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Aerospace demand once again ready to take wing

Keywords: Tags  RTI International Metals Inc., Patricia O’Connell, Derrick Deck, Aerospace Industries Association of America, Airbus SAS, Boeing Co., James Callan, A.M. Castle & Co. Fabienne Letadic

A rising tide lifts all boats. This has certainly been the case—and is likely to continue—for aerospace materials, including aluminum, titanium, nickel alloys, stainless steels and composites, with commercial airliner backlogs at record levels and getting larger every year.

Demand in the defense sector has begun to decline and is likely to weaken further as the federal sequestration cuts take effect, but its impact on aerospace material demand is dwarfed by that of the commercial sector, which by most estimates accounts for about 80 percent of the aerospace marketplace.

“Overall demand from the aerospace industry has been stable over the past year, and we anticipate that demand will pick up starting in the second half of this year and into 2015 as we approach the projected ramp up of build rates for large commercial jets,” Patricia O’Connell, executive vice president of commercial for Pittsburgh-based RTI International Metals Inc., said. “Over the next five years, we expect demand from commercial aerospace to increase at a compound annual growth rate of greater than 7 percent.”

Aerospace sales last year rose 1.6 percent from 2012, according to Derrick Deck, senior director of research at the Aerospace Industries Association of America, Arlington, Va., while shipments so far this year are up 7.1 percent from a year ago and backlogs are 10.4 percent higher.

The commercial aircraft sector experienced record deliveries, orders and backlogs last year and is likely to have record numbers for the next few years, according to Richard Aboulafia, vice president of Teal Group, Fairfax, Va.

Nearly 1,300 commercial aircraft were delivered by Chicago-based Boeing Co. and France’s Airbus SAS in 2013, and that is expected to increase to upward of 1,600 planes in 2015, according to James Callan, vice president of aerospace at Oak Brook, Ill.-based Castle Metals Aerospace, a division of A.M. Castle & Co. “Overall, 2014-16 will be a great time to be in the aerospace market,” he said, including for suppliers of all aerospace materials.

A key factor that has been driving this growth has been the need for airlines—now generally healthier than they were in the recent past—to replace their aging fleets with more-fuel-efficient aircraft, said Fabienne Letadic, vice president of marketing at Paris-based Constellium NV.

It has helped that fuel prices are currently in a “sweet spot,” Aboulafia said. “They are high enough to convince airlines to buy new planes but low enough that they are still able to make money.”

Another major factor has been that air travel continues to be very strong for both international and U.S. domestic travel, Callan said, with airlines’ revenue per passenger mile up 8 percent in January compared with a year earlier.

Demographics, especially in developing nations, also have been a contributing factor, with 71 percent of Boeing’s 2013 shipments going to foreign operators, including those in Asia and the Middle East, according to Deck.

Several new programs are expected to ratchet up, according to a spokesman for Pittsburgh-based Allegheny Technologies Inc., noting that after more than two years of delays, production of the Boeing 787 Dreamliner is now close to the anticipated 10 planes per month, and the new Airbus A-350 XWB is set to be launched later this year, to be followed by the Boeing 737 Max and the Airbus A-320neo in 2016 or 2017.

Bob Mraz, vice president of sales and marketing at TW Metals Inc., Exton, Pa., believes that the long-term future of the aerospace market is going to be “epic” as it goes through what appears to be a “supercycle.”

“Just six months ago we were uncertain if the aerospace market was at the end of an upcycle,” said Klaus Kleinfeld, chairman and chief executive officer of Pittsburgh-based Alcoa Inc. Now he believes the market will remain strong for at least another six to 10 years.

Views were mixed about air cargo volumes, which rose 2.2 percent in December vs. a year earlier. Kleinfeld expects cargo volumes to increase 4 percent in 2014, while Callan said they could weaken, at least in the near term, due to global economic influences, particularly slowing production in China.

Meanwhile, the defense aerospace market, which has been hurt by government budget controls, including sequestration, is definitely cresting, Aboulafia said, although there continues to be some bright spots, such as the F-35 Joint Strike Fighter program.

“Even though there was budget movement at the end of 2013 and the National Defense Authorization Act was signed in January, there is still great concern about the economy and the impact of the return of full sequestration cuts in 2016,” Deck said, noting that the Defense Department’s fiscal 2013 budget included the termination of six major programs. The agency also has restructured a number of other programs to save $41.8 billion from fiscal 2013 through fiscal 2017, with further terminations and restructurings planned in fiscal 2014, 

The defense sector likely will continue to be challenged unless Congress has a change of heart due to the Ukrainian crisis, said Jeff Wise, vice president of sales and marketing at Titanium Industries Inc., Rockaway, N.J. Otherwise, further budget cuts are likely.

