2003 HONEYWELL HELICOPTER SALES FORECAST
Category: Helicopter Sales Forecasts
Five-year purchase expectations indicate steady demand for new turbine-powered helicopters.
Honeywell has announced that its Fifth Turbine-Powered Civil Helicopter Market Outlook projects deliveries of approximately 2,600 new helicopters during the five-year period 2003-2007, driven in part by increased demand in Law Enforcement and Emergency Medical Services helicopters.
Law Enforcement and Emergency Medical Services helicopters combined are expected to account for over half of all new helicopter applications during the five-year forecast period. Boarder patrol and homeland defense were mentioned frequently as planned use for new law enforcement helicopters.
The survey reflects a 3% compounded growth rate over the forecast period and also projects a 4% increase in 2003-2007 deliveries compared to the period 1998-2002, when approximately 2,500 new turbine rotorcraft were shipped. Estimated new civil turbine-helicopter deliveries declined slightly in 2002 over the levels experienced in 2001 and are likely to dip modestly again this year.
In terms of new helicopters in North America, law enforcement received almost 40% of all mentions this year, compared to 31% in the 2001 survey and was the most frequently mentioned use segment. Increased homeland defense and boarder patrol requirements were mentioned frequently as reasons for purchase.
The emergency medical service applications jumped as well, increasing from 19% in 2001 to 30%, however, planned corporate usage fell, most likely in response to a weak industrial economy and corporate profits, and heightened shareholder and board of director /BOD scrutiny.
"The results from the Honeywell Aerospace survey show that special use helicopters like law enforcement and medical applications, fleet age and the recent introduction of important new and derivative helicopter models continue to be important factors supporting current market demand," said Mike Redenbaugh, acting president, Honeywell Engines, Systems & Services. "We are optimistic about the long range prospects and future business opportunities for helicopters in this diverse global economy."
Top demand drivers for new turbine-powered equipment are: Age of current aircraft; upgrade to newer/latest technology; more payload/useful load and more engine power (lift and altitude capability). Cabin size/comfort and fleet standardization were also mentioned frequently in this year’s survey as reasons for purchase.
"Honeywell Aerospace’s product span for this market and our ability to offer customers integrated systems, as well as avionics, aircraft systems products, turbine engines and auxiliary power units, give us a uniquely broad industry capability as a supplier for both OEMs and operators," Redenbaugh said.
Near-term stability in new turbine helicopter demand is driven by interest in new and derivative models entering service, higher purchase expectations for new helicopters to be used in homeland defense and boarder patrol roles and stable residual values of used aircraft. A modestly favorable outlook for world economic growth is also a contributing factor, however it is clouded somewhat by prospects of war in the Middle East.
The 2003 Turbine Powered Civil Helicopter Market Outlook is based on Honeywell’s fourth quarter 2002 customer expectations survey, an assessment of consensus forecasts and analysis of future new helicopter introductions.
Purchase Expectations Survey
The fifth worldwide survey of civil helicopter operators’ future purchase expectations indicates a modest strengthening of demand for new aircraft over the next five years. Buyer interest remains healthy and there is no indication that a sharp decline is likely to occur in the near future. These findings are based on inputs from over 900 flight departments in North America, Latin America, Europe, Asia, the Middle East and Africa.
Although five-year survey purchase expectations were up sharply compared to the 2001 survey, a significant amount of the higher purchase interest occurs in the out-years of the survey time frame, thus there is no indication of a near-term surge in demand.
Regulatory initiatives and proposals around the world are continuing to stimulate significant interest in twin-engine helicopters in some regions.
In Europe, two thirds of all survey expectations are for twin-engine models, while in North America, where there are no current or pending regulations requiring twin-engine aircraft, 70% of planned purchases will be single-engine craft.
In this year’s survey, less than 30% of the models operator’s mentioned for future purchase were for "all new or derivative aircraft." This is down significantly from prior surveys where 40% to 50% of model mentions usually fall into the "new" classification. The survey showed there was little trade-up expectation among the world operator base.
