February 2004 Letter

Dear Fellow Helicopter Watchers,

Funny how just one voice mail can transform the helicopter market. Consider, f’rinstance, this one: George, hi, it’s Tony. Remember all we did for you in Iraq? We sent those troops with the funny hats that made you giggle, plus our two best ships, HMS Black Adder and HMS Sir Harold J. Potter, and pretty much stood with you alone, except for those six guys from Bulgaria and that Guatemalan coffee brewing platoon? Well, the rabble is kind of battering down the door here at 10 Downing over this WMD thing, and if you could do me just one public favor, like picking our helicopter to be your next personal flying steed, it would help me a lot. Cheers, mate. [Click]

For a relatively small order (23 machines over ten years), this VXX Marine presidential helicopter contest has certainly acquired a life of its own. Specifically, VXX has been romantically linked to the USAF CSAR competition. CSAR is much bigger, about 150 helicopters. More importantly, it is the last undecided US helicopter requirement of any note for the remainder of the decade.

The two competitors, Sikorsky’s S-92 and the suddenly-Stars-and-Bars US 101 are in very different places. The 101, otherwise known as the AgustaWestland EH 101, is a relatively mature design, with about 100 orders and a solid if unspectacular future. The S-92, by contrast, only has a handful of civil market orders. Since the civil market for large helicopters is only good for about six planes per year, on average, the S-92 really needs a US military endorsement to guarantee success. Without it, international military operators may continue to baulk.

Looking at VXX, both sides have good arguments. Sikorsky has always provided the President’s helicopter, including the VH-3 and VH-60. They also have an efficient machine with good economics and a pure US pedigree and supply chain. The 101 folks have a bigger cabin, a lot more flight hours, and more engine power. While Sikorsky has a lot of experience as an airframer, Lockheed Martin is handling 101 integration, and they have much relevant experience in that department. In all, there is no obvious technical winner. It may come down to political and industrial factors.

Regarding the UK Government’s input, Blair already sent a letter in favor of the 101. But that’s normal and more for consumption by the folks back home than by the target market. But will he make the call? Even if he doesn’t, the UK’s status as US ally might put the 101 in a better position than the S-92’s home turf. Most Connecticutions are more likely to vote for Dominique De Villepin than they are to vote Republican. Back in the old days, the party in charge might try to curry favor with the opposition, just to bank a few points. But in these hyper-partisan times, the Republicans might just write off Connecticut as a no-go zone, leaving it to whomever Lieberman endorses.

There’s also a long history of implicit US-UK defense countertrade: AV-8 in exchange for F-4, T-45 in exchange for Trident and AWACS, millions of horrible Spice Girls albums in exchange for AH-64 and C-17, etc. Of course, the RAF’s recent selection of an Airbus tanker over a Boeing tanker makes any UK countertrade argument a bit harder.

Looking at the services, Sikorsky certainly has fans in the Navy and Army. But the VXX and CSAR customers, the Marines and Air Force, are much closer to Bell and Lockheed Martin (respectively). Unpleasantly for Sikorsky, Bell and LockMart comprise the 101’s US industrial constituency.

The S-92’s strongest ally might revolve around the industrial base, a powerful message of desperation. If the S-92 loses VXX, and if this loss leads to a CSAR loss, the S-92 program could fizzle. And this would be tragic, a clear example of the adage that no good deed goes unpunished. A decade ago, Sikorsky committed to spending hundreds of millions of its own dollars on the S-92. Unlike Bell Helicopters and Boeing Jetliners, which spent the last ten years coasting on legacy products and watching European competitors eat their civil market lunch, Sikorsky put their money in new product development. They didn’t give the cash back to shareholders; they invested in the future. This investment is scarily reminiscent of Northrop’s brave F-20 Tigershark fighter program in the 1980s.

Also, by recruiting international partners Sikorsky created a truly global product, while the rest of the helicopter industry has stayed quite local. In pursuit of VXX, of course, the S-92 airframe went from foreign to Texan faster than any European aerospace company’s North American office.

In short, assuming continued VXX/CSAR linkage, while Sikorsky has a reasonably good chance of making a clean sweep, they are also vulnerable to disaster. Politics may play a role, or perhaps the 101’s bigger cabin will provide an obvious charm. Losing VXX and CSAR wouldn’t jeopardize Sikorsky’s future, but it would certainly hobble its export market standing and perhaps result in an unpleasant write-off.

Funny thing about all this: there’s an easy way to make everyone (relatively) happy. De-link VXX and CSAR. Give the 101 guys VXX, a high-profile endorsement that will help US-European relations. Give the real meat and potatoes order to the S-92, rescuing the program from the doldrums. Is there anyone with the necessary vision and authority in DoD to de-link the two requirements and make this sensible outcome happen? To be on the safe side, Sikorsky should hope so. After all, double or nothing is a dangerous bid.

This supplement has the updated Fighter and Special Mission overviews, plus updates of the F-16, B-1, A330, B777, and S-3. Have a great month, and enjoy your Rites of Spring.

Yours, Until (Both?) Of The Right Guys Win,

Richard Aboulafia