HONEYWELL HELICOPTER FORECAST 2008-2012

April 2008

Category: Helicopter Sales Forecasts

Author: Honeywell Aerospace

HELICOPTER FIVE-YEAR PURCHASE FORECAST
4,450 New Civil Helicopters through 2012 with continued gains in demand

Honeywell’s tenth Turbine-Powered Civil Helicopter Purchase Outlook projects deliveries of roughly 4,450 new civil use helicopters during the five-year period 2008- 2012, driven in part by strong demand for light single and intermediate twin-engine models offering newer technology.

Corporate, emergency medical services (EMS) and law enforcement helicopters combined are expected to account for more than 65% of all new civil rotorcraft sales during the five-year forecast period. Some key findings revealed by the annual survey of civil helicopter operators’ purchase expectations follow:

• Estimated Civil helicopter deliveries were up 25-30% in 2007 and are expected to rise again in 2008, as helicopter manufacturers increase production to satisfy demand for new aircraft globally.
• Civil helicopter sales during the five-year period 2008-2012 are predicted to be up to 50% greater than in the five-year period 2003-2007.
• Global demand could exceed 10,000 new civil helicopters during the 2008-2018 period.

“Honeywell Aerospace’s 2008 survey has reaffirmed avionics capabilities, performance and power, along with cabin volume as the top criteria operators consider when selecting new helicopters,” said Mike Cuff, Honeywell vice president, Helicopters & Surface Systems. “The decision to acquire new helicopters is driven primarily by the age of current aircraft which is usually reflected in an operator’s desire for better technology, more range, more power, cargo or passenger capacity and lower operating costs. Survey results have now improved for the last five years, and OEMs report strong sales activity supporting our view that helicopter demand has great long-range prospects in a growing global economy.”

Near-term increase in demand is supported by ongoing strong worldwide demand for corporate, EMS, law enforcement, oil and gas and utility helicopters, expanding economies in emerging regions, the strength of many international currencies and continued exploration and support activity in oil producing regions.

“The 2008 outlook projects annual turbine helicopter delivery levels exceeding 800 units in the near-term, with survey findings indicating that latent demand could drive rates of over 1,000 units a year even if capacity limits are not encountered,” Cuff said. “The gains seen in the 2008 outlook are also supported by potential new OEM entrants offering affordable high value platforms stimulating demand, and drawing new operators into the turbine segment.”

PURCHASE EXPECTATIONS SURVEY
The tenth worldwide survey of civil helicopter operators’ future purchase plans builds on last year’s outlook with much stronger demand for new aircraft over the next five years. Purchase expectations rose about 20% measured on the basis of specific new Helicopter purchase plans in 2008 over 2007 levels. In terms of fleet replacement and addition percentage, the 2008 results were up roughly four points on top of a five point gain in 2007.

The survey continues to show that there was little trade-up expectation among the world operator base. Around 80% of new purchases will be made to replace older aircraft in the same size/capability and price class. Only about 16% of operators plan to trade-up to more expensive and capable machines. The only segment with significant trade-up aspirations is the Light Twin class with 53% planned trade-even purchases and 47% trade-up plans into the medium twin class.

Buyer interest continues to improve broadly and there is no indication that a demand decline is likely to occur in the near future. These findings are based on inputs from over 1,000 flight departments. “Honeywell’s global demand projections now stand at over 10,000 new Helicopter deliveries in the period 2008-2018 reflecting industry conditions that have continued to strengthen over the last five years,” Cuff continued.

REGIONAL SUMMARY
North America continues to provide the greatest share of demand for new helicopters for sale, accounting for 40% of planned future purchases, a slightly lower share to last year’s outlook. Buying plans were up again in this year’s survey compared to 2007 and 2006, with most of the improvement traced to increased purchase plans for light twin models as a class and corporate end-use applications. Survey responses indicate that North America will still predominate in the purchase of light single-engine helicopters.

Avionics capabilities, aircraft age, new technology (especially engines), operating costs, cabin volume and fleet commonality were the most frequently mentioned factors by North American operators as to their reasons for planning to purchase new aircraft.

The survey shows continued improvement in European purchase expectations, moving up to nearly 27% fleet replacement/expansion rate in 2008 over 20% in 2007. Broadly distributed buying plans again favors multi-engine machines compared to last year. Survey responses suggest that about 20% of world new turbine-powered helicopter sales will occur in Europe during the next five year period, an improvement of several points over the 2006 survey share.

Some of the gains are attributable to emerging growth in Eastern Europe and Russia as well as the strong Euro. European operators cite regulatory requirements and avionics capabilities as the top reason for acquiring a new helicopter after age. Other important factors are new technology engines, cabin size, performance, reliability and operating cost reductions. The general utility and corporate use categories were most frequently mentioned by European respondents followed by EMS, and law enforcement.

