Decline of U.S. Helicopter Procurement on the Horizon

After a decade-long period of surging sales and rapid expansion, the military helicopter buying boom is coming to an end.

Experts and industry officials expect to see the rotorcraft market contract as U.S. military procurement decreases. Helicopter companies, like other defense businesses, are seeking to expand their share of the commercial sector and are increasingly pursuing opportunities in the field of unmanned aircraft.

At the industry’s peak, the Pentagon spent more than $10 billion a year on rotorcraft. That spending will likely be cut in half between 2011 and 2018, said a report by the Teal Group. 

“We have innovation, but no money,” said Richard Aboulafia, an aerospace analyst at the Teal Group and author of the report. “It’s sort of the opposite of the fixed-wing aircraft industry, where there’s money but no innovation.”

When the wars in Iraq and Afghanistan began more than a decade ago, the Army rushed to replace and upgrade its aging helicopters needed to provide firepower and transportation.

From 2003 to 2012, rotorcraft production worldwide totaled 11,275 units worth $136.9 billion. Of that, $92.1 billion came from military sales. The defense segment grew at a rate of almost 8 percent per year between 2003 and 2008, the report said. Then, from 2008 to 2012, the value of deliveries rose almost 70 percent.

While U.S. military procurement of helicopters deflates by half in the next decade, the international and civil markets are set to expand from 2013 to 2022, Aboulafia told National Defense. Companies would still be larger than they were before the Iraq and Afghanistan wars even if they shrank by one third.

“In industry, we’ve had this amazing growth path over the past decade. It would take a serious amount of shrinkage to do damage to this larger industry,” he said. “It will hurt, but will it be a catastrophic failure of the industrial base? No. It’s just not going to be that bad.”

Five major prime contractors — Boeing, Sikorsky, Eurocopter, AgustaWestland and Bell Helicopter — are expected to dominate at least 96 percent of the rotorcraft market. U.S. companies Boeing and Sikorsky will lead military sales. France’s Eurocopter, now called Airbus Eurocopter, will remain top of the pack in the commercial sector, followed by British-Italian owned AgustaWestland and Bell Helicopter, which is located in Hurst, Texas.

Different corporate strategies and high profits will likely keep the industry from consolidating, but Bell would be the most likely to be absorbed as part of a merger, the report said. If business does not improve for Bell’s parent company Textron, it could sell the rotorcraft company in order to keep its other subsidiaries afloat, Aboulafia said.

The problem is “no one really knows what Textron is. Is it a defense prime? Is it a horizontal conglomerate that can spin off all of its units? Is it an asset manager?” he asked. “No one really knows.”

For three decades, the rotorcraft industry has been fixated on the possibility of a new-start program to replace the Army’s Kiowa Warrior reconnaissance helicopter manufactured by Bell. After two failed attempts, the newest procurement effort  — called armed aerial scout — is stalling.

The man in charge of buying helicopters for the Army, Maj. Gen. Tim Crosby, considers armed aerial scout the service’s number-one need. He told National Defense that he doesn’t know whether the Army will have the funding needed to proceed with the program.

Delays or cancellation of the program are possibilities, assistant secretary of the Army for acquisition, logistics and technology Heidi Shyu, said in October.

Rotorcraft companies have already poured millions into the competition. Boeing, AgustaWestland, Bell and EADS North America, which has been rebranded as Airbus, flew aircraft during a 2012 demonstration to the Army. EADS proposed a Eurocopter design. Sikorsky has also developed its S-97 Raider as a possible Kiowa replacement, but it is not scheduled to fly until 2014.

With no sign from the Army that it will soon start a competition, the only new helicopter program in the works is the joint multi-role demonstrator initiative.

The Army hopes JMR will validate the technologies it will need for the future vertical lift family of rotorcraft that is planned to replace its current fleet. Officials have said they want aircraft that can achieve speeds in excess of 230 knots and fly at altitudes of 6,000 feet during a 95-degree Fahrenheit day.

The four competitors for the joint multi-role competition are split between big-name firms and up-and-coming rotorcraft companies. Four major helicopter makers have paired off into two teams — Boeing-Sikorsky and Bell-Lockheed Martin. AVX Aircraft Co. and Karem Aircraft, neither of which has built an operational aircraft, are also submitting designs.

The competition could come down to a battle between differing rotorcraft technologies. AVX and the Boeing-Sikorsky team are offering compound helicopters with coaxial rotors. Bell-Lockheed and Karem have put forward tilt-rotor designs.

The Army has historically been reluctant to adopt novel rotorcraft technologies such as V-22 Osprey tilt-rotors. That, coupled with an oncoming decade of lean Defense Department budgets, have left some observers questioning whether the program will ever come to fruition.

Aboulafia, for one, is not optimistic. He believes the Pentagon will ultimately opt for upgrades or more traditional replacements for legacy aircraft.

