Titanium producers who just a few years ago were obsessed
with bolstering their front ends are today looking downstream
in a drive to integrate the aerospace supply chain.
At the height of the last market cycle, in 2006 and 2007,
which was marked by panic-buying in sponge, each of the three
major U.S. titanium producers was charting new capacity in the
crucial upstream product:
RTI International Metals Inc., Pittsburgh, planned a
$300-million greenfield sponge operation in Hamilton, Miss.
Dallas-based Titanium Metals Corp. (Timet) launched
design and engineering efforts for a new sponge facility that
would produce 22 million to 44 million pounds per year.
Pittsburgh-based Allegheny Technologies Inc. (ATI)
looked to build a new sponge plant in Rowley, Utah.
But fears of a front-end bottleneck had eased by 2008. RTI
canceled its Mississippi project in late 2009, while Timet,
which already produced sponge in Henderson, Nev., decided
against a second plant. Both companies also expanded and
extended their sponge supply agreements with the Japanese, who
had substantially raised their own capacity. Only ATIs
plant, a $460-million facility with a capacity of 24 million
pounds, was actually built.
Today, the world looks quite different than it
did when the industry was concerned with sponge capacity, said
Dawne S. Hickton, vice chairwoman, president and chief
executive officer of RTI, which did build a mill products
facility in Martinsville, Va.
In an effort to achieve integrated titanium
manufacturing in forming, machining and assembly, RTI has
directed its expansion efforts downstream. In February, it made
its largest acquisition ever: the $182-million purchase of
Remmele Engineering Inc., a New Brighton, Minn., machining and
engineering company serving the aerospace, defense and medical
device markets. This followed the 2011 purchase of the forming
division of Englands Aeromet International Plc, now
called RTI Advanced Forming Ltd., for $34 million. In 2004, RTI
paid $30 million for Claro Precision Inc., a Laval, Quebec,
manufacturer of aerospace components and complex mechanical and
electrical assemblies, and later invested $100 million in the
operations, quadrupling the size of its physical plant.
Hickton said that while small downstream aerospace
manufacturers historically worked in soft metals,
such as aluminum, more recently theres been a shift into
RTIs field of expertise: titanium and other hard metals.
She also pointed out that some aircraft builders have expressed
concern that smaller machining shops might not have the capital
to support a boost in production as airliner build rates ramp
up. One of the benefits we have as a larger company is
the ability to take on smaller businesses and provide the
resources to help them grow, she said.
Meanwhile, ATI went downstream last year with the
$778-million purchase of Cudahy, Wis., forgings and castings
producer Ladish Co. Among other advantages, it gave ATI an
in-house market for the nickel-based alloys and titanium
feedstock produced by its ATI Allvac Inc. unit in Monroe, N.C.,
which has been expanding its furnace capabilities.
The supply chain is demanding the integrated
supplier, an ATI spokesman said. It wants someone
whos integrated through sponge, melt and nearly all the
product forms, and who can control the quality, productivity
and delivery of product.
The trend isnt obvious just to titanium metal
producers. Its also evident to the aerospace supply chain
itself. In 2009, Portland, Ore.-based Precision Castparts Corp.
(PCC), already regarded as the largest producer of aerospace
forgings through its ownership of Wyman-Gordon Co., spent $850
million for Carlton Forge Works, a Paramount, Calif.-based
producer of nickel, titanium and steel forgings for jet engines
and gas turbines, in a deal that also included another forging
house, Arcturus Manufacturing Corp. in Oxnard, Calif. Since
then, PCC has picked up aerospace forgings producer Unison
Engine Components from General Electric Co., as well as two
forgings support companies, Dickson Testing Co. Inc. of South
Gate, Calif., and Aerocraft Heat Treating Co. of Paramount,
Acquisition-minded PCC, whose business previously had been
focused on investment castings, forgings and fasteners, also
has moved into machining and component manufacturing. It has
acquired several aerospace machining and fabrication operations
since 2010, doing its best to consolidate what president and
chief executive officer Mark Donegan calls a widely
fragmented aerostructures business.
In its largest acquisition in the sector, PCC paid $900
million last year for Primus International Inc., a Bellevue,
Wash.-based supplier of composites and machined aluminum and
titanium components and assemblies to the aerospace industry.
