In the aerospace market, demand for materials will increase but the threat of substitution remains a concern

November 2013 - Inevitably, the rise in fuel prices sparks the discussion that air travel will once again become affordable only to the upper class. However, it’s the emerging middle class in markets like China and India that is driving global growth in commercial air transportation. 

ICF SH&E, an aviation and aerospace consultancy, projects 3.9 percent air travel growth during the next decade. Kevin Michaels, vice president, presented “Aerospace Industry Trends: Implications for the Titanium Industry,” at Titanium 2013, Oct. 6-9 in Las Vegas. 

There, Michaels noted that air travel demand growth from 2012 through 2022 would be driven by the Asia Pacific region—now the largest market for air travel. In addition, he predicted solid growth in Africa, the Middle East and South America and slow growth in Europe and North America.

“Customer demand for business and leisure travel is exploding, particularly in the Asia Pacific and Middle East regions,” says Tom Captain, vice chairman and U.S. Aerospace & Defense Leader for Deloitte LLP. “Travel demand, as measured by revenue passenger kilometers has increased 400 percent in the last 30 years. Also, the demand by airlines to take advantage of technology advances is driving an unprecedented boom in orders for next-generation fuel-efficient aircraft. For the last three years, the industry continued to break aircraft production records, which has doubled in the last 20 years.”

Captain says the global growth will lead to production of more than 30,000 new commercial aircraft over the next 20 years, and numbers from The Boeing Co., Chicago, agree. During the next 20 years, the company forecasts a $4.8 trillion market for more than 35,000 new commercial aircraft.

High demand brings good results

Although the long-term outlook is positive, companies who provide materials to the industry currently are noting a bit of a surplus inventory, which is contributing to stagnant demand.

Jack Hockema, Kaiser Aluminum’s president, CEO and chairman noted in the Foothill Ranch, Calif.-based company’s financial results for the third-quarter and first nine months of 2014 that “the aerospace inventory overhang for products other than plate continues to dampen demand.”

However, Hockema said, “Our long-term value proposition remains intact as we anticipate growth in our overall value-added revenue and adjusted EBITDA margin driven by strong demand for aerospace and automotive applications. Our focus on organic investments in capacity, quality and enhanced operating efficiencies will continue to serve us well and will allow us to capture additional opportunities for profitable growth in these end-market applications.”

Constellium, Paris, a designer and manufacturer of aluminum products and components, also reported strong results for the second quarter of 2013 in its aerospace and transportation business unit. 

The company’s adjusted EBITDA for the six months ending June 30, 2013 was 157 million euros, which was an increase of 9 percent over the same period in 2012. “These better results were driven by an improved product mix, particularly favoring the aerospace sector, where record sales and production levels were achieved and by the company’s focus on cost control and productivity improvements,” according to the company’s statement in the results.

Aluminum producer Alcoa also is banking on aerospace market growth. The company estimates the market will grow between 9 percent and 10 percent in 2013 and, as a result, in late October, it announced that it will form a joint venture with Russia’s VSMPO-AVISMA Corp. to develop high-end titanium and aluminum products for aerospace applications. 

Next-generation technologies and materials

The 2013 outlook for the global aerospace and defense industry from Deloitte Touche Tohmatsu Ltd. forecasts “game-changing technology innovations to continue to be created within the global A&D industry into the future. … For commercial applications, interesting technologies are being experimented with that can harvest solar power from space-based solar arrays, converted to microwaves or high-voltage wireless signals, to ground, air and sea-based distribution networks.”

These types of innovations, along with careful business management, has helped the industry cope with ongoing uncertainty in the global economy.

The FAA’s Aerospace Forecast for fiscal years 2013-2033 notes air carriers have had to cope with “several major shocks that have led to reduced demand for air travel,” including the terror attacks on Sept. 11, skyrocketing fuel prices, debt restructuring in Europe and the United States, and a global recession. To manage this volatility, carriers have fine-tuned their business models with the aim of minimizing financial losses by lowering operating costs; eliminating unprofitable routes; and grounding older, less fuel-efficient aircraft, according to the FAA.

Total aerospace raw material consumption has reached 1.2 billion pounds per year with air transport aircraft consuming 77 percent and military aircraft 9 percent. The metal products used in aircraft, such as aluminum, titanium, super 

duplex stainless steels, aluminum lithium and super high-strength steels, face competition from each other as well as nonmetal materials.

However, metals still make up a large part of an aircraft. According to the Aluminum Association, Arlington, Va., the airframe of a typical modern commercial transport aircraft is 80 percent aluminum by weight. And the use of titanium continues to grow. Boeing’s 777 only consisted of 5 percent titanium by weight, but the Dreamliner 787 consists of 15 percent titanium by weight.

Michaels pointed out in his presentation that total aerospace material demand in buy weight is 1.44 billion pounds, led by the air transport sector. He noted aluminum alloys, including aluminum lithium, represent 49 percent of demand and steel alloys are the next largest material category.

Aerospace titanium demand for 2013 is projected to be 145 million pounds, Michaels said, noting that this is a “notable” increase over the 2012 figure. He pointed out that air transport aircraft comprise more than 70 percent of titanium demand and airframe production accounts for 66 percent of titanium demand. “The 787 now accounts for one-quarter of air transport airframe titanium demand, and the four next-largest programs are the 737NG, 777, A380 and A320. ... Titanium demand will grow at 4.6 percent through 2023, led by airframe production.”

“Fuel as a percent of total airline operating costs has jumped from 15 percent to 40 percent or 50 percent, thus the attention and innovation on introduction of lightweight materials into aero-structures manufacturing,” Captain says. “Carbon fiber composites get a lot of the attention, but alloys and exotic metals that have the strength, lightness and durability are also part of the story. Metals companies have a great opportunity to continue innovation in the development of these materials to help airlines reduce their fuel and maintenance costs.”

He says in the short-term “single-aisle aircraft are likely to stay with aluminum and titanium, while twin-aisle aircraft will shift to carbon fiber composites over time due to weight savings. As the price for carbon fiber composites comes down over time, there is a threat to metals that single-aisle aircraft would find the economic breakeven more attractive. However, there is the disruptive innovation opportunity for metals to change the rules of the game with monocoque construction, rivetless fastening, 3-D printing and metals forming.” MM