Alcoa Inc. once said it anticipated the aerospace boom would peak this year, but now the big aluminum producer doesn't see demand starting to peter out until at least 2012.
In light of the new forecast, Alcoa is preparing to meet continued growth in demand for helicopter components with a range of expansion projects.
The Pittsburgh-based company, which supplies materials and components to dozens of helicopter and engine producers, including Airbus SAS, Bell Helicopter Textron Inc., Boeing Co., General Electric Co. and Rolls Royce Plc, doesn't break down production activities between helicopters and other aircraft, but industry sources said Alcoa is the leading aluminum parts supplier to the helicopter industry. According to several market sources, Alcoa supplies more aluminum to the helicopter industry than Alcan Inc. and Kaiser Aluminum Corp. combined. They said the company is considered the 'go-to' supplier for helicopter and engine manufacturers ramping up production to meet rising demand.
North American aluminum rival Alcan is not a significant supplier of materials for helicopter propulsion or fastening systems. "We just aren't very involved in helicopters," an Alcan source said. "We definitely are big suppliers to aerospace, but in terms of aluminum helicopter parts Alcoa has that market pretty much cornered."
A Kaiser spokesman said the amount of aluminum it supplies to the helicopter industry is minimal compared with what it supplies for commercial aircraft, business jets and the aerospace defense sector.
Some estimates gauge that the total amount of aluminum used in helicopter parts accounts for just 5 percent of overall aerospace plate demand. Still, Alcoa sees expansion in its aerospace applications as a savvy business move based on concrete demand. "There has been noticeable talk about the large amount of materials we are supplying into the overall aerospace market," an Alcoa spokesman said. "In terms of the helicopter industry, we supply sheet and plate, fasteners, forgings and in some cases aluminum for engines, and in some parts of the world the rotors of helicopters are made of aluminum."
Although several helicopter producers point to long lead times for parts, Alcoa remains committed to meeting increased demand and its recent growth spurt in three major products is evidence of that, the spokesman said.
In the past couple of months, Alcoa completed an extensive expansion effort in three of its key aerospace product divisions. In sheet and plate, Alcoa expanded production capacity by 50 percent at facilities in Davenport, Iowa, Belaya Kalitva, Russia, Fusina, Italy, and Kitts Green, England; in power and propulsion applications, the company just completed expansions in the United States and Mexico, and constructed a new airfoil post-cast operation in Hungary; and Alcoa's fastening system operations in the United States, France and Hungary underwent a major overhaul, and the company opened new fastener facilities in Acuna, Mexico, and Suzhou, China.
A focus on increased production is likely welcome news for its customers, including Bell Helicopter Textron, which purchases Alcoa-made rotor blades and points to long lead times to get parts as a key bottleneck in its production process.
But increasing its manufacturing capacity comes with a hefty price tag, and determining the validity of that cost demands a careful analysis of whether the benefit of higher sales can be balanced with the rising cost of raw materials necessary for plant expansions. "Raw material costs are a big factor for us," the Alcoa spokesman said. "Deciding whether or not to expand, you must walk a fine line. Should you be investing capital in this now? Should you squeeze more out of your existing operations or should you invest the capital to build upon them?"
So far, he said, Alcoa is seeing tangible benefits in upping its investment in aerospace. "The orders are there—they are already sitting in line waiting for these products. So it's not a matter of 'if we build it, will they come?' There isn't the risk of building something that isn't needed because the demand already exists."
Secondly, that demand is strong, growing and unlikely to peter out during this decade. "Initially, the thought was that aerospace was peaking and that its peak year was going to be 2007," the spokesman said. "But now, with the extended cycle theory, we won't see it peak until 2011. And even if demand falls off gradually from that point onward, the order books will still remain strong for several years."
Alcoa doubled its Aerospace division revenue to $3 billion in 2006, accounting for about 10 percent of total sales, from $1.5 billion in 2002, when the commercial airplane industry was in decline following the Sept. 11, 2001, terrorist attacks.