The Helicopter Association International have recently celebrated their most successful Heli-Expo ever: this year event, held in Las Vegas, registered 20,393 visitors and 736 exhibitors. Press releases, from a variety of operators and manufacturers, depicted current market outlooks with some bullish terms, a few of them reporting their activities to be at pre-crises level. Some markets have proven more resilient then others; the sluggishness in Europe has been compensated by growth in the emerging economies; robust demand in the Oil and Gas segment maintained strong order books and compensated for lack of demand in the corporate sector. Optimism has broken through, finally.
But what is the situation in the UK? On the 22nd of February 2008 the British bank Northern Rock was nationalised, as the most tangible sign that the financial crisis had landed on this side of the Atlantic. Since then, the economy in Britain, as well as in many other countries, has struggled to find a clear path to recovery, with its journey marked by alternating periods of growth and decline, both slow and weak.
The aviation market is pro-cyclical, in the sense that, overall, it follows the trends of the general economy (as measured by the Gross Domestic Product, GDP). So what happened? And what is happening?
The purpose of this brief analysis is to assess the current circumstances and outlook of the civil helicopter market in the UK today, five years into the Great Recession; this will be done by exploring historical trends in a small selection of market parameters:
1. Size of the fleet
2. Flight activity
3. Training activity
1. Trends of the Size of the Helicopter Fleet on the British aircraft register
The CAA makes available on their website the status of the Fleet as at 1st January each year. This information is segmented into weight categories and can be graphed as shown in Figure 1.
Figure 1 – Rotary Wing fleet vs GDP
Aircraft units are on the left axis; on the right axis is the UK GDP, in bn of US$ (from the World Bank website; the 2012 GDP is estimated as unchanged from 2011).
This chart tells us several things.
Firstly, it is confirmed that the size of the fleet follows broadly the trend of the economy as measured by its GDP. The fleet lags behind by 2 to 3 years in the upturn and 1 to 2 years in the downturn.
Secondly, the recession of the early ‘90s was not as deep, prolonged and widespread as the current one, yet it took seven years (1991 to 1998) for the fleet to complete its cycle and return to its pre-crisis strength, after a steady, consistent, 4-year economic growth.
Thirdly, the trend of the size of the fleet is determined almost entirely by the segment 751 – 5,700 Kg. The contribution of the lighter and of the heavier models is broadly neutral towards the trend. These two segments appear to have hit some sort of glass ceiling, possible symptoms of market saturation or maturity.
Fourthly, the fleet shrank at a stable rate of ca 60 a/c per year in the period 2009/2013, whilst the rate of increase was ca 47 a/c per year in the period 1995/2009. A rate of decrease almost 30% steeper than its growth, leads to infer that it may take, in the future, 1.3 years of growth to restore each year of decline.
a. The 1 – 750 Kg MTOW class
At a different scale, it is visible that this segment reacts promptly to GDP fluctuations (see Figure 2). This class is populated almost exclusively by the R22, which represents the entry level for many owner pilots and a cost effective solution for pilot training. It is interesting to note that the negative trend commenced in 2005, well before even the earliest signs of the economic crises could be seen. It is also noticeable a ceiling at 300 units; perhaps the size of the pool of potential customers has never really grown in size (since 1992) and the increase of expendable wealth was directed towards heavier and more sophisticated models.
Figure 2 – Light Aircraft vs GDP
B. The 751 – 5,700 Kg MTOW class
This class includes the vast majority of models and accounts for about 70% of the whole fleet. Unfortunately, the CAA does not make publicly available the breakdown of data to differentiate between EASA Part 27/29, single/twin or piston/turbine.
Figure 3 – Medium Light Aircraft vs GDP
This segment includes everything from the S300 up to the S76 through the single turbines and the light twins, which, over the years, have really represented the bulk of the fleet. The aircraft on utility roles (Police and HEMS) have shown a constant steady increase but they are relatively few units (in the region of 5% of the total) and as such it is reasonable to associate all variations to the privately owned fleet which, again, follows quite clearly the trend of the economy, as confirmed by a correlation coefficient is 0.97, indicating an almost perfect linear relation between GDP and number of aircraft (see Figure 3).
