Helicopter Association International
 Winter 2018

Brexit, Schmexit | Pulsing Exterior Lights Save Lives | 10 Tips for Selling Your Helicopter | US Marines Test Autonomous Helicopter | Beijing Capital Helicopter: China’s First Accredit | 2018 ROTOR Magazine Photo Contest | Bold Ideas, Bright Future Await in Las Vegas | Helicopter Operations: A Team Sport | Is There a Looming Global Shortage of Helicopter  | Caring for Plexiglas Windscreens | Accident Recovery: The Perils of Success | HAI Hires New Director of Membership | Chairman’s Corner | President’s Message | Safety | Maintenance  | Government Affairs | Flight Path | Calendar of Events | HFI Update
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Brexit, Schmexit: The Helicopter Industry Will Prove Resilient

 By John Persinos

During the darkest days of World War II, Prime Minister Winston Churchill told the British people, “We shall never surrender.”

That’s the attitude the global civilian helicopter industry is taking toward “Brexit,” the term for Britain’s vote in June 2016 and resulting decision to leave the European Union (EU). Analysts expect short-term pain and uncertainty but no lasting damage to helicopter demand or operations.

An Industry Gaining Momentum

In fact, for many helicopter companies doing business with or in the United Kingdom (UK), business has never been better. The major rotorcraft OEMs report record order backlogs. Work and production levels accelerated to new highs in 2017. This momentum is expected to continue in 2018, regardless of Brexit.

Rising oil prices are the major reason. As the largest operating sector within the civilian helicopter industry, energy transport is considered a leading indicator for its health. The civilian helicopter market is benefiting from recovering crude prices, a favorable catalyst that will help the entire industry recover.

Major offshore operators such as Bristow and CHC already are reporting an uptick in contracts and demand; the domino effect is bound to be significant for operators and OEMs. The Organization of Petroleum Exporting Countries’ successful extension in late 2017 of its production cut, combined with a shrinking of the global supply glut, has been buoying energy prices during the latter half of the year.

Crude now hovers at $65 per barrel, above the $50-per-barrel threshold that energy companies need to break even. When the bottom lines of energy companies improve, they feel confident enough to invest again in rotorcraft activities.

As the largest helicopter operator of its type, Houston-based Bristow Helicopters is thriving from the renewed push for deepwater drilling around the world. Shallower oil prospects are always drilled first. For that reason, the prolific oil discoveries of the future lay beneath water deeper than 600 feet, the level typically considered the deepwater mark.

What’s more, new discoveries in the Gulf of Mexico have broken existing deepwater records, pushing rigs into water that’s 3,000 feet deep or more — and it’s this type of ultra-deepwater drilling that’s proving a particular boon for Bristow. Fast, safe, and efficient transport to these remote rigs requires seasoned helicopter operators with the most advanced helicopter models.

Accordingly, Brexit isn’t expected to make a significant dent in operator prosperity. The major OEMs that supply these operators aren’t fretting about Brexit. Bell Helicopter, Sikorsky, Airbus Helicopters (formerly Eurocopter), and Leonardo (formerly AgustaWestland) report business as usual. Their optimistic projections for 2018 remain unchanged.

This hopeful assessment carries over to other major operating sectors, such as helicopter air ambulance and airborne law enforcement.

Brexit Moving Forward

Ironically, now that the vote is over and the Brexiteers have won, the “Remain” camp is gaining ground. For the first time since British newspaper The Independent and research firm BMG Research started polling UK residents for their opinion on Brexit, those who wish to remain with the EU are in the majority.

According to the most recent December 2017 figures, the so-called Remainers are now 10 percentage points in the lead over the Brexiteers. More than half of the 1,400 people asked by the researchers said they’d prefer to stick with the EU, up from 45 percent in November.

The result of the Brexit vote was traumatic at first. In April 2017, Tory Prime Minister Theresa May formally delivered her exit letter to EU President Donald Tusk, invoking Article 50, the provision in the EU Lisbon Treaty that outlines the steps to be taken by a country seeking to leave the union. European Commission President Jean-Claude Juncker proclaimed that Brexit “is a failure and a tragedy.”