Approximately 80% of new purchases will be made to replace older aircraft in the same size/capability and price class. Additionally, about 10% of operators plan to trade-down to less expensive and capable machines.
North America continues to be the single largest market for new helicopters, accounting for over 40% of expected future purchases. Expectations increased sharply in this year’s North American survey, however, they are back-loaded into the 2005 to 2007 timeframe where 60% of deliveries are expected to occur, thus no surge in near-term demand is indicated. Survey responses indicate that North America will be the predominant world market for light single-engine helicopters.
On average about 70% of future new aircraft purchases in this region are expected to be light singles and there is no regulatory activity on the horizon likely to change this.
Aircraft age, newer technology, fleet standardization, the need for more payload/useful load and a desire for more powerful engines were the most frequently mentioned factors by North American operators as to their reasons for planning to purchase new craft.
The survey showed a pronounced increase in European purchase expectations, although they do not take effect until 2005. In fact, fully two-thirds of them will not be due for delivery until the 2005 – 2007 timeframe, indicating no potential surge in European demand during 2003 or 2004.
Survey responses suggest that more than 35% of all new turbine-powered helicopter sales will be in Europe during the forecast period.
European operators continue to cite evolving regulatory requirements regarding the types of equipment that can be flown within populated areas as a significant factor in replacement demand.
Accordingly, close to two thirds of future European demand for new turbine helicopters is expected to be twin-engine models. Aircraft age, cabin size/comfort, new technology, a desire for more speed and fleet standardization were most frequently mentioned as reasons for planning a new helicopter purchase.
The corporate use category jumped sharply as planned application and was most frequently mentioned by European respondents, followed by EMS, law enforcement and utility.
Asia, Oceania, Africa and Middle East
The situation in the Asia, Oceania, Africa and Middle East region is much the same as North America and Europe, a strong but back-loaded surge in expected purchases, contra-indicating a near-term surge in demand. Over the next five years, Honeywell estimates that nearly 20% of total world new helicopter sales will be to customers in Asia, Oceania, Africa and the Middle East.
About 70% of future regional demand is expected to be for multi-engine craft, however, unlike Europe the demand is expected to be much more skewed towards intermediate and heavy machines, which together account for 60% of expected demand in the region. Expected purchases of heavy helicopters were significantly greater in this region than any of the others.
Operators cited aircraft age; cabin size/comfort; payload/useful load; and need for more power/lift, as primary reasons for replacing current helicopters. Close to 30% of expected purchases will be for offshore oil applications - much higher than any other region. Meanwhile utility and corporate applications were also mentioned frequently by respondents in this region.
Latin American expectations declined noticeably in this year’s survey. They are back loaded as well, suggesting very low levels of demand for new helicopters. In fact, this region is expected to account for only around 4% of expected demand for new helicopters, which is down significantly from prior surveys.
Purchase expectations for used aircraft in this region more than doubled compared to previous surveys, indicating that underlying demand is still strong, but that many operators can no longer afford to purchase new craft and instead plan to buy used.
Latin American operators expressed deep concerns over the changing political and economic environments they are facing. They also indicated a clear preference for light single-engine aircraft. Almost 60% of model mentions fell into this category.
Additional Anecdotal Operator Comments
The value of the U.S. dollar in relation to foreign currencies was reported by some respondents as being very unfavorable, negatively impacting future purchase expectations in some world areas. For instance, the Brazilian Real was reported to have fallen 75% against the $U.S. and the Austrian currency 50%.
The cost of insurance, post 911 was also mentioned frequently by operators in some regions as having soared anywhere from 10% to 300%, pushing many operators "to the margin" or forcing them to go out of business altogether.
Most operators were quite indefinite when it came to the timing of expected new aircraft purchases. Most of the respondents in the survey who said they plan to purchase new aircraft during the next five years probably plan to do so, they just don’t have a very good idea of when it will be.
