While helicopter buyers have traditionally been financially conservative and cost-conscious, the next decade will usher in a new era of tightened purchase scrutiny. General aviation analyst Brian Foley still foresees plenty of sales to be had, "But most if not all will require an indisputable, virtually airtight business-case justification. This could prolong the sales process, so smart buyers and sellers will plan further ahead.”
In addition, Foley advises rotary-wing manufacturers to provide better evidence that fleet replacement or growth is a sounder financial choice than it might appear at first glance (as is buying new vs. used). This could include such things as reduced ownership costs or showing how a new model's additional utility can cut expenses or increase revenue -- all the classical quantitative arguments.
Foley sees these economic pressures affecting virtually every segment of the market in some way. For example:
SAR/EMS. Whether privately or government funded, budget constraints will drive these services to become more selective and purpose-oriented in their procurement process.
Law Enforcement. Local, state and federal agencies face tighter budgets, requiring future purchases to be even more deliberate and pragmatic.
Commercial Transport. Never a large market, this sector has the potential to become even more successful by lowering ownership costs to aid the business model.
Offshore Gas & Oil. This market is both huge and hugely misunderstood. Given the industry's enormous profits, one might conclude that these companies can buy new aircraft on a whim. In fact, their procurement process is probably the most disciplined and analytical of any segment, made possible by their vast management and data resources. "If it's not saving or making money, they're not interested," Foley says.
Corporate. One possible bright exception on the civil side is corporate helicopter operations, where the paramount importance of executive time savings makes cost somewhat less of an issue. Still, even the largest and most profitable corporations were affected by the economic downturn and many are still postponing purchase decisions.
Military & Defense. Throughout its historical ups and downs, the helicopter industry has been sustained by defense programs either directly or indirectly. But now worldwide military budgets have come under pressure as countries work to balance their books. For example, the United States (which is the world’s largest customer) plans to cut $600 billion over the next decade. The trend will be for military services to become more value-driven in procurement and to opt for off-the-shelf solutions when they can.
In spite of this more challenging climate, Foley is very optimistic for the industry, saying, “We anticipate future helicopter sales will trend upward nicely over the next few years. But that's contingent upon the manufacturers' ability to help customers with all the necessary information and justification needed to make their numbers work. Value will remain the future quest and mantra guiding helicopter purchases -- you can quote me on that.”
About Brian Foley Associates (BRiFO)
Brian Foley Associates are recognized thought leaders and management advisors to the general aviation industry. Primary practice areas include industry analysis and forecasting, market research, strategic planning, new product evaluation and transaction support. It was formed in 2006 by industry veteran Brian Foley, a former executive at a major business jet manufacturer for over 20 years. For more information visit www.BRiFO.com or @BrianFoleyAssoc on Twitter.