ATI sees boost for titanium in an age of composites

Farnborough Air Show » 2008
July 3, 2008, 4:33 AM

Allegheny Technologies (ATI) is exhibiting at a Farnborough Air Show for the first time as ATI Aerospace–a new “market sector team” charged with answering record demand for titanium and super alloys from the aerospace and defense industry.

“We believe we have an unprecedented opportunity in the aerospace business,” ATI chairman, president and CEO Pat Hassey said during a media briefing at the company’s Monroe, North Carolina offices in the run-up to the show. “I think the open schedule for single-aisle [airplanes] today is 2016 to 2018, unless you can squeeze one in. We know that the next-generation aircraft are game-changers, described as from canvas to wood to aluminum to composites. But what people don’t say is you don’t have composites unless
you have titanium.”

The Pittsburgh, Pennsylvania-based group’s new market-sector approach comes as it readies a major expansion of its titanium and nickel-based super alloy production capability and titanium melting furnaces in North Carolina, expansion of titanium sponge capacity in Oregon and the addition of specialty and titanium plate capacity in Pennsylvania. The first quarter alone saw ATI (Hall 3 Stand A9) ship 24 percent more titanium than it did during the same period last year–thanks largely to growth in its aerospace business. Judging by the pace and scope of its expansion, the company doesn’t see that trend reversing any time soon.

Now ATI’s biggest revenue producer, aerospace and defense accounted for 31 percent of its sales last year. “I would describe what is happening in the aerospace business today as almost a renaissance for materials, for specialty metals, that takes the technology and the kind of equipment we have in this company to make,” said Hassey. He sees a surge in titanium production for ATI beginning late 2010 or early 2011–roughly a year to 18 months prior to the Boeing 787’s planned production ramp-up.

Historically, ATI’s titanium has appeared mainly in jet engines, in parts such as disks, rotors, blades, gears, casings, compressors, rings, combustors and liners. Still one of ATI’s most important sources of income, the supply of titanium for jet engines helps even the ups and downs of the business because of the continuous need
for spare parts, which account for some 45 to 50 percent of the market. “A 25-percent drop in build rates would mean a 12-percent drop in our engine business,” said Hassey.

According to Hassey, ATI’s foundation in the engine business will help it exploit opportunities in the broader aerospace market because the same technology and expertise needed to make engine parts transfer easily to the airframe.

In the case of the A380, titanium will account for 150,000 pounds of the weight of each airframe. “If you look at the size of the airplane, the A380 is [equal to] 10 A320s,” said Hassey. “So if somebody says I’m going to make 30 A380s this year, you can add the equivalent of 300 single aisles for metallics producers. With twin aisles selling like they are, it’s a big deal.”  

An even bigger deal for titanium makers promises to come in the form of the “composite” 787, whose airframe alone actually uses 250,000 pounds of titanium, said Hassey; its engines use another 56,000 pounds. Titanium accounts for 15 percent of the weight of the airplane, while specialty alloys–primarily steel–account for another 10 percent. Hassey expects those proportions to grow as the 787 design matures.

“Airplanes gain weight over their lives, like humans,” he said. “If somebody wants different seats on the plane, if somebody wants new avionics, if somebody wants to carry a different kind of cargo…the plane is always changing and the history has been over the lifetime of the aircraft it gains weight each year. Now if you want to take weight out of the airframe, what do you do? You add more titanium.”

Of course, ATI hopes the industry’s OEMs more often choose to use its titanium over that of its competition–primarily Russia’s VSMPO-AVISMA. Hassey cited such attributes as high-quality product, on-time delivery and the company’s ability to develop new alloys in his sales pitch. But he also believes that the perceived geopolitical security of a U.S.-based company counts for something in the eyes of western OEM clients.

“If 40-percent of the supply of titanium is coming out of Russia, and you add to that the supply out of Kazakhstan, that’s maybe half the world’s supply coming out of, let’s call them, tenuous areas of the world. So, if you bet $12 billion on an airplane, would you like to have a supplier that has unsurpassed technology and unsurpassed equipment and that’s based in the U.S.?” Hassey asked rhetorically.

Despite implying that titanium supplies from countries like Russia are more vulnerable to geopolitical insecurity, ATI has, in fact, benefited greatly from the global nature of the business it inhabits. It operates offices and manufacturing sites around the world, including a joint venture in China with Shanghai STAL Precision Stainless Steel. The company saw an 11-percent increase in direct international sales during the first quarter of this year.

“We derived 28 percent of our sales dollars in the first quarter from direct international sales,” said Hassey. “We believe that more than 50 percent of our sales are driven by demand from non-U.S. markets.” ATI continues to benefit from global infrastructure growth, a diverse product mix, the weak U.S. dollar and a strategy of several key customers to buy more products in U.S. currency.

Although ATI’s first-quarter 2008 financials showed a slight decline in profits from the same period in 2007, orders from its Asian markets “significantly” exceeded last year’s record rate. The company cited delays to Boeing’s new 787 airliner, increases in raw materials–primarily nickel and nickel-based alloys–and the slump in the U.S. economy as some aggravating factors that led to a somewhat disappointing quarter.

Generally, however, ATI sees selling prices remaining flat or rising, volumes continuing to improve and raw material indices/surcharges coming into better balance. As a result, it said, “We believe the first quarter 2008 earnings represent the bottom.”  

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