A recovery in air travel has the commercial
aerospace sector gaining lift, and this upcycle will gain even
more thrust when Chicago-based Boeing Co. ramps up to full
production on its new 787 Dreamliner.
"The aerospace sector is being driven by the
continued increase in production at Boeing and to a lesser
degree by when Airbus (SAS) steps up production of the A380,"
said Howard Rubel, managing director of aerospace equity
research at Jeffries & Co. Inc., New York. "We've seen air
traffic increase, and that increase has been international. As
a result, it's created greater demand for wide-bodied jets
compared with previous business cycles."
But as larger planes drive aircraft makers to
lighten the load, what does this mean for the metals that
typically make up the aircraft?
"Composites continue to take share away from
aluminum in aerospace, but that won't fully take shape until
Boeing ramps up to full production on the 787, which should
happen sometime in 2008 or 2009," Rubel said.
About 40 percent of the 787 Dreamliner
consists of non-metallic composite materials, which is expected
to yield a roughly 20-percent fuel savings vs. similar-sized
planes today, and just 19 percent aluminum, which traditionally
accounted for the bulk of airliner raw materials. Boeing's
latest plane, the 777, for example, has a 50-percent aluminum
content and earlier planes even more. However, aluminum alloys
are being eyed to help the light metal reclaim some of its lost
share in airframes (AMM, April 16).
But the most perplexing thing in the
aerospace sector currently is the continued high price of
nickel used in high-temperature metals for airfoils in jet
engines, Rubel said.
Rolls Royce Plc, London, the second-largest
producer of jet engines after General Electric Co., Fairfield,
Conn., projects that over the next 20 years more than 114,000
engines will be delivered with a dollar value of approximately
$600 billion, creating exponential growth in demand for
airfoils. Rolls Royce makes engines for both Boeing and
This upswing likely will last through to the
end of the decade, Peter Arment, vice president of JSA Research
Inc., Newport, R.I., said, echoing the comments that the
upcycle is being led by the recovery in commercial air travel.
"We're going to see increasing production through the end of
the decade. You can see what is going on with raw material
prices like titanium and nickel alloys. This is all a function
of a really robust commercial air cycle."
However, while aluminum is facing stiff
competition in the commercial aerospace sector, metals are
marking gains in defense. Both Alcan Inc., Montreal, and Alcoa
Inc., Pittsburgh, stand to benefit from the F-35 joint strike
fighter program, which is ramping up production to roughly 60
planes a year by 2012 and almost 140 annually by 2015. Alcan
will be the leading supplier of heavy-gauge plate for the F-35
through a supply chain agreement with Transtar Metals Corp.,
Torrance, Calif., which is providing supply chain management
services to Lockheed Martin Corp., Northrop Grumman Corp. and
BAE Systems Plc. Alcoa's content on the JSF has been estimated
by the company at in excess of $1 million per plane.
"In the defense sector, we've had really
healthy defense spending since President Bush came into office
in 2001," Arment said. "There's been a dramatic step up in
defense spending. You're seeing the recapitalization of the
helicopter fleet to replace aging aircraft, and this also
generates increasing demand for raw materials."
In terms of the geographic driver of the
upswing, Arment pointed to the Pacific Rim, Asia and the Middle
East for the commercial sector, although the United States
takes the lead in defense. "It goes along with infrastructure
spending. I don't really see that letting up. In North America,
the aerospace sector is driven by defense," he said.
J.B. Groh, senior research analyst at D.A.
Davidson & Co., Great Falls, Mont., agreed that on the
commercial side, emerging markets like India, China and the
Middle East are driving the growth. "These areas have large
populations and small fleets of aircraft. There is also a
growing middle class in need of air transportation," he
And while there's been very little growth in
North America, Groh indicated that could change soon as the
existing commercial fleet grows older. "The fleet continues to
age and eventually you reach a tipping point at which operating
a new aircraft is more cost effective than maintaining an aging
fleet, and we are near that point when North American carriers
will have to re-enter the market to replace aircraft," he said.
"Defense spending is high and will remain high while we're
still in Iraq."