The current downturn in the commercial aviation industry could
result in lower sales of simulators and trainers in the short term,
but how long the slump will last is difficult to predict, said experts.
The military sector is not expected to decline, but companies in
the simulation and training industry face tough competition, as
more niche players enter the marketplace.
The outlook for commercial aviation is grim, said the president
of the Aerospace Industries Association, John Douglass. “The
effects of the [September 11] terrorist attack on the U.S. aviation
industry ... will be long lasting,” he told a congressional
panel. “Eventually, there will be renewed growth in the air
transportation industry, but the immediate outlook is bleak.”
The cutbacks in airline operations and the accompanying free fall
of revenues, said Douglass, are “already having an effect
on industries that support the airlines, including suppliers and
maintenance providers.”
According to AIA estimates, commercial aircraft and parts sales
are expected to decline this year by approximately $2 billion, compared
to previous forecasts. For 2002, AIA projects that industry sales
could decline as much as $5.6 billion, and could drop by $6.7 billion
in 2003.
The bad news for providers of simulators is that the commercial
airlines have been the biggest buyers of simulation-based training
services in recent years, said Jerry Weltsch, senior consulting
analyst at Frost & Sullivan Aerospace and Defense Research Group,
a business intelligence firm.
“There will be lower demand for pilot training if the airlines
cut back on their schedules in the long term,” Weltsch said
in an interview. “How long that will last is hard to tell.”
Expected declines in commercial sales of simulators are unlikely
to be offset by sales of military flight trainers, even though,
“there will always be a demand for military flight simulation,”
Weltsch said. “A military conflict would not necessarily drive
up demand.”
Any near-term upswings in Pentagon budgets likely will take care
of immediate priorities, such as ammunition and replacement parts
for aircraft.
The simulation and training market, Weltsch said, “doesn’t
seem to be growing in the defense areas.”
Outside of fight training, there are other applications that could
boost demand for visual simulation technologies, he said, such as
biological research. The use of modeling and simulation will be
expanded in the pharmaceutical and medical fields, Weltsch said,
as well as in engineering.
Among the companies best poised for future growth in the military
sector, Weltsch said, are CAE, L-3 Communications, FlightSafety
International and Thales Training and Simulation.
He was less optimistic about Silicon Graphics (SGI), a $1.5 billion
company that specializes in high-end computers and visual systems
for the simulation industry. “SGI wanted to be commercially
driven and develop products that are applicable to both commercial
and military markets,” said Weltsch. The problem with that
approach, he said, is that the company tried to “make everybody
happy and lost focus on what was really needed.”
The popularity of SGI’s high-end computers has helped keep
the company afloat, he added. “But smaller niche market players
are taking bits and pieces of SGI market.” One of those players
is Sun Microsystems, said Weltsch. The company’s PC-based
image generation technology, he said, “has pushed SGI out
of areas where they used to sell a $1 million box for something
that now can be done with a $50,000 box. ... That is why they are
struggling now.”
SGI now is working to recapture market share and to solidify its
position in the federal sector, said John Burwell, the company’s
director of government business. The target markets for SGI, he
said, are those that require complex data processing, such as simulation-based
weapons design, the Energy Department’s stockpile stewardship
program, military training, imagery and signals intelligence for
classified programs.
Given the current emphasis on homeland defense, said Burwell, “the
military will use modeling and simulation to figure out what is
going to be operationally effective.”
Among the industry’s latest buzzwords is “collaborative
visualization,” the virtual-reality technology that allows
people to view data remotely, from different parts of the world.
That technology is widely used in the automotive industry, for example.
Burwell expects that military customers will be spending more money
on high-end visual systems that provide a “common operating
picture.” That market represents a “growth area we are
focusing on,” he said.
A similar forecast was offered by John Lenyo, president of CAE
Military Simulation and Training, an $853 million firm.
In the U.S. market, said Lenyo in an interview, there is a “move
toward distributed tactical training simulators.”
The military services want to be able to train “as they fight,”
he said. Advanced simulations could provide a common environment
so that, for example, attack helicopters, ground troops and fighter
aircraft can train together. “That is where the growth is
in the U.S. military,” Lenyo said.
As the United States prepares to fight a military campaign against
terrorism, he added, “we will see more demand for coalition
training.” Using a synthetic environment, British units may
train with U.S., French and German forces. “You plug into
this environment different types of trainers.”
A joint training environment will not be achieved easily, however,
even within the U.S. services. “Today, the Army and Air Force
have their own programs. They are not on a merge path.”
Growing interest in deployable trainers should result in new business
opportunities, said Lenyo. The Army and the Air Force have programs
under way for deployable aviation trainers. The Navy plans to develop
transportable trainers as well. “I believe that activity will
continue,” he said.
To prosper in this industry, however, the key is to have competitive
prices, said Lenyo. “It’s a price-sensitive market.”
Under a project called Sim XXI, CAE plans to produce a high-fidelity
full-flight simulator that could be adapted for various types of
aircraft and would be relatively inexpensive to maintain. “It’s
the foundation-core hardware and software of our next-generation
commercial flight simulator for the airlines,” he said. “We
are introducing some of the [Sim XXI] technologies in a helicopter-simulator
program we are doing for a Middle-Eastern customer right now.”
CAE has a large commercial customer base, “so we can leverage
technology into military market.”
The Sim XXI is built with Pentium PC-based technology, uses electrical
load units (replacing hydraulic power) and has a standard instructor
operator system design. These simulators will be made with lighter
composite materials and will be more modular than current systems,
said Lenyo.
“In the military market, the cost driver is not the hardware.
It’s the software,” he said. For that reason, Sim XXI
will have a modular software architecture, which will make it easier
to reuse the software for various applications.
Given the glum outlook for the commercial aviation business and
a relatively flat military market, Lenyo said he believes there
will be more consolidation in the simulation and training industry.
“There is still excess capacity in the market today,”
in both the civilian and military sectors, he said. “Even
if defense spending goes up, there is still a need for consolidations.”