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When standing still can be a sign of progress

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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 different situation.

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.

Kevin Foster

Managing editor


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