GLOBAL DEFENSE MARKET
Helicopter Industry Pulls Out All the Stops to Capture Eastern European Market
U.S. and European military helicopter manufacturers are digging in for a fight as several former Soviet bloc countries weigh offers and decide how much they are prepared to spend to replace aging Russian platforms with Western models.
Rotary-wing aircraft makers are zeroing in on the region, which was not on the industry’s radar until the security landscape was shaken in 2014 when Russia invaded Crimea.
“We had pretty much written off Europe from a military helicopter perspective about two and a half years ago,” said Richard Harris, vice president of international military sales at Bell Helicopter.
The company is offering European buyers the same aircraft that it sells to the U.S. Marine Corps — the Cobra attack and Huey utility helicopters. Helicopter acquisitions are being mulled over in Poland, Romania, the Czech Republic and Croatia.
With Russia as a threat in their back yards, it dawned on several countries’ leadership that their militaries were dependent on Soviet equipment and on Russia’s supply chain, industry officials said. This created an opening for American suppliers, as well as European firms like Airbus and Finmeccanica’s AgustaWestland. Harris believes U.S. suppliers have an edge because countries that buy American helicopters might feel more confident that, were Russia to pose a serious territorial threat, their armaments would be compatible with their U.S. allies. “Who is going to come to their aid if they’re invaded?” Harris asked.
Security concerns aside, helicopter sales are complex transactions that generally require significant industrial incentives to boost the buying countries’ economies. In Eastern Europe as in every other country, jobs are important, Harris said, “but I think the actual hardware and the capability trump that.”
Helicopter deals in Europe under the Pentagon’s foreign military sales program have soared from $137 million in 2014 to $3.6 billion in 2015, according to Bloomberg Government data. Most of those sales were to the United Kingdom, with smaller orders by Slovakia, Austria and Greece. There are expectations for Eastern European orders in the coming years.
Poland is now drawing the most attention from defense contractors across the board, as it is one of the few countries that is pouring big money into arms purchases. Its $3 billion helicopter procurement was thrown into disarray last year after a government shakeup and the subsequent decision to nix an agreement to buy up to 50 Airbus Caracal multirole helicopters. The Airbus win was a surprising upset over frontrunner Sikorsky, which manufacturers Black Hawk military helicopters in Poland.
The Airbus contract reversal reopened the door for Sikorsky — now owned by Lockheed Martin Corp. — and Bell Helicopter to make another go.
Airbus officials insist they are still likely to get the sale. “The offset negotiations with the Ministry of Development have resumed,” Airbus Helicopters spokesman Laurence Petiard told National Defense.
To secure the deal, the company is stepping up industrial incentives as the Polish government made it clear that it wanted significant job creation. Airbus has vowed to set up the Caracal assembly line as a joint venture with WZL-1 in Lodz. This is a “transfer of technologies to WZL-1 and other Polish entities by Airbus Helicopters and Caracal major suppliers in order to provide Poland with full autonomy … and guarantee its security of supplies,” Petiard said. Airbus Helicopters has committed to creating 1,250 direct and 2,000 indirect jobs in Poland.
Sikorsky believes Poland will reconsider its offer for the S-70i Black Hawk variant, which also was sold to Slovakia. The company is getting a political lift from Sen. Chris Murphy, of Sikorsky’s home state of Connecticut. He has been active in trying to persuade Poland to buy Black Hawks. Murphy, a Democrat, founded the bipartisan U.S. Senate Caucus on Poland.
"We have invested hundreds of millions of dollars in infrastructure, training, and modernization within PZL Mielec to take it from a Soviet-era production facility to a modern and efficient manufacturing and design center,” said Samir B. Mehta, Sikorsky president of defense systems and services. “We hope the government sees the benefit.”
Mehta said being owned by Lockheed Martin gives Sikorsky a leg up on other helicopter manufacturers that don’t have access to advanced armaments and sensors that can be installed in aircraft. “We’re seeing more customers that want multi-mission capability in the Black Hawk,” he said. Foreign customers with small budgets can’t afford to buy dedicated attack and utility variants. “With us, they can turn a utility helicopter into an attack aircraft.”
Countries that buy small quantities of aircraft also are finding that when they purchase them off a hot production line, they get reduced prices compared to what they would pay to build their own. Slovakia bought nine Black Hawks, for instance, but is paying the same price the U.S. Army pays under a 360-aircraft multiyear contract, Mehta noted.
The same price break is being offered for the newest models of the Cobra tank-killing gunship and the Huey utility helicopters, Harris said, which have been in service with the Marine Corps for three years and were sold to Pakistan last year.
For now, Bell Helicopter is focused on the attack-helicopter portion of Poland’s buy, which could range from 32 to 36 aircraft. The company has not yet disclosed any specific industrial offsets it would offer Poland but expects to make announcements soon, said Harris. “We see opportunity and need to partner with Polish industry,” he said. “The quantities that Poland is looking for are almost necessitating us to seek partners in Poland to help assemble, support and do modifications to the existing aircraft. We are in the process of signing several MOUs to move forward with this project.”
Bell believes it has a chance to oust Airbus because it is offering a full blown combat helicopter, versus a utility model that has been weaponized. “They’re not tried and true military grade combat helicopters,” Harris said.
Petiard said Airbus makes civilian derivatives but also specialized aircraft. The military market represents 50 percent of Airbus Helicopters' business, which includes 160 armed forces worldwide, he said. Airbus developed a new armaments kit called HForce for use in helicopters.
Harris counters that only Bell and Sikorsky offer helicopters “designed from the ground up to be combat helicopters. … Knowing how serious Poland is about the threat to the East, I think they would be more inclined to go with a U.S. platform.”
The Black Hawk, he noted, is sold as a "basic" model with upgrade options. “The UH-1Y and AH-1Z come fully equipped in the full Marine Corps configuration,” said Harris. When compared head to head, with equal configuration and capability, the Black Hawk is more expensive than the UH-1Y Venom. But there are other advantages to be weighed, such as operating costs, he said. “Price is an important factor with our foreign military sales customers, and we make sure that they are evaluating all competitors apples to apples.”
Bell is making a similar pitch to other countries. “It’s not just Poland that is concerned about what’s happening near their borders. We’re talking to Romania, Czech Republic, Hungary, Croatia, all of which are flying older Russian equipment and are trying to recapitalize.” In the Czech Republic, the UH-1Y combat utility helicopter is being proposed as a replacement for the Mi-24 helicopter gunship that has been in service since 1972 by the Soviet Air Force and remains in the fleets of more than 30 countries.
Owning Russian equipment can be a liability for some countries, Harris said. “They are caught between a rock and a hard place, trying to be strong members of NATO but beholden to the Russian supply system.”
The industry is bracing for a rollercoaster ride this year as countries make up their minds, he said. “We’ve got our seatbelts fastened.”