Helicopter Association International's Heli-Expo 2009 wrapped up last week on a higher note than many people had anticipated: according to HAI, attendance was a record-breaking 17,995 people over three days, and most of the exhibitors who spoke with Vertical reported an extremely successful show.
Despite the economic downturn, many in the helicopter industry are doing surprisingly well, particularly in the United States. (As we'll report in the April-May issue of Vertical, a number of Canadian operators have been harder-hit, although there are success stories in that country as well.) The industry boom of the past few years has provided a cushion that will see many companies through the short term, and while commercial orders are definitely down, many OEMs are buffered by a sizable military backlog. Most OEMs expect to increase their deliveries in 2009 (how they'll do in 2010 is anyone's guess).
The April-May issue of Vertical will include a complete Heli-Expo report with dozens of pages of photos. Here, to augment our online coverage of the event, we reprint the story on the state of the U.S. helicopter industry that appears in the current (February-March) issue of Vertical.
Some utility operators, like Aspen Helicopters, that are
well diversified in other sectors, can better weather the
current downturn. Skip Robinson Photo.
For Kelly Liken, general manager of Heli-Flite Inc./Aris Helicopters in California, 2008 started out every bit as promising as 2007 - which had been a banner year for his company and most other operators in the helicopter industry in the United States. "At the beginning of January," recalled Liken, "everything was going pretty darn smooth."
Then, things started to change. First up was a spike in fuel prices that increased operating costs by thousands of dollars a week for Heli-Flite/Aris's fleet of Sikorsky S-58Ts, which specialize in fire fighting and construction. "The change in fuel pricing was really a hit for us," said Liken.
Then, an initially busy fire season fizzled; and while the company saw considerable construction business throughout the year, by the end of 2008, Liken was starting to see the effects of the economic crisis in the U.S. - primarily in the form of customers taking a wait-and-see approach to spending. "I kind of have to wait along with them," said Liken.
The experience of Heli-Flite/Aris is typical. From the dizzying peak seen at Heli-Expo in February 2008, the U.S. helicopter industry has slumped, along with the rest of the nation's economy, and most operators are forecasting a flat 2009. Certain sectors, namely tourism and corporate, have been hit particularly hard. Others appear to be in a holding pattern.
The good news is the industry has been so robust for so long it still looks to be generally stable. With some belt-tightening, most operators, like Liken, expect to "just weather the storm," and are ready to rebound along with consumer confidence.
"I don't know what everyone is waiting for," said Liken. "I think we all just want to go back to work."
Changing Times
The past few years have been halcyon days for the helicopter industry in the U.S. and abroad. The themes at Helicopter Association International's Heli-Expo 2008 were full order books and empty hangars; times were good, and spirits were buoyant (see p.12, Vertical, Apr-May 2008).
"Last HAI was really strong, there was a lot of demand," said Mark Clancy president of HelicopterBuyer, a helicopter dealer and broker. "You saw a lot of orders replacing the old helicopters that were retiring. . . . At the same time, you saw a lot of growth in the industry."
With expansion across almost every sector, operators were upbeat. Manufacturers were doubly so: their bulging order books promised to keep them running at capacity for years to come.
Although, even then, things were on their way down. As far back as February, the flight training industry was seeing the first indications of the looming credit crunch (see p.32, Vertical, Dec'08-Jan'09). Tourism began to slump over the summer. And when an increasing number of large corporations found themselves in financial trouble, they started taking the axe to their flight departments. By September, things were really hitting the skids - reflecting the crisis condition of the U.S. economy.
Ed Eckhart, president of aircraft brokerage firm Eckhart Helicopter Sales, said that 2007 "was great and really the first half of '08 was going the same as '07. The market was healthy through August. . . . What we found was how quickly it all came to a screeching halt." He added, "The last several months have been very, very quiet You get a lot of this wait-and-see thing going on."
At press time, much of that wait-and-see attitude had to do with the changing of the guard in Washington. Every industry was waiting with bated breath for the new presidential administration and promised economic stimulus. Said Clancy, "In the spring, once that new administration is in place, I think people are going to have more confidence."
Said Matt Zuccaro, president of HAI, "I think what the global economic crisis has created is a lot of caution. . . . logically most operators are being cautious about their decisions." But, Zuccaro was generally optimistic about the industry's prospects. "There's been a stability in the industry and it's still holding," he said. "We're stable. Nobody is in a dire economic crisis."
Sector Overview: Corporate
When the U.S. economy collapsed last fall, taxpayers wanted someone to blame - and corporate "fat cats" were easy targets. With executive privileges under intense scrutiny, corporations rushed to appease public opinion. Not surprisingly, corporate flight departments fared poorly in this wholesale face-saving, particularly in the northeastern U.S.
