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Presented by:
Peter C. ZimmPrincipal
Aerospace Supply Chain & Raw Material Outlook
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Agenda
Aerospace Demand Outlook
Aerospace Supply Chain Trends
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Air Transport
62%
BGA13%
Military11%
Military RW11%
Civil RW3%
AEROSPACE DEMAND OUTLOOK
Total aircraft production in 2014 is 4,972 units; air transport aircraft account for 62% of value
Source: ICF analysis
Air Transport
33%
BGA22%
Civil RW21%
Military RW15%
Military9%
By Units4,972
By Value$171B
2014 Aircraft Production By Market
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AEROSPACE DEMAND OUTLOOK
Annual production value is expected to reach more than $200B, with unit production eclipsing 6,000 aircraft by 2024
Source: ICF analysis* Constant 2014 US$
Aircraft Production 2014-2024By Market Segment
# Aircraft
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2014 2019 2024
Military,(0.9%)
Military RW,0.4%
Civil RW, 0.7%
BGA, 4.9%
Air Transport,2.7%
Total CAGR = 2.2%
Type, CAGR $B USD*
$0
$50
$100
$150
$200
$250
2014 2019 2024
Civil RW, 1.2%
Military RW,0.7%
Military, 0.3%
BGA, 4.8%
Air Transport,2.4%
Total CAGR = 2.3%
Type, CAGR
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Aggregate aerospace raw material demand is 1.55B poundsAEROSPACE DEMAND OUTLOOK
Source: ICF analysis
Aluminum Alloys48%
Steel Alloys22%
Titanium Alloys11%
Super Alloys
9%
Other6%
Composites4%
2014 Aircraft Raw Material DemandBy Material Type (buy weight)
Total1.55 B lbs
Aluminum alloys are nearly half of all total demand
Steel alloys & titanium also are large driver of demand due to their high buy to fly ratios
Composites are relatively small part of total demand at just 4% due to their lightness of weight and their relatively low buy to fly ratio
Aggregate “Buy to fly” ratio is ~ 6
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Boeing and Airbus aircraft account for nearly 70% of raw material demand
AEROSPACE DEMAND OUTLOOK
Source: ICF AnalysisSource: ICF Analysis
Boeing and Airbus aircraft models comprise 67% of demand
GE is the next largest consumer – 7% when including its share of CFM
Boeing36%
Airbus30%
General Electric
5%
Bombardier4%
CFM3%
Rolls-Royce 3%
Embraer2%
Pratt & Whitney
2%
Other15%
Total1.55 B lbs
2014 Aircraft Raw Material DemandBy OEM (buy weight)
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AEROSPACE DEMAND OUTLOOK
The total aerospace raw material market is worth about $12 billion
Aluminum and titanium are the largest material markets by value – both are worth just over $3B
With 787 production ramping up, and A350 long-lead items under production, composites are the third largest category at $2.3B
The value of superalloys is $1.8B, driven by aero-engine production
Source: ICF analysis
2014 Aircraft Raw Material ValueBy Material Type
Titanium Alloys27%
Aluminum Alloys26%
Composites19%
Super Alloys15%
Steel Alloys10%
Other3%
Total$11.9B
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Over the next decade, composites and titanium will grow significantly while aluminum demand will remain solid
AEROSPACE DEMAND OUTLOOK
Source: ICF analysis
2014– 2023 Aerospace Raw Material DemandBy Material (buy weight)
Million Lbs
Total CAGR = 1.1%
Type, CAGR Overall raw material demand
growth will be lower than aircraft unit growth due to lower buy-to-fly ratios and greater use of composites
Composites and titanium will be the fastest growing material categories
Aluminum demand will be relatively flat0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2014 2019 2024
Other, 1.0%
Composites, 4.9%
Super Alloys, 1.2%
Titanium Alloys, 3.6%
Steel Alloys, 0.1%
Aluminum Alloys, (0.5%)
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Aerospace Demand Outlook
Aerospace Supply Chain Trends
Agenda
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There are several important aerospace trends that are shaping aerospace supply chains
Growing capital market interest
KeyAerospace
SupplyChainTrends
SUPPLY CHAIN TRENDS
Source: ICF
“Right Shoring”
AdvancedAeroengines
AdditiveManufacturing
Supply ChainTransparency
& Control
OEM VerticalIntegration
OEMs PushFor Cost
Reduction
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SUPPLY CHAIN TRENDS – COST REDUCTION
Initiative Activity
New commercialterms
• Unilateral price reductions and revised terms
• “No fly” lists for suppliers that don’t participate
Partredesigns
• Value engineering• Material substitution
New processes
• Shift to lower cost process• Leverage new processes
Capturerevert
• Where possible, capture revert from suppliers
• Work with supply chain integrators to close loop on material
OEMs are utilizing a variety of cost reduction initiatives…
Source: ICF analysis
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SUPPLY CHAIN TRENDS – COST REDUCTION
…and cost reduction will be important as aircraft OEMs target double-digit profitability
Major aircraft OEMs are driving for double-digit profitability
One initiative is to secure concessions from suppliers to ensure access to future programs
OEMs are also expanding their influence and role in the aftermarket
The implication is downward margin pressure on suppliers
Source: ICF analysis, Wall Street Journal
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SUPPLY CHAIN TRENDS – ADVANCED AEROENGINES
The push to deploy advanced technology underpins recent re-engining decisions – more are likely
“G2” E-jet
Photo credits: Embraer, Boeing, Airbus
In January 2013 Embraer selected Pratt’s GTF for is “G2” E-Jets
Boeing announced the B777-X with GE9X aeroengines in November 2013
Airbus announced the A330neo with the Trent 7000 at Farnborough 2014 for 2018EIS
A future re-engining possibility includes the A380
777-X
A330 neo
“Every 25 years a big moonshot ...— that’s the wrong way to pursue this business. The more-for-less world will not let you pursue moonshots.”
