Trusting aluminium in aerospace: with commercial aircraft orders once again creeping up and...

Aluminium will be the obvious benefactor of this activity as somewhere between 80 to 90% of the average commercial aircraft is made from this lightweight metal and the bulk of military planes, albeit a smaller percentage of the whole, are also comprised of aluminium.

However, Lloyd

O'Carroll, vice president and chief economist for Scott & Stringfellow Inc., Richmond, Va., noted, on a tonnage basis aerospace is a quite small market for aluminium. US consumption is only about 567 million lb of the metal for aircraft and 16 million lb for missiles and space vehicles last year. 'But it is still an important market, involving a higher technology product costing $15 to $20/lb vs. common alloy at about $1/lb,' he stated.

A spokesman for the Washington-based Aluminum Association agreed that while aerospace accounts for only about 6.3% of transportation and that transportation only accounts for 32.5% of aluminium usage, it is a highly visible sector for the metal. Aluminum has been the metal of choice for commercial and private airplanes since the 1920s.

'While there has been some talk about substitution, some experiments in non-aluminium materials have been tragic,' Robin G. Adams, president of Resource Strategies Ltd., Exton, Pa., stated, adding, 'Aluminium is very strong, very light, and in aircraft, weight is critical.'

As substitution is not seen as having any kind of major impact on aerospace aluminium consumption in North America, many industry observers are rather focusing their attention on aircraft build rates. Based on this, Mark A. Romero, procurement manager for the Boeing Commercial Airplane Group of Boeing Co. in Seattle, declared that demand for aluminium in aerospace will probably increase this year and for the next few years, citing new sales of both Boeing's 737s and 757s.

In general, Adams noted that commercial plane build rates have been on an upward swing ever since they emerged from a deep recession about three or four years ago. 'The economics of airlines have improved. About 650 million people travel every year in the United States. This has caused a tremendous increase of aircraft on order.'

This has been true, at least through 1999, David Napier, manager of the aerospace research center for the Aerospace Industries Association of America in Washington said, noting that last year Boeing built 620 planes, which was a record. However, they announced last year that they planned to ship only 480 aircraft this year--a 25% reduction--and that their build rates would be about level in 2001 and 2002 before rising again in 2003.

This move, Napier continued, has already started to impact some suppliers of aluminium and other aerospace metals as they are usually ordered a year or more before aircraft come off the production line.

Robert Mraz, vice president of sales and marketing for TW Metals Inc., an Exton, Pa.-based metals service center, agreed that with build rates 'steadily declining from the peak, demand for aluminum has been declining with it.'

But many people believe things have bottomed out. The dip in build rates and aerospace metal consumption had been attributed to a combination of cancellations of aircraft orders during the depth of the Asian crisis and a build-up of inventory at the producer level, particularly at Boeing.

In fact, Marc Czachorski, senior vice president of sales and marketing for McCook Metal Group, Chicago, said aerospace aluminium orders are already starting to pick up. 'Demand for aerospace plate is up about 15% this year,' as last year's inventory build-up has been largely worked down and now 'everyone is getting back to a more normal ordering pattern.' He noted that on an average in the United States 200 million lb of aluminium plate is used for such parts as wings, bulkheads and landing gears.

Heat-treated aluminium sheet is also showing improvement, Bill Sales, vice president of nonferrous operations at Reliance Steel and Aluminum Co., Los Angeles said, although not quite as good a rate of growth as heat-treated plate. And things could only get better, Sales said. 'There have been increased orders by both Boeing and Airbus ... While things are not booming, levels are very good.'

The long-range outlook, Czachorski noted, is tied to the build rate. 'It is expected to turn up in 2002 and be relatively strong for the next 10 years. There is strong demand for airline traffic as the world gets smaller and people are travelling more and more. Also with companies going global, business travel will be up. Asia and South America will be hot areas for airline demand in the next 10 years.'

He added that, in response, airlines are growing their fleets. In fact, these fleets are expected to double in the next 20 years or so. Also, cargo plane demand is growing at double-digit rates as people ship more goods and demand for regional jets is booming as well, at least in the United States.

Napier noted that a push by major airlines' pilot unions for full employment has resulted in airlines ordering more small jets, which work well with their feeder lines and are faster than propeller planes. 'The airlines are buying these planes by the dozens. The idea is that if they fly a big plane, they fly it largely empty. But with the smaller planes, they are filled much more.'

Even the market for military aircraft looks promising, Napier said. After falling off dramatically at the end of the Cold War, defence spending seems to be picking up somewhat with the recognition that equipment is getting older and there is a need for replacement. 'Orders look good for transports like the C-17, which are just about all aluminium,' Czachorski said, adding that everyone is waiting for a decision on the Joint Strike Fighter, which, if approved, will be one of the largest military jet programs ever. Also, the F-22 is expected to go into production by the middle of this decade.

And even on the shorter term, things are not as bad for the commercial sector as they seemed, at least to some, a year or so ago, with Boeing now upping its 2000 build rate to 490 planes--up 10 planes. And while the company has not made a formal announcement yet about 2001 build rates, there is belief that they will be up slightly. This is largely because of orders for its next generation 737s. Through mid-July, a total of 244 of the 737s were ordered this year. 'Boeing's activity should be up sharply, as well as Airbus',' O'Carroll declared. 'With it business has been picking up for aluminium usage and other materials as well ... We should be seeing volumes up 15 to 20% this year and more than that next year.'

There is, however, some concern by aluminium service centres about how much of that increase they will be enjoying, especially with Boeing's new buying practices, which the company announced just about two years ago. In what had been dubbed the Millennium Contract, Boeing announced in July 1998, that it would be using just one metals service center--the TMX Aerospace Division of Thyssen Inc.--to keep track of the metals requirements of all of Boeing's plants and subcontractors and to warehouse and process much of the aluminium that is destined for its planes. They also reduced the number of mill suppliers of aluminium.

'This strategy has been successful beyond our wildest dreams,' Romero declared, stating that it has stabilised demand, brought greater visibility to the mills and helped Boeing to manage prices better. 'It has greatly increased communication between Boeing and people making parts for Boeing. It has also increased communication within Boeing regarding demand and the best way to meet that demand.'

This however, Mraz at TW Metals declared, could have a negative effect on distributors other than Thyssen as they are forced out of the loop. 'But we have been able to increase our share through recent acquisitions and by supplying more value-added products. It is an area of growth for other distributors and us. It has been the strategy of major airframe builders to offload work to subcontractors.' He said TW has also been getting a great deal of maintenance, repair and overhaul business. 'With the great number of planes that are built and delivered, the demand for aluminium in MRO increases every day.'

As far as aluminium's dominance in the aerospace market, Romero said, 'I don't see anything on the horizon to knock aluminium out of its place as the primary material for commercial aircraft. Aluminium is a very stable product. We understand what aluminium does. We have a history with it. We can trust it.'