Aerospace Metals: Inventory Outpaces the Optimism
Commercial aircraft is one of the strongest sectors in the U.S. economy, which, ironically, has created some supply chain issues.
By Myra Pinkham, Contributing Editor
Optimism about the future continues to soar in the commercial aerospace market with lengthening lead times for both airframes and engines bolstering demand throughout the supply chain. Surprisingly, despite the rising orders, supply has still managed to exceed demand in the metals sector, as inventory levels for both heavy aluminum plate and titanium products remain high.
Experts expect the market to work down the aluminum inventories by early next year, but how soon the titanium stocks will come into balance is less certain. Sanctions against Russian titanium supplier VSMPO-Avisma, and other market factors, have raised concerns about future availability and prompted some distributors and OEMs to add “just in case” inventories.
Other changes are afoot in the sector, including the possibility of further consolidation as the major aerospace OEMs look to cut costs and create a smaller, but stronger, supply base. Meanwhile, companies continue to jockey for market share as airframe and engine producers analyze which aerospace materials and manufacturing technologies will best meet their future needs.
The commercial aerospace market has been absolutely booming, even through the 2008-09 downturn, says John Walsh, president of Walsh Aviation, San Diego, Calif. Indeed, aerospace is the healthiest segment of the U.S. manufacturing economy and should remain strong for at least the next several years, adds Richard Aboulafia, vice president of the Teal Group, Fairfax, Va.
Lloyd O’Carroll, managing director of Cleveland-based Northcoast Research, forecasts that commercial airliner deliveries by Boeing and Airbus will increase 10 percent this year to 1,540 units. Deliveries of wide-bodied aircraft are projected to grow by an average of 12 percent per year through 2017, with single-aisle aircraft deliveries rising at a more modest 3 percent. Order backlogs, already out seven to eight years, will extend even further as new orders continue to exceed deliveries by Boeing and Airbus, analysts say.
What’s behind the boom? Global passenger traffic continues to rise, helped by improving economic conditions in Asia and other emerging markets. And airlines are aggressively replacing aging aircraft in search of improved safety and fuel efficiency, says James Callan, vice president for aerospace at Castle Metals, Oak Brook, Ill.
Another, often overlooked, variable is the development of new, quieter, more energy-efficient jet engines, Aboulafia says. In fact, a number of existing airframe programs have been redesigned to incorporate these new engines. The Boeing 737 MAX is to use the new LEAP engine from CFM International, a joint venture of GE Aviation and France’s Snecma, to begin production in 2016. The Airbus A-320 NEO, which stands for New Engine Option, comes with either the CFM LEAP or Pratt & Whitney’s new PW 1100G family of geared turbofan engines. Their makers claim these engines offer about 15 percent fuel savings over previous models.
Rick Kennedy, a spokesman for Evendale, Ohio-based GE Aviation, says the company forecasts an 8.5 percent increase of commercial jet engine deliveries by GE and its joint partner companies this year, followed by a 5.7 percent increase next year and a 2.1 percent increase in 2016. GE Aviation's backlogs, including both engines and multi-year service contracts, have grown 23 percent in just the past 18 months. Other engine producers are seeing similar growth rates, according to industry observers.
Patricia O’Connell, executive vice president-commercial at Pittsburgh-based RTI International Metals Inc., notes that in the month of July alone airlines and leasing companies placed orders for 900 engines for previously ordered aircraft. Orders for next-generation engines expected to enter service (LEAP, PW1000G, GE9X and Trent XWB) now top those for engines currently in service by a factor of four.
With this strong and growing demand, how can there be such an overabundance of metals inventories? Jerry Bashir, president and chief executive officer of Falcon Aerospace, Weston, Fla., says the seeds for the inventory buildup may be traceable to last year’s Paris Air Show, where there was a great deal of order-taking by both Airbus and Boeing. That generated a lot of enthusiasm, and in some cases panic, by material suppliers, who then built up their inventories in anticipation of the upswing to come.
Their expectations overshot actual demand, especially when production issues delayed new aircraft such as the Airbus A-380 and the Boeing 787 Dreamliner. Weakness in defense aerospace contributed to the oversupply, says Aboulafia.
“It’s the usual market psychology,” adds O’Carroll, “to buy too much when things are good.”
Other material-specific factors came into play, as well, says Bill Sales, senior vice president for nonferrous operations at Reliance Steel & Aluminum Co., Los Angeles. For aluminum plate, the inventory bubble was worsened by volume commitments in contractual agreements. For titanium, an overreaction to a shortage of supply contributed to the inventory buildup. Several companies have since taken action to increase titanium production capacity. Most notably Carpenter Technology Corp., Wyomissing, Pa., is in the process of building a 27,000-ton-per-year premium products facility, as well as a superalloy production plant, in Limestone County, Ala.
“With the increasing build rates, inventories will come back in balance over time, although it is hard to estimate just how long that will take,” says Ron Weiss, vice president of marketing for flat-rolled products at Kaiser Aluminum Corp., Foothill Ranch, Calif.
O’Connell believes that equilibrium could be achieved as soon as late 2014 with the possibility of a further tightening of titanium supply, especially if further trade sanctions on Russia include its titanium industry.
