Demand for aerospace metals continues to fly above the turbulence
A multiyear upswing in demand is expected as airlines worldwide build capacity of fuel-efficient planes to accommodate future airline traffic growth.
By Tom Stundza -- Purchasing, 8/14/2008 2:00:00 AM
Even as airlines struggle with the skyrocketing cost of jet fuel, the future outlook for new aircraft remains strong because of projected high demand for new-generation fuel-efficient planes. With older, less-fuel efficient planes unprofitable to operate, such jetliner models as the MD80 and the A320 are coming out of service faster than expected. So, the mills, processors and service centers who supply aerospace-grade specialty metals expect purchasing to remain elevated for many months ahead. In fact, superalloys use in the U.S. already is setting records.
"We expect strong purchasing from the commercial aviation market to remain at a high level through 2010 at least since airframe and jet engine customers' backlogs are at record levels," says Bob Mraz, vice president of sales and marketing at the TW Metals subsidiary of metal distribution giant O'Neal Steel in Exton, Pa,. That's because Boeing and Airbus, the dominant jetliner makers, are sold out for the next three years while sustained growth in airplane purchasing is being reported by makers of small-sized commercial and private jets.
Airplane purchasing is being done by a diverse group of air carriers worldwide, insulating the plane and engine producers from regional economic swings. They also say that the current upswing in aerospace demand could extend well into the next decade as foreign carriers expand their under-capacity fleets and domestic airlines upgrade aging fleets.
Looking at the future end-product market, Randy Tinseth, vice president of marketing for Boeing's commercial airplanes unit in Seattle, argues that global jetliner manufacture will continue to be strong, and require more value-added metals, through 2027. That's why his firm and competitors Airbus of Europe and Bombardier of Canada all plan to raise production rates next decade to meet projected demand.
As that is happening, metals companies such as Allvac, Haynes International, Timet and RTI International are developing new and better alloys for use in production of aircraft. Haynes of Kokomo, Ind., for example, has developed HR-224, a high-temperature nickel-based alloy with controlled additions of aluminum that is said to have excellent oxidation resistance at elevated temperatures.
Early-generation aerospace alloys were developed after World War II for use in turbo superchargers and aircraft turbine engines that required high performance at elevated temperatures. Modern aviation and aerospace end-use markets require a wide range of high-performance alloys. Castle Metals Aerospace, a unit of service center giant A.M. Castle & Co. of Franklin Park, Ill., for example, now stocks 70,000 types of high performance alloys for the aerospace and defense industries at its 55 distribution centers at home and abroad. In a report to the SEC, Castle Metals Aerospace says that about one-third of the parent's total revenue base "is now in direct strategic alignment with the global aerospace and defense industry, which is believed to have continued strong growth potential into the future." Castle Metals Aerospace was created after the parent bought high-performance alloys distributor Transtar Metals of Torrance, Calif., in 2007.
Transaction prices for aerospace-grade metals can range from $10 to $50/lb. After processing, value-added metal parts can cost six times as much. Leadtimes for basic metals can run out from four months from intermediary suppliers, according to Purchasingdata.com, to 12–18 months from mills.
Aerospace tends to be highly cyclical, with capital spending by airlines, aircraft manufacturers, governmental agencies and defense contractors influenced by such factors as current and predicted traffic levels, aircraft fuel prices, labor issues, competition, the retirement of older aircraft, regulatory changes, terrorism and related safety concerns, general economic conditions, worldwide airline profits and backlog levels. For example, even though the build rates for commercial aircraft were strong, specialty aerospace grade aluminum plate went from shortage throughout the entire supply chain in 2006 to oversupply in 2007. Increased production at the mills and production delays for the Airbus A380 and Joint Strike Fighter production programs created excess inventories throughout the supply chain.
Still, "aerospace is a far-horizon business, and it has a positive long-term outlook even with the current delays in the Boeing 787 and Airbus A380 new-model introductions," reports a buyer in a recent Purchasing survey. Tinseth of Boeing notes that, as a result of strong orders the last three years, almost 9,000 new airplanes already are in the industry's backlog. This will keep aerospace-grade metals tight, Mraz says, pointing out that "metal sold today won't become a part bolted onto a new plane for 16–18 months."
