Looking Forward

Forming new cross-regional alliances with competitors for joint ventures, collaborative partnerships in R&D and assembling and testing new platforms, is likely to be the way forward

Global helicopter manufacturers are facing a market that in many ways is at crossroads. A few months ago, market research reports had painted an almost perfect picture for the helicopter market. A similar optimism prevailed a few years ago when market trends for both civil and military helicopters that in some ways are interlinked, were showing positive growth signs. The replacement cycle of the global ageing fleet and growing disposable income in emerging markets were fuelling growth.

However, the global financial crisis has considerably downgraded the market prospects for the next 10 years. Apart from reduction in the size of fleets and enhanced spending on research and development (R&D) in the regime of alternative and renewable sources of energy to reduce the over reliance on fossil fuels, the current financial context will certainly be the biggest challenge that leading original equipment manufacturers (OEMs) will have to overcome. While these perspectives may paint a bleak picture wherein the helicopter market appears more vulnerable than it seemed, the immediate consequences affect deeply the volume of scheduled platforms to be delivered, future opportunities and ultimately the challenges in the competitors market. Most of the market research forecasts were planning the end of the fleet replacement cycle by the end of this decade. However, in the light of the financial crisis, the researchers expect the current procurement programmes, both military and civil, to be significantly reduced and delayed, leading to postponement of the end of the replacement cycle to 2020 and deferring prospects of new procurement programmes.

Exceptions to this challenge are the Middle East and Asia Pacific regions that are for now minimally impacted. However, the slow down in the growth rate in the developing markets of India and China may spell a different outcome by the end of this decade.

The military sector that represents the larger segment of the helicopter market and has largely been sustaining the rotorcraft industry since 2008 is likely to begin to decline within a few years. On the other hand, the civil helicopter market, though still a bit moribund, has stabilised and is even showing some signs of growth particularly in the emerging markets such as Asia and South East Asia, where countries are improving their capabilities with regard to homeland security to include border control, surveillance, law and order as also thrust towards offshore energy exploration. The government segment is also likely to increase in unit numbers, not only because of upcoming armed forces reduction, but also due to the fact that homeland security is a growing concern globally. As a result, the military market share is expected to diminish by 4.6 per cent. The decreasing military segment is a challenge for the helicopter industry. The OEMs will have to adapt their production to a diminishing fleet size and more intense competition against other OEMs for smaller procurement programmes. Conversely, it potentially creates interesting investment opportunities in the civil segment across the commercial and governmental sectors in emerging markets of Asia Pacific region, including Brazil, Russia, India and China (BRIC) countries.

To add to the challenges imposed by the financial crisis, there is a shift in end-user requirements that compromises procurement volumes. Research indicates that in-demand military and civil sectors will increasingly focus on multi-purpose/multifunctional platforms, which will be most in demand for both civil and military end-users, since this range includes the most versatile and technologically advanced multi-role platforms.

Apart from technical considerations, end-users have expressed their requirements to the industry by mostly selecting intermediate and medium helicopters. Budget constraints will require end-users to rationalise their fleet capabilities and optimise maintenance costs, so that the availability of the platforms is not compromised when it comes to delivering critical missions. Simpler fleet configurations would aim at generating operational and cost efficiencies, leveraging a responsive and integrated supply chain to support operations. However, modern intermediate and medium platforms are increasingly more complex to operate and maintain. OEMs should expect a growing demand from end-users for adapted maintenance facilities and training of personnel.

Considering the market opportunities stated above, traditional leading competitors such as Bell and Russian Helicopters are expected to maintain their positions in the global helicopter market. The American OEMs will continue to maintain globally their leadership for the next decade, mainly within the military field. Boeing and Sikorsky will have the most significant growth compared to other competitors due to important procurements in India and China. Russian Helicopters growth will remain steady, driven by a strong domestic market demand in Saudi Arabia, India and China. Other competitors, which include regional OEMs such as the Hindustan Aeronautics Limited (HAL), Korean Aerospace Industries (KAI) and Changhe Aircraft Industries, will progressively increase their market share during the forecast period. Similarly, the competitive landscape across the civil market will witness the growth of Eurocopter which has established a large distribution and maintenance, repair and overhaul (MRO) network, especially targeting maintenance activities across Latin America, South East Asia and Asia.

Among regional OEMs, the Korean Aerospace Industry (KAI) is developing the ‘Surion’ which is also known as the Korean Utility Helicopter in the eight-metric-tonne class.

Intended for the South Korean Army, the Surion has been selected by the South Korean Police for law enforcement duties and cargo transportation. The induction is scheduled to commence in 2014. It is interesting to note that Eurocopter is KAIs primary partner in the Surion programme—the two companies established a joint venture in May 2011 to market the helicopter for export beyond South Korea. In India, HAL is also active in the rotorcraft market and its product line features the advanced light helicopter (ALH) Dhruv which has a certified civil version. The company has delivered more than 100 Dhruvs since the helicopter entered service, with most going to the Indian armed forces. The Dhruv has been garnering increasing interest beyond India, with Latin America becoming a potential market for the helicopter.