The Proliferating Small Drone

By Ray Peterson, VP, Research & Editorial, Forecast International.

IMG_1350 (Medium)With the Unmanned Systems 2015 Conference & Trade Show in full swing, I’ve noticed a difference between this year’s event and the one that took place last year in Orlando. Specifically, a proliferation of relatively small drones featuring four, six or even eight electric-powered rotors have popped up at many booths. The versatility of these increasingly ubiquitous air vehicles cannot be overstated and explains their popularity. Applications are limited only by one’s imagination, and extend to real estate property overview (inside and outside a house), law enforcement, aerial survey work, movie production, and disaster relief, to name only a few.

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Sikorsky Will Be Just Fine On Its Own

Sikorsky

by Raymond Jaworowski, Forecast International.

The long-term business potential of Sikorsky Aircraft is bright, despite the fact that parent firm United Technologies Corp (UTC) is reviewing the possibility of selling Sikorsky or spinning it off into an independent firm. As reasons for a possible divestiture, UTC management has cited uncertainties regarding the military helicopter market as well as Sikorsky’s lower profit margins compared to other UTC units.

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Bizjet Recovery Slow But Steady

By Raymond Jaworowski, Forecast International

The business jet market is currently in the early stages of recovery. This recovery got underway in 2013, when annual business jet production registered a slight increase after having declined for four consecutive years from 2009 through 2012.

The recovery appears poised to strengthen in the next few years. Most market indicators are positive. Economic growth is continuing, however sluggishly. Corporate profits are strong. Orders for new business jets are rising, and order backlogs at manufacturers have stabilized. The inventory of used aircraft for sale is declining. Flight activity is increasing.

Cessna Mustang

Cessna Mustang

To some extent, though, the business jet sector continues to be a tale of two markets. Demand is quite strong in the upper tiers of the sector, from the super mid-size class up through the long-range segment. In the medium jet class, the picture is a bit mixed but is nevertheless improving. However, in the lighter categories, demand is still somewhat weak.

The market for lighter jets is largely concentrated in North America, the biggest geographic market for business jets but a heavily saturated market as well. While economic improvement in the U.S. has been slow, corporate profits have been robust, allowing businesses to accumulate large reserves of cash. Uncertainty over economic and political conditions, though, has made many of these businesses hesitant to make large capital acquisitions such as aircraft purchases.

The key to unlocking this latent demand in the North American market is continued economic improvement. This should serve to strengthen business confidence and unlock corporate coffers. Greater transparency concerning government intentions regarding taxation and regulations would further boost business confidence.

 

Gulfstream G650

Gulfstream G650

The business jet market is strong in most other regions of the world, with Europe being a significant exception. But even in Europe, the outlook is improving, as the worst of the region’s recent sovereign debt crisis appears to be over.

Meanwhile, as they have traditionally done, business jet manufacturers used the recent market downturn (and the immediate aftermath) to launch several new models. Each of the Big Five established players has at least one new model in design and development.

The recovery in the business jet market is likely to be gradual and measured in its pace: a solid, if unspectacular, recovery. We do not expect the 2008 production level of 1,314 business jets to be reached in any year of the 2014-2023 forecast period.

Dassault Falcon 8X

Dassault Falcon 8X

Forecast International projects that a total of 9,634 business jets will be produced in the 20-year period from 2014 through 2023. The value of this production is estimated at $255 billion in constant 2014 U.S. dollars.

Production is forecast to total 719 units in 2014, and to steadily increase to 1,136 units by 2020. A two-year cyclical downturn in production is anticipated for the 2021-2022 timeframe, before build rates rebound in 2023.

During the forecast period, the top three manufacturers in unit production are projected to be Cessna, Bombardier, and Embraer. Cessna is forecast to produce 2,363 business jets, representing 24.5 percent of the market.

Bombardier Challenger 650

Bombardier Challenger 650

Bombardier is expected to build 2,075 business jets during the forecast period, for a market share of 21.5 percent. Embraer is third, with production of 1,732 aircraft and a share of 18 percent.

Fourth, fifth, and sixth places are taken by Gulfstream, Dassault, and Honda, respectively.

When the market is calculated in terms of monetary value, the manufacturers of the larger, high-value business jet types rise to the top of the rankings. In production value, Gulfstream takes the top spot with $74.7 billion worth of production, a share of 29.3 percent. In second place is Bombardier, with $69.7 billion worth of production and a 27.3 percent share. Dassault is third with a 17.4 percent market share on production worth $44.5 billion. Cessna, Embraer, and Boeing take the next three spots.

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.

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.

 

Bulgaria Announces $680 Million Army Modernization Program, but Will It Ever Come to Pass?

