Frost & Sullivan Market Insight: Military & Civil Helicopters Systems

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Frost & Sullivan Market Insight on Military & Civil Helicopters Systems Migrating Market Demand. In terms of forecast revenue available for the industry, military helicopters will continue to dominate the global market, but mostly their shrinking fleet size is translated by a revenue loss. In comparison, civil helicopters are expected during the same forecast period to gain $1.83 billion.

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Frost & Sullivan Market Insight: Military & Civil Helicopters Systems

  1. 1. Military & Civil Helicopters SystemsAlix Leboulanger, Research Analyst, Aerospace, Defence & Security “We Accelerate Growth”
  2. 2. A Migrating Market Demand Market InsightIntroductionWith defence budgets under pressure, the military’s developing project costs overruns and anticipated programterminations are successively hitting the Western defense industry’s previously optimistic scenarios. The recent5,000 redundancies announced among the Royal Air Force in 2013 as part of the 17,000 jobs reduction planadopted in 2010 by the British Ministry of Defense (MoD) under the Strategic Defense and Security Review, andthe $633 billion National Defense Authorization Act enforced in January in the United States, decreasing by 4.38per cent when compared to 2012 allocated numbers, continue to postpone hopes of defense market recovery.Regarding transitioning economies, the global financial uncertainty and market slowdown also complicate MoDs’objectives to increase defense spending, whilst other pending domestic priorities get preference.These dark prognostics impact helicopter Original Equipment Manufacturers (OEMs), wary of the risk of marketdemand dropping dramatically and reinforced by the absence of new military platforms procurement contracts.Despite potential acquisition plans circa 1900, new military helicopters in India and Russia, and anticipatedencouraging news from South Korea and Turkey, these programs have not managed to reassure defense industryfears. Apart from extending military aftermarket support networks to strategically sustain existing OEMs’ marketshares, the future remains uncertain. However, defense opportunities do exist, but not in their usual domains.Toward a Dynamic Civil Helicopter Market DemandAt first sight, the military helicopter market is not showing encouraging signs: after reaching the global fleetrenewal cycle peak, forecasts are indeed showing progressive decline, losing at least 4.36 per cent of the totalmarket share in terms of units (Figure 1) between 2013 and 2021. However, the financial context is not necessarilythe main and unique cause of such pessimistic perspectives for military units, otherwise it would also equallyaffect civil new procurements (government and commercial), and this is not the case; undeniably, market demandfrom government and commercial end users is steadily growing, gaining at least 3.72 per cent and 0.64 per cent,respectively, between 2013 and 2021.In other words, with 2,125 new helicopters to be procured in 2021, 41.12 per cent of them will be delivered toArmed Forces, whereas 58.88 per cent of other units will be operated by civil end users.Figure 1: Total Helicopter Market: New Platform Procurements Forecast, Global, 2013-2021 100% 80% Military UNITS (%) 60% Commercial Government 40% 20% 0% 2013 2021 Year Source: Frost & Sullivan analysisIn terms of forecast revenue available for the industry, military helicopters will continue to dominate the globalmarket, but mostly their shrinking fleet size is translated by a revenue loss of 5.35 per cent, accounting for $340.81million, when compared to the revenue forecast for 2013 (Figure 2). In comparison, civil helicopters are expectedto gain $1.83 billion during the same forecast period.© 2013 Frost & Sullivan Page 2
  3. 3. A Migrating Market Demand Market InsightFigure 2: Total Helicopter Market: Platforms Revenue Opportunities, Global, 2013-2021 100% 80% Military REVENUE (%) 60% Commercial Government 40% 20% 0% 2013 2021 Year Source: Frost & Sullivan analysisThe platform renewal cycle is not the only factor driving market demand; fundamental changes to the defenselandscape and the increasingly growing willingness of civil operators to improve their fleet operational requirementsmeans promising opportunities for the industry, especially at the systems level (Figure 3).Figure 3: Shifting dynamics triggering new prospects for the industry New Dynamics Industry Opportunities Security and Defence Missions Convergence Sophisticated Avionics Platform Operating Costs Optimisation Bespoke Aftermarket Support for Systems Increasing Fleet Availability Better Systems to Look for: Improve Flight Safety Enhancing Mission Success Source: Frost & Sullivan analysisAmong these new prospects, the defence industry is well-positioned to provide a wider range of products andservices to civil end users, offering technical expertise from military fields. Furthermore, the military experiencebrings a rich legacy of managing complex systems. However, there is still a long road ahead to cover, since integratingcomplex systems on civil platforms implies new challenges that are extremely different from MoD standards andoperating modes. This is not only emphasized by different end-user perceptions, but also by challenging regulatoryand financial requisites.Military Helicopter Systems and Enthralled Civil End UsersWhile government helicopters are performing increasingly more short-turnaround, fast-paced, demanding missions(such as counter-terrorist operations, search and rescue, law enforcement, fire-fighting) and financial burdenis pressuring commercial operators’ mission rates (Emergency and Medical Services-EMS, Oil & Gas, BusinessAviation, Tourism), there is a growing demand from civil pilots to improve flight conditions.© 2013 Frost & Sullivan Page 3