So many just give us the last year of survey coverage (2007) as the buy date. Nevertheless, we think there is some indication that a replacement cycle may begin sometime in the latter part of the decade, due to the back-loaded surge in expected buying we measured in this year’s survey.
Civil Turbine Helicopter Market Survey Results
This year’s Purchase Expectations Survey queried 926 chief pilots and flight department managers of companies operating nearly 3,085 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 2003 market outlook presents a snapshot of the market at a point in time and does not reflect unforeseen events such as an unexpected economic contraction, sharp increases in fuel costs, a fuel crisis, imposition of heavy user fees or other unfavorable regulations/taxes that could affect results in future years.
Demand for new helicopters is also highly price sensitive. Decisions by aircraft manufacturers to offer discounts or raise prices can significantly influence sales activity on affected models.
Growth scenarios over the next five years projected by the Civil Turbine Helicopter survey indicated significant trends in various market segments:
Operators continue to express a strong preference for light single engine helicopters in their purchase expectations, naming this class of aircraft 50% of the time, up six percentage points from a year ago. Popular helicopters within this class include the Bell 206 and 407, Eurocopter EC120, AS350 and RDM MD 500 and MD600 series.
Regionally, the light single class is highly popular in North America, cited in 70% of new purchase expectations. Latin American operators also reported a strong preference for this class of equipment with a 57% share of regional demand.
The next purchase expectation grouping for new helicopters remains the light multi-engine class, exemplified by the Bell 427, Eurocopter EC135, AS355, Agusta A109 series, AB139 and RDM MD 902. Expectations for the future purchase of aircraft in this segment during the next 5 years fell sharply and unexpectedly in this year’s survey (from 30.7% in the 2001 survey to 18.6%).
About half of the shift was re-distributed to light singles and most of the rest to intermediate twins. Most of the sharp fall-off in expected demand was in Europe, where expectations shifted to intermediate twins and light singles. Respondents link new light twin-engine helicopter demand to the emerging regulatory requirements for twin-engine operations within populated areas (JAR Ops3).
Asian, African and Middle Eastern expectations for light twin-engine helicopter purchases fell from 19% a year ago to 10% of projected demand in the current outlook. Much of the interest in Asia is for the next larger intermediate class of aircraft, reflecting a desire for more payload, speed and range.
Latin American operator’s preferences for the light twin class helicopters increased dramatically, to 24% from 7% in 2001, as expectations shifted away from light singles.
New intermediate twin-engine helicopters as a class received the second-highest five-year purchase expectation ranking, rising to 28.2% of all mentions in the survey, an increase of 4.5% over the 2001 outlook.
Interest in the intermediate twin class helicopter increased significantly against levels reported last year in Europe and North America, while remaining flat in Asia, Oceania, Africa and Middle East and slipping in Latin America. North American operators were the least interested in this class of helicopter, selecting intermediate twins as a new purchase choice only 18% of the time.
Purchase expectations were strongest in Asia, Oceania, Africa and Middle East, where close to 50% of future purchases are expected be in this segment. The most popular models mentioned included the Bell 412, 430 and 609 models as well as the Eurocopter BK117, AS365 series, the EC155 and the Sikorsky S-76.
Heavy Lift Helicopters
Single- or multi-engine heavy lift helicopters continue to exhibit relatively low purchase expectation scores relative to the other classes of aircraft, although their share of mentions increased to 3% in this years’ survey compared to 2001 when it was 1.7%.
As discussed in our previous outlooks, this low level of demand is to be expected, both as a function of higher prices for larger helicopters as well as the more narrowly defined applications such craft typically serve. Stronger demand for this class aircraft often stems from governmental or "parapublic" sources outside the scope of the survey.
Projected trade-up patterns remained remarkably consistent compared to previous survey results, with operators electing to replace aircraft with the same size class currently operated over 78% of the time.
Trade-ups to larger helicopters and trade-downs to smaller aircraft were chosen just 12.5% and 9.8% of the time, respectively. The strong propensity to trade within segments (rather than trading up) leads to longer ownership intervals for aircraft purchased new, which tends to have a dampening effect on long-term market demand.
