Helen massy-Beresford / London
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As metal prices – particularly for titanium – reach new highs, aerospace manufacturers are feeling the pinch and having to devise new ways of protecting their profit margins. Airbus is moving to secure its supply: the manufacturer last week signed major contracts with metal producers, hot on the heels of Boeing’s agreement last month to form a joint venture with Russia’s VSMPO-Avisma for the manufacture of 787 components.
The upswing in the civil sector may have left the airframers with bulging orderbooks and bullish revenue forecasts, but it is also squeezing their supplies of raw materials. This is forcing them to look at innovative production processes, long-term contracts and cost-cutting initiatives as well as new technologies in a bid to cut wastage and control expenditure. And it is not just high prices that are setting off alarm bells in the industry – the soaring demand means that availability is just as much of a problem.
Demand for metals is peaking on a global scale because of rapid growth in countries like China, and within the aerospace industry because of the increased volumes of material needed for new programmes and higher production rates. While it is not the only metal to undergo an increase in price, titanium is causing the biggest problems for the aerospace industry. The relentless drive to reduce airframe weight is leading to the increased use of titanium outside traditional areas such as engines, where it is used because it can withstand high temperatures while being lightweight and strong.
Boeing has increased the proportion of titanium it uses from around 8% in the 777 to 20-22% in the 787. But the metal has almost doubled in price since 2003, to more than $5.4/kg ($12/lb), as shown in the graph (right). Titanium producers are reacting to the increased demand – Japanese producer Sumitomo Titanium announced earlier this year that it has completed a ¥6.3 billion ($57 million) programme that will increase its production capacity to 24,000t per year. Late last year the company also raised its sales and earnings forecasts, by 5.2% to ¥30,500 million and by 15.6% to ¥7,400 million respectively, on the back of the higher prices it can now charge for its products, as well as more favourable exchange rates.
On the other side of the fence, Martyn Brown, Airbus’s vice-president metals procurement, plays down the direct impact of high titanium prices on Airbus’s activities – the company has hedging contracts in place – but concedes that “all major raw materials are under extreme pressure at the moment”.
Last week Airbus took a major step towards securing its long-term supply of titanium, signing contracts worth a total of $1.4 billion with US-based RTI International Metals, Russia’s VSMPO-Avisma and Kazakhstan’s Ust-Kamenogorsk Titanium-Magnesium Plant. “In terms of consumption trends we are forecasting a doubling between 2007 and 2010, mostly because of the A380,” says Brown.
However, the affect of soaring prices is felt more strongly further down the supply chain, and primes are having to take responsibility for helping their suppliers cope. Brown says Airbus can use its bargaining power to help some suppliers negotiate reasonable contracts from metal producers and even in some cases give struggling manufacturers access to its own supply.
Boeing Commercial Airplanes director of procurement John Byrne agrees: around 90% of the manufacturer’s own material needs are covered by long-term contracts, he says, but “where there is a supplier shortage we work across the whole supply chain to balance that shortage”.
The manufacturer also works with suppliers to improve scheduling and ordering and in some cases aggregate demand to allow them to cut costs. “The last thing we want is for suppliers to get into financial problems.” Dealing with limited supply and rocketing prices is not just about procurement: aerospace companies are being forced to change their production methods and offset the higher costs through savings on labour, and reduce material wastage. Increasing manufacturing efficiency can have a significant impact. “Material is an unpredictable cost, but reducing labour costs is possible,” says GKN Aerospace senior vice-president sales and marketing Frank Bamford.
GKN is looking at ways to modify its products to increase their efficiency and cut down on the amount of metal used. Bamford says: “We’re looking at welded structures as opposed to machined components as they are lighter and have lower material usage, and we’re considering ways of introducing them to engine-mounting structures like pylons.” In some cases, the high cost of raw materials can lead to changes in favour of composite use, which gives “weight and affordability advantages”. The company is working on this with General Electric on the GEnx engine for the Boeing 787.
But as soaring metal prices bolster the trend towards increased use of composites, this in turn could lead to a supply squeeze, as demand for carbonfibre is growing fast, and producers struggle to keep up.
Source: Flight International
