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Smaller aircrafts have supplanted twin-aisle planes as the travel option of choice in recent years. (Photo courtesy Falcon Aerospace/Embraer.)

Aerospace Metals Report

Soaring Aero Market Hits Some Turbulence

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The market for commercial aerospace and the metals used for aircraft remains strong, but some clouds could be developing going forward. The combination of the recent grounding of the Boeing 737 MAX, the softening of global economic conditions, escalation of trade issues and other geopolitical influences are leading to fears of a dampening effect on the otherwise high-flying sector.

Despite their huge backlogs – about 12,000 commercial aircraft, which could take the major airframe OEMs about seven to eight years to go through – there is a lot of nervousness throughout the commercial aerospace supply chain, says Richard Aboulafia, vice president of the Teal Group. 

“Commercial aerospace production output should be stronger than it is,” Aboulafia maintains. But with the temporary grounding of Boeing 737 MAX – one of the two most popular aircraft platforms – due to the Federal Aviation Administration investigation of two fatal crashes, compounded by certain other factors, including weaker demand for larger, twin-aisle aircraft, it looks as if commercial jet build rates could decline this year for the first time in over a decade. 
“Things aren’t as bad as they could be. This is not a bust cycle. This isn’t a disastrous output collapse,” he says, “But on the other hand, the industry has a lot to deal with.”

While the overall trend remains very positive with strong build rates, LCMA SA CEO Otis Claeys says the rate of increase, even once the 737 MAX is recertified, will likely start to flatten out over the next couple of years and could even start to decline as early as in 2021. 

One major reason for this will be slowing of global economic growth, says Claeys, whose company produces titanium. But he also fears the increased awareness of the environmental impact of flying could eventually have a negative impact. “Even though some of the newer aircraft are as much as 30 percent more fuel efficient than previous models, that isn’t enough,” Claeys maintains, saying there is a need to find ways to fly with less, or no fossil fuel. Harry Kiskadonn, vice president of global aerospace sales for Constellium NV observes there has already been some research into using electric, or hybrid, engines.

Passenger miles are still climbing, but no longer at the above-trend levels of the recent past. “It is now just coasting,” Aboulafia says, growing just 4-5 percent in 2019, following years of 6.5 and 7.6 percent growth. “It is a mystery what is causing this,” he says, noting it doesn’t appear connected to the economy. There have some broader issues with the retreat of globalization, regional concerns and tensions in the Middle East and Asia, but he’s not sure the retreat is anything more than a “short-term blip.”

Damien Mancini, vice president of global aerospace for A.M. Castle, Oak Brook, Ill., points out the build rates for some of the more robust commercial programs, such as the Airbus A320 and the Boeing 787, have been quite strong. This, along with certain changes and uncertainties in aerospace market, has actually driven demand and has resulted in greater capacity constraints for some of the suppliers to the industry. 

“Overall there have been good sustained build rates backed up by a continued increase in air traffic,” Kiskadonn declares. “There is continued demand for more fuel-efficient aircraft to replace aging fleets, which is what has been contributing to the large backlogs at both Boeing and Airbus.”

Commercial aircraft production has grown over the last several years, increasing 1.8 percent to 1,729 planes in 2017 and climbing 5.3 percent to 1,852 planes last year, with much of the demand coming from China and elsewhere in the Asia Pacific region, observes Timothy Kuder, senior industry analyst for Frost & Sullivan. It was previously anticipated 2,027 planes would be built this year, which would have been a 9.4 percent year-on-year increase. However, unless “something miraculous happens” between now and the end of the year, only 1,527 planes will be built in 2019 due to the grounding of the 737 MAX.

Aboulafia says the 737 accounts for an astonishing percentage of the world aircraft industry – about 15 percent, which is why its grounding is preoccupying the industry.

Though Boeing estimates the plane could be recertified and returned to service early in the fourth quarter, John Mothersole, director of research for IHS Markit’s pricing and purchasing service doesn’t believe that will happen before early next year. He says Boeing’s latest guidance indicates the company will produce about 47 737 MAX planes per month early next year and will step that rate up to about 50 planes per month by early in the second quarter and to 57 planes per month by late 2020. 

