There are twice as many helicopter makers as the world market can support. That is the irresistible force behind last week’s long-expected announcement by GKN Westland Helicopters and Italy’s Agusta that they are to merge their businesses in a 50/50 joint venture.
‘It’s market driven,’ says David Wright, managing director of GKN’s aerospace portfolio, who will be the first chairman of the joint venture. ‘It is the same rationale that is leading to realignment in the whole of defence and aerospace.’
The world helicopter market is worth around $10bn annually. ‘It’s a relatively small industry given the amount of investment needed in technology,’ says Wright. There are six significant helicopter companies worldwide: Boeing, Bell and Sikorksy in the US, and Agusta, Eurocopter and GKN Westland in Europe. That, according to analysts, is too many for a market that, in the long term, can support only three.
Westland’s tie-up with Agusta is the second step in the process of consolidation. The first move happened as part of Boeing’s acquisition of McDonnell Douglas. What the next step will be no-one is sure. It will be driven by shareholder value, says Wright. But also, because 80% of the helicopter market is military, ‘it will inevitably be driven by what key customers the governments think about it’.
The importance of governments as customers had a big influence on the way the Westland/Agusta joint venture was set up. ‘One reason for the structure selected for the joint venture, with a 50/50 ownership split, is to give the British and Italian governments comfort that their interests are being looked after and are not subservient to anything else.’
This is why the new company will have both a chief executive (Amedeo Caporaletti, president and chief executive of Agusta) and a managing director (Richard Case, chief executive of GKN Westland Helicopters). Case will be responsible for ensuring that all customer orders are met.
Since negotiations opened last April, it has been clear the two companies have a ‘shared vision’ as well as healthy order books. A total of 98 EH101s, the helicopter already produced by the companies as a joint venture, have been ordered. Westland also has orders for 67 Apache attack helicopters for the MoD.
‘Now is a good time for this move,’ says Wright. ‘We’re both recruiting, with delivery commitments rising year by year.’ Westland is due to deliver 29 helicopters this year, up from eight last year, and rising to 40 in 2000. ‘We recruited a net 400 people last year and we plan to continue recruitment this year.’
Agusta is involved in a number of important new developments. It is already in a joint venture with Bell to develop a civilian version of the Boeing/Bell tilt rotor Osprey a hybrid helicopter/fixed wing aircraft. This has the vertical take-off ability of a helicopter, but its ability to tilt the rotors horizontally overcomes the classic helicopter downside: lack of speed and limited range.
These aircraft will cost more than a traditional helicopter, but Wright says it is too early to say how big the market for tilt rotors will turn out to be. He believes they will find niche applications where speed and range are important. Initial sales of the first civil tilt rotor aircraft, the BA609, are about three years away, but orders have been placed for around 70.
Also under development are the AB139 six-tonne transport utility helicopter, another Agusta/Bell joint venture to replace its older generation of medium helicopters, and the NH-90 project, in which Agusta is a partner with France, Germany and Holland. More than 600 NH-90s are needed by the partner countries, and production of the first 150 is due to start later this year after its launch at the Paris airshow in June.
The joint venture will be able to take advantage of the trend towards increased contracting out of support services by the armed forces. But whereas contracting out support services has become commonplace in civil aerospace, in defence this is a relatively untapped market.
‘We’re deeply embedded into the MoD’s smart procurement initiative,’ says Wright. The Apache is being used as one of eight pilot programmes. In addition, in a joint venture with Boeing, Westland has won a contract worth potentially £650m over 30 years to provide training for air, ground and maintenance crew.
‘Aftermarket work can be worth as much as the original supply contract,’ says Wright. ‘And if you do a good job it gives you a good entree to the customer when the next contract comes around.’
Returning to the question of the likely next move in consolidation of the helicopter industry, Wright says he has no crystal ball, and recognises that political factors may have considerable influences.
‘This is certainly not the last step. But if you ask what the next step will be, or the end game, I don’t know the answer.’