High-Flying Demand... to Level Off?
While the market remains robust, the days of 10 percent annual growth in aerospace metals may be coming to an end.
By Myra Pinkham, Contributing Editor
Despite the current inventory overhang and uncertainty about the domestic and global economies, aerospace remains one of the strongest industrial markets. Producers and distributors who provide metals to aircraft manufacturers and their parts suppliers can expect years of high-flying demand, say the experts.
However, while the market fundamentals remain sound—especially for the commercial airliners that account for 85 percent of all aerospace materials demand—suppliers can expect some challenges, says Steve Peskosky, vice president of forged bar and billet for Carpenter Technology Corp., Wyomissing, Pa. Metals demand has become softer and more volatile due to various supply chain issues and the effects of sequestration on government spending, particularly in the defense sector.
One of those supply chain issues is an inventory overhang, especially for aerospace grade aluminum plate, that service centers have been trying to work down for much of the year, says Bill Sales, senior vice president for nonferrous operations at Reliance Steel & Aluminum Co. in Los Angeles.
Another is a general slowing in aerospace demand. “It has been a remarkable decade for the commercial aerospace market with an average of 10 percent annual growth in airplane deliveries,” says analyst Richard Aboulafia, vice president of the Teal Group in Fairfax, Va. The days of double-digit growth are coming to an end, however, he predicts. Following another 10 percent bump next year, the rate is likely to level off through much of the next decade.
Not to say that forecasts of an aerospace supercycle have been wrong, says Bob Mraz, vice president of sales and marketing at TW Metals Inc. in Exton, Pa. “It’s just that people didn’t get the timing right. It’s taking longer than predicted and the growth is occurring at a more sustainable rate.”
Deliveries of commercial aircraft increased by about 10 percent in the second quarter, compared with the first quarter of this year. At midyear, deliveries were up about 5.2 percent, while orders for new aircraft were up 46.5 percent, adding further to industry backlogs, says Derrick Deck, senior director of research for the Aerospace Industries Association of America in Arlington, Va.
“Air travel was up about 5 percent in July versus a year ago, with demand for air freight also increasing,” says James Callan, vice president, aerospace, for Castle Metals in Oak Brook, Ill. “There is continued growth in the Asian economies, where people are creating increased discretionary income and traveling more. But it is also positive in North America, where airlines are continually upgrading their fleets with new technology and more fuel-efficient aircraft.”
In announcing its 20-year market outlook for commercial aviation earlier this year, Boeing predicted that both passenger and air cargo traffic will grow about 5 percent annually through 2031, resulting in the need for 34,000 new commercial airliners to replace older, less-efficient aircraft. An estimated 68 percent of those new deliveries will be smaller single-aisle planes, reflecting growth in such emerging markets as China and the continued expansion of low-cost carriers throughout the world. The twin-aisle segment, which consumes higher volumes of metals, will increase its market share to 23 percent by 2031 versus 19 percent today. Production of about 7,950 new twin-aisle planes in the next two decades will allow airlines to continue their expansion into more international markets.
Boeing announced in mid-September that it is planning to expand its Helena, Mont., manufacturing facility by about 55,000 square feet, allowing it to increase its titanium machining capacity. The added titanium parts will find their way into the new 787 Dreamliner, which will be produced at a rate of 10 aircraft per month now that its production problems have been resolved. About 50 percent of the parts currently machined at Helena are titanium and 23 percent are aluminum. The facility also machines 15-5 precipitation hardening martensitic stainless steel parts.
Meanwhile, new bookings continue to outpace the build rate, increasing the order backlog. The combined backlog for both Airbus and Boeing now stands at more than 10,000 units, says Ingrid Joerg, senior vice president of global markets and rolled products Europe for Cleveland-based Aleris International Inc. While she believes that backlog will eventually translate into higher demand for metals, the current oversupply of aerospace alloys in inventory is slowing orders.
No one knows how much material airframe builders, parts suppliers and aerospace distributors are holding, but it is not unusual for stocks to build up in this kind of business environment, says Peskosky. With demand so strong, companies are buying on a “just-in-case” rather than a “just-in-time” basis.
Aircraft production delays last year caused stocks to balloon. That was followed by a period of destocking that began early this year. “I expected that the inventory overhang would have been burned down by now,” says Sales at Reliance. Neither Boeing’s 787 or Airbus’ A380 have met sales and production targets, however. While some predict inventories will come into balance by year’s end, he believes the overhang could carry over into mid-2014.
Even with inventories a little high, Sales still feels good about his company’s aerospace business. “There might be a bit of a battle on the pricing side, but it appears the demand outlook has legs,” he says. “Once inventories are burned off, we will see lead times move out some and margins improve.”
“For suppliers who offer value-added services, this is an exciting time in the aerospace industry, despite the stagnant growth of the domestic and global economies,” adds Callan at Castle. “Companies that have stepped out of the traditional distribution model will have more success than others, especially those that provide such solutions as fabrication, assembly and kitting of aerospace components.”
