Airbus’ Much Anticipated A320neo Makes Maiden Flight

by Douglas Royce, Forecast International

The first Airbus A320neo test aircraft made its first flight on September 25. Airbus began assembly of the aircraft, MSN6101, in March and rolled it out of the factory in July.

Forecast International projects that Airbus will deliver 5,472 A320 family aircraft from 2014 through 2023. This total includes both the current A320ceo family and the new re-engined NEO models.

A320neo maiden flight

A320neo maiden flight

The A320 family competes against the Boeing 737 family in the market for single-aisle airliners. Currently, the Boeing 737-700 and 737-900ER outsell the A319 and A321 in the lower and higher seat ranges, respectively, while the A320 outsells the 737-800 in the most popular middle range.

The firm order backlog for Airbus’ A320 family totaled 4,298 aircraft at the end of 2013, up nearly 25 percent over its backlog at the end of the prior year. Aside from strong demand for the current model, the market’s response to the launch of re-engined NEO models has been beyond even Airbus’ expectations. Orders continue to pile up.

Airbus will introduce the A320neo first. It was originally scheduled to enter service in 2016, but Airbus said in April 2011 that high customer demand had led it to move the targeted entry-into-service date to October 2015. Introduction of the A319neo and A321neo models will follow at six-month intervals.

Boeing has responded to the threat posed by the NEO models by launching its own re-engining program for the 737, and demand for the new 737 MAX family has also been very strong.

Commercial Satellite Capacity Increasingly Important to Military Operations

By William Ostrove, Forecast International

Militaries are increasingly pressed to find enough capacity to meet their needs. Just as businesses and consumers become more connected via high-bandwidth networks, increased data transmissions between warfighters and unmanned vehicles require greater bandwidth. To keep up with demand, militaries have long relied on commercial satellite operators to supplement military-owned communications satellites. In the past, these deals have primarily been short-term capacity leases that meet an immediate need.

For example, the U.S. Navy is supplementing UHF capacity from its UFO and MUOS constellations with capacity from Intelsat General (based in the U.S.), the United Kingdom’s Skynet service, and Italy’s Sicral service. The UHF capacity crunch is partially caused by delays in the MUOS program, which is replacing the UFO fleet, and by increased demand for bandwidth from warfighters.

SATCOM_Final

The U.S. government is also working to standardize its method of purchasing commercial bandwidth. In July 2010, the Pentagon announced a program called the Future Comsatcom Services Acquisition (FCSA) and issued a solicitation for satellite operators and service providers to bid to provide long-term capacity to the government. The program is managed by the Defense Information Systems Agency (DISA) and the U.S. General Services Agency (GSA), and will purchase capacity for both military and civilian government uses.

Militaries around the world are also working to sign longer-term contracts with satellite operators. In the past, capacity deals were signed on an as-needed basis. In June 2014, the U.S. military signed an $8.2 million contract with SES Government Solutions to use two satellite transponders on an SES satellite orbiting over Africa. The five-year contract is part of a series of pathfinder contracts that test new ways to acquire satellite communications services. The Pentagon hopes to find a contract mechanism that will help reduce the amount it spends on satellite capacity (it spent approximately $1 billion on satellite capacity last year).

European nations are also working to standardize commercial communications satellite capacity for military purposes. The European Satellite Communications Procurement Cell (ESCPC) awarded Astrium (now Airbus Defence and Space) a three-year contract for commercial satellite communications. The ESCPC also gives the five member states (France, Italy, Poland, Romania, and the United Kingdom) a mechanism to pool communications resources.

Europe’s Defense Retrenchment Appears Over, But What Comes Next?

by Dan Darling, Forecast International

 

European_flag_in_Karlskrona_2011

Following a prolonged period of budgetary reductions, Europe’s larger defense environment appears to have reached its low threshold. But instead of a marked rebound in investment, the market as a whole will remain largely flat over the near term, according to the latest Europe Military Markets analysis by Forecast International.

Though the eurozone economic recovery from the 2008 global financial crisis remains a relatively anemic one, efforts by governments to trim budget deficits in the wake of sovereign debt concerns have successfully narrowed imbalances. Yet while treasuries have a bit more financial breathing room, this is not expected to result in sudden infusions of funding earmarked for defense, as maintaining budgetary discipline remains the overriding prerogative for many European governments.

