prediction that 75 percent of new aircraft sales (18,005 planes) over the next two decades will be regional jets and single-aisle airplanes. "We see market fragmentation–or point-to-point operations–continuing worldwide," Baseler adds.
Merluzeau explains why point-to-point operations are appealing to airlines and air travelers. "In the hub-and-spoke system, you have 90 percent of all commercial air traffic flying in and out of about 10 to 15 percent of the airports," he says. "If one [hub] airport shuts down, it affects flights across the country, particularly with airlines flying into the hub. For instance, if Chicago O’Hare shuts down, 50 to 60 percent of United Airlines’ flights are impacted. But Southwest Airlines flies point-to-point, and if an airport causes delays, it only impacts a small percentage of its flights. Most delays are not en route," Merluzeau adds. "They are at the airports."
Other factors contribute to the sustained profitability of Southwest and the growth of similarly run airlines, such as JetBlue and EasyJet. All three of these airlines operate a single family of aircraft. Southwest and EasyJet fly only B737s and Jet Blue, only Airbus A320s–though the UK’s EasyJet recently decided to switch models, having ordered 120 Airbus A319s. Less profitable airlines no doubt have noted the reduction in pilot transition training and support costs that EasyJet, Southwest and JetBlue enjoy.
In addition to benefiting some airlines, "standardization also is positive for the preferred suppliers," says Merluzeau. "Thales [Avionics], for example, has a lock on the avionics market with Airbus," which has standardized the cockpits across its product line.
What about revolutionary new aircraft, like Boeing’s proposed Sonic Cruiser and Airbus’ giant A380? "There’s a definite need for a 200-to-250-passenger aircraft to replace the A300 and stretch Boeing 767 and 757 and A330," says Merluzeau. Boeing argues that the Sonic Cruiser could be the prime, replacement-aircraft candidate and that its added fuel consumption (to reach near supersonic speeds) would be offset by the increased revenue gained from a greater number of flight rotations. But the wary airlines still are "trying to quantify the benefit of speed vis-à-vis revenue," Merluzeau adds. Boeing has yet to commit to the Sonic Cruiser. As for the A380 jumbo jet, F&S foresee a "limited market…no more than 500 [A380- and B747-size] aircraft sold," according to Merluzeau.
Conversely, F&S believes the rapidly growing "regional airline market will be more stable" than that of the major airlines. "The regionals serve the people who really need to travel," says Merluzeau. "These are the business travelers and the routine travelers, for example, the person who regularly wants to see his or her son or daughter, who is at a university."
Close note should be made, as well, of the Lufthansa/PrivatAir, all-business-class service between Newark and Dusseldorf. The business traveler remains the airlines’ coveted customer, and the possible expansion of such a service would not only boost airline revenue, but also widen the demand for sophisticated cabin entertainment equipment and connectivity for passenger access to e-mail and the Internet.
Business and General Aviation
The business aircraft market appears to be catching its breath after a sprint of fast-paced growth. Following record-high deliveries in 2001 (769 aircraft worth $11.7 billion), the market is experiencing a dip in corporate jet rollouts in 2002 and 2003, according to Honeywell, in its annual "Business Aviation Outlook." But the avionics manufacturer predicts steady growth in the bizjet market will resume, beginning in 2004. It forecasts an increase in corporate jet deliveries from about 700 annually today to 900 a year by 2012. That accounts for 7,600 business jets valued at a total of $121 billion over a 10-year period.
A more optimistic outlook comes from Forecast International/DMS Inc. Its survey, titled "The World Market for Business Jet Aircraft," foresees the production of 8,199 bizjets worth $135 billion between 2002 and 2011. The market analysis group bases its prediction on the success of fractional ownership and the fact that "order backlogs remain at high levels, including those for several business jet types presently in development." Proof that fractional ownership is a godsend to the bizjet market is the recent order by NetJets for about 200 aircraft, worth some $1.8 billion.
To accommodate this growing market, corporate jet manufacturers are expanding their product lines. Examples include the Cessna CJ3, Learjet 40, Gulfstream150, Dassault 900EX and Bombardier’s Challenger 300 and Global 5000. Such expansion adds new platforms for Honeywell’s Primus Epic line of avionics (in 11 models, also including a helicopter and regional jet) and Rockwell Collins’ Pro Line 21 series (in eight models).
Most bizjet sales will remain in the United States, but Honeywell expects 7 to 8 percent growth in Asia’s corporate aircraft market. F&S concurs. "Asia is becoming much more prominent, particularly in the ultra-long-range market," says Merluzeau. Growth in that market would mean added sales of the Gulfstream 550 and Bombardier Global Express–and of the head-up display/enhanced vision systems (HUD/EVS) that are to be standard on both aircraft.
