By Myra Pinkham | Contributing Editor
on Oct 26, 2022
After two years of pandemic-dampened conditions, the commercial aerospace market has regained its pre-COVID strength.
The aerospace sector has undergone a dramatic shift, going from extremely poor market conditions over the past year or two to such a strong pickup that both commercial and defense, and the material suppliers supporting them, are struggling to keep up with demand. The biggest improvement has been for single-aisle commercial aircraft, which tend to be the most metals intensive.
The impact has been particularly profound for titanium, which is currently in very tight supply. In fact, Greg Himstead, vice president of Titanium Industries Inc., says titanium lead times have already extended out 26 to 52 weeks, which are much longer than its traditional 12- to 16-week lead times.
This, as well as increased demand for other aerospace metals such as aluminum and nickel alloys, is proof of how important distribution is to the aerospace supply chain, Kirk Moore, president and CEO of TW Metals, declares.
Industry observers are optimistic about the future prospects for the aerospace market in most sectors of the industry, at least for the next two to three years. Richard Aboulafia, managing director of AeroDynamic Advisory, says the weakest sector currently is twin-aisle, or widebody, commercial aircraft due to still light international travel. But those jets tend to contain less metal and more composites than their single-aisle counterparts that are in high demand.
He notes that demand for military aircraft is also quite strong and growing. Jerry Bashir, president of Falcon Aerospace, says that should be expected with Russia’s invasion of Ukraine creating an awareness of the vulnerabilities of the United States’ NATO partners and their previous lack of investments. “Large orders from Germany and other NATO countries for U.S. defense products are keeping our defense contractors busy.”
But, according to Jeremiah Gertler, a senior analyst for the Teal Group, some of the new stealth aircraft have been using more composite skins to reduce their radar reflectivity, which tends to be a problem with metal skins. “But it is just the outside of the aircraft that is changing in those more advanced systems,” he says, noting that a lot of their internal structures and landing gear are still metal.
Certain other military aircraft, such as tankers and cargo planes, are essentially converted commercial airliners and, therefore, have a similar material mix as commercial, including metal skins. But even though they are larger than stealth bombers and fighters such as the F-35, and therefore consume more metal, Gertler notes their procurement rates are lower.
Overall, the U.S. aerospace industry is recovering at a higher pace than had been anticipated given commercial aerospace’s rapid collapse due to the pandemic.
Aboulafia says the industry has never seen as steep of a downturn as it saw in 2020, noting the previous worst year-on-year downturn saw an approximate 3 percent drop. In 2020, largely due to the COVID outbreak, air travel fell by about 66 percent – an almost unfathomable decline. He says that was the first year that orders went negative, with more cancellations for jets than orders, with that weakness being almost exclusively for commercial aerospace. Himstead says production was cut in half in a matter of months during the first half of 2020 from its pre-COVID peak in 2019. That year, both Boeing and Airbus’ production rates were at record highs.
But TW Metals’ Moore says that is changing this year partly because of the pent-up demand from the past two years, noting that not only are airports packed and virtually every flight full, but the airlines are looking to purchase the most modern, fuel-efficient aircraft they can, especially considering current high fuel prices.
While overall the commercial aerospace market has come roaring back this year, both in terms of the number of people who are flying and orders for jetliners, Aboulafia admitted there are some variable factors influencing the types of planes that are being ordered and produced and the ability of the airframe OEMs to meet the increased demand.
John Mothersole, a director of S&P Global’s market intelligence unit, points out that while the commercial aerospace sector used to be split fairly evenly between Boeing and Airbus, recently Airbus has been gaining market share. Boeing experienced issues with its 737 MAX single-aisle plane, whose deliveries were delayed due to its recertification work after its two major accidents, and its 787 Dreamliner widebody plane, which had its production shut down by the FAA until August due to questions about manufacturing defects. Nevertheless, both Boeing and Airbus have plans to significantly increase their commercial aircraft production over the next couple of years.
At the same time there are regional differences in the recovery of air traffic, which help to explain why demand for new single-aisle planes, which are generally used for domestic flights, are so much stronger than that for twin-aisle planes. Bruce McClelland, a senior analyst with the Teal Group, points out that most of the recovery in passenger miles is currently for domestic U.S. and intra-Europe flights. There has been some positive movement on transatlantic flights, but transpacific traffic remains weak largely because of COVID-related restrictions in China, including some new lockdowns.
