Watch and wait” is becoming a catchphrase in much of the aerospace industry as the perilous market unknowns of 2012 begin to play out, and nowhere is that more appropriate than in the civil helicopter business, which is squeezed by rising fuel costs, shrinking budgets and shaky economic growth.

After four years of large-scale cancellations and minute order intake in the single-engine helicopter segment, there are finally indicators that the depths of the crisis are being left in the industry's downdraft. In the end, it was not a galvanizing event that revived market activity, but simply the passage of time that has driven the need to replace heavily worn equipment that remained in service even after the financial crisis hit full force.

Eurocopter is “gaining some momentum,” with the light helicopter market “slowly recovering,” says EADS CEO Louis Gallois. And he is hardly a lone voice.

“We see in the lower part of the U.S. market some stronger signs of life,” says AgustaWestland's senior vice president for marketing, Roberto Garavaglia. “The aircraft that have been kept were being operated, so they have accumulated hours and replacements are coming up.”

Air-tour operators, private owners and emergency medical services are driving the demand. Eurocopter finished 2011 with 457 net orders representing €4.7 billion ($6.2 billion), €400 million above the 2010 total for 346 units; cancellations were back to pre-crisis levels, at fewer than 20 units. EC130 bookings rose to 238 units from 143 the year before. “Clearly, there is a market recovery,” says President/CEO Lutz Bertling.

But it is too early to tell whether the recovery in the global civil helicopter market can be sustained. While purchase plans for 2012 look strong, concerns about economic growth in Western economies, particularly in Europe, cloud the longer-term horizon. Honeywell's latest Turbine-Powered Civilian Helicopter Purchase Outlook, based on interviews with 1,000 chief pilots and flight department managers worldwide, finds that global five-year fleet replacement and expansion plans have declined 19% from last year's survey. “Relatively lower levels of planned purchases were concentrated in 2012 and beyond, leading to the expectation that these plans could strengthen materially over the next few years should political and general economic conditions improve,” the outlook says.

Overall, Honeywell predicts a demand for as many as 5,200 new civil helicopters by 2016, of which two-thirds will be in the light single and twin category. Light single-engine helicopters continue to be the most popular product class for five-year fleet replacement and expansion, with the Eurocopter AS350B series, Bell 407 and Robinson R66 leading the field.

Second in the survey come the intermediate/medium twins, including the AgustaWestland AW139, Bell 412, EC145 and Sikorsky S76 series. Leading the prospects for light twins in the third-place sector are the EC135, Bell 429 and AgustaWestland A109 series. The A109 also leads a “top five” listing of recommended helicopters contained in the survey. The others, in order of score, are: the Bell 407 and 429, and Eurocopter's EC130/350 and 145 series.

Regionally, the biggest concern centers on the European market, which has been beset by the Greek debt crisis, cuts to government spending and slowing economic growth. Garavaglia says it is too early to talk of a rebound, and Bertling adds that the European market “continues to be hard-hit.” With public sector funding under severe pressure, he expects police services and EMS spending to remain low.

The used aircraft market also is recovering only slowly in the markets that were hardest hit, notes Sharon Desfor, president at HeliValues.

But some weakness is being offset by growth in newer markets. While the civil rotary-wing market continues to be dominated by North America and Europe, Honeywell's survey finds that Asia and Latin America have the highest fleet replacement and expansion expectations of all regions and are in a tie for the world's third-largest civil rotary-wing market.

“Over the longer term, the China market could be a strong contributor to broader demand for rotorcraft as the country opens its airspace to civil helicopter operation and begins production of indigenously designed turbine-powered rotorcraft,” says the Honeywell outlook, which is scheduled for release at Heli-Expo in Dallas.

Another sign of an overall rebound is that helicopter deliveries at Eurocopter will increase, again, even as uncertainty remains over the military market in Europe where the company is bracing for cuts in Germany, Spain and potentially other countries. “Our assumption is very strong growth in the next years,” Bertling says. Deliveries are expected to return to pre-crisis levels, around 588 units, with 600 deliveries possible. Deliveries last year dipped to 503 units, after falling from 527 and 558 units in the two prior years, respectively. Order intake this year is expected to surpass 500 units.

The anticipated rebound should allow the company to reach more than €10 billion in revenue in 2020, ahead of the €9 billion previously targeted, Bertling indicates. To deliver strong earnings performance, Bertling says it will be critical to remain focused on efficiencies built into the business in recent years and to remain flexible in order to adjust to unanticipated changes in circumstances.

Despite the delivery decline last year, Eurocopter reported record revenue growth, with turnover hitting a high of €5.4 billion, up 12% year-on-year. That includes revenue from last year's acquisition of Vector Aerospace, which has bolstered services, in particular. They now generate 38% of revenue, up from 33% in 2010. The goal is to reach €4 billion around 2020.

Eurocopter's detailed financial performance will not emerge until parent EADS reports earnings in March, but Bertling says, “clearly, our results are better than expected,” and above 2010 levels as well as surpassing the average for EADS's sister units. Turnover this year should top 7%.

In a rarity in recent years, military bookings last year were low, at 32%, which Bertling says was largely due to little activity in Europe.

The military outlook is muted. Eurocopter has been eyeing with great interest the U.S. Army Armed Aerial Scout competition, but now that the program has been pushed off five years, few large military contracts are on the horizon. Bertling regards conditions for military bookings in Western Europe as “severe,” projecting cancellations in several countries.

“At the same point in time, Asia and Eastern Europe are extremely strong on the military side [and] we expect these markets to triple over the next five years,” Bertling says. “In the Americas, the Middle East and Africa, we expect growth over the next five years of roughly 50 percent of the market,” mainly on the combat aircraft and naval segments.

In the next two decades on the military front, Bertling sees a lull, with the next replacement cycle not gathering steam until around 2040. That means the military market will shrink compared to the civil market, and the two segments will reach parity around 2025, after which the military market will be smaller for an extended period. For Eurocopter, Bertling says that means “we need to bring a stronger focus for high performance on the civil side.”

Eurocopter will focus for the next couple of years in part on ramping up deliveries of some helicopter models by 60-70%, though Bertling says the increase in production will come at a time of reduced capacity among sub-tier suppliers.

“This ramp-up will be tougher than the one before,” he says. “The supply chain will be the most decisive factor.”

In the nearer term, the company is working with governments on planned program cuts. In Germany, for instance, the number of Tigers to be acquired is likely to be higher than the 40 units that have been talked about. The government will replace early model helicopters with later standards, driving the total number to 55-70 rotorcraft, Bertling says. The delivery schedule also is being negotiated, so it remains unclear when production in Germany may halt.

Cuts also loom for the NH90 program in Germany, although the scale of those is less clear than for the Tiger.

Meanwhile, in August, Eurocopter expects to deliver the first four upgraded Tigers (called Asgard) to the German army for deployment to Afghanistan. The goal is to have them combat-ready in October, or by year-end at latest. Germany also plans to deploy medical-evacuation NH90s to Afghanistan. Both moves are part of a plan to boost helicopter support in northern Afghanistan in anticipation of a draw-down of U.S. support starting next year.