Honeywell estimates that at least 80 percent of new-bizjet sales will be to replace older corporate aircraft. "Open systems architectures make new aircraft appealing," says F&S’ Merluzeau. "The benefit of acquiring a new aircraft could well outweigh the cost of upgrading [an old corporate jet]."
Another interesting development in corporate air travel is the new ultra light jets, designed for personal use. The Eclipse 500, Maverick Twin Jet and Cessna Ultra, for example, "could look very attractive to King Air operators," says Merluzeau. Honeywell, too, notes the ultra light jets in its forecast, finding that 10 percent of the owner/pilots surveyed expected to purchase these aircraft during the next 10 years, and 13.5 percent of the corporate flight departments stated at least a 76 percent probability of adding small jets to their fleets.
These ultra light jets probably will further stall the sagging turboprop market, which has not seen growth in years. U.S. General Aviation Manufacturers Association (GAMA) figures for the first half of 2002 show corporate jet deliveries dipping by 10 percent, to 357 aircraft, but turboprop deliveries plummeting by nearly 50 percent, to 111 aircraft.
"It could be a creation market," drawing new customers to corporate jet travel, says Merluzeau of the ultra light jets. For avionics manufacturers, this new breed of aircraft creates the challenge of producing inexpensive systems that are easy to use yet almost as capable as the systems in large bizjets.
Other new entries in the small, personal aircraft market indicate that avionics manufacturers are meeting that challenge. Consider, for instance, Cirrus Design Corp. and Lancair Group Inc., manufacturers of piston-powered craft that have near twin-turbine aircraft sophistication in the cockpit. These single-engine aircraft provide significant situational awareness, thanks to integrated avionics, multifunction displays, GPS receivers and Goodrich Stormscopes. The Cirrus SR20/22 and Lancair Columbia 350 and 400 are "even appealing to a category of business travelers who want to go point-to-point less than 200 miles," says Merluzeau. In late 2002, Cirrus had some 320 orders for its SR20 and SR22, while Lancair, which had placed its sales effort on hold until it receives additional corporate funding, had nevertheless secured 180 orders for its aircraft models.
The growing popularity of personal aircraft, corporate jets, regional craft and other air vehicles that provide point-to-point transportation presents a challenge to the air traffic services (ATS) community, particularly in the United States. FAA Director of Air Traffic Bill Peacock told attendees of the recent Air Traffic Control Association (ATCA) conference that the changing civil fleet mix is impacting ATC in at least four ways:
It increases complexity of the en route airspace;
It potentially increases delays;
It may dilute the benefits of domestic reduced vertical separation minimum, which is to be implemented in the United States in the second quarter of 2005; and
It could exacerbate the runway-shortage problem because the proliferation of jets adds traffic to the busy long runways and makes the runways built for turboprop aircraft less useful.
Peacock adds that ATS must "work smarter" by developing new procedural tools and taking a "system approach" to airspace modernization.
As unrest in the world mounts, greater emphasis is being placed on military buildup. The U.S. Congress recently passed a $355-billion defense budget for FY2003, about $15 billion more than allocated in FY2002, which was a larger budget than the previous year. And the United States isn’t alone in escalating defense spending. France, for example, has embarked on an ambitious military modernization plan that will cost some $87 billion between 2003 and 2008. It calls for the acquisition of 57 Rafale fighter aircraft, 34 NH-90 transport helicopters and 50 Airbus A400M transport planes, as well as unmanned air vehicles (UAVs), according to a report in the Washington Post.
"Especially in the U.S. and to a lesser degree in Europe, this [military] market is entering a new technology paradigm," says Merluzeau. "The key is getting all aircraft to operate together. Mainly, it’s communications," he adds. "Data link and sensors are primary because the military does not want to use radar for situational awareness." Radar signals negate stealthiness. This emphasis on enhanced communications and sensor capabilities has, in turn, necessitated some fleet upgrades. Decades old F-16s have entered a Common Configuration Improvement Program (CCIP), involving, in part, the installation of the Link 16 multifunction information distribution system. CCIP would modernize 700 F-16s, allowing them to communicate with F-22s and Joint Strike Fighters (JSFs), among other nodes in the battlefield area.
F&S sees a strong desire in the United States to maintain air supremacy, which should spell good news for the F-22 Raptor and JSF programs. Both aircraft offer stealth and unprecedented situational awareness, with data that is fed by satellites, airborne warning and control systems (AWACS) aircraft, UAVs, ground personnel and other aircraft and fused to present pilots with a clear view of threats and the battlefield environment.
Among other trends in military modernization are open systems architectures, to allow growth in the aircraft’s capabilities, and modular system architectures, to allow the interchangeability of components.