While more robust defense spending is not apparent on the immediate horizon, the healthier fiscal ledgers should allow many governments to stem the slide in military investment that saw the defense expenditures of the 28 European Union members shrink by 3.5 percent between 2008 and 2013. Instead, from 2014 through 2018, the combined EU28 defense market should grow nominally by about $17 billion, or roughly less than 1 percent annually in real terms.

“The post-financial crisis period has resulted in a concentrated effort throughout the finance ministries of Europe to find areas of savings,” says Forecast International’s Europe Military Markets Analyst Dan Darling. “Inevitably, one of the areas where year-on-year spending has been frozen or cut is defense. To be seen shrinking defense was hardly considered a political liability if doing so meant sparing social services and welfare nets from sharper cutbacks. So while overall spending in the EU28 actually grew by 4 percent between 2009 and 2013, the portion allocated for military spending fell by 1.7 percent in real terms.”

A second economic slump hitting the eurozone (2012-2013) further accelerated the defense budget cuts and forced restructurings already in motion across Europe. These restructurings left many European armies with fewer personnel and reduced capabilities in troop transport and logistical support, and with a blunted reservist element.

“As funding pressures increased, many defense ministries had little option but to make difficult choices as to what capabilities to retain or shed and how best to configure their armies going forward,” Darling notes.

The shrunken military footprint has meant more areas for an assertive Russia to probe along its former Soviet domain and more stress on the deployable elements of the 21 dual EU-NATO members as they seek to fill security gaps and aid ailing governments in areas as far apart as the Central African Republic and Afghanistan.

While the countries of Eastern Europe view Russia as the preeminent threat to their own security and are reexamining their military investment practices, the traditional European defense powers are intent on continuing the restructurings of their own armed forces and preventing regional brushfires in Africa, the Near East, and Ukraine from spreading.

For countries like Estonia, Latvia, Lithuania and Poland – each predisposed by their respective histories to see the worst in Russia’s actions and intentions, the need to counter the threat presented by Moscow is of paramount national security concern. But while the recidivist tendencies exhibited by Vladimir Putin’s Russia elicit worry among those EU-NATO nations once held under Soviet domination and are of concern to the Alliance at large, Russia itself is not seen as a direct military threat to the territorial sovereignty of Britain, France, Germany or Italy. As a result, rebounding defense budgets and expanding inventories of jet fighters, tanks, and warships for the armies of these nations are not in the offing. Instead, undertaking missions to manage threats along Europe’s eastern periphery is something considered to be manageable via solutions derived within existing budgets and force structures, therefore requiring of them no massive increases in financing, personnel or equipment.

“What’s already been undertaken in the past decade(s) will not be reversed,” Darling notes. “It is the new reality. While Russia certainly presents a challenge for the EU and NATO, it is not seen in Berlin, London or Paris as a threat on the level of the former Soviet Union. Therefore, the more powerful defense nations in Europe are in no rush to halt or reverse plans for smaller, well-equipped armies that provide them with operational flexibility. For now, their future defense spending projections reflect a more conservative approach than followed by their eastern peers, who are starting from very low spending bases as they seek to bolster military budgets in future years.”

Thus while five EU-NATO nations – Estonia, Latvia, Lithuania, Poland and Romania – have expressed a commitment to raise their military budgets up to (or near to) the NATO minimum standard of 2 percent of GDP on an annual basis in the wake of events in Ukraine, their combined defense spending figure of $13.6 billion for 2014 represents less than 33 percent of what France is allocating alone.

“With the eurozone economy registering barely any growth so far in 2014 and euro-area government debt at 94 percent, sharp spikes capital investment toward defense will not be forthcoming,” Darling adds.

“Since massive budgetary injections are not on the horizon, the focus in respective European defense ministries should be on how to spend the money allocated in the most practical manner. That would start by reexamining the way in which funding is proportioned between personnel, operations and maintenance, and modernization and defense research. Achieving a more balanced spending ratio that allows for higher military readiness and a greater percentage of deployable personnel – as well as their sustainment in-theater – should be the focus going forward.”

Sikorsky Downturn Not So Dour Thanks to Program Wins

By Richard Pettibone, Forecast International

The downturn in military helicopters has begun.  A quick look at Sikorsky‘s declining revenues, down 15 percent to $6.35 billion in 2013 from a high of $7.36 billion in 2011, shows that years of increased spending have ended. Now, after some 10 years of strong military procurement, the current downturn is expected to last almost as long.

