Manufacturers, financiers, and leading rotorcraft analysts expect the market for both new and used civil helicopters to remain tight for the remainder of 2023, squeezed by a triumvirate of pressures including inventory, inflation, and continuing supply-chain challenges.
While the civil market has mostly returned to pre-Covid normal in terms of overall new helicopter sales and/or flight hours, price increases have placed additional pressure on the already constrained preowned market. Meaningful forecasting in this environment, clouded by continuing economic uncertainty, is difficult, so much so that, for the first time in recent memory, Honeywell did not issue its turbine helicopter sales forecast at this year’s Helicopter Association International Heli-Expo.
“The market is quite tight. That's across the board: search and rescue, EMS, offshore wind, oil and gas, utility, and marine pilot transfer,” said Jaspal Jandu, CEO of helicopter lessor LCI. “It's tight everywhere.” While new civil helicopter production is up, it is nowhere near the levels required to take pressure off the used market. This is partially the function of continuing supply disruptions.
The likelihood that OEMs will significantly boost production to alleviate scarcity across all categories remains low, according to the experts. “I think they’re [the OEMs] strapped for resources,” said Jason Zilberbrand, president of aircraft valuation and consulting service Vref. Zilberbrand doesn’t see supply and prices getting back to normal until 2024, at the earliest. “I think a lot of folks just didn’t come back after Covid and it’s going to reduce capacity. They can’t get stuff up fast enough and the stuff that they’re getting out is having more issues post-delivery.”
HeliValues CEO Jason Kmiecik thinks OEMs will remain cautious about raising production in the face of economic uncertainty. “Given that behavior, odds are the used market will remain tight for newer and current production models,” he explained.
While Safran Helicopter Engines CEO Franck Saudo describes the helicopter market as “superb,” he acknowledges “severe supply-chain headwinds.” Saudo characterized the business as “the best market I have seen for close to the past 10 years.” With “positive momentum in next to all helicopter market segments” in “all geographical areas,” the upward trend prevails for both new helicopter demand and the aftermarket, he added.
He attributed the scenario to an increase in worldwide helicopter flight hours, which have returned to pre-pandemic levels and contributed to a “robust and sustained demand for new helicopters” that has eclipsed the demand recorded in 2019.
However, Saudo said his company’s supply chain “remains very much constrained...mainly due to labor shortages” and constitutes “the number one challenge of our company in 2023.” He said Safran has battled the problem by becoming increasingly vertically integrated and adding employees—400 last year and an estimated 200 more in 2023. Material shortages are acute in steel, particularly superalloys, he added. “In the foreseeable future, I do not see an improvement,” Saudo said. “We keep assessing the situation.”
In the face of this environment, some suppliers are moving to alleviate uncertainty by stocking an abnormally large number of parts. Atlanta-based Rotorcorp is doubling its inventory of Robinson Helicopter parts in response to continuing supply-chain disruptions and rising costs, which it anticipates will extend into 2024.
Rotorcorp is the largest reseller of Robinson parts in the world with more than 3,000 customers in 40 countries. The company is taking the action to “ensure that high-tempo and high-urgency Robinson R22, R44, and R66 helicopter operators around the world can easily access the critical parts they need to keep flying safely.”
According to Rotorcorp, supply-chain problems and price increases were particularly acute for the Lycoming piston engines and related parts used to power R22 and R44 models. In fact, the engine manufacturer’s prices have increased by 25 to 30 percent while lead times for items such as cylinder kits are up to 12 months. Meanwhile, obtaining whole engines can take eight months.
LCI’s Jandu says the situation requires OEMs, suppliers, owners, and operators to plan well in advance, significantly changing how the rotorcraft community does business. “For operators coming to us [lead times] are increasing quite dramatically,” he told AIN. “Operators are speaking to us one, two, even two and a half years in advance” of when they need a helicopter, he said, “looking at capacity requirements in 2024 and 2025.”
And the competition for helicopters coming off lease can be intense. “We're seeing multiple operators and end-users bidding for the same aircraft. There is competition out there for relatively scarce resources.” Scarcity and rising interest rates are propelling lease rates upward, Jandu said.
That includes rates on models such as the Airbus EC225LP and the Sikorsky S-92A, once orphaned by the collapse of the offshore oil market immediately before and extending into the pandemic, according to HeliValues’s Kmiecik.
“We are finally starting to see prices rise for the first time in years for the heavy class of helicopters,” he said, adding that recent transactions in the third and fourth quarters of 2022 drove up valuations on both the EC225LP and S-92A. EC225LP sales involved the utility or search and rescue sector, and S-92A sales remained in the offshore energy transport sector.
Offshore’s increasing sole reliance on the S-92A as its main heavy twin-engine helicopter could pave the way for the Bell 525 as a second-source aircraft, particularly in the North Sea, depending on its eventual sales price and timing of its final certification, he said.
Jandu said a fundamental demand pattern shift could subject the market to continuing supply scarcity for some time. During the oil price collapse and the pandemic, “new orders and deliveries decreased and operators and end users started using the existing equipment a little bit harder and a little bit longer,” he said.
As a result, “the entire replacement cycle got pushed out three or four years to the right. Now it has to be addressed," Jandu said. “The replacement cycle is upon us and the mathematics is against us.” Historic market forecasts typically indicated 60 percent of the demand was for growth and 40 percent was for replacement, he noted, adding those numbers are now inverted with 60 percent, even 70 percent of the demand for replacement and the remainder for growth.
“You can delay the purchase cycle but at some point, the hull gets too old, you start reaching service limits, or the end-user demands more safety features that the old units can't accommodate. So I feel like there's an entire bow wave that has yet to happen on the replacement side.”
Jandu thinks these market dynamics will help the overall helicopter market, particularly the super-midsize category, which has been slow to gain traction. “We’re quite bullish on the super-medium category,” he said, while also noting that technological advances are also showing up in smaller helicopters, specifically the Airbus H145. But none of this comes cheap.
“Somebody’s going to pay for it,” Jandu cautioned. “We’re in the business to help end-users and operators and we want to drive this growth. But interest rates are moving up. Capital also has some requirements for ESG [economic, social, and governance compliance]. Ultimately the end user is going to have to come to the table and we're going to have to arrange these [lease] contracts in a more aligned [fashion],” he said. “All this new equipment doesn’t come for free.”
The scarcest airframe in this market remains the multi-role Leonardo AW139 intermediate twin, according to most market watchers. Although the price of used Leonardo AW139s has dropped slightly in the last six months, the demand for leasing one has increased. “Lease rates are going up faster than the [sales] values are dropping,” said HeliValues’s Kmiecik. “The 139 is still one of the most also popular aircraft because it has proven itself to be a very reliable aircraft. Everybody loves it, they love flying in it, they love flying it, they love working on it.”