Worldwide, Forecast International sees a growing need for special mission aircraft: tankers, airborne early warning (AEW), antisubmarine warfare (ASW) and aircraft providing electronic intelligence and/or signal intelligence (ELINT/SIGINT). The analyst group cites the U.S. military’s desire to update or replace the E-2C AEW aircraft and replace the P-3C maritime aircraft. It notes, as well, Germany’s and Italy’s quest for new maritime planes. All told, the group foresees the production of 429 special mission platforms worth $40.25 billion through 2011. Much of that amount accounts for the U.S. and UK requirement for new tanker fleets (see page 18).
F&S divides the rapidly mushrooming UAV market into three sectors: intelligence, surveillance and reconnaissance (ISR); lethal (or armed); and commercial. The ISR UAV market is "the most mature," says Merluzeau. And the move toward network-centric warfare, planned by the U.S. Department of Defense, should secure its steady growth. ISR UAVs proved to be highly effective in Kosovo and Afghanistan and probably would be used extensively in Iraq.
As for the lethal UAV market, Merluzeau believes that, though these vehicles have been used (for example, recently to bomb a vehicle suspected of transporting terrorists in Yemen), there remains the question of when the man is and is not in the loop in terms of the decision to fire weapons. And the widespread use of commercial UAVs "won’t emerge until 2005 at best" because the marketplace is "still looking for applications," Merluzeau concludes.
Overall, UAV market growth shows no sign of subsiding. NASA is creating a UAV center to advance commercial UAV technology. Boeing has established an Unmanned Systems unit and anticipates it will enjoy double-digit annual growth during this decade. Such an evolution will reward the manufacturers of ruggedized, miniature electronics.
The IFE Market
Following double-digit growth in 1999 and 2000, the in-flight entertainment (IFE) industry has suffered a post-9/11 decline in business, along with its customers, the airlines and airframe manufacturers. Airframers continue to install IFE systems in many of the aircraft rolling out of their plants. However, as fielded aircraft have been mothballed after 9/11 and airlines are still in the red, the retrofit market is in the doldrums and probably will remain so in the near future.
The IFE industry witnessed virtually no growth in 2001; it saw negligible growth in 2002 and probably can expect little change in 2003, according to the industry analyst group, Frost & Sullivan (F&S). Not until 2006 will the industry see double-digit growth again, F&S predicts.
To view in detail the IFE industry’s prospects, Jerry Weltsch, senior consulting analyst for F&S, divides the market into four segments: integrated systems, in-flight subsystems, content and in-flight telecommunications. He claims there are "subtle differences" in the forecast of each segment. Here is how Weltsch sees the IFE market outlook and market share distribution in commercial aviation:
The integrated IFE systems market suffers most from the drop in retrofit installations. Matsushita Avionics Systems Corp. and Rockwell Collins Passenger Systems dominate the integrated IFE market in the commercial aviation segment, each holding about a 45 percent share, according to Weltsch. Thales Avionics-Inflight Systems ranks third with a nearly 10 percent market share, and there is a small contender, Delta Beta. Weltsch sees little shift in market share among the competitors. Will the emphasis on shorter routes and more point-to-point air travel adversely affect the IFE market, which better serves the long-haul carriers? "It depends on the airline’s philosophy," says Weltsch. Southwest Airlines, for example, offers no IFE service; however, a comparably managed airline, Jet Blue, offers LiveTV’s 24 channels of DirecTV. Recognizing a shift in air travel preference, IFE equipment providers are emphasizing systems that fit in narrowbody aircraft.
In-flight subsystems–which include head-end source equipment, Ethernet connectivity infrastructure, audio and video players, camera systems and power sources–receive a "mixed" economic rating. "In-seat power is the part of this market that currently is growing most rapidly," says Weltsch. "Some airlines are installing it in first class and business class, and a few are even offering it in coach." General Dynamics Advanced Information Systems is the main provider of in-seat power and Ethernet infrastructure for laptop connectivity, he adds. But its market share "probably will slowly erode, as [German-based] KID-Systeme, an EADS subsidiary, works closely with Airbus." Meanwhile, the market for audio and video players is giving way to digital content media. "Also we may find that future content will be delivered primarily via satellite…of course, we’re talking five to 10 years from now," says Weltsch.
In the content market, there is a "movement from disc and tape-based content to digital content," says Weltsch. "All three major IFE companies have integrated systems that accommodate digital audio and video. These are being installed in new aircraft, but there’s no retrofit market as yet.
In telecommunications, voice telephones in airliners are shrinking in number, being money losers. AirCell plans a unique service, allowing passengers to use their mobile phones, "but the FAA has yet to approve such systems, and it may take time for airlines to warm up to the concept," says Weltsch. "Would there be talking and non-talking sections in the airplane?" he asks. Meanwhile, two major players, Tenzing Communications and Connexion by Boeing, compete in the airborne data communications (e-mail and Internet) market, aiming for wideband connectivity. "Unless these companies reach economies of scale, their future remains in doubt," says Weltsch. "My prediction is the business passengers will use it because they can expense it, but [data communications] may not have mass market appeal." Finally, Weltsch sees promise in in-flight direct broadcast satellite (DBS) television, when the airlines begin to recover. JetBlue offers LiveTV’s in-flight television system and service, which deliver 24 channels of DirecTV on its entire fleet of more than 25 A320 aircraft. JetBlue recently acquired LiveTV (originally formed jointly by Harris Corp. and Thales), which has secured at least one other customer, Frontier Airlines, for its A319s.