“While Boeing has a good roadmap, there is no way of knowing at this point just when it will ramp up production,” Aboulafia says. “There are so many risks involved in how the fix is being developed and how it will be accepted by international regulators,” he explains. Mothersole says this uncertainty could present a problem for suppliers because it appears that inventories are starting to stack up and that some companies, particularly Tier 1 suppliers, will have to consider adjusting production sometime soon.

The impact of this and other trends within the commercial aerospace market on materials and parts suppliers have been somewhat minimized through the airframe builders’ communication with their supply chain. “Overall they have done a wonderful job providing advanced – as much as five years in advance – production readiness assessments, which allows the entire supply chain, from the mills to distributors to fabricators to processors, to be well prepared well in advance of any changes,” says Bob Mraz, vice president of sales and marketing for TW Metals, points out.

Greg Himstead, vice president of sales, marketing and operations for Titanium Industries Inc., notes there could be a big risk for a supply bubble scenario if the 737 MAX’s recertification by the FAA and other international regulatory bodies is significantly delayed or denied. “That would stop or shock the supply chain,” he says. “But if that happens it will not likely have a negative impact until the first or second quarter of next year. In the meantime, everyone will continue to produce parts, structures and engines for the aircraft, expecting that the spigot will be opened up again.” 

Mraz says there has been a recent bit of a slowdown in metal orders. “But it really hasn’t been that much. I’m truthfully amazed that we haven’t seen a bigger decline. It has helped that Boeing has been very open, letting us know what they were going to do and when they believe that things are going to restart.” 

While the 737 MAX issues have taken a toll on Boeing, Jerry Bashir, president of Falcon Aerospace, maintains it has actually given the supply chain a breather, allowing companies to play catch up with their pending demands. Mraz agrees, noting it has helped mills to catch up with their deliveries and for distributors that have had become very lean to restock their inventories. 

This comes as aerospace metal lead times are generally very extended. Mark Zundel, executive vice president for global supply and aerospace for Castle says titanium lead times are out 48 to 56 weeks, while those for some aerospace aluminum products are also out 52 weeks or longer and are getting to the point where certain products could be placed on allocation next year. 

On the other hand, Constellium’s Kiskadonn says lead times for general aerospace-grade flat-rolled aluminum products are about 12 to 16 weeks. These products are typically sold on a contract basis, enabling the producers to feed the aluminum into a robust supply chain. 
As far as high-performance metals such as nickel-based superalloys and high-strength stainless steels, demand in commercial aircraft has been fairly steady, says David Kirchner, president of HPA Alloys. He notes that in some wear-resistant applications, use has been shifting from beryllium copper and cadmium to high-strength stainless steels, such as Nitronic 40, especially for pneumatic parts, to help keep the weight of the aircraft down. 

Also, Zundel notes that with jet engines becoming more and more complex and fuel efficient, they are using more harder to find, harder to manufacture metals, including nickel, titanium, superalloys and certain stainless steels. This, he says, has put additional constraints upon the lead times for these metals, adding this strain on the supply chain has made it more difficult for the engine manufacturers to keep up with the airframers.

Even with the tight supply for many products, Zundel says the mills are taking a measured approach to adding more production capacity given the cyclical nature of the aerospace market, adding that distributors are getting the support that they need from their suppliers to be sure that they can meet the needs of their customers. Claeys says this is especially the case for titanium, given the limited number of players.

There has also been a shift in the mix of aircraft. “While four or five years ago it was believed that twin-aisle planes would be taking over, that move really hasn’t manifested,” Zundel observes, saying proof of that is Airbus’ recent decision to exit from its A380 program. Meanwhile, he says such single-aisle planes as the 737 and the Airbus A320 are the workhorses, or the bread and butter of the airframe builders, and continue to ramp up.

There was a big run up in twin-aisle plane output in the first half of the decade, which created a bit of a hangover, Aboulafia says that the biggest reason there has been weakness in those planes is growing demand for single-aisle aircraft. “It is appearing the only good plane is a small plane,” he says, although that isn’t just single-aisle planes. “Some smaller twin-aisle planes, such as the Boeing 787 and the Airbus A350 XWB, are still doing well, but those are the only jets that are majority composite jets,” and therefore use less aluminum. However, partly due to its compatibility with composites, these aircraft are about 15 percent titanium. 

The recent increase in the popularity of single-aisle planes reflects a shift in the airlines’ strategic philosophy over the past few years. Mraz points out that about a decade ago the hub to hub to spoke flying strategy, in which passengers flew from hub airport to hub airport before transferring to a regional jet to go to their ultimate destination, was dominant.  