  4. 4. A Migrating Market Demand Market InsightIn this regard, civil pilots are looking at military mission systems and avionics, aimed to increase fleet availability,mission effectiveness with augmented external vision references, a lightened workload and more platformmanoeuvrability.Among these systems, civil pilots, often with a military background, are praising Heads-UP Displays(HUDs), Helmet-Mounted Display (HMD), Global Positioning System (GPS) and digital maps for better terrainawareness and obstacle avoidance (Terrain Awareness Warning Systems-TAWS and Ground Proximity WarningSystem-GPWS). More importantly, flight safety is a concern, with end users seeking better situational awarenesssystems, such as HMDs or NVGs, to make the best decision in case of extreme flight conditions, especially at night.In addition to these flight instruments, civil pilots are also considering engineering systems offering safer flightconditions, such as the Health and Usage Monitoring Systems (HUMS), providing a better visibility on platform-critical maintenance requirements. In comparison, commercial operators will tend to favour Fly by Wire (FBW)technology and Full Authority Digital Engine Control (FADEC) electronic systems to improve platform payloadand significantly reduce platform sustainment costs. These different perceptions, depending on end-user segmentand types of mission, trigger different dynamics and targeted outcomes across the civil industry, when comparedwith military systems (Figure 4).Figure 4: From Military to Civil End-Users’ perception on systems migration Saving Increasing Fleet Operating Availability Costs Military Perception on Systems Benefits Government Perception on Systems Benefits Decreasing Heavy Wear and Tear Costs Increasing Fleet Availability Improving Mission Responsiveness by inclement weather Enlarging Mission Ranges Combat Readiness Increasing Fleet Enhanced Commercial Perception Availability on Systems Benefits Improving Mission rates and Financial Efficiency Source: Frost & Sullivan analysisBy adopting these new systems, commercial operators perceive an opportunity to increase their financial efficiencyby improving their mission rates and, ideally, their operating benefits. In comparison, governmental end users seea great opportunity to improve their efficiency during critical missions.© 2013 Frost & Sullivan Page 4
  5. 5. A Migrating Market Demand Market InsightNewly Available Systems and Costs:The Mission Criticality DeltaIf helicopter OEMs are theoretically expecting this system migration with impatience, it doesn’t mean thatgovernmental and commercial end users are fully prepared to integrate these new systems on board, which implyseveral challenges for the defense industry, mainly from a financial order. For example, unlike military fleets, a charity-run EMS operator losing one platform of a total fleet of 02 due to degraded flight conditions can lead to business/operational closure. New avionics and systems can significantly increase flight safety and operational requirements,but it does not necessarily mean that it becomes easier to leverage such investments. From commercial to parapublicend users, there are various budget implications; the system’s initial costs and subsequent expenses will potentiallyhave repercussions on passengers, private institutions and tax payers, depending on helicopter owners (Figure 5).Figure 5: New Systems Adoption Financial Constraints to be Faced by Civil Helicopter Operators Drivers Restraints Pilots, crews and ground personnel wages to increase Accident rate Pilot additional decreased training requirements Mission Efficiency Systems maintenance Improved burden Better Through Life Systems Cost Management integration costs Source: Frost & Sullivan analysisIntegrating these new systems also implies for small and medium commercial operators to review and adapt theirbusiness models, whilst they have other pending investment priorities, such as protection against attrition, engineresilience to enhance, etc.What could actually change this balance?As soon as civil helicopters are performing vital missions, when someone’s life is at stake (i.e., maritime search-and-rescue operations, organs and transplant transfer, environmental disasters evacuation), then systems adoptioncosts become fully legitimized. Mission criticality can significantly reverse restraining factors trends and transformadditional investments into justified operational requirements for better mission readiness and responsiveness.Consequently, considering this last perspective and moving forward, with end users holding the necessary financialresources to adopt these systems, there are still other challenges from a regulatory angle restraining both industryand end-users’ appetite.© 2013 Frost & Sullivan Page 5
