HI Uplift: Helicopter market looks up ‘but still in swampy water’
Prospects for the global helicopter market are strengthening, according to speakers at Helicopter Investor’s Finance Forum, the State of the Industry, at the European Rotors event in Madrid. But one speaker chose a swamp metaphor to sum up the challenges facing the industry.
“Five years ago, the industry was in swampy waters, with the water over our heads and the sharks eating our toes,” Clark McGinn, principal, Uplifting Advice told the HI Finance Forum audience. “Two years ago, the water came down to our Adam’s apple, with the crocodiles eating our ears. Today, the water is down to our knees and there are a pair of fat anaconda on the banks waiting to come over and bite. But that’s better than it was.”
The improvement was due to the improving balance between supply and demand. McGinn attributed this to genuine growth in the market. “There’s hardly any replacement at the moment because the OEMs very wisely slowed down production during the downturn.”
William Sturm, vice president, Sales, Aero Asset agreed that OEMs slowing down production had helped to maintain aircraft prices. “Without that, we – financiers, lessors and operators – would have really been in deep trouble,” he said. “So well played to them.”
Sara Dhariwal, senior aviation analyst and lead appraiser, Cirium also acknowledged supply and demand had seen a better balance over the past 12 to 24 months. There have been consistent value increases across the board in the offshore sector, she said, but noted this was from a really low point. Helicopter values have yet to recover to their pre-downturn levels seen in 2013 and 2014, as has purchasing power.
Aircraft replacement will be a big factor driving demand in the next decade, said Dhariwal. “Two-thirds of the current supply [of existing helicopters] will be 10 to 20 years old. So we do need new supply to come into the market,” she said.
Sturm, at Aero Asset, detects more supply coming onto the market after a dip at the beginning of the year. He is particularly pleased to see supply improving in segments of the market where supply has proved slow since the global pandemic. “The market is moving, which is what we like to see,” he said. “When it’s stagnant we get concerned because there’s not much play either way.”
All rotorcraft manufacturers have learnt over decades to balance supply and demand well, according to David Martin, segment specialist at Bell. While acknowledging that there was always competition for resources between military and civil helicopters, Bell has learnt to reconcile competing demands, he said. (In September the manufacturer revealed demand for military helicopters was creating a new market for civil helicopters modified for multi-mission military capabilities).
Martin went on to quote the Sammy Hagar Theory of Economics (from his song I can’t drive) – “One foot on the brake and one foot on the gas”. Martin said: “That’s an eloquent way of describing the macro-economic environment, which feeds into a lot of market segments.”
There are two key market movers, he said. “In terms of magnitude, the things that really move the rotorcraft market are military and offshore. When you have both of these cycles amplifying at the same time – that’s when you get dramatic investment in the rotorcraft industry technology. And some of those signals I see happening in the market now.”
Back in swampy waters, McGinn, at Uplifting Advice, highlighted the challenges he believes the industry needs to address. These include: unblocking the supply chain, boosting production and encouraging oil companies to offer fairer contractual terms. “Why would anyone buy a new helicopter with a 50-year life span on a 90-day contract [with an oil and gas company]?” he asked. “No one. This stops investment decision making dead.”
Dhariwal, at Cirium, thought some progress has been made at remedying supply challenges but that issues remain in places. “The S-92 has seen big problems, but Sikorsky says they are going to solve that, so let’s hope they do,” she said.
Generalisations about supply chains were misplaced, according to Martin. “Supply chain questions are entirely specific to independent components and situations,” he said.
“The causes of these are unique and different in every situation.” For example, there are specific times and components, where virtual integration would make sense. And others where subcontracting would likely be the best option.
McGinn highlighted dangers for the helicopter industry as it re-emerges from the downturn. “Three years ago, at the Helicopter Investor London conference, I warned my experience as a banker suggested when the industry comes out of recession, that is the most dangerous time. Because down the supply chain people have been starved of investment and money. And that is exactly what we are seeing now.”