Will there be another referendum? Don’t bet on it. The British government has shut down any speculation that there might be a revote on whether the United Kingdom should leave the EU. It’s also worth noting that those who didn’t cast their vote in the 2016 referendum are the majority of those leaning toward remaining. It’s too late; they should have spoken up when they had the chance. Most British citizens who actually voted for or against are unchanged in their views.

Hard vs. Soft Brexit

Certain industries in Britain will indeed bear the brunt of Brexit. In particular, London could lose its status as the financial trading center of Europe. Frankfurt will likely gain a big slice of London’s banking, cementing Germany’s economic dominance of Europe. New York City also benefits; deregulation enhances its allure.

But for helicopter operators and manufacturers, the picture remains bright overseas. Growth across the globe is now synchronized, which means developed and developing countries alike are thriving. The bull market in global equities is likely to enter 2018 alive and well.

European traders in December 2017 welcomed news of progress in the Brexit talks, where UK and EU officials are hammering out the terms for Britain’s exit. The EU is the second-largest economy in the world if viewed as a single country. Without a favorable deal, British firms (and that includes those in the helicopter industry) would be stranded outside the single market.

To be sure, Brexit will have a negative impact on Britain’s £229 billion annual trade with the EU. An advantage of EU membership is free trade among member nations, which makes exporting goods to EU countries easier for British companies. Once Britain leaves the EU, trade barriers will rise.

A “hard” Brexit (that is, a Brexit conducted on the strictest terms, with Britain retaining no special relationship with EU countries) means that Britain would lose free trade with Europe, as well as all trade deals and treaties that the EU has negotiated with other nations. Britain would be compelled to operate under World Trade Organization rules. That would mean higher tariffs on imports to Britain, which would translate into higher prices for manufactured goods such as helicopters.

Brexit also could result in UK business aviation operators abandoning British aviation registries and aircraft operator certificates in favor of their EU counterparts. This would enable them to take advantage of more streamlined and favorable regulatory oversight, as well as cross-border simplicity.

At first, Brexit talks were rocky. But much to the relief of the helicopter industry, British and EU leaders expressed comity in mid-December 2017. Downing Street said the “divorce bill” would amount to about £39 billion, a figure both sides can live with. The European Commission president called it a “breakthrough.” European stocks rallied.

A “soft” Brexit, where Britain retains some ties to the EU, is becoming more likely. That’s good news for the helicopter business.

“How will Brexit affect the helicopter business? There’s no data on this right now, and no certainties either,” says Richard Aboulafia, vice president of analysis at the Teal Group, an aerospace consultancy based in Fairfax, Virginia. “The civilian helicopter industry is optimistic that it won’t have much impact at all.”

Aboulafia says the biggest question mark looms over the world’s biggest civilian helicopter sector: energy transport.

“There are two big oil and gas markets in Europe, and in a strange quirk of history, one of them — Norway — isn’t an EU member, and in a few years, the other one — Britain — won’t be, either. That’s why makers of civilian helicopters for offshore oil and gas transport are largely unconcerned.”

However, Aboulafia notes that the financing of large oil and gas machines might be complicated by Brexit. We don’t know how the financiers of helicopter deals will react, and how it will change where they are based.

Another complication is Leonardo. In 2016, Leonardo-Finmeccanica became a single industrial company by integrating the activities of its subsidiaries AgustaWestland, Alenia Aermacchi, DRS Technologies, Selex ES, Oto Melara, and WASS.

The former AgustaWestland is now a 50 percent EU company. It might shift more work to Italy as a reaction to Brexit, especially since Britain is leaning away from giving preference to local assembly.

As Aboulafia puts it: “A lot depends on the deal that is ultimately cut for Brexit. But right now, it appears that the UK is willing to pay more to make it easier for people. That implies minimal disruption to the helicopter industry.”

Implications for Manufacturers and Operators

Initial impressions that the helicopter industry is optimistic about Brexit are borne out by the latest polling data. A recent survey conducted by Helitech International found that the rotorcraft industry is largely unconcerned about the effects of Brexit. More than half of respondents said they believe Brexit won’t affect their business at all, while 30 percent believe it will have a direct effect. The rest are undecided.