On the basis of the equivalent percentage of fleet to be replaced or expanded, Asia, Oceania, Africa and Middle East together have maintained consistently high purchase expectations for the last five years. Operators in these regions expect to purchase new helicopters equal to 32-37% of their current fleets during the next five years for replacement and fleet addition. Over the next five years, we estimate that up to 22% of total world new helicopter sales will be to customers in Asia/Pacific, Africa and the Middle East.

About 65–75% of future demand in these regions is expected to be for multi-engine craft. As in other regions, operators cited avionics capabilities, new technology engines Cabin volume/payload and fleet commonality as key reasons for replacing current helicopters.

In Asia/Pacific, close to 37% of expected purchases will be for corporate applications, followed by oil exploration and support helicopters at 17-18%. In Africa/Middle East, oil and gas exploration applications remain most frequently mentioned at just over 42%, followed by corporate uses at 26%.

Latin American expectations fell more than 10 points in last year’s survey after posting a record level in 2006. This year purchase plan levels rebounded to 33% just edging the 2006 level for a new high for the region. Since overall buying plans in the region are relatively high, purchase expectations as percentage of current fleet, coupled with the relatively smaller fleet in this geographic zone, brings Latin America’s total share of projected world new helicopter demand to just under Europe’s and on par with Asia/Pacific.

This region is expected to account for about 18% of expected five year world demand for new helicopters, up about 4 percentage points from the lower 2007 survey projection. Approximately 50% of expected new aircraft demand in the region is for single- engine helicopters. Once again, avionics features, and modernized engines. Corporate end use continues to be far and away the most popular application for new helicopters planned for purchase in Latin America at a 74% level, while oil and gas support rebounded from unusually low interest levels in 2007 to a more reasonable 11% share of demand in the 2008 survey.

CORPORATE USE HELICOPTERS
Corporate and general utility were the leading applications for which operators said they would purchase new helicopters in the 2008 survey. The corporate segment, the largest use category, totaled 38% of the projected new turbine helicopter sales. Substantial demand exists for new corporate use helicopters in nearly all world regions. Over 70% of all demand in Latin America is for corporate use machines (noted above), followed by Europe at over 40%, Asia at nearly 37%, Africa/Middle East at 26% followed by North America at an increased rate of 20%.

PLANNED TURBINE HELICOPTER UTILIZATION RATE GROWTH
Overall, respondents reported using their turbine-powered helicopters between 430 and 580 hours during the past 12 months. The averages are higher in emerging high growth regions despite high fuel costs. Use rates vary by region, with the highest utilization rates in Africa, Middle-East, Asia and Latin America and the lowest in Europe.

Compared to the 2007 survey, reported usage rates softened in North America (-11%), rose strongly in Latin America (+28%), increased in Africa/Middle-East (+6%) and in Europe (+9%). Average usage in Asia Pacific was off modestly (-6 %). Increased fuel costs experienced during 2007 may be a factor in the utilization declines in North America. Only the Asia/Pacific region result seems contradictory, given the regional construction boom, as well as natural resource exploration and support activity.

Survey data clearly indicates that on a global basis, the vast majority of operators plan to use their aircraft at least as much as, or more than, they did during the past 12 months. In North America and Europe, 96% of respondents expect their utilization to be the same or greater than the prior 12 month period. Looking ahead, nearly all Latin America operators polled indicated that utilization would remain steady or rise again this year. Estimates for aircraft utilization growth in Africa and the Middle East and Asia/Pacific operations run in the 93-97% range. All three regions have strong percentages of operators planning to increase utilization rates.

Based on survey responses and the fleet distribution in each region, Honeywell projects flight hours will remain at healthy levels assuming fuel costs remain near current levels or fall, with growth likely compared to last year depending on regional economic conditions. This assumes that no new legislation or regulations are enacted that would further restrict airspace access or create new economic burdens on operators.

More information from www.honeywell.com

Note: This is an edited version of Honeywell’s 2008 Turbine Powered Civil Helicopter Outlook. The Outlook is based on Honeywell’s recently conducted customer expectations survey, an assessment of consensus forecasts, review of factory delivery rates and analysis of future new helicopter introductions, and excludes uniformed military demand for civil helicopters but resulting civil estimates do include government and security force demand.

This year’s survey queried over 1,000 chief pilots and flight department managers of companies operating over 2,500 helicopters worldwide. The survey detailed the types of aircraft operated and assessed specific plans to replace or add to the fleet with new aircraft. The 2008 outlook presents a snapshot of the helicopter business at a point in time and does not reflect unforeseen events such as an unexpected economic downturn, sharp increases in fuel costs, a fuel availability crisis, imposition of heavy user fees or other unfavorable regulations/taxes that could affect results in future years.

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