A number of factors account for this decline.  High levels of debt are forcing government officials in the U.S. and many other nations to look for ways to reduce spending, and defense budgets are taking an often disproportionate share of reductions.  As it faces this new market, Sikorsky has taken action to deal with the current economic conditions.  In early 2014, the company announced that it would cut 600 jobs, roughly 4 percent of its global workforce.

Sikorksy Combat Rescue Helicopter

Sikorsky Combat Rescue Helicopter

Despite the dour outlook, the company has been able to claim victory in two major procurement programs: the CRH program and the VXX program.  For the U.S. Air Force’s Combat Rescue Helicopter (CRH) program, Sikorsky and teammate Lockheed Martin were the sole bidders.  In late 2012, the other principal contenders for the contract decided not to bid on the program.  This situation repeated itself in mid-2013 with the U.S. Navy’s VXX program to replace the Marine One presidential helicopter.  Sikorsky was again the last one standing after competitors opted out of the competition following a review of the Request for Proposals.   The Department of Defense did not restructure the procurements, and in May, Sikorsky was awarded an initial $1.24 billion contract to produce the S-92 for the VXX Presidential Helicopter program. This was followed in June by an initial $1.28 billion contract to develop the new Combat Rescue Helicopter.

 An illustration of Sikorsky's S-92 presidential helicopter

An illustration of Sikorsky’s S-92 presidential helicopter

According to Forecast International’s Rotorcraft Forecast, a return to significant and consistent growth in the market will likely have to wait until the post-2023 or even post-2028 timeframe.  One program that could help spur this growth in the very long term is the U.S. military’s Future Vertical Lift project.  FVL rotorcraft are slated to replace various attack and utility helicopter types across U.S. military fleets.  Service entry is planned for around 2030.  Technology intended for use in FVL rotorcraft is currently being developed under the Pentagon’s Joint Multi-Role (JMR) program.  The Sikorsky/Boeing team moved up in this competition when it was selected (along with Bell Helicopter with a rival offering) to move forward with development of a prototype; a contract was awarded in August 2014.

Sikorsky S-92 in offshore oil service

Sikorsky S-92 in offshore oil service

Another bright spot for Sikorsky is in the commercial sector.  Production of Sikorsky’s S-92, which suffered during the recession, is rising due to strong demand from offshore energy support markets. In addition, production of the company’s S-76, which is well known as an executive and offshore oil transport helicopter, is forecast to increase thanks to economic improvements and the introduction of a new model, the S-76D.

Early in 2014, reports circulated that Sikorsky was being considered for divestment by parent UTC. Because Sikorsky is the smallest and most government dependent of UTC’s operations, the consideration of this option is to be expected in the current economic climate.  However, a sale is ultimately unlikely, as tax and regulatory issues and market timing could be problematic. The consideration likely arose from the divergence of fortunes between Sikorsky’s downturn and the upswing in UTC’s building and aerospace component business. Overall, the discussion is simply part of UTC’s ongoing strategy in managing a multi-market conglomerate.

The E-2D Advanced Hawkeye is the last remaining application for Rolls-Royce’s venerable T56 turboprop.

by William Alibrandi, Forecast International

Rolls-Royce T56

The engine that powered thousands of C-130s is now flying on the U.S. Navy’s AEW Hawkeye. The U.S. Navy’s current procurement plan calls for the acquisition of five aircraft in each of FY14 and FY15, six in FY16, and then eight aircraft per year starting in FY17.  The forecast reflects this plan and assumes the Navy will keep it in place over the next decade, but it is possible that the Navy will not ramp up production in FY17.  The defense budget is currently under stress, and the Navy may need to stretch out procurement longer than planned.  Keeping annual procurement at five to six aircraft would push final deliveries to 2024, rather than the currently forecast 2023. The forecast is based on the Navy’s current requirement for 75 aircraft.  The total number of aircraft the Navy plans to acquire has fluctuated slightly in recent years, but it will remain in the area of 70-75 aircraft (including two test aircraft), as the Hawkeye is safe from termination.

Limited Export Potential

Exports of the E-2D will be limited, because the pool of potential buyers is small. Current operators of the E-2C may order the E-2D at some point during the next decade, but none have given a clear indication of when they would begin replacing their E-2Cs.

Series 3.5 Upgrade

Rolls-Royce has developed an engine upgrade for the operators of older C-130s that offers a 9.7 percent improvement in fuel economy, plus 22 percent greater reliability and 9.4 percent greater range. The upgrade can be done during routine overhaul and includes new compressor and turbine blades, new turbine vanes and seals, and a new compressor air inlet housing.