When people talk about defense manufacturing the attention shifts toward planes, missiles, naval ships, and tanks but there is another vehicle that is critical to the Army, Marines, National Guard, Air Force, and Navy -- helicopters. Over the past five years, Congress has appropriated more than $42 billion for helicopter programs.
Estimates from several sources place the current global helicopter market (civil, commercial, and military) at greater than $30 billion annually and expected to grow by 30% over the next decade as new replacement programs enter development and new markets come online. Several recent news items highlight this trend:
(1) Changes to US border policy: A recent article by John Bennett at Defense News cited that last year the Senate passed sweeping immigration-reform measure that proposed $38 billion for new American-made helicopters, drones, vehicles, and other hardware to help secure the southern border of the United States. Although the House of Representatives has said that they would tackle immigration reform piece by piece instead of as part of a comprehensive reform as the Senate did, a January 28th GOP white paper implied the process is moving forward although there are a number of issues to resolve.
(2) Reuters reported that the Pentagon's effort for a wholesale replacement of current helicopters with newly designed vehicle is safe from funding pressures. The Combat Rescue Helicopter, a replacement for the Air Force's Pave Hawk is slated to get $333.6M.
(3) The Senate has moved closer to approving the multi-billion sale of Apache helicopters to Iraq to repel Al Qaeda groups
(4) Turkey's prime minister, Recep Tayyip Erdogan, announced on 21 February that his government signed a $3.5 billion contract with Sikorsky for 109 utility helicopters.
(5) A revised RFP was issued by the Navy for the VXX Presidential Helicopter for 21 craft valued at around $13 billion.
(6) Honeywell forecast that Latin America will acquire nearly half 4800 to 5500 deliveries of civil helicopters during the 2014 to 2018 timeframe.
Nearly all helicopter sales come from five companies and are the beneficiaries of increased spending in this area: United Technologies (NYSE:UTX) which owns Sikorsky, Textron (NYSE:TXT) which owns Bell Helicopter, Boeing (NYSE:BA) and international firms: Eurocopter and AugustaWestland. Additionally, suppliers to the prime helicopter manufacturers, such as Honeywell (NYSE:HON), should also benefit from rising helicopter sales. For 2013, Sikorsky reported sales of $13.3 billion; Bell reported sales of $4.5 billion with a $6.5 billion backlog.
Overall, Sikorsky is the largest helicopter provider to DoD, receiving $18 billion over the past five years from the Pentagon for helicopters, parts, and services. Boeing is #2, receiving $11.7 billion for the Chinook cargo and Apache attack helicopter programs in the same timeframe. #3 is the Bell-Boeing joint venture (V-22 Osprey) which received $11.6 billion. (budget data courtesy of VisualDoD)
The four U.S. companies mentioned -- UTX, TXT, BA, and HON represent 22.4% of the Powershares Aerospace & Defense ETF (PPA).
It should be noted that United Technologies is rumored to be considering a sale, spinoff, or strategic merger for Sikorsky.