U.S. Helicopter Suppliers Fear Losing Innovation War
By Austin Wright
The military helicopter business is booming in the United States, but the industry mostly is making money fixing up and maintaining the Army’s aging fleet. Hardly any Pentagon contracts these days pursue new aircraft designs, industry officials say.
U.S. manufacturers worry about this trend because they see their European counterparts chasing advanced concepts for next-generation helicopters. They are concerned that the United States in the future may not be able to compete in the global market if U.S. firms are perceived as less innovative.
A 2009 report by the Connecticut-based market analysis firm Forecast International says European governments have focused on researching ways to push the industry forward, while U.S. rotorcraft budgets are increasingly consumed by maintenance costs for existing fleets.
“We could see the potential erosion of the U.S. rotorcraft industrial base,” says David C. Palm, the director of business development and strategy in Boeing’s rotorcraft division.
“European countries are funding new helicopters,” he says. “But most of the development work happening here [in the United States] is because of companies investing their own money. There aren’t a lot of government subsidies.”
Most of the development research is intended to improve core technologies — “making the things helicopters already do better,” Palm says. Development projects generally focus on three areas: increasing helicopter speed, the amount of weight they can carry and how high they can fly.
Manufacturers also are focusing their research funds on finding ways to cut costs, he says. “Helicopters have a lot of moving parts and a higher cost per flight than fixed-wing aircraft,” he says. “We want to get prices down close to what fixed-wing aircraft cost. That will really move the industry forward.”
But he fears that European companies will beat U.S. manufacturers to the punch in building a new generation of cheaper, faster military helicopters that can carry heavier payloads and hover at higher altitudes.
Forecast International’s report echoes Palm’s concerns. In recent years, the Defense Department has favored refurbishment programs over projects that build new helicopters from scratch, the report says.
“Disproportionately, the all-new designs entering the market are the products of manufacturers outside of the U.S., while derivative models are generally of U.S. origin,” the report says. “U.S. firms are increasingly finding themselves at a disadvantage on the world market when they have to compete against the all-new products from their non-U.S. competitors.”
Still, U.S.-made helicopters remain some of the most advanced in the world. And during the past decade, refurbishment programs have been more stable than projects involving extensive research.
The Pentagon canceled a number of multibillion-dollar programs because of cost overruns and delays — including Bell Helicopter’s ARH-70 and Boeing and Sikorsky’s RAH-66 Comanche.
“The market is good in military helicopters right now because you have so many European countries and the United States recapitalizing helicopter fleets,” says Douglas Royce, an aerospace analyst at Forecast International.
Richard Aboulafia, vice president for analysis at the Northern Virginia-based industry research firm the Teal Group, agrees. “Right now there’s plenty of work for everybody,” he says. The downside is that the existing fleet is “so worn out and budgets are stretched so thin that adding new capabilities is almost impossible.”
The Pentagon has wasted money on development that ended in dead programs, says Aboulafia. “A lot of it was poor investments.”
Palm places blame partly on the government. He says the Pentagon often changes its requirements after awarding contracts — a problem that contributed to the cancelations of the armed reconnaissance and presidential helicopter programs.
“When you have a competition and awards are made, you need to freeze those requirements,” he says. “We’re seeing requirements creep.”
Projects to refurbish old helicopters, meanwhile, will keep contractors in business over the next decade, according to reports by Forecast International and the Teal Group.
Teal’s 2009 “World Rotorcraft Overview” notes that European companies have made substantial inroads in the U.S. civilian market, and that on the military side, officials are now more open to awarding contracts to foreign companies.
The Defense Department “increasingly regards helicopters as mere platforms, commodities that can be outsourced as long as U.S. companies do the high value integration work,” the study says. The Pentagon’s decision to award contracts to Eurocopter for the UH-72 Lakota and to AgustaWestland for the VH-71 presidential helicopter “signify a major change in the U.S. military market.” Both of these aircraft are based on commercial, off-the-shelf models.
Teal’s analysis also discusses the tension the Pentagon faces between maintaining the existing fleet of rotorcraft and building new helicopters. Officials have largely chosen to invest in the current fleet, the report says, which means there will be plenty of refurbishment work for all the major manufacturers in the next decade. But in coming decades, demand could taper off.
In the long-term, several of the largest helicopter makers could merge in order to get rid of excess capacity and reduce overhead costs, the report says.
Aboulafia says production orders are likely to become thinner starting in 2015.
“Right now you’ve got a large number of programs going full throttle, but there are shockingly few new programs on the horizon,” he says. “In the second half of the decade, it will start to sink in.”
Forecast International’s report cites the all-new Joint Heavy Lift and Joint Multi-Role rotorcraft acquisition programs as evidence that the trend of investing mainly in refurbishment programs could be turning around.
Another Forecast International report says that for lightweight helicopters, the market will grow for more than five years, followed by a two-year drop. It will then start growing again. The expansion will be spurred by the Eurocopter UH-145 and Bell’s UH-1Y Venom, both utility helicopters, along with Bell’s AH-1Z Viper, an attack helicopter. Eurocopter will be the number-one producer during the period analyzed, 2009 to 2018, with 36.3 percent of the light rotorcraft market.
For the medium and heavy rotorcraft market, all-new models emerging outside the United States will drive growth in the market, including Korea Aerospace Industries’ utility helicopter, Forecast International says. Sikorsky is projected to lead the heavy and medium-sized market, with a 37.7 percent share during the forecast period.
Royce says competition has heightened between the United States and Europe. “I don’t think the U.S. is just buying American by any means,” he says. China and other Asian countries are also trying to capture a larger share of the international market.
But Asian countries likely won’t become major players for a decade or more, Royce says. “It may be that over the long term, China has potential in rotorcraft and developing that capability, but I don’t think we’ll see it in the next 10 years.”
Royce and Aboulafia both say the transition to unmanned rotorcraft will happen slowly and that many missions cannot be performed without a pilot in the cockpit. Unmanned scout helicopters are gaining prominence, but remotely controlled aircraft likely won’t replace helicopters used for transport or attack anytime soon.
“Two-thirds of military rotorcraft are for lifting personnel and equipment,” Aboulafia says. “And you’re not going to see UAVs doing that mission.”
Royce says officials are reluctant to put troops in an unmanned vehicle. He also says helicopters often land in rough terrain that requires a pilot who’s able to look down and assess conditions.
The Teal Group’s report says Boeing is positioning itself to be the leader in the vertical-lift UAV market. The company in 2004 bought Frontier Systems, which had the development contract for the A160 Hummingbird. This likely will be remembered as a smart purchase, the report says.
Palm says Boeing recently established an unmanned systems division to study vertical-lift UAVs. “I see tremendous growth in unmanned rotorcraft in the next 10 years,” he says.
Everyone interviewed agrees that international competition will grow fiercer.
“The Europeans are very interested in getting into the U.S. market,” Royce says. “But they’re also interested in protecting their own markets.”