Security, Tax Breaks Buoy U.S. Corporate Sector
A LUKEWARM ECONOMIC PERFORMANCE for the corporate sector in 2004 could give way to an upswing in the United States this year based on security delays at commercial airports and the emergence of a new breed of wealthy entrepreneur able to purchase helicopters for personal and business use. Adding to the optimism is the continuation of a government tax break on new aircraft purchases.
HAI President Roy Resavage said he sees helicopter traffic rising as companies "readjust the parameters" for who can use the corporate aircraft, a response to continued security-related delays so common in commercial travel. "They can't afford to have a person out of pocket for that long," he said. The liberalization of the rules appears to have counterbalanced an otherwise so-so corporate performance in 2004. The overall effect tended to mask some negative consequences of the economy. Resavage said that even though several major corporations had to shut down their helicopter operations last year, there was an overall doubling of corporate flight activity due to the need to bypass commercial airport delays.
There is optimism for this year, however. "They're expecting an upswing in activity, with more flying, increases in equipage, updating and purchasing," Resavage said of HAI's corporate members, who make up about one third of the organization. The same cautious optimism was reflected in two independent outlooks presented at last year's HAI show: Honeywell projected a 2 percent annual compounded growth in the helicopter market from 2004 to 2011, with the corporate sector accounting for an average of 29 percent of all sales from 2004 to 2008; Rolls-Royce predicted "short term growth limited by economic confidence and fiscal prudence." The engine manufacturer concluded that corporate usage would "increasingly be recognized as a quantifiable time/money-saving measure due to airline travel delays and security concerns."
The latest delivery statistics compiled by the Aerospace Industries Assn. (for U.S. and Canadian manufacturers only) confirm that manufacturers are holding their own or increasing production in models that cater to the corporate market. Bell delivered 26 407s by the end of third quarter of 2004, the same number delivered by the end of the third quarter in 2003. The company delivered a grand total of 47 407s in 2003 and was not yet ready to disclose its tally for 2004 as of early January. Bell's third-quarter financial report was enlightening, however, referring to "higher commercial profit due to the impact of higher commercial helicopter volume," a result the company said has resulted in back orders for all models, particularly for the 407, the most popular helicopter for corporate use.
According to Bell, plans for this year include continued refinements to the 407 based on company research and suggestions by a customer advisory board, a group that includes 13 Bell 407 owners. The company said Bell has made more than 50 performance and reliability improvements to the 407 in addition customer service enhancements, to include a new training academy and a parts pulling and distribution system. The proactive effort has given Bell an uptick in corporate market share, though the company would not quantify the gain. Bell plans to have five aircraft at Heli-Expo, including a 430 and a 407 for demonstration rides.
With three corporate models--the EC120, EC 130 and EC155--Eurocopter, the dominant manufacturer in U.S. sales, continues to see its market grow. "We're seeing the expansion of the definition of `corporate' to include affluent owners who are buying for recreational use as well as for corporate transport," said Larry Roberts, director of sales for American Eurocopter, noting that the favorite of the newly affluent is the EC130. Aiding those buyers and others is the U.S. government's bonus depreciation tax break, which has been extended through the end of 2005. The tax relief, which allows buyers of business aircraft to deduct 50 percent as opposed to 30 percent of the vehicle's cost in the first year (but less in later years), is credited with boosting sales in the industry by as much as 30 percent. The General Aviation Manufacturers Assn. said the impact has been about $2 billion in revenue since the enactment of the law in May 2003. Roberts calls it "the biggest driver in the corporate market in 2004."
Eurocopter plans to bring five aircraft to the show, including a corporate EC120 and EC130. The company will not be bringing its high-end corporate offering, the EC155, though Roberts said Eurocopter plans to put a renewed marketing focus on that sector this year, deepening the already fierce competition with the Sikorsky S-76.
For its part, Sikorsky plans to bring VIP mockups for the S-76 and the S-92 to the show, along with announcements for new corporate contracts for the S-76. Sikorsky officials said they expect continued strength in the corporate market, about which they are "very optimistic." AIA reports that Sikorsky had delivered a total of 20 S-76 helicopters by the end of the third quarter in 2004, compared with 14 by the end of the third quarter in 2003, and 23 in total for the entire year. A total of two S-92s had been delivered by the end of the third quarter. Sikorsky said it has completed one VIP S-92 and others are under way.
AgustaWestland reported that 75 out of 118 helicopters delivered in 2003 were to the corporate market, and they expect the 2004 figures to be consistent with the 2003 results. A company officials said that 2004 "was a very good year" for the A109 Power and that "we think the Power will remain one of the best selling light twins worldwide in 2005." AgustaWestland is selling in U.S. dollars, which makes the Power's price "very competitive," he said. Deliveries of the A119 Grand to VIP and corporate customers, including U.S. executives, are scheduled to start this year, he said.
The Anglo/Italian company expects to announce its 2004 results at Heli-Expo.
Other than the omnipresent specter of a souring economy, Resavage said access to airspace is a key issue facing the corporate sector this year. Highlighting the issue is the continued deployment of temporary flight restriction areas that preclude non-airline operations--one of the most recent having been an 8-hr. restriction to VFR and some IFR flights in a large swath of airspace around Washington, D.C. during the Bush inauguration Jan. 20--remain a challenge for operators. On a positive note, Resavage said the rising insurance rates of previous years do not appear to be an issue in 2005.