It's a critical transportation industry. It's
been hit hard by the financial crisis. And metals suppliers who
had been banking on a continued expansion are now facing a very
But unlike the auto industry, which in North
America at least is on its knees, the aerospace sector hasn't
yet seen a massive drop in demand, and unless the world economy
takes another dive, prospects for aero industry suppliers look
better than elsewhere.
That's not to say things are looking good.
Even before the credit crunch hit in earnest in September,
suppliers to the aerospace industry had their own set of
problems to deal with, many related to Boeing's delays to its
787 Dreamliner as well as Airbus' 380 airliner. Titanium in
particular was beginning to feel the pressure as the prospect
of overcapacity and sluggish prices hit domestic producers.
Fast forward six months, and what's changed?
In the short term, not as much as you'd expect. Boeing's huge
backlog of more than 3,600 orders remains largely intact, even
though new orders all but collapsed in early 2009. The aircraft
manufacturer has provided a level of support to some of its
suppliers by committing to keep buying titanium over and above
its immediate requirements-the kind of commitment which
Boeing's counterparts in the auto industry likely couldn't make
even if they were inclined to. But uncertainty over the
delivery schedule for the 787 is clouding the outlook for just
about everyone involved, from primary materials to specialty
alloys to scrap.
Given the uncertainty, it's not surprising
that there are differing views about the outlook for the
market. Some suggest that the current downturn will not be as
bad as the slump that followed the Sept. 11, 2001, terrorist
attacks. Others predict it could be worse. Air travel fell
sharply late last year, in part due to the drop-off in cargo
flights as global trade slumped, and while estimates for the
number of commercial travelers in the U.S. this year are
indicating a decline, there's no sign of passenger numbers
falling off a cliff. And as trade picks up-which all but the
most pessimistic observers believe it will later this year-that
will take more planes out of hangers and into the air, and give
manufacturers renewed confidence for future order levels.
That said, there's unlikely to be growth in
the near future. But compared with the carnage in other parts
of the metals market, suppliers might be happy to accept the
prospect of just standing still. Much of the specialty steel
industry in North America has unveiled ambitious plans for
capacity expansions in recent years in preparation for a major
rise in commercial aircraft manufacturing that now seems
unlikely to materialize. Defense demand looks to be holding up
better, although President Obama's plans to pull more troops
out of Iraq, together with the massive fiscal pressure from the
administration's government spending plans, must throw up the
possibility of further cutbacks down the line.
The last feel-good story in the aerospace
market-perhaps in any market, in these gloomy times-came in
January, when a U.S. Airways flight piloted by Chesney "Sully"
Sullenberger ditched in New York's Hudson River, saving the
lives of everyone aboard. The aerospace industry and the metals
suppliers who rely on it might not be facing as serious a
catastrophe, but they'll nevertheless be hoping for every bit
as soft a landing.