Brexit will initially depress the revenue and earnings of Europe-based corporations and add stresses to the European financial system. But Europe is growing robustly, and economic tailwinds on the Continent should overcome the temporary challenges of Brexit.

European- and American-based helicopter makers see no lasting damage from Brexit on demand for their products and their bottom lines, other than the current uncertainty and additional hassles of sorting through the regulations. The civilian helicopter business is booming, and Brexit is unlikely to change that.

But while overall demand for helicopters won’t diminish, one possible consequence of Brexit is that European-based helicopter customers will become more insular and choose indigenous manufacturers of helicopters and related parts from countries that are EU members, rather than British-based companies. This dynamic could depress demand for UK-based companies such as engine maker Rolls-Royce.

Andrew Drwiega says much remains unknown about Brexit’s potential effects on civilian rotorcraft. A British citizen and long-time helicopter expert, Drwiega currently serves as an aerospace editor at Media Transasia Thailand. He formerly served as an editor at Aviation Maintenance and Rotor & Wing magazines. From his perspective, the crux of the Brexit issue is employment laws.

“We have yet to see what impact Brexit might have on employment laws regarding European helicopter pilots working in the UK and British pilots working in Europe, especially if that work is across one or more countries,” Drwiega says. “This could also impact engineers and maintainers, especially Europeans working in the UK if salaries do not keep pace with those in Europe.”

Drwiega doesn’t see much dislocation as far as regulatory bodies are concerned. But he says Leonardo may seize Brexit as an excuse to cease making helicopters in expensive, labor-intensive England.

“It is difficult to visualize the UK civil aviation industry operating outside the European Aviation Safety Agency,” he says. “Brexit and Leonardo’s own financial woes might give Leonardo, the UK’s last remaining volume helicopter manufacturer, the excuse that some industry observers say it has sought to cease helicopter manufacturing at its plant in Yeovil, England. The option of turning the factory into an MRO [maintenance, repair, overhaul]and training facility after AW159 manufacturing has been completed must have been contemplated by the company.”

Richard Aboulafia closely observes European aviation regulations and regulators, particularly in Britain, which boasts a large and storied aerospace industry. Aboulafia commented about a potentially nettlesome problem: how Brexit will affect British helicopter and fixed-wing operators and the country’s aviation regulator, the Civil Aviation Authority (CAA).

Aboulafia says regulators will likely smooth over post-Brexit contradictions and gaps for airplanes and rotorcraft.

“After Brexit, helicopter operators in the UK will need to obtain licenses and other approvals and permissions under the requirements of UK law, which is known as the Air Navigation Order [ANO], rather than under European Union law, as is presently the case,” he explains.

EU aviation laws and regulations are promulgated and enforced by the European Aviation Safety Agency (EASA). Aboulafia noted that the CAA still hasn’t published a plan of action for Brexit. However, he thinks any disruption from Brexit on aviation will be minimal.

“I expect the UK’s CAA to adopt current EASA requirements by simply replicating the requirements as a Civil Aviation Publication and referring to these in the ANO,” he says. He adds that this transition is unlikely to impose new and significant burdens on civilian helicopter operators.

One Sector Looking Up

One clear positive development from Brexit already is kicking in: charter and air tour operators in Britain are reporting booming business, as more corporate customers demand business charter flights and site tours across the country.

As deals are initiated or renegotiated because of Brexit, helicopter transport companies are busily flying executives around Britain and the Continent. Paradoxically, international deal-making is enjoying a “Brexit boost,” and that is generating helicopter demand.

It’s a reminder that money knows no borders, especially in aviation.

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits. He is also an analyst at the Teal Group aerospace consultancy. Persinos has received numerous journalistic awards, including the Royal Aeronautical Society’s Aerospace Journalist of the Year Award in 2001 for his work as editor-in-chief of Rotor & Wing magazine. He served as editor-in-chief of Aviation Maintenance magazine and publisher of the website Aviation Today.com, and also attended the Bell Helicopter Training Academy. Contact him at johnpersinos5@gmail.com.



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