Dan Crookshank, director of investor relations for RTI International Metals Inc., Niles, Ohio, says his company strives to be more than just another mill serving the aerospace sector. Rather, RTI wants to partner with the airframe builders, who are looking to limit their number of suppliers. “That offers more opportunities for companies that are their strategic partners.”
The latest from the materials front
At least in the short term, competition between metals and alternatives such as composites and ceramics has cooled somewhat now that the materials mix of upcoming aircraft including the Airbus A350 and Bombardier C-Series is now fixed. “While there was a lot of hype about composites, many of the expected conversions have not come to fruition,” Aboulafia says. Most of the newer launches, including next-generation single-aisle planes to be delivered in 2016-17, ended up being largely metal.
Joerg credits aluminum producers for doing a good job of responding to the substitution threat with creative solutions, such as new low-density alloys. “The metal plane remains very cost competitive, which is an advantage versus carbon fiber composites,” she says.
“We are in a once-in-a-lifetime era with the number of new-generation alloys being developed for both airframes and jet engines,” says Dan Greenfield, vice president of investor relations for Pittsburgh-based Allegheny Technologies Inc. His company claims its ATI 1718, a nickel-based superalloy, was the first major new alloy introduced for jet engine applications in about 40 years. It was followed by another superalloy for engines, Rene 65, as well as ATI 1718 high-strength cold-rolled titanium for use in airframes. “This shows the amount of innovation recently in the aerospace sector,” he adds.
Aircraft manufacturers continue to investigate the use of a number of advanced conventional aluminum alloys, as well as such low-density alloys as aluminum lithium and aluminum magnesium scandium. “Advanced conventional 2000 and 7000 series alloys have been selected for various aircraft programs since they offer improved structural performance in terms of strength and damage tolerance without significant cost increase,” Joerg says. New-generation low-density alloys offer specific properties in combination with cost-efficient manufacturing methods that make them highly desirable. “They may offer a step-change in aircraft design and are extremely competitive against composite-based solutions, in particular for fuselage applications,” she adds.
Introduction of such advanced metal alloys has reduced a lot of the hype associated with composites, Aboulafia says.
Makers of alternative materials are hardly waving the white flag, however. Strong-but-lightweight composites will continue to make inroads in future aircraft designs as the airlines seek greater fuel efficiency, asserts Crookshank at RTI. “Despite the startup problems of the 787, I don’t believe airframe builders will back off from using more composites, which will also result in next-generation aircraft using more titanium.”
Meanwhile, the aerospace sector is awaiting the full impact of federal sequestration and its across-the-board spending cuts. Callan at Castle Metals notes that the effect will not be limited to defense sector, but will ripple through the economy at large.
“What many people don’t understand is that sequestration isn’t just a light switch that flips all at once. Its impact depends on contract effective dates,” says Deck at AIA. Also, a number of defense programs are winding down, including Boeing’s F-18 and C-17, while the Lockheed Martin F-35 Joint Strike Fighter is seeing some of its production deferred. The defense sector already saw an 18 percent decline in exports of military equipment in the second quarter, compared to the previous three months.
Not all the news about the defense sector is bleak, note some sources. Production of unmanned drones is on the increase due to their efficient use of manpower. There is also an initiative to develop aircraft-carrier-based drones.
"The aerospace market has avoided the worst economic storm since World War II. We should feel good about that rather than being concerned the industry’s growth rate is slowing," concludes Aboulafia.
3D Printing Poised for Takeoff
Among recent technological advances in aerospace metals is the development of additive layer manufacturing or 3D printing, which may eventually change the way some aircraft parts are produced and the products that metals suppliers sell.
“There is a big desire by aerospace companies to get components to net shape quicker,” says Dan Greenfield at Allegheny Technologies Inc. “One way is through powder metallurgy. We believe that 3D printing and other additive layer manufacturing techniques are the next step.”
“This is not just the next thing on the horizon, it is already here,” says Bob Mraz at TW Metals. “Some aerospace parts are already being designed and manufactured using this process, although at this point there continue to be constraints upon what they can do.”
Additive layer manufacturing is a sintered powder metallurgy process that allows manufacturers to make a three-dimensional solid object from a digital model. It works by laying down successive layers of powder material, using intersecting lasers to melt the metal powders into the shape of the part one layer at a time. “Anything you can draw you can build,” Mraz says.
This technology is still in an early development stage, especially in its use by the aerospace sector, says Steve Peskosky at Carpenter Technology Corp. While some companies have begun experimenting with it for smaller parts, it is yet to make a difference in the marketplace. “The technology needs to be scaled up to be used for larger components. It will have very little, if any, impact upon the current generation of aircraft. As far as the next generation goes, that could be a whole other story,” Peskosky says.
While 3D printing is evolving quickly, much development and testing remains, Greenfield adds. “It will have to be proved that it meets the requirements necessary for mission critical parts.”
If it proves success, it could shorten the time it takes aircraft makers to bring new products to market, in an industry that is known for its long production cycles, notes James Callan at Castle Metals. In addition, the process could save energy and produce parts that are stronger and lighter than those made from plate or bar and would require only light machining. “The weight savings would be enormous, about 60 percent,” Mraz says. “That is very important given that fuel is the No. 1 cost of operating a plane.”