Jim McNerny – CEO, Boeing
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…however aeroengine material trends are encroaching on titanium’s “sweet spot” in aeroengines
Source: CFM, ICF analysis
CFM LEAP-X
SUPPLY CHAIN TRENDS - ADVANCED AEROENGINES
Nickel alloy movingforward in the High Pressure Compressor module
Composite fan and fan cases increasingly popular
Titanium’s “sweet spot” in aeroengines
Composites
Powder Metals
Advanced super alloys
Titanium Aluminide
Winning Materials
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Supply chain transparency and control is growing in importance
SUPPLY CHAIN TRENDS - SUPPLY CHAIN TRANSPARENCY AND CONTROL
Customers (driven by OEMs) demanding increased visibility into supply chain
This contributes to the use of latest technology (physical control centers and software) for 'early alerts'
There is also growing use of data analytics
Sub-tier suppliers are being asked to provide utilization and ramp-up plans
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Additive manufacturing represents a potential step-change in cost and part design capability
SUPPLY CHAIN TRENDS – ADDITIVE MANUFACTURING
Sources: ICF analysis
• Additive manufacturing (AM) “builds up” parts with material deposition, rather than removing material through machining
• There are many types of additive manufacturing processes and little industry standardization
Traditional Subtractive Manufacturing Additive Manufacturing
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SUPPLY CHAIN TRENDS – ADDITIVE MANUFACTURING
Several OEMs are trialing additive manufacturing on a range of production and aftermarket parts
Source: ICF analysis, GKN, GE Aviation, Airbus, Boeing
Examples of Additive Manufacturing Adoption
• GKN is using AM on aerostructures for Falcon 5X
• Driver is cost reduction
• Boeing is currently using AM for polymer ducting on F-18 & 787
• Part consolidation & cost driver
• GE using AM for Leap-X fuel nozzles in Parker Aerospace JV
• Performance is main driver of adoption
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SUPPLY CHAIN TRENDS – ADDITIVE MANUFACTURING
In addition to adoption on certain parts, OEMs and suppliers are announcing substantial investments in AM
Source: RTI, GE, Carpenter Technology, ICF analysis
RTI Acquires Directed Manufacturing
Jan 2014▪ RTI acquired Direct Manufacturing for $23M to enhance production capabilities in medical devices and aerospace
▪ Makes full rate production parts for UAVs
GE Expands Auburn AL
▪ GE will expand Auburn facility starting in late 2014
▪ 10 machines in 2015 with capability for 50
▪ Will handle full rate production of all AM parts, including Leap fuel nozzles
Announced July 2014
Carpenter Powder Facility in Athens, AL
▪ Facility will be located adjacent to current mill facility in Athens
▪ Will produce superalloy powders for isothermal forging and additive manufacturing
Announced Oct 2013
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SUPPLY CHAIN TRENDS - ADDITIVE MANUFACTURING
A long term trend to watch is the penetration of additive manufacturing and its impact on buy-to-fly ratios
Ti Wing Beam Concept(China Northwest Polytechnical Univ.
Sources: RapidReady, China Northwest Polytechnical University
The industry aggregate buy-to-fly ratio based on subtractive manufacturing is ~6:1; for some parts it is >15:1
In contrast, the buy to fly ratio for additive manufacturing is very low
Early application of AM will be in unmanned systems, experimental aircraft, space, and military sustainment
In the long term, AM will impact mainstream aerospace production and raw material demand
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WILDCARD – TITANIUM SUPPLY RESTRICTIONS
A Wildcard to watch: political crises with Russia and Ukraine could drastically impact aerospace supply chains
Source: ICF analysis, Wall Street Journal
VSMPO30%
ATI23%
Timet22%
RTI10%
Japanese Suppliers
10%
Others5%
Total169M lbs
Over 30% of aerospace titanium is supplied by VSMPO
Ukraine is a key supplier of nearly all titanium concentrates to VSMPO
Some OEMs are stockpiling titanium as a contingency
2014 Aerospace Titanium Market
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Thanks and Questions
Peter C. ZImmPrincipalAerospace & MRO+1 347 843 [email protected]
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