  6. 6. A Migrating Market Demand Market InsightRegulations and Certifications to Rule Adoption TimelineObserving the nascent migration of military systems toward the civilian sphere automatically triggers legal changesat several levels, which would not necessarily occur across the military administration. Hence, delay in adoptioncan be foreseen, postponing hopes of improved mission efficiency, whilst industry and end users will have tostrictly comply with civilian regulations (Figure 6).Figure 6: Regulations, Certifications and Authorization Required Prior Systems Adoption Challenge #2 Civilian airspace regulations compliance, depending on missions segments, platformtypes, authorised altitudes, weather minima. Most of the current regulations do not include latest available systems Challenge #3 Additional qualifications required for end-users to fly with new systems, authorizations to obtain from international and/or regional civilian airspace regulatory agencies Challenge #1 Industry need to get systems certified (process length depending on systems complexities, level of technical advancement and safety required standards) Source: Frost & Sullivan analysisApart from established civilian airspace regulations, regulatory bodies may require additional rules, as it has beenthe case with Night Vision Goggles (NVGs) for civil helicopters; in 2009, the Federal Aviation Administration inthe United States required supplementary training certifications and equipment standards for pilots, instructors,crews and maintenance, causing many delays in the approval processes. Furthermore, systems migration is notnecessarily followed by helicopter OEMs; if the next Bell 525 Relentless helicopter is expected to incorporateFBW systems, the Kazan Ansat new civil light twin model will keep conventional flight controls due to the lack ofexisting certification and standard requirements. Therefore, while integrating enhanced vision systems may seemeasier from a technical viewpoint, all systems will not migrate into the civilian sphere at the same pace.RecommendationsApart from a longer and more challenging adoption process to integrate these military technologies into civilianhelicopters, military OEMs and defense systems integrators have to focus on three important targets in order tocapture the nascent but growing market demand from civilian end users. • Provide concrete examples of how mission systems are actually improving mission effectiveness and make pilot workload easier, with more simplified systems interfaces than the ones being used in the military world.© 2013 Frost & Sullivan Page 6
  7. 7. A Migrating Market Demand Market Insight Without a proven efficiency and demonstrated usage advantages, civil end-users’ interests will shift toward new engineering developments, improving platform life cycle management and maintenance, such as new composites in the airframe and blades. • Present a strong support-in-service offer to relieve the cost of systems integration, to simplify systems services supply chain, and to gain cost-effectiveness at the training and maintenance levels. This can either imply further associations between helicopter OEMs and systems providers during the integration phase while developing new platform models or, alternatively, systems providers offering a direct procurement and support model to civilian end users while upgrading and modernising their existing fleets. • Mission criticality remains the key waiver of financial and regulatory constraints; so far, government end users are the best positioned to benefit from the systems migration. On one hand, parapublic platforms revenue forecast growth is expected to increase at a CAGR of 7.17 per cent between 2013 and 2021. On the other hand, parapublic pilots are benefitting from less-restrictive civilian airspace regulations, allowing pilots to fly under lower weather minima than commercial pilots, whom are also more dependent on Instrument Flight Rules/Visual Flight Rules strict policies, especially by times of degraded visual environment. Consequently, defense systems providers and helicopter OEMs should keep an eye on first responders’ missions. Finally, if some commercial end users are not financially ready to integrate these new systems on board, the mounting penetration of private operators into civil security, such as EP Aviation Services LLC, Aviation Worldwide Services/Academi, and potentially G4S, could trigger more demands. Frost & Sullivan’s new report on Military Training & Simulation Market Assessment is available now. To learn more about this report, please contact andrew.thorndyke@frost.com or aman.pannu@frost.com.About Frost & SullivanFrost & Sullivan, the Growth Consulting Company, partners with clients to accelerate their growth. The company’sGrowth Partnership Services, Growth Consulting and Career Best Practices empower clients to create a growth-focused culture that generates, evaluates and implements effective growth strategies. Frost & Sullivan employs morethan 50 years of experience in partnering with Global 1000 companies, emerging businesses and the investmentcommunity from more than 40 offices on six continents. For more information about Frost & Sullivan’s GrowthPartnerships, visit http://www.frost.com.www.aerospace.frost.comCONTACT US 877.GoFrost (877.463.7678) • myfrost@frost.com • www.frost.com

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