C. The 5701 – 15,000 Kg MTOW class
The segment above 5701 Kg includes aircraft operating in SAR contracts and public transport, but mainly (90%) in off-shore ferry services. The fluctuations over time (Figure 4) are not associated to general economic conditions but there is a trend association with the number of oil rigs core workers (defined as those spending off-shore at least 100 nights per year). With regards to the off-shore fleet, its fluctuations over time may relate to: (1) increase in labour productivity on oil rigs (2) increase of aircraft productivity and (3) replacement of older but smaller aircraft (below 5,700 Kg) with newer but heavier ones.
Figure 4 – Medium Heavy Aircraft vs Number of Core Workers
2. Flight activity
There are no publicly accessible data regarding helicopters’ flight activity in the UK. There are, however, general time series relative to the Helicopter operations within the London Heathrow and London City control zones; whether these data could be used as a proxy to infer flight activity at national level is up for discussion; nevertheless, this is the information available and it reveals some clear trends.
Figure 5 shows the total number of helicopter movements in the London area and at Battersea. The decline is visible and accounts to a negative Combined Annual Growth Rate (CAGR) in excess of – 11% (on total) and – 18% (at Battersea).
Figure 5 – Helicopters Movements in the London Area
A different visual perspective of the trends of Battersea traffic is reported in Figure 6 which shows how the decline over the years was reflected at seasonal and monthly level.
Figure 6 – Battersea traffic per month and per year
It could be suggested that movements are reduced as the consequence of a smaller fleet; this suggestion is of course reasonable. However, London traffic shows a consistent decline since 2007, even though the fleet continued to grow until 2009. It can be concluded that the fleet grew on inertia, whilst traffic reflected promptly the impact of the declining economy. The negative trend shown by traffic is steeper than the negative trend shown by the relevant fleet.
3. Flight training
Data available on the CAA website summarise the yearly Flight Crew Licences (FCL) transactions, intended as the number of new Pilot Licences, their renewal/re-validations and new Ratings issued in the year.
Figure 7 – FCL transactions [new pilot licences and IR(H) and FI(H)]
The chart in Figure 7 shows the number of helicopter JAR Pilot licences and Flight Instructor and Instrument Ratings issued from 1993 to 2012 (please note that data in some years are not available).
The time series for pilot licences show a decline after 2006. It is interesting to note that PPLs had a significant decline in 2001/02, perhaps in connection with that economic downturn, and, after a brief recovery, the trend is essentially negative from 2004 onwards. It is of some surprise the spike registered across licences in 2011/12; however, any attempt to explain it, without visibility of flows and of individual licences, would be of limited scope.
It is not possible to differentiate between a leisure and a career orientated PPL; drivers for professional qualifications (like ATPL, IR and FI) are more difficult to be statistically assessed as the numbers are relatively small and fluctuations are within the variabilities induced by chance. In summary, expendable income, demand for pilotage, size of cohorts available for further training or approaching retirement, prospects of downsizing in the armed services, may all have an influence in determining the number of pilots progressing through their professional options; any further assessment of these trends should be done under a different research perspective and include a survey among pilots, both qualified and under training, and employers.
The size of the fleet and any measure of flight activity are key indicators of market performances. They are determinants for other market parameters, including demand for engineering, training and any other aviation related business services; they represent expenditure and income: in short, money. Upon accepting the assumption that these data are representative of national circumstances, it can be concluded that, five years into the Great Recession, the helicopter market is still struggling to show a recovery.
Data about flight training produce a less clear picture, which would require a combination of quantitative and qualitative further research. It is however safe to hypothesise that a smaller fleet, flying less, requires less professional pilots. A reduced confidence in the economic recovery will affect individual spending behaviour on leisure, private flying. Further research might provide interesting insights.
The above does not mean that there aren’t companies fairing the downturn without major problems; some segments, like the off-shore, for example, follow different dynamics; some companies may have found a safe haven in their existing market segment.
It can’t however be dismissed the fact that the industry is still suffering a great deal; it is still in a decline phase and it may have not yet adjusted fully to the actual levels of demand.
A number of commentators already refer to “the lost decade of economic growth”; perhaps the helicopter industry should look at this as at the most likely scenario.