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Aerospace pie shifts toward titanium and composites over aluminum

2016-08-16 11:36:30

Farnborogh Airshow (FA) provides window into global aircraft raw material pie.

Voestalpine’s (VOES.VI, ?30.57, Hold, ?33/sh PT) presentation at FA provideddata on evolving aircraft materials use. Annual aircraft production is expectedto grow 4.8% (DBe CAGR) through 2020 boosting materials demand to ~740kt.

In 2015 the commercial aircraft industry consumed 707kt of various materialsat a cost of $12bn, implying $17,000/ton. Aluminum, currently at ~45% share,is expected to cede ~3pp to composites by 2020 as some exterior skins “goplastic” and structural components shed weight via lighter/strongeralternatives. Interestingly, 5/6th of material purchased is lost during productionvia milling/trimmings waste. Raw material demand may only increase 5% by2020 due to lower wide-body production and lighter next-generation aircraft.

Titanium, composites relative winners on shift to lighter and stronger materials.

Aluminum’s proportion of aircraft weight may decrease to 42% by 2020 (-0.7%CAGR) of total raw materials, while composites and titanium are projected torise to 9% and 12%, respectively, posting +6% and +4% CAGRs over the sameperiod. The underlying shift to titanium products should benefit Alcoafollowing acquisitions of RTI and Tital aimed at growing its exposure to thismetal. Alcoa generated $2.7bn of revenue (+8% YoY, 26% of total) in 1H16from aerospace sales. Similarly, Allegheny Technologies aerospace revenue in1Q16 was $0.3bn (-1% YoY, 44%) but should grow due to titanium supplycontracts on next-gen aircraft. Aluminum product suppliers, Constellium andKaiser had ?0.9bn (17% of total) and $0.6bn (42%), of aerospace revenue in2015 and are predominantly levered to growing aircraft production rates