Already, mill lead times for most aerospace metals have begun to move out, Sales says. He estimates aluminum plate lead times at 11-13 weeks, specialty steel lead times at 16-20 weeks and nickel alloy lead times at 20-25 weeks.
Although up from earlier this year, these are fairly typical lead times, except for nickel alloy, which normally is available within about five weeks, adds Bashir at Falcon Aerospace. Increased demand for nickel alloys by European engine makers has tightened the U.S. market, he says.
While lead times for some titanium products, such as bar, sheet and plate, are out about six months, they are a year or more for titanium tubing, reports Bob Mraz, vice president of sales and marketing at TW Metals, Exton, Pa. “The primes (primary subcontractors), however, are doing a good job of ensuring they have enough metal when they need it.”
Other titanium products, such as sponge, are in oversupply. Some companies have been making moves to cut capacity. Pittsburgh-based Allegheny Technologies Inc., for example, announced earlier this year that it would permanently close its idled Albany, Ore., sponge facility. “We estimate there is significant melt capacity that more than supports the projected growth in demand over the next five years,” says O’Connell at RTI.
Outside of a significant geopolitical surprise, there shouldn’t be many bottlenecks, says Callan at Castle Metals. “Everyone throughout the supply chain has been doing their best to plan ahead. Companies that continue to listen to their customers’ needs and who provide them with value-added products will do the best.”
Metals suppliers are continually in contact with their customers about their material needs, says Jeff Wise, senior vice president of sales and marketing for Titanium Industries Inc., Rockaway, N.J. In fact, his company has established T.I. Materials Management, a separate unit to work with OEMs and prime parts producers to develop various supply options. Since the economic downturn, OEMs and their Tier 1 parts suppliers have trimmed their supply base in search of better efficiencies. T.I. wants to be sure it makes the cut. “With so much going on in the world that could potentially impact the supply chain either positively or negatively, it is increasingly important to keep in touch with the OEMs and their parts suppliers,” Wise says.
Likewise, there has been a wave of consolidation throughout the aerospace supply chain from mill production through fabrication assembly. Reliance, for example recently acquired Aluminium Services UK Ltd., which has large aerospace-oriented assets including All Metal Services Ltd. Most future consolidation will not involve distributors, but rather the portion of the supply chain between the OEMs and service centers, including machine shops and parts and component suppliers, says Callan at Castle Metals.
Connell notes that RTI has made several acquisitions to bolster its capabilities in machining, forming, extruding and additive manufacturing. Likewise, Precision Castparts Corp. has acquired Titanium Metals Corp. (Timet), as well as numerous fabrication and machining companies. Alcoa Inc. has acquired U.K. aerospace components manufacturer Firth Rixson Ltd. And ATI has been vertically integrating its aerospace business through similar acquisitions, to cite a few examples.
While new materials and production technologies have been developed, their effect on the supply chain remains limited due to the long approval cycles in the aerospace market, Callan notes. “I don’t see anything that will make a big difference, at least not until 2016 or 2017 at the earliest,” he says. “While the mills are trying to get their newest, best products specified on aircraft, service centers are seeing little impact from that to date.”
Metals—particularly titanium and nickel-based superalloys—are critical to the advancement of new engine designs, says Aboulafia. Incremental changes in materials, such as the use of new ceramic matrix composites, promises to help make engines lighter and improve their fuel consumption.
This trend has the potential to alter the market dynamics for aerospace materials, Wise says. Titanium is the most vulnerable, as it may be displaced by nickel alloys in hotter running engines. Composite fan blades being developed by engine manufacturers could have the same effect.
Titanium is seeing increased application in the airframes of planes designed to use new lightweight composites. Titanium tends to be more compatible with composites than aluminum, says Mraz at TW Metals. “But I still believe that aluminum will remain the primary material for commercial aircraft,” he adds.
When the Boeing 787 was first announced, there was much speculation about how much market share composites would win from aluminum. “But the metals guys have stuck it out,” Aboulafia says. Use of composites proved to be more complex than anticipated.
Aluminum has benefited from increased use of monolithic designs, which involves machining several previously separate parts from a single piece of aluminum. This eliminates the need to assemble those parts into a component using fasteners and reduces its weight. While there actually is a higher material buy-to-fly ratio with monolithic designs, it is offset by a reduction in manufacturing costs, says Weiss at Kaiser.
There also has been a push for greater closed-loop manufacturing programs between the OEMs and mills, he says, which would recycle the aerospace-grade aluminum scrap directly back to the mills.
Aluminum makers have tried to promote greater use of next-generation aluminum lithium, which they say can compete head to head with composites in new aircraft designs, but so far the aluminum-lithium alloy has not gained much market penetration, says Wise at Titanium Industries.
Weiss admits it has been challenging to convince OEMs that aluminum lithium’s added performance is worth its higher cost. Nevertheless, both Alcoa and France’s Constellium are adding aluminum lithium production capacity. O’Carroll believes the light-but-strong alloy will find wider application in the future.
Another new technology, additive manufacturing or 3D printing, is creating quite a buzz, but it will be awhile before it has any impact on the market, say the experts. Most companies have adopted a wait-and-see attitude. Initially, it will be used for prototyping of small parts, and later for limited production of parts using powder metal versions of high-value metals such as titanium and nickel alloys.