The two-year-plus delay of the Boeing 787, as well as the impact of contractual “take or pay” supply agreements, created a glut of titanium in the aerospace supply chain, Wise said. But O’Connell said the overall titanium inventories in the supply chain continue to move toward equilibrium, and titanium to be purchased and consumed for production could be equal by late 2014

Bill Sales, senior vice president of nonferrous operations at Reliance Steel & Aluminum Co., Los Angeles, acknowledged that some metal suppliers experienced softness last year, when an inventory overhang of aluminum structural plate and certain titanium products affected the volumes of new metal orders. However, that overhang is expected to be largely “burned off” by year-end.

Lead times for certain highly engineered titanium products, as well as titanium hydraulic tubing, are extending out as far as 70 weeks, Mraz said.

For aluminum plate, a correction is anticipated, with destocking levels similar in magnitude to the restocking that occurred in 2012, Jack A. Hockema, president and chief executive officer of Kaiser Aluminum Corp., Foothill Ranch, Calif., said during his company’s fourth-quarter earnings call.

Kleinfeld played down the aluminum structural plate inventory correction during Alcoa’s first-quarter earnings call, calling it “an absolutely normal situation that we see again and again in the ramp-up phase for new models in aerospace.”

Kleinfeld attributed the inventory buildup to the number of new aircraft set to ramp up, noting that aerospace companies filled up their inventories to prevent the kind of shortages and long lead times for structural plate that they had seen in the past. “Now that production is ramping up and they have gained experience (building those aircraft), they are obviously sitting on a larger pile of inventory than they need, but they are going through it,” he said.

There is unlikely to be a big shift in the materials mix of new aircraft, at least in the near term, according to Kleinfeld. “On the whole, those planes and plane components that are composites will stay composites and those that are aluminum will stay aluminum. No one is in a hurry to convert materials,” he said.

Aboulafia agreed, noting that the basic materials for the next-generation Boeing 737 Max and Airbus A-320neo single-aisle planes use the same basic materials as the earlier versions, with the only real change being the engine. There also has been a lot of back and forth with materials for the new Boeing 777X (a larger version of the 777), which includes a new engine and new avionics, and uses carbon fiber composites for the wing but not the body, he said.

While there haven’t been many changes in the materials mix for major commercial programs, original equipment manufacturers (OEMs) continue to explore various alternatives to optimize the strength-to-weight and cost-benefit ratios, O’Connell said. “Additionally they are actively working to reduce their buy-to-fly ratio. ... We believe that capabilities that reduce this ratio, such as additive manufacturing and 3D printing, have tremendous potential to support this goal,” she said.

“Companies who are early adopters of additive and 3D manufacturing will be successful in shaping this technology,” Callan said. He doesn’t believe it will be the “end all” for the industry due to certifications, but it will significantly impact new product development and low-volume niche components.

While the near-term mix will hold fairly steady, the use of composites—and therefore titanium, which is more compatible with composites than aluminum—likely will grow further out, Callan said. “But at the same time, new aluminum alloys, including aluminum-lithium, have been entering the market. The aircraft manufacturers and airframe builders will need to consider the value and cost trade-offs.”

Kleinfeld expects revenue generated by Alcoa’s portfolio of aluminum-lithium products—already in a number of key platforms, including the A-350, A-380, Boeing 787, Gulfstream G-650 and the Bombardier C-Series and 7000 and 8000 planes—will quadruple in the next several years.

Meanwhile, additive manufacturing likely will first be used for developing prototypes, Aboulafia said. “The question is if it is adaptable for mass production.”

Another question is if manufacturers can get the same strength and grain properties with 3D printing as with metalworking, Lloyd O’Carroll, managing director of Cleveland-based Northcoast Research Holdings LLC, said. “The use of additive manufacturing makes sense, but it will take time to develop that technology.”

Meanwhile, aluminum producers also continue to develop new alloys, including aluminum-lithium, which O’Carroll believes will be “the wave of the future.”

Letadic agreed, noting that despite the inroads that carbon fiber composites and titanium have made in recent years, aluminum still comprises almost half of all aerostructures. 

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