Bell Helicopter has no intention of taking its foot off the gas when it comes to new product development, CEO John Garrison told AIN. “We’re not cutting back on our investment accounts. Our IRAD [internal research and development] spending is actually going up slightly this year. We’re not cutting investments and we are working hard to drive productivity and drive out underlying infrastructure costs so that we can continue to fund the investments we know we need to make to be successful in the future.”
He stressed that Bell is not delaying new programs either, in particular the new 525 Relentless super-medium twin, even in the face of the lagging global economy and lower oil prices. That helicopter has been assembled, is currently undergoing safety-of-flight testing and should make its first flight within weeks. Garrison also noted that the new Bell 505 light single, which made its first flight on November 10, already has attracted 300 letters of intent from buyers and is a potential candidate to replace the U.S. Navy’s aging fleet of 119 Bell TH-57 Sea Ranger trainers, derivatives of the discontinued Bell 206. “We think the 505 is going to be very strong with the turbine training segment,” Garrison said. “We think the autorotative capabilities of the aircraft, given its 206 L-4 drive train and components, are going to be quite strong and it will be an excellent VFR trainer.”
Bell and lead partner Lockheed Martin were also selected by the U.S. Army last year to build a Joint Multi-Role Technology Demonstrator (JMR-TD) to fly by 2017, part of the Pentagon’s Future Vertical Lift (FVL) program. Bell is fielding its V-280 third-generation tiltrotor in a two-way competition with a team from Sikorsky and Boeing that could eventually lead to orders for up to 4,000 aircraft.
Garrison said Bell began positioning itself for the current new helicopter sales downturn in late 2012 when the U.S. military’s planned order reduction of Bell/Boeing V-22 tiltrotors–Bell’s largest program by far, accounting for more than one-third of the company’s total revenues–began to take shape, cutting the annual production rate virtually in half from 40 in 2013 to 37 in 2014 to as few as 22 aircraft this year.
“In the world we live in today, the aircraft is in high demand on a daily basis,” Garrison said. “It’s still our largest program and it is very important. But when your largest program’s volume has been virtually cut in half, it has a pretty significant impact. The [U.S.] government is trying to get the most value for the dollars they invest. So are our commercial customers, and we’ve had to take difficult actions, including significant headcount reductions since December 2012, to adjust the size of the company for our military side of the business. Our manufacturing team also has made substantial productivity enhancements and we are working hard with our vendor and supply base. Sixty percent of a cost of a new aircraft is purchased [from suppliers]; we are working very diligently with our supply base in this zero-inflation environment to be sure that we are getting value for dollar. Those three things have positioned the company going forward.”
Bell began multiple rounds of layoffs in 2013 and 2014 involving hundreds of hourly workers and more than 100 salaried engineers in Texas and Canada and also offered buyout packages to workers age 55 and older. The total reductions represent approximately 10 percent of Bell’s total employment. Most are related to shrinkage of the V-22 program, but some also were triggered by a significant reduction of civil helicopter sales during the first nine months of 2014. “I think Bell performed well in a challenging year. The industry faced challenging headwinds in 2014,” Garrison acknowledged, attributing lower sales industry-wide to geopolitical unrest, particularly in Russia, Ukraine and the Middle East.
“We lost some sales as the result of the Russian ruble crisis in the second half of the year,” he said. Garrison also cited the “general economic malaise outside the United States” as having a negative impact. Sales picked up slightly in December and he expressed guarded optimism about 2015 sales. “Obviously time will tell, but the best predictor of commercial sales is global gross domestic product growth. It’s never a straight line. But Bell is expanding its market presence globally and we did have some nice wins in a tough market.” These include the Canadian coast guard (an order for 15 new 429 light twins), the Philippine department of national defense (eight new Bell 412EPs), Reignwood Investment in China (60 Bell 505s) and the Swedish national police (seven Bell 429s). “We’re continuing to execute a strategy to ensure that our products are competitive and upgraded and that we have the right talent in countries and regions to go after every sale possible.”
Garrison said the drop in oil prices would not cause Bell to slow the 525 program and that the current oil price environment has not produced any drop-off in sales interest in the aircraft. “People are looking at a longer-term horizon. The oil business is highly cyclical, but the deepwater rigs are multi-billion dollar, in some cases multi-decade programs. Short-term fluctuations in the price of oil do not necessarily impact these operations. If they are in production, they are going to keep producing. On the development side, the effort may be ameliorated a little bit, but for the most part they are continuing. Obviously it is a concern and it is causing operators to look at their cost structure. But we feel that we are very well-positioned with the 525 to provide added value to the operators and the end-users.”
Part of that added value could come in the form of aircraft sales bundled to pilot and technician training using new simulators from sister Textron company TRU Simulation + Training. Garrison said that Bell already had selected what is now a TRU company to build the 525 simulator before Textron bought it in 2013. (Textron formed TRU that year by acquiring Opinicus and Mechtronix and merging them with Textron’s former AAI Logistics and Technical Services division. In 2014 TRU purchased ProFlight, a Cessna CitationJet and Conquest training company.) TRU is currently building a full-motion simulator for the 525 and the 429 and a cockpit marketing simulator for the V-280. Textron Aviation, Bell and TRU also are opening a training academy in Valencia, Spain. Bell is relocating its training academy, including main flight and simulation activities, back to its upgraded campus in Fort Worth, Texas.
“The marketplace has asked for improvements in simulation training, more use of simulation,” Garrison said. “We’re expanding our training academy into Europe and Asia because customers are looking for a regional training solution. We believe that in partnership with TRU we can offer that regional training solution.” However, he stressed that TRU was Bell’s preferred, but not sole-source vendor. “We have customers with large installed bases of aircraft that are working with other companies and want to continue those relationships. We will continue to work with those companies, primarily FlightSafety and CAE, as our customers demand.”
Beyond that, Garrison said that Bell’s plate is extremely full. “We’re working on three new products and are continuing to upgrade our existing platforms. We understand that to be competitive in the marketplace you have to have competitive products.”