By Dan Darling, Forecast International

Bulgaria plans to implement a BGN1 billion ($680 million) military modernization program aimed at decreasing the army’s dependence on Russian-legacy hardware. The program, announced by Defense Minister Velizar Shalamanov, will run through 2020. The modernization will feature the long-anticipated acquisition of new multirole combat aircraft that will allow Bulgaria to begin phasing out its MiG-21 and MiG-29 fleets. It will also involve the procurement of a new submarine and new naval vessels.

Bulgarian MiG-29s are slated for phase out.

Bulgarian MiG-29s are slated for phase out.

Bulgaria’s Defense Ministry is currently drafting a plan that would see defense budgets rise to 2 percent of annual GDP. Under this plan, defense investment would rise rapidly on a year-by-year basis, as current military expenditures reside at 1.3 percent of GDP.

Throughout much of the 2000s, Bulgaria remained one of a handful of NATO members to meet the minimum standard of 2 percent of GDP allocated toward defense, despite being the poorest member of the Alliance. In 2001, the country devoted just under 3 percent of GDP to defense (2.96 percent), but by 2005, that figure had dropped to 2.45 percent. By 2009, with the Bulgarian economy stumbling under the weight of a Europe-wide recession, defense allocations had dropped to 1.86 percent of GDP and then fell nominally by 23 percent in 2010 as the government pursued austerity measures to keep Sofia in the good graces of the European Commission.

As a result of the decline in defense investment, Bulgaria’s longstanding military modernization effort, titled Plan 2015, was pushed out to 2020 under the most recent Defense White Paper (released in 2011). Plan 2015 involved the purchase of ground transportation vehicles, multirole fighters, naval fighting ships, communications equipment, and a reconnaissance command-and-control system.

The latest modernization plan announcement appears, on the surface at least, to be old wine in a new bottle. The requirements of the Bulgarian armed forces have not changed, only the face heading the Defense Ministry has. The latter itself makes this latest announcement appear tenuous, as Shalamanov is part of the caretaker government of Prime Minister Georgi Bliznashki. With parliamentary elections approaching on October 5, his time atop the Defense Ministry may prove short.

More to the point, requests by Bulgarian Defense Ministers are often given short shrift by sitting governments. An example of this came in 2012, shortly after the release of the most recent defense white paper. Then-Defense Minister Anyu Angelov requested that Parliament keep defense spending at a minimum of 1.5 percent of GDP through 2014 – the result was that expenditure fell to 1.2 percent in 2012.

With a poor economy that is struggling to make headway, readily available funding is simply not there to be doled out. An incoming government sympathetic to defense and perhaps alarmed by events in Ukraine may place a higher premium on military investment, but doing so would require not only increasing annual defense budgets but also bringing greater balance to the way the consolidated defense allocation is then spent. Currently, Bulgaria’s Defense Ministry allocates just 5 percent of the defense budget toward capital investment (i.e., procuring new military hardware and upgrading and maintaining existing materiel). Some 74 percent of the budget is devoted to personnel expenses, rather than the desired 60 percent called for in the Defense White Paper. With limited funding thus allocated so disproportionately, the Bulgarian armed forces remain stuck with their Soviet-/Russian-legacy hardware, despite having entered the NATO Alliance a decade ago.

Unless funding both increases and is doled out more equitably than the status quo – an army forced to rely upon using the equipment of their allies for training purposes when joint exercises are conducted on Bulgarian soil – will remain. But if the next government is less sympathetic toward upgrading the armed forces than it is tackling the country’s myriad problems – which include rooting out corruption, strengthening the judicial system, improving public infrastructure, and adhering to EU budgeting and transparency rules – then the matter becomes moot.

No Saab Story Here

By Richard Pettibone, Forecast International

saab

As it faces an austere and highly competitive global defense market, Saab is building its strategy to increase revenues and profits.  Under this effort, the company plans to reduce costs and focus on successful niche markets and opportunities abroad.

While cost reductions have been ongoing throughout its operations, the company has so far maintained a high level of R&D. Much of this funding will be targeted to niche areas, especially the growth market of unmanned vehicles.

Around the globe, Saab has been quite successful in building its presence.  Through a series of acquisitions and joint ventures, Saab has been aggressively penetrating new markets in India, Brazil, and most interestingly, the U.S.

Though not without risk in this downturn/recovery, the push into the world’s largest defense market does make sense.  However, with U.S. defense spending set to be reduced, Saab may face some difficulty in penetrating the market.  The pressure from the U.S. government to buy local will be high in the face of budget cuts and the resulting layoffs at manufacturers.

A big part of this drive will entail Saab establishing partnerships with U.S. aerospace and defense firms.  Such teaming would make the acceptance of Saab products for military consumption all the more palatable if it is perceived as supporting a local firm as well. True to this strategy, the company teamed with Boeing in late 2013 to offer a new, clean-sheet aircraft design for the USAF T-X trainer program.

