Titanium, named after the Titan deities of Greek mythology, works well for aircraft production because of its high strength to low weight ratio as well as its resistance to corrosion. About half of its global demand is driven by the aerospace industry. The metal is the ninth-most-abundant element in the Earth's crust, so there's plenty of it to go around, but the processes of extraction, reduction, melting and fabrication are not easy. The tools and technologies required to fashion titanium into high-performance aircraft parts are sophisticated, proprietary and expensive.
"You're dealing with what we call mission-critical metallics," explains Dan Greenfield, director-investor relations at Allegheny Technologies Inc., a specialty metals company based in Pittsburgh. "So there really is no margin for error. It's very difficult, and there aren't too many companies who can do it. The barriers to entry are immense."
Ambitions to build lighter aircraft and reduce fuel burn have encouraged the development and application of carbon fiber composites, which are highly compatible with titanium. Half of the 787 airframe is made of composite materials, 15% is titanium and 25% aluminum alloys, while the design of the A350 calls for 53% composite materials, 14% titanium and 19% aluminum.
"Composites and titanium go together," says AeroStrategy Principal Kevin Michaels. "So the shift to a high-composite aircraft has helped titanium, not hurt it. Titanium has long been part of the aero engine, but you're seeing it in new areas like landing gear and floor beams, where it wasn't used before."
Although nickel is a critical metal for the jet engine, the aerospace industry accounts for only about 2% of its total usage98% of its application is for other industries. The metal often is combined with cobalt and chromium to create a heat-resistant alloy capable of performing efficiently at high temperatures and rotational speeds. "There was a lot of concern about capacity levels of nickel alloy mills, and prices skyrocketed about a year ago," Michaels says. As nickel is a key input to stainless steel, the construction boom in China factored significantly into boosting demand and shrinking stockpiles.
Thanks largely to the A380 and 787 programs, titanium demand escalated between 2003 and 2006, driving up spot prices from $7 per kg. to more than $28. Program production delays, however, have helped ease prices back down in recent years. "The delays put a lot of breathing room in the supply chain," explains Michaels. "Right now there's plenty of supply out there and more capacity coming online, so concerns about lead times and deliveries have ebbed. Titanium prices have really fallen, and if you look at the stock prices of titanium companies, so have they. More than anything, it's a consequence of the production rate slipping on these aircraft."
By 2011, global demand for titanium mill products is projected to reach 350 million lb. To bolster its supply abilities, ATI is investing more than $900 million to increase production capacity and enhance melting, fabricating and finishing capabilities. "We're expanding our titanium sponge facility in Albany, Oregon," says Greenfield. "We're also building a premium titanium sponge site in Rowley, Utah, directed primarily at jet engines and that will be ramped up in 2009 and 2010 as needed." He estimates capacity at the Albany location will be about 20 million lb. and says ATI also plans to add melting, forging and finishing facilities to its Bakers, N.C., plant and upgrade its plate facility in Washington, Pa.
The company's titanium shipments in the third quarter exceeded 12.5 million lb., up 19% from the same quarter in 2007. High-performance metals accounted for 27.4% of ATI's overall sales, which reached $1.39 billion.
"Demand and pricing for some of our major products are clearly being impacted by the growing uncertainties in the US and global economies, the impact from the strike at Boeing and the delay in its 787 program, and rapidly falling prices of certain raw materials," ATI President and CEO Pat Hassey remarked recently. "Prices of many of the raw materials we use have fallen significantly due to reduced global demand and de-leveraging of certain traded commodities," he observed. "As a result, some orders have slowed and we believe that a number of our customers are adjusting the timing of their projects until these raw material prices adjust and stabilize."
In October 2006, ATI signed a nine-year deal with Boeing to supply titanium products for commercial aerospace applications, particularly the 787 program. The contract is valued at $2.5 billion and covers ingot, billet, bar, rectangle, plate and sheet products. "This makes us a very large producer of titanium and other alloys that go into the airframe," Greenfield says. "We're still doing a lot for the jet engine, but we're now also very focused on what we can do for the airframe."
ATI's 425 titanium alloy (originally developed for ballistic protection) includes 4% aluminum, 2.5% vanadium and 1.5% iron. Strong but versatile, it's suitable for cold formability and applications range from tubing for hydraulic systems to seat tracks. The product improves on the widely employed Ti-6-4 alloy, which contains 6% aluminum and 4% vanadium. Although Ti-6-4 is just as strong as 425, it only can be shaped under hot temperatures. "You can make 425 into big sheets on a stainless steel rolling mill and you can bend it cold," explains Greenfield. "You can't do that with Ti-6-4. Both are very strong, but 425 improves customer productivity."