"Certainly the weakest sector we have right now is large corporate," said Clancy. "Some corporate decision-makers see helicopters as a perk, not an economic tool that pays dividends. . . . I think it's going to be the slowest sector to recover."
It's not only the northeast that has felt the bite, though. Corporate and charter markets in the west are also down, said Paul Alukonis, director of operations for Westcor Aviation in Scottsdale, Ariz. Westcor's fleet comprises a Eurocopter AS 350, AS 355 and EC 120, all configured for executive transport. Said Alukonis, "Our world had actually been great up until September. . . . [Then] it dropped off very suddenly."
Westcor draws many customers from the banking, real estate and stock market sectors - all of which were especially hard-hit by the economic crisis. As such, the dreaded wait-and-see attitude prevails amongst these clients as well.
"It's not the fact that they don't have the money," said Alukonis, "they just don't want to spend it because it's uncertain times." Although, he did express confidence that the market would recover, albeit slowly.
In general, the corporate sector's recovery is difficult to anticipate, as it depends not only on hard numbers, but on malleable public perceptions. Said Zuccaro, "It's hard to say in the corporate sector, because that's a cultural/philosophical thing. I don't think there's a predictor for that."
Tourism
With consumers keeping a tighter grip on discretionary income, tourism has slumped dramatically across the U.S., including the key tour markets of Hawaii, Las Vegas and Alaska.
"The first sector we saw an effect in really was the tourism industry," said Joe Hicks, senior vice-president of southeast Alaska's TEMSCO Helicopters. TEMSCO is a major glacier tour operator that also works extensively in the mineral exploration, fire fighting, forestry and construction sectors. Added Hicks, "In tourism, that's what people do, they spend money."
The Aris/Heli-Flite fleet of S-58Ts are "weathering the
storm," said Kelly Liken, general manager.
Skip Robinson Photo.
Everywhere in 2008, tourists were spending less. At press time, Hawaii's Department of Business, Economic Development & Tourism (DBEDT) expected final numbers to show a 10.1 percent decline in visitor arrivals and a 9.5 percent decline in visitor expenditures in 2008. In October, the latest month for which figures were available as Vertical went to press, visitation in Las Vegas was down 10.2 percent from the previous year. Gaming revenue on the Las Vegas Strip, an indicator of visitor expenditures, was down a whopping 25.8 percent.
Prospects for 2009 were also generally bleak. In Hawaii, the DBEDT was "forecasting virtually no growth in Hawaii's economy through most of 2009." In a November presentation to Alaska's Resource Development Council, the Anchorage-based analysis and consulting firm Northern Economics declared, "If employment in the [Alaskan] visitor industry is flat in 2009, it will be a victory."
Many of southeast Alaska's summer tourists arrive on cruise ships, and helicopter glacier tours are a popular shore excursion. In 2008, TEMSCO noticed more of these cruise ship passengers opting for its less expensive tours - a trend that will likely continue in 2009.
"We expect the cruise industry to fill its ships through significant price discounting," stated Jonathan King, a senior economist at Northern Economics. "However, passengers that respond to discounting are the most likely to spend less when they get off the boat."
Without compromising safety or service, TEMSCO is exploring ways to appeal to these budget-conscious tourists. "We're going to try to provide a more economical tour," said Hicks.
Fire Fighting
Tourism wasn't the only sector in Alaska that saw decreased activity in 2008, the fire season was also a nonstarter. "On our fire contracts, we saw very low flight time . . . ." said Hicks.
According to the National Interagency Fire Center in Boise, Idaho, U.S. wildland fires covered just over 5.26-million acres in 2008 - significantly down from about 8.9-million acres in 2007 and 9.59-million in 2006. A big chunk of 2008's fire activity was in California. Wildland fires there covered more than 1.2 million acres by September. By contrast, Alaska had seen just 62,000 acres burned by the same date.
Consequently, a handful of operators saw most of the fire business this year. But even the companies that flew the most, flew less than in previous years. "While 2008 was an exceptionally busy fire year for Columbia, we fell well short of reaching our historical records," said Michael A. Fahey, president of Columbia Helicopters in Portland, Ore.
As fire activity owes more to fate than finance, the particulars of the 2009 season are anyone's guess. The long-term outlook for the sector, however, is solid. Said Fahey: "The severity of future fire-use seasons will largely depend on weather conditions and forest density. . . . [We] promote selectively harvesting these overcrowded forests in an effort to reduce the fire danger. . . . Until our forests receive proper long-term management, we will continue to make our aircraft available for fighting forest fires."
Logging
Heavy-lift operator Columbia Helicopters has seen steady
business, but is also conducting an annual internal audit to
cut costs and improve processes, according to company
president Michael Fahey. Mike Reyno Photo.
