By John Persinos | April 1, 2009
As the entire aviation sector grapples with uncertainty, the industry’s decision-makers are trying to play soothsayer. But Aviation Today, the online portal for Rotor & Wing, saved you the trouble of gazing into a crystal ball.
Renowned aviation experts discuss the surprisingly sanguine outlook for the civilian and military helicopter markets.
The Web site gathered three of the most influential analysts in aviation for a recent webinar, "Aviation in 2009: Predictions for The Challenging Year Ahead." On the speaker panel were Richard Aboulafia, vice president of analysis, The Teal Group, Fairfax, Va.; Michel Merluzeau, principal, G2 Solutions, Kirkland, Wash.; and Oscar Garcia, chairman, InterFlight Consulting (IFC), Miami, Fla. The webinar, held live in February, was recorded and archived on Aviation Today, where it’s still available for registration. I moderated the proceedings.
As the three speakers made clear, the aviation industry experienced a tough year in 2008 — to put it mildly. Readers already know the damning bill of particulars: global credit crisis, Wall Street meltdown, economic recession, volatile fuel prices...the list of woes goes on and on.
And therein lies the paradox: Despite the grim news, many profit-making opportunities still exist within all sectors of aviation, especially in rotorcraft.
Now, on the cusp of 2009, helicopter experts and insiders of all types are wondering: what can we expect in the year ahead? This timely webinar brought together three informed analysts who examined the major events of the past year and, from this examination, drew lessons that shed light on 2009.
Below are excerpts of the hour-long discussion that directly pertain to the rotorcraft market.
Persinos: The military rotorcraft market is still growing and the civil market also is staying at a relatively high level of growth.
Aboulafia: The civil market will dip in the next couple of years [see graph at right]. That dip might get steeper this year. We don’t know the fallout of today’s economic indicators. We don’t know what will happen with oil and gas transport, air medical, all of these look like weak segments. However, the para-public sector looks like it will hold up, partly due to stimulus packages.
The military rotorcraft market, by contrast, looks excellent. There are long-term pressures on U.S. military rotorcraft spending, particularly because after you do the current generation of helicopters, what do you do for an encore? That might reduce numbers in the long-term. But right now, there’s fantastic business to be done in military rotorcraft for the next few years.
Garcia: As Richard said, the civilian rotorcraft market looks steadier than the general aviation industry. The key is utility aircraft. What happens is that civilian rotorcraft are less coupled to air transportation and more coupled to special needs and other uses that are less sensitive to prices or consumption.
Persinos: Michel, what about market performance versus business aircraft deliveries?
Merluzeau: We all know there is always an element of correlation between Wall Street’s performance and business jet deliveries. Now if the indicators are there and we’re looking at the Dow-Jones Industrial Average collapsing, I’m predicting a 30 percent-plus reduction in deliveries over the next few years. We should see a significant drop that should bring us back probably to where we were in 2003 or 2002.
Persinos: I attended the Eurocopter press breakfast at Heli-Expo in Anaheim in February, and the CEO of Eurocopter said that because of the worldwide stock market collapse and the decline of global wealth and the curtailment of wealthy lifestyles, they expect sales of executive/VIP helicopters to take a steep plummet in 2009 and what’s going to keep the company afloat are military sales.
Merluzeau: Let’s also come to the defense of business aviation here. I think we’ve had some very irresponsible politicians making some very irresponsible comments in their attacks on some segments of corporations that are using business aircraft. Business helicopters are not a luxury. They’re a tool of business, of everyday business. And to attack the use of business aircraft so naively as we’ve seen in some corners of Capital Hill is, I think, a grave mistake that will cost us jobs in the U.S. and overseas.
Persinos: You’re exactly right. It’s cheap political theater and it’s demagoguery and it’s just an easy target.
Garcia: Coincidentally, today I read in some of the trade journals that the Obama administration has to re-approve the accelerated depreciation schedules and the carryover from last year and even bonus depreciation for the potential use of business aircraft. I think that’s the answer; the new administration has realized that that was a reactionary response. And with today’s announcement, basically they’re bouncing back again for business jet use and with all the tax benefits, not only the ones we have but they’re exploring new ones to stimulate the industry. Fortunately, business aircraft bashing seems to have been short-lived.
Persinos: Let’s discuss defense spending and how it might boost the overall helicopter industry.
Merluzeau: Do we think Obama is going to cut defense in this economy? Of course not. We’re still at war. We’re shifting our resources in Afghanistan. There are varying scenarios that range from the apocalyptic to the conservative and defense spending will increase, regardless. I think there are some programs that are at risk like the next generation bomber, for example, but overall I think we’re on a trend towards a measured, contained growth for the next three to four years.
"Right now, there’s fantastic business to be done in military rotorcraft for the next few years."
– Richard Aboulafia, vice president of analysis, Teal Group
Aboulafia: One of the key distinctions, I think, in defense spending coming down the pike is the jobs heavy production programs, platforms, vehicles, things like that and programs that represent new technology. Net-centric programs; future combat systems.; missile defense. They’re probably more at risk because they don’t really provide much by way of an economic stimulus. That’s something that you might want to watch for moving forward.
Persinos: What about Unmanned Aerial Systems?
Merluzeau: Unmanned systems will probably be one of the bright spots as far as new programs. They’re only going to grow in terms of roles in operations. We’re seeing some interesting new programs that are going to pick up next decade. Unmanned Aerial Systems have proved their value in the field. They’ve proved their value overall as a tool of warfare. Now what we’re going to see for the next generation UAS system is really more operational capable platforms where the benefits and the value of technologies and the benefits of unmanning things will be fully exploited.
I think Predator was an accident of history. It just happened to be there at the right time. That’s how it made a name for itself. What we’re going to see in the next decade is really very capable next-generation hunter-killers. UAS innovation will grow and it will be a driver for defense spending and the defense program.
Persinos: If more Unmanned Aerial Systems dominate the government market, will that eliminate the need for tankers?
Aboulafia: I think from my standpoint there’s a lot a UAS can do but it’s more of an adjunct than a replacement. If you look at the sorties flown by traditional attack aircraft, not a lot has changed. In other words, unless something happens that allows Unmanned Aerial Systems to make the quantum leap and dispossess larger numbers of strike planes and recon planes and whatever else, then you’re still going to need tankers. And of course, also, you look at the strategic role tankers play. It’s enormous. And it’s such an aging fleet right now that even if you were to only replace, say, half of it, you’d still better get going quickly because the majority are approaching 50 years of age.
Garcia: This is the time where I think the industry needs more activism than ever before and the drill that these associations have done since the big fiasco in politics, if you will, of the big three automotive manufacturers has been great. I encourage everybody in my universe to stand up and do something about it. We cannot accept a crumb from this stimulus package considering the impact that our industry represents.
Aboulafia: Absolutely. It’s easy to populists. There are two major threats I’m concerned about. One is the threat to free and open trade between countries. That’s a real slice of our business, given the supply chains and customer base. And the other, as Oscar said, is demagogic populism that goes after business aircraft. The economic value of business jets is now about one-third the value of Airbus and Boeing jets. It’s a huge industry and we need to make sure it isn’t vilified.