In the business aircraft market, Weltsch sees a relatively moderate slowdown in IFE equipment sales, compared to the air transport market. He predicts less emphasis on entertainment systems–DVD and CD players probably will suffice–but greater emphasis on telecommunications. "Unlike in commercial aircraft, telephones and fax machines are important in bizjets," says Weltsch. Internet and e-mail connectivity will mushroom initially in business aircraft. Weltsch notes Airshow’s prominence and focus on the bizjet market. Collins acquired the company and introduced its Airshow 21 connectivity package at the 2002 National Business Aviation Association (NBAA) show. Collins plans to market this system to the bizjet sector in conjunction with its Pro Line 21 avionics system. However, other companies are aggressively pursuing this market as well, including Teledyne Controls, Connexion by Boeing, Honeywell and Universal Avionics.
A Systems Outlook
What systems and technologies show more promise than others in market growth? The consulting and analysis group, Frost & Sullivan (F&S), looks not only at the overall avionics marketplace but also conducts surveys of individual segments. Michel Merluzeau, F&S senior consulting analyst-defense and aerospace, comments on several of those segments.
Other than video cameras mounted near the cockpit door, cabin surveillance systems will have less than widespread acceptance, according to F&S. "It’s an information tool, but it won’t necessarily get rid of a problem," says Merluzeau. "The question is, ‘what does the pilot do with the information?’ He can’t leave the cockpit."
However, two technologies could provide air traffic control (ATC) with a quick alert of a problem in an aircraft, according to Merluzeau. One is controller-pilot data link communications (CPDLC), with which the pilot can communicate the alert–even secretively. The other is automatic dependent surveillance-broadcast (ADS-B), which would quickly reveal to controllers any dramatic diversion from a flight plan.
Head-up displays (HUDs) have become a valuable safety tool in business jets, which often operate in secondary airports that are sometimes unfamiliar to the pilot. Further growth in this market is likely for regional jets, which often operate in secondary airports. However, though HUDS have found their way into some air transport cockpits–in Southwest, Alaska Air and Horizon Air aircraft–their acceptance among major carriers that routinely operate in well-equipped airports probably will remain marginal, says Merluzeau.
Added features could enhance HUD acceptability, even among major carriers, according to Merluzeau. "Now [the HUD] repeats what is on the panel display," he says. "It has to do more than that. Additional information, such as cues on the taxiways using synthetic vision, will make HUDs more appealing." That, he adds, and a lower per-unit price tag.
Enhanced Vision Systems
Enhanced vision systems (EVS) can be a HUD enhancement. HUD-EVS is being introduced in high-end bizjets, such as the Gulfsream 550 and Bombardier Global Express. These systems probably will be installed in other business aircraft, but Merluzeau sees little demand for HUD-EVS beyond the bizjet market. Commercial carriers probably will seek greater situational awareness with systems such as ADS-B, he concludes.
Flight Management Systems
The regional airline market, with the influx of jet aircraft, should significantly boost the sales of flight management systems (FMS), says Merluzeau. These useful tools have even entered the general aviation market. They are "key" to CNS/ATM (communication, navigation and surveillance/air traffic management) and mandatory for required navigation performance (RNP), he adds. (The FAA initiated a public RNP program last year.)
However, for the regional market, flight management systems "need to have more functions [than general aviation]," says Merluzeau, "such as ILS-like guidance, more memory, more route storage and, eventually, be LAAS- [local area augmentation system] and WAAS- [wide area augmentation system] capable."
The market for inertial nav systems (INS) with ring laser gyros (RLG) probably will suffer a slow decline–not because the RLG INS isn’t a popular item in air transport cockpits, but because its reliability has improved, negating replacement, and it costs less, due to improved manufacturing methods, according to F&S. Merluzeau adds that manufacturers believe the RLG INS will give way to new technology–perhaps to systems with fiber optic gyros–by the next decade. He says the integration of GPS and INS will become more prominent in commercial aviation.
F&S sees considerable promise in automatic dependent surveillance-broadcast. For the commercial operator it offers a means of traffic separation both in the air and on runways. Combined with synthetic vision, which Universal Avionics recently introduced in its Vision 1 database and display, ADS-B could provide considerable situational awareness and negate the need for systems, such as HUD-EVS, according to Merluzeau.
Special thanks for most of the data in this article goes to the consulting and analysis firm, Frost & Sullivan (www.frost.com).