Over-capacity in a market where older systems are not being phased out is hurting simulator sales. But there is better news on the horizon
Old aircraft never die, they simply get parked. Old simulators, unfortunately, are not even parked. The sad truth is that there are too many simulators in the field for today's depressed market needs and the training industry is hurting as a result.
Over-capacity is one of several challenges that stared the commercial airline training industry hard in the face during 2002 and will be no less harsh this year. It hurt new full-flight simulator (FFS) sales - there were just 16 commercial airline FFSs sold in the worldwide commercial market, compared with the previous year's 23 and 2001's 38 - and training providers saw increasing pressure on simulator hourly prices in what has become a fiercely competitive market.
The consensus is that the 2003 global market for new, external FFSs is estimated at between 10 and 14, ensuring the resulting competitions will be no less bloody and manufacturers can expect to be further squeezed to deliver top-notch products at bottom-line prices.
In all the gloom, however, there can be found reasons for optimism. First, some training equipment manufacturers and training providers are being buoyed by growing demand for their military products and services even as the commercial side runs flat, providing a cushion to help them ride out the airline slump.
Bright spots
Second, there are bright spots within the commercial training sector. Seven of 2002's 16 "open" FFS sales were to airlines in the Asia-Pacific region, where carriers are still expanding their fleets and are hungry for new training centres. Another growth market is the low-cost airline sector, accounting for another three of last year's FFS sales with two Boeing 737-800s for Ireland's Ryanair and a 737-800 for Canada's WestJet. Virgin Blue of Australia, meanwhile, is the launch customer for FlightSafetyBoeing's (FSB) new training centre under construction in Brisbane.
There also is good news to be found in the upgrades market, especially in updating older simulators and training devices with current technology visual systems so that they stay in line with new regulatory standards. For visual systems providers, in particular, upgrade business across commercial simulators worldwide may be the saving grace that at least helps hold revenues steady during these turbulent times. Evans & Sutherland (E&S) general manager of commercial simulation Richard Flitton says: "Of the potential orders that we are looking at in 2003, around half could be upgrades."
With new US Federal Aviation Administration standards potentially around the corner that would more strictly define Level D and, in particular, mandate that airport databases of visual systems be kept up to date, the visuals upgrade market looks strong. Older simulators are also being updated as manufacturers come up with new computer and maintenance packages that make FFSs more cost-efficient. Thales Training & Simulation (TTS) estimates around 10-20% of its revenue in 2003 could come from simulator upgrade business.
Opportunities for all
Finally, Airbus is expected soon to issue its request for proposals for the first A380 FFS and the whole new market for A380 training equipment will start to open up over the next 12 months as A380 airline customers enter FFS contract talks. TTS general manager, aircraft and simulator business line, Jeremy Standen believes there will be opportunities for all the major players. "There will be an advantage to whoever gets the first Airbus simulator, but I am sure there will be more than one solution in the market," he says.
Canadian manufacturer CAE dominated the new simulator business in 2002, securing 10 of the 16 competed FFS deals for a market share of around 60%. TTS accounts for the remaining 40% share with six FFS sales - one Boeing 777 FFS each to Air France, KLM, EgyptAir and Singapore Airlines, and two 737 FFSs to an undisclosed customer.
CAE led the field in visual system orders for those new FFSs, claiming a 67% share of the market against the 33% of E&S. TTS, however, which allies with E&S in bids for competed FFS contracts, puts the visuals market share for 2002 at 53% for CAE versus 47% for E&S. Despite the emergence of off-the-rack, PC-based visual offerings from independent manufacturers, airlines are still turning to CAE or E&S for their top-of-the-line, Level D visual systems. There is little to no evidence of the visual system independents making inroads at this level, although they are seeing success in applications such as basic flight trainers, air traffic control trainers and other task trainers - themselves growth markets for CAE's and E&S's new PC-based visuals.
The industry saw a dramatic reduction in the number of regional jet simulators ordered in 2002, resulting in a direct knock-on effect on the simulator market that was exacerbated by the collapse of Fairchild Dornier and the ending of the BAE Avro RJ production line. Two Fairchild Dornier 728 FFSs ordered by Lufthansa from CAE were subsequently cancelled, leaving 2002's net tally for competed regional jet FFSs at just one - an Embraer 170 ordered by GECAT from CAE. The overall regional jet training market remains a growth sector, but is mostly provided for by training centres and does not appear to be prompting much activity in the open FFS market. CAE, for instance, announced plans last year for a training centre in Arizona that will focus on regional jet training and anchor customer Mesa Air Group, a US regional. CAE also will be adding a Bombardier CRJ FFS at its new Denver, Colorado, training centre.
Frenetic training centre activity last year was both a blessing and a curse to the industry. CAE, for instance, has watched the market for new FFSs decline, but has compensated for the lost revenues with a dramatic increase in its civil flight training ventures. Last year it expanded its worldwide training centre simulator fleet to 75 and saw almost half of its civil unit revenues come from this source. The Canadian company also secured a co-operation deal with Airbus to develop a global network of centres offering Airbus flight crew training.
Similarly, FSB and GECAT were busy in the training centre markets, especially in the Asia-Pacific region. Although China has become a focus for all training providers, FSB also extended its reach to Australia. Initially, says FSB, its new joint training centre in Brisbane will house one Boeing 737-700/800 FFS for Virgin Blue training. But there are discussions about what to put in the other five simulator bays, with a Boeing 717 and a 737 Classic being considered.
The glut of flight-training centres - on top of centres owned by airlines in dire financial straits - is, however, pressuring simulator hourly fees and, inevitably, some simulators sit idle. CAE admits it has seen simulator capacity use running at around just 60%, short of its 65% target.
FSB, which in April will be renamed Alteon to mark its transition to a stand-alone company after Boeing last year ended its joint venture with FlightSafety International, is also feeling the pressure. "There is a lot of over-capacity in the industry," says FSB president Pat Gaines. "It's not just from the third-party provider, but also from the airlines themselves. Aircraft went out of service, but simulators did not, so it's very tough."
FSB worked through a lot of consolidation in 2002, shifting simulators to centres where it made more sense economically. Gaines says 2003's focus will be delivering full services. "It's not just about the simulators. It's our full services that are helping with a lot of our customer issues. You must never sacrifice quality or standards. We want to be the premier global provider," he says.
Broad offerings
Gaines insists Alteon's offerings will continue to include Airbus as well as Boeing training services, despite FSB's Boeing ownership and CAE's new link with Airbus.
Some are hopeful that 2003 may prove to be the bottom of the trough; others are less certain or willing to predict the upturn. Says Gaines: "It's a very tenuous world right now. Our real goal in 2003 is to ensure that we keep in sight that the aviation industry will recover." TTS's Standen believes 2003 "will be the low point" and that a full recovery will be in place by 2007. "It will be a tough market this year, as tough as 2003. But we are battling down and are well prepared as you can be in a disappointing market," he says.
Source: Flight International