“Does the Army typically pay any kind of premium at all for speed or range? No. In other words, they would have to be pretty compelling breakthroughs to get the Army to really start buying large numbers of these,” he said.

The service is trying to work out a balance between how much force structure and new technology it will need for the future, said Frank King, AVX’s vice president of sales and marketing. Whether future vertical lift survives will ultimately depend on the level of priority the service gives the program and the amount of funding it can secure from Congress.

“With cost being so important in today’s environment, that will probably play a big factor. The firm that can produce something that gives tremendous performance capabilities, maneuverability, and can be done in a low cost manner, I think will be sitting very pretty.”

Commercial rotorcraft giant Airbus Group is sitting out the JMR competition. With Eurocopter’s X3 demonstrator capable of flying more than 230 knots, Airbus was considered a frontrunner before pulling out to focus on its armed aerial scout offering.

The other services have limited rotorcraft needs. The Air Force is set to award Sikorsky a contract for a combat search-and-rescue helicopter, but only if funding survives the budget ax. Down the road, it will also need to replace its Bell UH-1N Hueys, the report said.

The Navy, meanwhile, is replacing its Sikorsky SH-60 Seahawks with the larger MH-60R version.

Foreign military sales, especially to Asian countries, are another opportunity, the report said. South Korea needs a new light helicopter to replace its MD 500s, while Japan has a requirement for a new utility aircraft. India also has announced plans to procure 133 helicopters for its army and 64 for its air force.

With military procurement waning, industry is looking toward the civil rotorcraft market, where there is increased demand coming from the oil industry, law enforcement, first responders and border protection agencies. Teal’s report forecasts a total of about 10,000 aircraft worth about $60 billion to be sold between 2013 and 2022.

Eurocopter and AgustaWestland find themselves well positioned for this paradigm shift, Aboulafia said. Both companies have been focusing on the international and commercial segments for years because of difficulties in breaking into the U.S. defense market, which is dominated by domestic companies.

For instance, Eurocopter and AgustaWestland have signed agreements to form in-house production lines with China and Russia, respectively. These countries need helicopter assets for their burgeoning oil and gas industries. Russia will build the AW 139, and China will manufacture a version of the EC175, the report said.

Eurocopter and AgustaWestland are also developing new aircraft designs, in addition to their more traditional offerings. AgustaWestland is currently building prototypes of its AW609 tiltrotor, the report said. Eurocopter is developing the X3 into a civil aircraft called LifeCraft, which is scheduled for its first flight in 2018.

A strategy emphasizing traditional rotorcraft may bode well for the European companies, Aboulafia said. “It’s unlikely we’re going to have some big paradigm shift over here [in the United States] that leaves them in the dust.”

Of the U.S. companies, only Bell has recently unveiled a completely new commercial design, the report said. Its 525 Relentless, a medium-lift helicopter that is the first commercial rotorcraft to offer fly-by-wire controls, is scheduled for a first flight in 2014.

Even smaller firms are seeking commercial sales. If AVX is unsuccessful in its joint multi-role bid, the company may venture into the civil market, King said. The commercial sector may be more likely to pay for AVX’s designs, which have better performance in high temperatures and higher altitudes.

“It’s in the parts of the world that are hot and high that most people are forecasting the increase in the commercial market, and of course our configuration gives you that capability,” he explained.

As demand for unmanned aerial systems increases, some rotorcraft companies plan to branch out into remotely-piloted technologies.

Small UAS manufacturer AeroVironment and Eurocopter are exploring a partnership.

“This cooperative agreement creates the opportunity for both companies to explore expanding into new markets and develop new capabilities to meet future customer needs,” Roy Minson, senior vice president and general manager of AeroVironment’s Unmanned Aircraft Systems business segment, said in a statement.

Such cooperation will be valuable for Eurocopter as it further develops its unmanned product strategy, said Clive Schley, the company’s senior vice president of strategy and company development. Over the past few years, Eurocopter has ventured into the development of unmanned technologies, including a version of its E145 helicopter that can fly autonomously or be controlled remotely by pilots at a ground control station. The unmanned E145 first flew last year.

Boeing is also developing an unmanned version of its AH-6 Little Bird light helicopter, said Dave Koopersmith, the company’s vice president of attack helicopters.

AVX is focusing primarily on the JMR competition for the time being, but also has its eyes on the UAS market, particularly when U.S. commercial airspace is opened to remotely-piloted aircraft. 

“Our payload capability, using the dual ducted fans and the counter-rotating rotors would be ideal in that market, whether it was for spray application, fertilizer application, pipeline patrols, firefighting, off shore platform security [or] law enforcement. All of those markets I think will have a tremendous growth in UAV applications,” King said. 

Topics: Aviation, Rotary Wing, Defense Department, DOD Budget, Procurement, Defense Department