Saab’s operations in the U.S. have also been consolidated under a new organizational umbrella, Saab Defense and Security USA (SDAS).  This new organization includes Saab Training USA, Saab Barracuda, Saab Support and Services, and the defense-related operations of Saab Sensis.  SDAS will focus its energies on providing defense and homeland security systems and services to the U.S. market.

Gripen_JAS39E

In South America, Saab scored a major coup when its JAS 39E Gripen NG was selected to fulfill the needs of Brazil’s FX-2 fighter competition.  The Gripen beat the Dassault Rafale and Boeing F/A-18E/F Super Hornet after a lengthy tender process. The deal is for the purchase of 36 fighters for an estimated cost of $4.5 billion. The contract is expected to be finalized by December 2014 and completed by 2023.

However, along with the good news the company had to deal with the bad when Swiss voters rejected a proposed acquisition of 22 JAS 39E Gripens. The deal, which had been worth an estimated $3.5 billion, was opposed by 53.4 percent of the voters. A reworked deal with Switzerland is considered unlikely in light of the vote. Despite that setback, Saab is proposing the Gripen for upcoming fighter procurements in Bulgaria, Croatia, Denmark, Greece, Malaysia, and Slovakia, among others.Next Generation SubmarineAt sea, Saab expanded its maritime activities with the purchase of the Kockums submarine yard from Germany’s ThyssenKrupp Industrial Solutions AG. The acquisition was pursued after a falling out over price and submarine exports between Sweden and ThyssenKrupp.  As a result, Sweden pulled A26 submarine work from the firm and tasked Saab with coming up with a plan for the country to maintain an indigenous submarine-production capability.  Under the $50.5 million deal, Saab will acquire operations in Malmö, Karlskrona, and Muskö and add around 900 employees.

All told, Saab has been very proactive in adapting to the new aerospace and defense marketplace. Although it has at times been challenging, Saab has proved over the years that it can adapt quickly and successfully correct its course. With competition in these markets becoming even more fierce as government spending declines, this skill will be critical in the years ahead.

@RPettiboneFI

New Product Development Re-shaping Large Jetliner Market

By Raymond Jaworowski, Forecast International

On the eve of the 2014 Farnborough Air Show, Forecast International notes that Airbus and Boeing are playing point-counterpoint on a colossal scale in terms of new product development.  Currently in development, the Airbus A320neo and the Boeing 737 MAX, with respective orders numbering in the hundreds, are re-engined versions of the two companies’ current and very popular narrowbody airliner families.

In the market’s widebody segment, Airbus and Boeing have engaged in a series of moves and countermoves.  The Boeing 787’s introduction led to Airbus responding with the A350 which, in turn, has led to Boeing launching the new 777X series.  The advent of these new aircraft is transforming the large airliner market.

In its new study “The Market for Large Commercial Jet Transports,” Forecast International projects that a total of 15,716 large commercial airliners will be produced from 2014 through 2023.  The Connecticut-based market research firm estimates the value of this production at $2.38 trillion in constant 2014 U.S. dollars.

During the 10-year forecast period, the A320neo, 737 MAX, 787, A350 and 777X will account for nearly 65 percent of new production. The A320neo and 737 MAX alone will account for some 43 percent of unit production during that time.

Forecast International predicts that annual production of large airliners will rise each year from 2014 through 2020, with production increasing from 1,379 aircraft in 2014 to 1,730 in 2020.  The company expects output to decline somewhat during a minor, economically driven cyclical downturn in the 2021-2022 period before it resumes an upward track in 2023.

According to the Forecast International projections, Airbus and Boeing will account for more than 95 percent of the large airliners that are forecast to be produced during the 2014-2023 timeframe.  This level of dominance indicates that the market will essentially remain a duopoly during this period.  However, the Airbus/Boeing rivalry is unusually competitive for a duopoly, with both companies spending substantial resources on new product development.  Simultaneously, they severely discount prices on existing products in order to accumulate sales.

Forecast International senior aerospace analyst Raymond Jaworowski said, “The fiercely competitive nature of the Airbus/Boeing rivalry arises from the relatively limited size of the customer base, efforts by the two manufacturers to increase profit margins, and the desire of both companies to continually increase aircraft production rates.”

Airbus and Boeing continually raise production rates in order to improve production efficiencies, reduce wait times for customers, and stave off new competitors in the marketplace.  These new competitors are appearing in the narrowbody segment of the large jetliner market, and include such aircraft as the Bombardier CS300, the COMAC C919, and the Irkut MC-21. However, their introduction will have little impact on Airbus’ and Boeing’s overall market share through the 2014-2023 forecast period.

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