New players are emerging to challenge the supplier duopoly in civil simulators – and there are some big prizes on offer
Bloody competition has reduced the commercial flight simulation industry to two main manufacturers over the past decade – Canada's CAE and Europe's Thales Training & Simulation. Now the market is showing signs of recovering from its latest downturn, and other competitors are taking aim at the duopoly.
Boeing's request for up to six simulators for its new 787 has attracted bids from at least four companies: CAE, Thales, Rockwell Collins (formerly NLX) and FlightSafety International, which is returning to the market after several years of focusing on meeting the requirements of its own training centres.
The 787 contest pitches CAE and Thales, which have struggled to remain profitable through the downturn, against two known low-overhead competitors. FlightSafety and Rockwell Collins are no newcomers either, and have experience of developing "first of type" simulators, as well as the ability to produce a full range of products from desktop training devices to full-flight simulators.
Being selected by the aircraft manufacturer to make the first simulators for a new type is an important coup. CAE has just shipped the first of two A380 simulators ordered by Airbus, and has won five of six competed orders. But only three of the 14 customers for the A380 – and none of those for the 787 – have ordered simulators so far, and the competition is wide open.
CAE announced a restructuring earlier this year to increase its competitiveness by streamlining its operations to reduce costs. Pricing pressure since 11 September 2001 has been intense, says Marc Parent, president of the new simulation products group, which consolidates civil and military training equipment manufacturing. "We have to simplify our business to maintain our market share."
With around 75% of the market, CAE produces training devices and visual systems as well as providing training services through its network of company-owned and joint-venture simulator centres. Parent sees this as a competitive advantage, and not a complication. The simulation products and aviation training businesses "are tied at the hip", he says. "We go to the customer together."
Market watch
"Our focus is on delivering training equipment to those who provide their own training," says Guy See, director commercial programmes, simulation and training solutions for Rockwell Collins. As NLX, the company built a number of business aircraft simulators, but has yet to break into the commercial airline market.
See believes the Rockwell Collins name, the company's involvement in programmes like the 787 as an avionics manufacturer and the low-overhead cost structure inherited from NLX when it was acquired in 2003 will help the company break through. "We are pursuing business that makes sense, in air transport, regional jet and business jets," he says. "We are looking at new aircraft programmes, like the 787."
There are always other manufacturers eyeing the market, and Canada's Mechtronix is the latest to break into the top-end, Level D simulator market, with the delivery of a Boeing Next Generation 737 machine to the Civil Aviation Flight University of China (CAFUC). The company has followed up with the sale of a Level C Cessna Citation CJ1 simulator to CAFUC, and president Xavier-Henri Herve says Mechtronix is now building two CJ1s, three 737NGs, a Bombardier CRJ simulator and several fixed-base devices for ATR.
While Mechtronix expects to pick off one or two Level D "zero flight time" sales a year, its business focus is on creating a market for new Level B "non zero flight time" devices. The first of these, a 737NG, has been sold to Panama's Copa. Costing half as much as a Level D machine, a Level B simulator can be used for 100% of recurrent training, says Herve. A flight training device, although cheaper, can only do 25-40% of the task, he says.
Mechtronix hopes to carve out a $100-150 million slice of the annual $750 million-1 billion training market with its Level B simulator, which uses the same software as in its Level D machine, but with shorter-stroke electric motion base and narrower field-of-view visual system. "Our market is the Copa's of this world, airlines that fly 12 to 15 aircraft," says Herve.
Manufacturer-supplied data indicates that orders for 24 Level D-standard full-flight simulators were placed in 2004. That figure excludes machines for training centres owned by CAE and FlightSafety, but includes simulators for joint-venture centres and compares with 23 such orders the year before – suggesting that 2002-3 may have been the bottom of the downturn.
Of the orders, 22 were for Airbus and Boeing airliners. This compares with 18 a year earlier, and was buoyed by the sale of four simulators for the A380 and six for the 737NG. The balance was made up of two for the A320, five for the A330/A340, one for the 747 and four for the 777.
While the expansion of low-cost carriers is fuelling narrowbody airliner sales, the commercial flight simulator market is skewed towards the widebody end because the crewing requirements of long-haul operations demand lower aircraft-to-simulator ratios. This is reflected in CAE's order tally so far this year – two A330/A340s for Airbus and two for Etihad.
Of the 24 simulator orders last year, 16 were booked by CAE – the same number as a year earlier. Thales logged seven sales, one more than in 2003, including its crucial first A380 simulator order from Singapore Airlines. FlightSafety returned to the external market with a 737NG for Boeing-owned Alteon Training's CasaAero joint venture with Royal Air Maroc.