ATI's 718Plus nickel-based superalloy can be used to make next-generation jet engine components such as fan cases, discs and blades as well as structural castings, sheet applications and fasteners. Designed to perform under extremely high heat, 718Plus is made by double and triple vacuum melting processes aimed at ensuring micro-cleanliness and tight compositional control. "This is the workhorse alloy for the jet engine," says Greenfield. "It can burn hotter by 100 degrees Fahrenheit than the 718 alloy. This allows for a leaner burning engine."
He admits that winning approval for a new metal designed to perform in a jet engine is "a difficult process." Normally it doesn't take as long to develop as it does to get implemented, "but it takes longer than you would like and you have to have a strong case if you want to replace something that already works."
In July, VSMPO-AVISMA, the largest titanium producer in the world, reached a long-term agreement with Airbus and its parent EADS for the supply of titanium including round and flat mill products and die forging parts for Airbus aircraft as well as new programs such as the A350 XWB. The contract extends to 2020 and has a value potential of $4 billion. Besides its sheer scale, the deal is significant because it shows how Airbus is working to reshape and consolidate its supply base as well as build a network of strong risk-sharing partners.
"For future aircraft development programs, the strategy is to identify suppliers with the financial strength and capability to design and build major systems or components while also contributing towards the up-front development costs of the aircraft," a spokesperson from Airbus tells Airline Procurement. "These suppliers will also be responsible for managing the Tier-1 suppliers required to support their deliverables."
The upshot is that Airbus has moved from approximately 250 suppliers for the A380 program to about 40 for the A350. This follows its Power8 restructuring program to increase efficiency and cut costs through consolidation, but it also points to a broader outsourcing current and a major structural change in the supply chain. The degree of labor-intensive work it has shifted to East Asia, Eastern Europe and Latin America "is now growing," notes the aircraft maker.
Low labor rates in these regions offer cost reduction opportunities on commodities that typically have high labor cost content. "Any transfer of work to these countries is subject to assurance that the work can be performed without introducing additional risk into the supply chain in terms of quality and delivery," Airbus emphasizes. "It is generally not appropriate for technologically advanced components to be produced in low labor rate countries, but our direct suppliers may be able to source subcomponents from them by either using their own production facilities based in these regions or through suppliers."
BRACING THE TIERS
In August 2007, Boeing and VSMPO-AVISMA entered into a 50/50 joint venture and formed Ural Boeing Manufacturing to produce titanium parts for the 787. Plans include construction of an 8,900-sq.-m. plant in Verkhnaya Salda, the town in the Ural Mountains where VSMPO-AVISMA is based. UBM will machine titanium forgings there that later will be processed at Boeing's facility in Portland, Ore.
As Boeing and Airbus are invested deeply in the titanium supply chain, they've tried to group their demand into single contracts to optimize pricing. Boeing has contracted TMX Aerospace to manage its supply chain and improve visibility across dependencies, while Airbus has engaged Kuehne+Nagel to consolidate its operations and streamline logistical processes. Both moves are aimed chiefly at cutting costs and increasing efficiency.
"Let's say I'm a Tier-2 supplier for Boeing machining a widget that's made of titanium," posits Michaels. "They cut it to a certain spec to get it close to what I need. They treat it. Then TMX delivers it to my facility. I get all that at the Boeing price. This is a significant trend in the industry." The corollary may encourage vendors to expand offerings and fortify a greater importance in the chain. Titanium mills are moving downstream into near-net-shape machining. "They're vertically integrating and starting to encroach on the territory of traditional parts manufacturers," adds Michaels. ATI, for example, recently launched ATI Aerospace, a branch focused on integrating and expanding the company's aerospace capabilities to cover a variety of "nose-to-tail" applications. One of its primary goals is to decrease its customers' "buy-to-fly ratio" through near-net-shape product forms and fabricating advances.
"You've got to bring a lot to the table to be able to compete in this industry as it continues to progress globally and reach new levels," says Greenfield. "That's why we founded ATI Aerospace, to offer a single sourcing contact that can bring a tremendous amount of value to customers. We have somebody who works closely with next-generation engines and next-generation airframes. We want to be closely integrated as a strategic source."
And if an airframe manufacturer wants to improve its titanium machining productivity? "We can do that," he affirms. "We have cutting tool systems that can machine titanium four times faster than existing systems. We also understand how to machine to shape and work metals into near-net-shape. That's special, and we think we've got a very good model moving forward."