“The 737 MAX thankfully is back,” Aboulafia notes, “But Boeing is having a hard time building them because of the huge labor challenge of modifying the fleet that was already built due to the mandated design changes.” At this point, McClelland observes, Boeing is delivering more 737 MAXs than they are producing given that at the beginning of the year they had about 360 planes in inventory. But Mothersole notes that while they are currently only producing about 26 737s per month, Boeing’s guidance is to increase that to 47 per month by sometime in 2024. Meanwhile, Airbus’s single-aisle aircraft production is much higher, currently producing 48 A320 NEOs per month and looking to increase that to 65 per month by 2024.
Widebody production rates are much lower. Himstead notes that while the FAA OK’d production of its 787, Boeing is currently only producing one or two a month and will likely continue to produce at that rate until the 120 that are in inventory get sold. It is also only producing two to three 777Xs a month until that new widebody plane is certified by the FAA. Meanwhile, Airbus is only making about 5 to 6 A350s a month right now, down from 12 to 15 prior to the pandemic.
Overall widebody demand is currently about 50 percent down from its peak and, at least for the time being, is stuck there, Aboulafia says. He added that its recovery depends upon if flights to Asia pick up. “You can’t fly to Asia with a single-aisle plane,” he explains.
Falcon Aerospace’s Bashir says that as of the end of July, the number of seats for commercial aircraft deliveries were up 12.8 percent year to date with those for general aviation planes also strong – rising 16.8 percent year to date. McClelland says a total of about 1,200 commercial planes will be built this year and that number should grow to about 2,100 by 2031. Even though airlines parked several planes during the downturn, they are interested in buying new ones, especially with the increased fuel efficiency of new models. For example, he says, the A320 NEO is about 25 percent more fuel efficient than a 757, a plane that hasn’t been produced since 2004.
Certain factors, particularly the war in Ukraine and labor issues, have put a lot of pressure on the aerospace supply chain, not only affecting the airframe makers’ production rates but those at their parts and metals suppliers. Mothersole points out that given a backlog in jet engine production, several airframes are being produced without engines, therefore delaying their delivery. This, he says, has also been affecting airlines’ maintenance cycle, especially since the engine makers are prioritizing the deliveries of new engines to Boeing and Airbus vs. replacement spare parts and/or units for the airlines.
When it comes to the aerospace materials themselves, the biggest problem area has been the availability of titanium, which McClelland points out isn’t just used in the airframe but in engines as well due to its lightweight and heat-resistant qualities.
While most aircraft still tend to be largely made from aluminum, carbon fiber composites have been making some inroads, particularly in widebody and military planes. In fact, Mothersole notes that the airframes for the 787 and A350 and are approximately half composite, partly because of its light weight. He says it is somewhat uncertain whether composite demand will grow as quickly as some had previously predicted, given its production cost and carbon footprint.
When there are composite components in an aircraft, that also promotes greater use of titanium to connect them with the aircraft’s aluminum components, resulting in a step-up demand for titanium, Himstead says.
Ti tends to be a very cyclical market, largely trending with aerospace demand. Because of that, Mothersole says the titanium market had been going through a downcycle over the past several years, marked by very weak pricing, ample capacity and high inventories. “But that changed rapidly over the past six months after Russia invaded Ukraine,” he says, with several companies lessening their reliance upon VSMPO, Russia’s largest titanium producer. According to Himstead, VSMPO supplied 30 percent of Boeing’s and 50 percent of Airbus’ commercial aerospace titanium prior to the war.
Boeing, which had a joint venture with the company in Russia, has now effectively removed VSMPO as a titanium supplier. Airbus, given its greater dependence on the company, continues to buy from the Russians. Aboulafia says, both companies, as well as their part suppliers, are scrambling to line up alternative titanium sources – not just for sponge, but also for castings and forgings, which tend to have even longer lead times than sponge.
As far as titanium sponge, the other major sources are China, Japan and Kazakhstan, and Mothersole says that another issue is that Kazakhstan used to get most of its rutile ore from Ukraine and those shipments have all but dropped. “It is unknown if we can continue to get enough titanium sponge from anywhere in the world,” Himstead says.
Meanwhile, even though some aluminum comes from Russia and there have been production cuts at some smelters, Aboulafia says the availability of aerospace-grade aluminum remains adequate.
“Overall, I expect there to continue good upside potential for the aerospace sector and their metal suppliers over the next couple of years,” Moore says, noting that will especially be the case once twin-aisle plane production returns to historical levels, which he says is likely to occur by 2025.
Boeing, as with the aerospace market in general, hopes to put the past few years behind it. (Photo courtesy Boeing)