He and other market insiders confirm financial reports from Allegheny Technologies that purchasing of titanium and titanium alloys, nickel-based alloys and superalloys and vacuum melted specialty alloys is increasing by at least 7% this year to $10 billion after rising 14% in 2007 and 22.5% in 2006. "Our industry, which makes fixtures and gauges for the aerospace industry, is doing quite well despite the current indicators of a near-recession nationally," says Sandi Johnston, purchasing manager at North Hartland Tool Corp. in Vermont.
The demand surge for aerospace metals is supported by the fact these metals also are used to make products for the defense, electrical energy, oil and gas, and chemical process industries. "Our sector of aerospace is progressing well and meeting our marketing forecasts," says John Marshall, senior contracts administrator at inertial sensors and systems manufacture for Systron Donner Inertial in Walnut Creek, Calif., a defense contractor subsidiary of Schneider Electric.
"There already are huge backlogs for aerospace metals," says Mraz. "Although there are some minor current setbacks in new-aircraft construction, there will be no long-term slowdown in new aircraft platforms and the engines needed to make those planes fly." For example, Boeing has raised its outlook for spending on jetliners over the next 20 years by 14%—based on an expected 5% rise in worldwide air travel and demand for new, more fuel-efficient planes.
Dawne Hickton, vice chairman and CEO of RTI International Metals in Pittsburgh, also sees "continued strong demand from the aerospace market" because of shipments to Boeing and Airbus with only near-term challenges from assembly delays with the first Boeing 787 jetliner. "The long-term outlook for our business continues to be very strong," says Hickton. "Airbus and Boeing reported orders in the first quarter that once again exceeded deliveries, expanding their huge backlogs."
Mraz also points out that aerospace-grade metals are sold into numerous end-use sectors: large commercial jetliners, smaller regional jets, very-light jets, medium-light jets, rotorcraft and the engines that make them fly.
In its latest forecast, Boeing now expects there will be 35,000 aircraft in operation in 2027, compared with a global fleet of 19,000 aircraft flying today. With many existing planes being retired in the next two decades, Boeing projects that 29,400 net new planes will enter commercial fleets by 2027. The new planes will be worth an estimated $3.2 trillion, generating some $800 billion in metals sales. Perhaps not surprisingly, Boeing said Asia will spend more on airplanes over the next 20 years than other regions, and that Europe's spending will equal that of North America for the first time.
"We're facing a very dynamic situation today in the commercial aviation industry," says Tinseth, in making the company's annual industry forecast in early July. He adds in a statement that "the forecast is rooted in today's realities, but also recognizes the nature of a long-term outlook." Boeing forecasts that "the influence of current market conditions is clearly reflected in the 2008 outlook, with replacement airplanes taking a greater share of demand (43%) than previously forecast (36%)—due to the loss of economic viability of older aircraft in light of higher fuel costs."
And even though the aviation industry is touting the future use of high-performance composites, the use of specialty metals still is expected to increase significantly at a 3% annual average rate past the almost 220 million pounds expected to be used in 2008. For example, the new Boeing 787 Dreamliner airframe is expected to require approximately 250,000 lbs of titanium alloys mill products per aircraft, a significant increase over the use of the lightweight metal in any previous commercial jetliner airframe.
"Often, when people think of the 787 what immediately comes to mind is a more composite airplane," says Pat Shanahan, vice president and general manager of the 787 program. "But it's not just that: It's the whole process, from a brand-new design using a new suite of tools that burns 20% less fuel to bold innovations in technology to a more comfortable passenger cabin and flying experience." He told the media at the Farnborough International Airshow in England that the 787 program has 896 orders from 58 customers.
Cedex, France-based Airbus has reported 487 net new orders at midyear—creating a backlog in excess of 2,300 airplanes. And the new Airbus aircraft designs for the next-generation A380 and A350-XWB now are expected to use a greater percentage of titanium and other superalloys than the current family of A310, A320, A330 and A350 airplanes.
"Given the record backlogs of both Boeing and Airbus, and the engine manufacturers, this increasing demand for titanium and other specialty alloys mill products is expected to last into the next decade," according to Allegheny Technologies.
And the aerospace metals demand could be even higher. Charles Armitage, analyst at Merrill Lynch & Co. in New York, says "it's quite possible that the engine manufacturers will get some more orders as the airlines announce engine selections for previously announced aircraft orders." The main three aircraft with engine selections outstanding for the future are the Boeing 787, the Airbus A320 family and the Airbus A330.
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