However, helped by the development of new, more fuel-efficient aircraft through both the use of lighter weight materials and new engine technologies, there has been a shift to a hub to spoke or even spoke to spoke flying pattern with no transfers, Mraz says. It is this development that is promoting the greater demand for smaller aircraft, particularly single aisle planes. 

Boeing has also been considering producing a middle-market plane to fill the gap between single- and twin-aisle aircraft, which, if produced, is expected to be called the 797. However, its introduction has been delayed by the airframe OEM’s 737 MAX woes. “We have no idea if it will ever be launched and, if it is, what it will look like,” Aboulafia says, adding while it is expected to have composite wings, it is uncertain if it will also have a composite body.

As far as the impact of the changes in the aircraft mix upon the metals used, Mraz estimates about 20 percent more titanium is used per commercial plane than had been historically. While much of that is for fasteners, he notes it is also used for several other applications, including floorboards.  

“Aerospace is the dog that wags the tail for titanium,” IHS Markit’s Mothersole says, noting that 65 to 70 percent of titanium shipments go into aerospace. He says titanium mill product shipments grew about 3.5 percent last year to 84.6 million pounds. Earlier this year they were expected to increase nearly 12 percent to 94-95 million pounds, but largely due to the impact of the grounding of the 737 MAX it is more likely mill shipments will only increase 2.8 percent to about 87 million pounds. “While there isn’t a lot of titanium contained in the MAX, the grounding will affect the number of planes Boeing plans to produce,” he explains.

This, he says, follows the recent inroads made by composites given the two materials share similar thermal and chemical properties. “When they are married together there are no joining or performance issues because of thermal expansion or contraction rates.”

Mancini points out that while the larger planes have lot of composite structures, the single-aisle planes, which are increasingly driving the industry, are very aluminum intensive. In fact, Aboulafia says the 737 MAX is the highest aluminum-content plane being built. Because of this, Himstead says even as composites and titanium take a bigger share of the pie, aluminum volumes continue to grow. 

This, Constellium’s Kiskadonn says, is because of the multi-material approach that the airframe builders have been taking when designing new aircraft, accounting for a number of factors, including weight, cost and manufacturability. He notes that one thing that aluminum producers have been doing to compete is to develop new metal grades, such as aluminum lithium. He says that given that aluminum lithium is a lower-density aluminum product, its use could result in up to 25 percent weight savings compared with a traditional structure.  

Kiskadonn admits aluminum lithium has gone through various fits and starts over the 40 years that it has been available, but he maintains that it has gone through an evolution recently and the new aluminum lithiums, including Constellium’s Airware family of products, are far more adaptable to the applications that the OEMs are seeking and are therefore getting a much warmer reception than they got in the past. 

Outside of aluminum lithium there have been some aluminum alloy innovations – modifications of existing alloys – aimed at certain specific applications, Mraz says. “They have proven machinability and weldability and formability characteristics, and they are incremental alloy derivatives that are now being offered to solve some very specific problems.” For example, in some models the top of the wing uses a different aluminum than the bottom of the wing because of the environmental conditions that each is exposed to. 

Another challenge for the commercial aerospace market has been trade issues, particularly tariffs. Himstead says the tariffs have had an inflationary effect upon the market that can’t last forever, especially with the airframe OEMs continually pushing their supply chain to be lower cost. Part of their business plan is based on expecting lower costs and having the supply chain more efficient and less expensive over time.  In fact, Castle Metals’ Mancini says this could be contributing to the trend of some parts suppliers moving some manufacturing out of the country to be near material producers in low-cost countries. 

“Currently much of the commercial aerospace supply chain is somewhat nervous,” Aboulafia says. This is highlighted by the fact that despite seven to eight years of backlogs, new orders have been “disastrous” – down about 80 percent. It is always possible the airlines could defer some of the orders they have placed. “But there is a good potential for a rebound. The market has been doing very well from an air travel standpoint relative to the economy for so long. 

Meanwhile from a metals point of view, Zundel believes that commercial aerospace demand will continue to be robust into 2020, barring any unforeseen circumstances. “But forecasting beyond that is a little dicey. A lot depends on what happens with the 737 MAX and the geopolitical environment.”