Demand by Planned Use of New Turbine Helicopters
Corporate and Law Enforcement
Corporate and law enforcement were the leading applications for which operators said they would purchase new helicopters in the 2003 survey. The Corporate segment, the largest use category, garnered 33.6% of the projected new turbine helicopter sales.
Expected purchases of new helicopters for law enforcement have been increasing steadily since the 2000 survey, rising to 27.3% of expected usage in this years’ survey. A number of operators we spoke with expect to be purchasing new helicopters funded by Homeland Defense appropriations. The largest regional markets for law enforcement are North America and Europe.
Emergency Medical And Utility
Interest in the Emergency Medical Services (EMS) segment increased slightly from last year’s strong levels to 27%, while Utility expectations increased to 25% from 23% last year. Geographically, North America and Europe lead all regions in new demand for EMS applications with 30% and 32% shares of new purchases identified for this segment in each respective region.
EMS’ share of projected new aircraft sales was particularly weak in Latin America and Asia, Oceania, Africa and Middle East, garnering only 10% and 11% of mentions respectively.
The highest expected demand for utility helicopters was measured in Asia, Oceania, Africa and Middle East, with 42% of expected future purchases. European operators were the least focused on this segment with only 20% of projected new demand in the region assigned to utility applications.
Offshore Oil Support
The offshore oil production and exploration segments’ share of new aircraft requirements fell 2% to a 2003 survey level of just 9%, despite strength in inflation adjusted oil prices. Regional interest in new helicopters for this industry continues to be highest in Asia/Africa/ME at nearly 29% followed by Latin America at 10%, Europe at 7% and North America at only 2%.
The Western Hemisphere has well established off shore oil production fields. In the longer term, Asian demand could grow even more as regional economies recover, stimulating exploration and eventual production requiring ongoing logistical support.
Operators in other market segments such as Television News continue to report projected requirements for new helicopters over the next five years at levels well below the applications discussed above. Overall, this business segment is projected to comprise less than 3.5% of the new helicopter purchases anticipated in the 2003 - 2007 period.
Expectations for the purchase of used turbine-powered helicopters fell in all world regions except Latin America. Roughly 18% of current fleets worldwide are projected to be replaced or expanded with used helicopters over the next five years – down 4.4 percentage points over the level as reported in the 2001 survey.
Residual values for pre-owned helicopters have been relatively stable over the past several years. Since there is little evidence to suggest that it’s a buyers market for used craft, it is not surprising to see that interest in purchasing them has cooled somewhat from the very strong levels measured in 2001.
2003 represents the second highest level of expectations we have ever measured over five surveys, which suggests that underlying demand is still healthy. Latin American operators indicated they expect to replace or expand the equivalent of 29% of their existing fleets with pre-owned aircraft during the next five years, a dramatic increase from the 13% metric we measured in 2001. Offsetting this increase was a sharp drop in plans to purchase new aircraft in the region.
Turbine Helicopter Utilization Rates
Overall, respondents reported using their turbine-powered helicopters between 500 and 600 hours during the past 12 months. This varies by region, with the highest utilization rates being reported in the Americas and the lowest in Europe, Asia, Oceania, Africa and the Middle East. Survey data clearly indicate that on a global basis, the vast majority of operators plan to use their aircraft at least as much or more than during the past 12 months.
In North America, Europe, Asia, Oceania, Africa and the Middle East, between 93% and 96% of respondents expect their next 12 months utilization to be the same or greater than the prior 12 month period. Anticipated growth in aircraft usage by Latin American operators over the next 12 months is significantly less than all of the other world areas and is an abrupt change from the 2001 survey.
Less than 80% of Latin American operators expect their utilization to either remain the same or increase over the next 12 months. This reflects the difficult operating and economic conditions in the region.
Based on survey responses and the fleet distribution in each region, we are projecting flying hours to remain at relatively healthy levels, with some modest growth possible 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.