Fahey's comments also touch on the logging on public lands issue that Columbia is closely tracking. "Columbia Helicopters continues to be an active participant in the debate over logging regulations on public lands," said Fahey. "While we are able to profit from either logging or fire fighting, we feel that selective harvesting and proper forest management is in everyone's best interest. Consequently, we would much rather thin a forest than drop water on it when the timber starts to burn."
The logging industry in general, though, has fallen on tough times. Although Fahey said his company saw "fairly stable" logging activity over the past year, he added, "We expect a decline in 2009 as a result of low growth and stagnation within the building industry."
The building industry is key. According to the Western Wood Products Association (WWPA) of Portland, Ore., new housing typically accounts for more than 40 percent of annual lumber demand. With 2008 housing starts tumbling more than 50 percent from their levels in 2005, the lumber industry is in a historic downturn. Production in western regions of the U.S. is at its lowest annual volume since 1982.
This downturn "will likely extend another year, until the American financial system and housing market can be repaired," stated a WWPA press release. "The WWPA forecast calls for housing markets and lumber demand to grow in 2010, but cautions that any recovery will be slow."
Construction and Utility
The housing market itself doesn't create much direct business for the helicopter industry (although Columbia's airlift of two Boeing 747 wings for an eco-friendly house was a notable exception - see p.20, Vertical, Oct-Nov 2008). However, as the U.S. economy recovers, its infrastructure should grow accordingly, and the helicopter industry should reap significant benefits in the heavy construction and utility sectors.
"I think you're going to start to see more infrastructure projects," said Andy Mills, director of helicopter operations for Carson Helicopters. In particular, Mills highlighted the need for a far-reaching upgrade of the nation's powerline infrastructure, a program that would create numerous opportunities for heavy-lift and smaller aircraft. Even without a program, powerline work seems steady. "We certainly did more powerline work this year than we did in previous years," he said.
Even in the current economic downturn, the outlook for construction is generally favorable. Both Heli-Flite/Aris's Liken and Columbia's Fahey reported a steady market with little change expected.
Mining and Exploration
Although business fluctuates, the long-term outlook for
TEMSCO Helicopters in Alaska is solid. Ron Gile Photo
Even if infrastructure development in the U.S. is flat, other parts of the world are seeing tremendous growth. According to Northern Economics, China alone needs to grow its infrastructure at seven percent per year simply to cover its rural-to-urban migration. That's going to create long-term demand for raw materials - which means stable long-term work for the mining and exploration sectors, even if exploration sees a dip in 2009.
In Alaska, "the 2009 outlook is all about the money," said Northern Economics' Jonathan King. In his presentation to Alaska's Resource Development Council, he predicted exploration expenditures would be down in 2009, with junior companies hardest-hit. "Companies without deep pockets are dependent on increasingly scarce outside funding to propel exploration and development," he stated. "Companies that are unable to secure financing soon will not have 2009 field seasons [seasonal mining exploration work]."
For TEMSCO, mining exploration activity - which accounts for around a quarter of the company's business - was steady from 2007 to 2008. "It was pretty vibrant and it stayed pretty consistent," said senior VP Hicks.
Oil and Gas
Oil prices were up and down in 2008, from a July peak of $147 US per barrel, to a five-year-low of less than $34 per barrel at the end of December. But, the U.S. Energy Information Association (EIA) was predicting a rise in oil prices in 2009 and beyond. According to a press release, EIA believed the world crude oil price would average near $60 in 2009, and rise as the global economy rebounds and global demand outstripped non-OPEC liquid supply.
Even so, with prices well down from their 2008 peak, new exploration will be heavily determined by the resources of individual companies. Said King, "As with mining, the depth of companies' pockets will determine how much they spend on exploration and new projects. We expect reduced exploration worldwide and in Alaska."
At the end of 2008, the big players in the offshore helicopter industry, though, were still very solid. "Of all the sectors out there, the oil market is still leading the way," said HelicopterBuyer's Clancy.
In November, Meera Sikka, Bristow's VP of global development, told Vertical, "We don't see any major diversion from what it was like in the summer until now," although, she noted, "it's early days still." (see p.74, this issue)
Appropriately enough, David Stepanek, VP of business development at Era Helicopters, observed that "customers are re-evaluating projects due to lower oil prices, which means the market could see reduced demand going forward."
Summing Up
Looking at the entire picture, the obvious question is will the helicopter industry recover to the massive high it experienced a year ago? Probably not, because, as Clancy said, "It was a unique combination of circumstances that brought us to that peak."
However, helicopters have become so widely accepted as a business tool that most sectors exhibit a stability they didn't have 30 years ago, and the long-term outlook for the industry is favorable because of it.
"Helicopters are such a utilitarian machine," said Ed Eckhart. "All these segments, they require helicopters. As long as those industries continue - and they will - so will helicopters."
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