New orders
Asia-Pacific carriers accounted for no fewer than 13 of last year's orders, while Middle Eastern customers accounted for another seven. Only two came from North American airlines – CAE-built 737NGs for low-cost carriers Southwest and WestJet – and one from Europe, a Thales A330 for KLM. This is very different to a year earlier, when only seven simulators were sold to Asian customers, compared with nine to US airlines and six to European buyers.
One reason is the continuing dire financial condition of most US carriers. Another is the higher proportion of regional-jet simulator orders in 2003 – four compared with just one last year, a CAE-built Embraer ERJ-145 for China Southern. FlightSafety, meanwhile, has opened its 2005 external orderbook with the sale of a simulator for the Bombardier Dash 8 Q300 to New Zealand regional airline Air Nelson.
Training joint ventures between manufacturers and airlines accounted for six orders last year. In addition to buying two A380 simulators and an A340-600 from CAE for its own use, Emirates purchased A320, 737NG and 777 machines for Dubai-based Emirates-CAE Flight Training. The Zhuhai Flight Training joint venture between CAE and China Southern ordered an A320 simulator.
Thales has shied away from getting directly involved in the airline training business, but late last year formed a strategic partnership with Shenzen Airlines to establish a training centre in China. An initial contract was signed for two 737NG simulators, with orders for four more, including two A320 machines, to be placed this year.
That the visual system business has become increasingly clear cut was vividly illustrated last year. CAE's Tropos system was specified for 10 of the Level D simulators ordered in 2004 – all CAE-built machines – while Evans & Sutherland (E&S) accounted for the remainder, split roughly equally between CAE- and Thales-built simulators and including the FlightSafety-built 737NG for Alteon.
Flight-training devices increasingly are being bundled with full-flight simulators. CAE says about half of its sales over the past two years have included products from its Simfinity line, which ranges from desktop devices to procedures trainers. Orders last year included three Level 5 Embraer 190 devices for JetBlue, two Level 6 737NGs for Southwest and one Level 5 737NG for WestJet. In addition, CAE sold seven lower-level integrated procedures trainers and maintenance/flight training devices.
Increasing force
Training centres are an increasing force in the market, a trend expected to continue as the airline industry returns to growth. Alteon, now wholly owned by Boeing, has begun its own growth spurt after a fallow period following the divorce from FlightSafety. In addition to establishing a centre in Brisbane, Australia last year, the company has formed joint ventures with Aerolineas Argentinas in Buenos Aires and Royal Air Maroc in Casablanca. Alteon has announced it will set up a six-simulator centre in Singapore by early next year.
GE Capital Aviation Training (GECAT) has expanded modestly, leasing a 737NG simulator to Lufthansa under a joint marketing deal and with an A320 to be installed at its Hong Kong centre next month. Its Swiss Aviation Training joint venture with airline Swiss International will add an Embraer 170 machine at its Zurich centre in August, while GECAT will place a second device in London by mid-2006.
CAE's rapid expansion into the civil aviation training business has slowed as the heavy investment in centres and simulators has strained the company's finances. But its network has continued to grow through long-term outsourcing contracts, with centres being set up in the UK for EasyJet; in Chile for LAN; and with AirAsia in Malaysia. The Emirates-CAE and Zuhai Flight Training joint ventures are also expanding.
"We see continued interest in outsourcing, and this interest is demonstrated via a wide variety of outsourcing requirements from airlines," says Jeff Roberts, group president, civil training. But Rockwell Collins has not seen as much outsourcing as expected. "US Airways decided not to, while JetBlue sees training as the best opportunity to incorporate its culture so keeps it in house," says See.
Some airlines, far from outsourcing, are expanding their third-party training business. Lufthansa Flight Training has added 737-800, 747-400 and MD-11 simulators with the open training market in mind. SAS Flight Academy opened a centre in Oslo, Norway last year, and plans to locate a 737 Classic simulator in Riga, Latvia by the beginning of next year.
Competition between training providers is intensifying, and there have been casualties. Lockheed Martin Commercial Flight Training no longer exists; its three simulators sold to Alteon and its Orlando, Florida centre leased by SimCom, the business-aviation training division of Pan Am International Flight Academy.
As business aviation sees steady growth, CAE has challenged FlightSafety's long domination of the market by securing the contract to provide entitlement training for the Dassault Falcon 7X, for which it will open new centres in the UK and the New York area equipped with both 7X and Falcon 900EX/2000X simulators. FlightSafety will open a Farnborough, UK centre this quarter, equipped with six machines for a range of business and regional aircraft. The company is also targeting new markets, with simulators in build for the Bombardier Challenger 300 and Embraer 170.
As the competition ratchets up another notch, and despite the pressure on costs, simulator manufacturers are not backing off on research and development. "Our number one task is to maintain our technological edge. Companies that cut back on R&D mortgage their future," says Parent. "We are looking for technology we can produce at the right price."
GRAHAM WARWICK/WASHINGTON DC
Source: Flight International
