Forecasts: down cycle likely, but industry will rebound

 - March 30, 2009, 6:14 AM

Engine manufacturers Honeywell and Rolls-Royce expressed tempered optimism about the helicopter marketplace at February’s Heli-Expo, where each released its annual industry forecast. Both predicted a dip in deliveries and offered caveats reflecting the precarious state of the economy.

Honeywell’s annual market forecast for civil turbine-powered helicopters is still predicting flat to slightly higher deliveries between 2009 and 2013 compared with the previous five-year period, but there are potential problems. Honeywell expects 2009 to be at or near 2008 levels before a market decline in 2010, but the steepness of the drop and how long it will last are largely unknown “due to the uncertainty of the global economy,” the company said. The trough could last until 2012 and perhaps longer.

The forecast also illuminates a clear disconnect between OEM production plans and customer purchase expectations and the growth of negative market indicators, including a surge in used inventories, weak new-order intake and a lack of financing available to buyers. The precipitous drop in new-order intake, combined with an increase in delivery cancellations and deferrals, could significantly erode assumed OEM backlogs.

North America will continue to dominate the overall turbine market, accounting for 37 percent of worldwide demand, and most of that–62 percent–will be for light singles. Measured by category, expected customer demand for light singles fell the least, posting a 20-percent decline overall, driven by a drastic drop for long-cabin singles such as the Bell 407 and Eurocopter AS 350. However, the five-year demand forecast for light twins is up 23 percent, fueled by continued strong demand in Europe, where twin-engine operations are mandated for many applications.

While demand for new helicopters is unquestionably poised to decline, survey data appears to show utilization hours holding steady, with most respondents saying they will fly as many or more hours this year. However, Honeywell notes that this data might actually paint a more optimistic picture than what is actually happening in the field as all levels of government deal with acute budget shortfalls and are forced to curtail flight hours.

Rolls-Royce, in its annual 10-year forecast, foresees a market characterized by near-term softness followed by a resumption of growth. The company predicts total helicopter deliveries over the period to be 15,800, a slight increase on the figure from last year’s forecast. Forecasters point to an underlying long-term demand, in a $12 billion turbine-engine market where global markets show continued demand over the span of the forecast.

Ken Roberts, president of Rolls-Royce’s helicopter engine business, said, “The projection of deliveries in the short term shows that the industry will not escape the economic downturn, but the market will exhibit strong demand by 2013, indicative of its underlying strength.”

The civil market forecast is up 5 percent compared with last year’s, primarily due to new entry-level very light turbine helicopters. The civil segment now stands at 9,600 aircraft to be delivered over the period, with an overall airframe value estimated at near $27 billion, of which engines account for $4 billion. “With the oil and gas industry, police, air ambulance and defense ministries all looking for new, purpose-built aircraft,” Roberts continued, “the demand for and benefits of helicopter usage are clear.”

While economic pressures dampen demand from the industrialized nations, emerging markets in Asia, Africa and the Indian subcontinent are giving promise of long-term growth consistent with apparent strong economic development, the Rolls-Royce researchers found. The forecast also sees new technology driving upgrade opportunities as operators seek economic benefits from lower fuel consumption and greater safety.

JPMorgan analysts who attended Heli-Expo warned afterward that “there were several red flags” for helicopter manufacturers. “Our conversations clearly suggested to us that we could see a multi-year down cycle in commercial [manufacturing],” the report noted, “which could start as early as the second half of 2009.” The utilization numbers are trending downward, about 10 percent year-to-year, according to JPMorgan, “which again is not as bad as bizjet (down 40 percent-plus year-to-year in January) but clearly a leading indicator that future [manufacturer] demand could wane.”