Kevin Michaels, global managing director – aviation consulting & services at ICF International, presented at the 2nd Annual European Aerospace Raw Materials & Manufacturers Supply Chain Conference. The conference is designed to serve a full-range of participants in the dynamic global commercial and military aerospace markets.
In this presentation, Mr. Michaels addresses Aerospace demand outlook and supply chain trends in the market.
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Aerospace Supply Chain & Raw Material Outlook
1. 1icfi.com/aviation |
Presented by:
Dr. Kevin Michaels
Global Managing Director – Aviation Consulting & Services
Aerospace Supply Chain
& Raw Material Outlook
2nd Annual European Aerospace Raw Materials &
Manufacturers Supply Chain Conference
September 15, 2014
Toulouse, France
3. 3icfi.com/aviation |
Air
Transport
62%
BGA
13%
Military
11%
Military RW
11%
Civil RW
3%
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%
BGA
22%
Civil RW
21%
Military RW
15%
Military
9%
By Units
4,872
By Value
$171B
2014 Aircraft Production
by Market
4. 4icfi.com/aviation |
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 2014-2024
By 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 1.44B pounds
AEROSPACE DEMAND OUTLOOK
Source: ICF analysis
Aluminum
Alloys
48%
Steel
Alloys
22%
Titanium
Alloys
11%
Super
Alloys
9%
Other
6%
Composites
4%
2014 Aircraft Raw Material Demand
By Material Type (buy weight)
Total
1.55 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 Analysis
Boeing and Airbus aircraft
models comprise 67% of
demand
GE is the next largest
consumer – 7% when
including its share of CFM
Boeing
36%
Airbus
30%
General
Electric
5%
CFM Intl
4%
CFM
3%
Rolls-Royce
3%
Embraer
2%
Pratt &
Whitney
2%
Other
15%
Total
1.55 B lbs
2014 Aircraft Raw Material Demand
By 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 Value
By Material Type
Titanium
Alloys
27%
Aluminum
Alloys
26%
Composites
19%
Super Alloys
15%
Steel Alloys
10%
Other
3%
Total
$11.9B
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Over the next decade aluminum demand will remain solid
while composites & titanium will grow significantly
AEROSPACE DEMAND OUTLOOK
Source: ICF analysis
2014– 2023 Aerospace Raw Material Demand
By 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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There are several important aerospace trends that are
shaping aerospace supply chains
Growing capital
market interest
Key
Aerospace
Supply
Chain
Trends
SUPPLY CHAIN TRENDS
Source: ICF
“Right Shoring”
Advanced
Aeroengines
Additive
Manufacturing
Supply Chain
Transparency
& Control
OEM Vertical
Integration
OEMs Push
For Cost
Reduction
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0%
10%
20%
30%
40%
50%
60%
70%
80%
2009-11 2012-14
Move Between High Cost Countries
Reshore
Move Between Low Cost Countries
Offshore
SUPPLY CHAIN TRENDS – RIGHTSHORING
Shifting manufacturing economics underpin increased
interest in manufacturing “onshoring”
Source: The Economist January 19 2013
Note: data is for general manufacturing and is not aerospace-specific
Manufacturing Outsourcing Cost Index
% of US Cost
Companies’ Intentions To Change
Manufacturing Source
Worldwide, % of Capacity
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The southeast U.S. and Singapore are now two popular
locations for aerospace manufacturing investments
SUPPLY CHAIN TRENDS – RIGHTSHORING
• The southeast U.S. is benefitting
from a wide variety of
investments
• Manufacturing & some
engineering investments from
airframe & engine OEMs, as well
as airframe suppliers
• Singapore is becoming a new
manufacturing hub in
Southeast Asia
• Investments include range of
high-tech manufacturing,
MRO, and engineering
Southeast U.S. Singapore
Source: ICF
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SUPPLY CHAIN TRENDS – RIGHTSHORING
“Rightshoring” is the new aerospace investment mantra
Source: ICF
* Note – Russia is emerging for Western certificated equipment
Global Aerospace Manufacturing Clusters
Established Clusters
Emerging Clusters
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SUPPLY CHAIN TRENDS – COST REDUCTION
Initiative Activity
New
commercial
terms
• Unilateral price reductions and revised
terms
• “No fly” lists for suppliers that don’t
participate
Part
redesigns
• Value engineering
• Material substitution
New
processes
• Shift to lower cost process
• Leverage new processes
Capture
revert
• 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 moving
forward 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 - ADVANCED AEROENGINES
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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Some OEMs are trending towards greater vertical
integration; Boeing is a notable example
SUPPLY CHAIN TRENDS – VERTICAL INTEGRATION
Selected Examples of Boeing Vertical Integration
Source: ICF analysis
Boeing has set up the nacelle and
pylon Center of Excellence in
South Carolina
The 777X wing production will
remain in Everett
Facility expansions in Winnipeg,
South Carolina, and Helena, MT
will support machining and in-
house production of structures
assemblies
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GE is also vertically integrating for strategic technologies
SUPPLY CHAIN TRENDS – VERTICAL INTEGRATION
Acquired Avio
• LPTs
• Gearboxes
Acquired Morris
Technologies for
additive manufacturing
capability
Will make
ceramic matrix
composite
blades, vanes,
seals
Established JV with
Parker to make fuel
nozzles via additive
manufacturing
Selected Examples of Vertical Integration - GEnx
CFAN JV with
SAFRAN makes
composite fan
blades
Source: ICF analysis
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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
VSMPO
30%
ATI
23%
Timet
22%
RTI
10%
Japanese
Suppliers
10%
Others
5%
Total
169M 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
26. 26icfi.com/aviation |
Thanks and Questions
Kevin Michaels
Vice President
Global Managing Director – Aviation Consulting & Services
+1 734 821 0220
kmichaels@icfi.com
27. 27icfi.com/aviation |
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Notas do Editor
The result, outside of aerospace, has been increased interest in onshoring.
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Companies are also:
Re-orienting offshore facilities to support local demand
Shifting to still lower cost countries