This year, PCC bought Centra Industries Inc., a Cambridge,
Ontario, manufacturer of machined airframe components and
assemblies, and has agreed to acquire Klune Industries Inc., a
North Hollywood, Calif.-based manufacturer of aluminum, nickel,
titanium and steel aircraft structures, as well as three
machining operations of Montreal-based Héroux-Devtek
Additionally, PCC indicated it has been looking upstream
into melting as it seeks the same kind of mill-to-forge shop
integration that ATI has achieved with Ladish. During a July
telephone conference with securities analysts, Donegan said
that PCC aims to maximize profitability by controlling
our own value stream.
PCC owns Special Metals Co., New Hartford, N.Y., a producer
of nickel-based and superalloy long products. Titanium, on the
other hand, represents the one hole at PCC in terms
of feedstock for its forging operations, said Donegan, who
suggested hed like to fill that void. Wed
love to get forged titanium capability in terms of input
stock, he said.
The most obvious producers of forging feedstock are Timet
and RTI. While the three companies would not comment earlier
this year on what industry sources called PCCs interest
in the other producers, most observers said Timet and RTI
arent eager to be taken over.
I dont see any of the obvious companies raising
their hands and saying, Im for sale,
said Kuni Chen, an analyst with CRT Capital Group LLC in
So where on the supply chain will be the next big takeover?
After the Carlton and Ladish acquisitions, the universe of
available large-press aerospace forging houses appears limited.
Some sources said the biggest remaining prize could be Shultz
Steel Co., South Gate, Calif.
Shultz Steel declined to comment, but the company is viewed
by most outsiders as fiercely independent. Reports in 2009 that
Pittsburgh-based Alcoa Inc. was talking about a tie-up with the
West Coast forging shop were met with strong denials by
The interest in adding forging and machining capacity is
likely to continue, according to Kevin Michaels, vice president
of Ann Arbor, Mich.-based consultant ICF SH&E. At
AMMs Aerospace Materials Conference in
Pittsburgh earlier this year, Michaels called PCCs
acquisition of Primusas well as ATIs purchase of
Ladish and this years $558-million merger of Latrobe
Specialty Steel Co. and Carpenter Technologies
Corp.harbingers of continued consolidation in
Tiers 3 and 4 of the aerospace supply chain. Those tiers
include not only raw material producers and process
suppliers, such as forging companies, but also
thousands of machine shops and other
make-to-print operations, Michaels said.
That hasnt gone unnoticed by the commercial aerospace
industrys largest domestic prime contractor, Boeing Co.
Were generally positive on the trend, said
Jeff Carpenter, senior manager for raw materials for the
supplier management group of the parents Boeing
Commercial Airplanes (BCA) subsidiary in Everett, Wash.
Carpenter said that, in some respects, this development
makes for a more efficient supply chain. He pointed
out that Boeing itself is no stranger to downstream
participation through its experience with Ural Boeing
Manufacturing, its joint venture in Russia with VSMPO-Avisma
Corp., which provides primary machining on forgings produced by
VSMPO for the Boeing 787 and other aircraft.
At Longbow Research LLC in Independence, Ohio, one of the
few investment companies that has followed the titanium
industry on a consistent basis for more than a decade, one
analyst agreed thatat least for the next few
yearssuperior returns on incremental investments are more
likely in downstream assets.
Without a doubt, thats where people are
employing capital, where the moneys being spent,
said the Longbow analyst, who pointed out that as commercial
aerospace programs ramp up, forging and fabrication
requirements are growing. People will deploy capital in
the downstream markets until theres too much capacity
In other words, interest might one day swing back to the
front end, or sponge. ATI, whose Utah plant has been moving to
qualify its premium sponge at jet engine builders, doesnt
disagree. Theres no shortage, but theres not
a lot of capacity, either, the ATI spokesman said. He
suggested that the current lack of concern about sponge might
not last as the titanium-intensive Boeing 787 Dreamliner
reaches its build rate of 10 per month, targeted for late 2013,
and production of Airbus SAS competing A350 airliner
ramps up. Lets see where we are then, he