Aerospace Supply Chain
& Raw Material Outlook
Presented by:
Dr. Kevin Michaels
Global Managing Director – Aviation
Consulting & Services
ICF SH&E
SpeedNews 4th Aerospace Raw Materials & Manufacturers
Supply Chain Conference
March 3, 2014
Beverly Hills, California
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Agenda
 Aerospace Demand Outlook
 Aerospace Supply Chain Trends
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AEROSPACE DEMAND OUTLOOK
Total aircraft production in 2013 is 4,731 units; air transport
aircraft account for 60% of value
2013 Aircraft Production
by Market
Civil Rotary
Military
Fixed Wing
10%
Military
Rotary Wing
11%
Wing
3%
Air
Transport
32%
Military
Rotary Wing
16%
B&GA
13%
By Units
4,731
By Value
$162B
Military
Fixed Wing
13%
B&GA
21%
Air
Transport
60%
Civil Rotary
Wing
21%
Source: ICF SH&E analysis
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AEROSPACE DEMAND OUTLOOK
There are several key changes to ICF’s production forecast
for important platforms
Year Over Year Changes In ICF Forecast
Notable Aircraft Unit Production
Platform
‘14-’22 Total
Production
Difference
B737
524
Near-term production rates raised;
reduced “dip” with new model
A320
359
Near-term production rates raised;
reduced “dip with neo introduction
EMB-170/190
173
Mid-decade production rates raised due
to recent sales (and PIP)
A330
126
Increased production rates; orders
strong in light of 787 competition
C919
-170
Delays to program & reduced program
outlook
ARJ21
-132
Delays in flight test and certifictation
MRJ
-73
Comments
Further delays to program
Source: ICF
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AEROSPACE DEMAND OUTLOOK
Annual production value is expected to reach $200B, with unit
production approaching 6,000 aircraft by 2023
Aircraft Production 2013-2023
By Market Segment
# Aircraft
Type, CAGR
Type, CAGR
$B USD*
$250
7,000
Civil Rotary
Wing, 0.5%
Military Fixed
Wing, (0.5%)
6,000
$200
Military Rotary
Wing, 0.9%
Military Rotary
Wing, 0.5%
5,000
$150
4,000
BGA, 5.7%
BGA, 6.1%
3,000
$100
Military Fixed
Wing, 0.1%
Civil Rotary
Wing, 0.2%
2,000
$50
1,000
Air Transport,
2.2%
Air Transport,
2.2%
$0
0
2013
2018
2023
Total CAGR =
2.3%
2013
2018
2023
Total CAGR =
2.3%
Source: ICF SH&E analysis
* Constant 2013 US$
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AEROSPACE DEMAND OUTLOOK
Aggregate aerospace raw material demand is 1.44B pounds
2013 Aircraft Raw Material Demand
By Material Type (buy weight)
Super
Alloys
9%
Other
6%
Composites
4%
 Steel alloys & titanium
also are large driver of
demand due to their high
buy to fly ratios
Titanium
Alloys
11%
Total
1.44 B lbs
Steel
Alloys
22%
 Aluminum alloys are
nearly half of all total
demand
Aluminum
Alloys
48%
 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
Source: ICF SH&E
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AEROSPACE DEMAND OUTLOOK
Boeing and Airbus aircraft account for nearly 70% of raw
material demand
2013 Aircraft Raw Material Demand
By OEM (buy weight)
Embraer
2%
Rolls-Royce
3%
Bombardier
3%
Lockheed
2%
PRATT &
WHITNEY
2%
CFM Intl
4%
Other
12%
Total
1.44 B lbs
General
Electric
5%
 Boeing and Airbus aircraft
models comprise 67% of
demand
Boeing
37%
 GE is the next largest
consumer – 7% when
including its share of CFM
Airbus
30%
Source: ICF SH&E Analysis
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AEROSPACE DEMAND OUTLOOK
The total aerospace raw material market is worth about
$11 billion
2013 Aircraft Raw Material Value
By Material Type
Steel Alloys
10%
Super Alloys
15%
Other
3%
Aluminum
Alloys
27%
Total
$10.9B
Composites
19%
Titanium
Alloys
26%
 Aluminum and titanium
are the largest material
markets by value – both
are worth ~$2.9B
 With 787 production
ramping up, and A350
long-lead items under
production, composites
are the third largest
category at $2.0B
 The value of superalloys
is $1.7B, driven by aeroengine production
Source: ICF SH&E
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AEROSPACE DEMAND OUTLOOK
Over the next decade aluminum demand will remain solid
while composites & titanium will grow significantly
Million
lbs
1,800
2013 – 2023 Aerospace Raw Material Demand
By Material (buy weight)
1,600
1,400
CAGR
Composites; 5.9%
1,200
Other; 1.2%
1,000
Titanium Alloys; 4.4%
800
Super Alloys; 1.9%
600
Steel Alloys; 0.3%
400
Aluminum Alloys; 0.2%
200
Total CAGR 1.1%
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: ICF SH&E
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Agenda
 Aerospace Demand Outlook
 Aerospace Supply Chain Trends
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SUPPLY CHAIN TRENDS
There are several important aerospace trends that are
shaping aerospace supply chains
Additive
Manufacturing
Growing capital
market interest
OEM Vertical
Integration
Supply Chain
Transparency
& Control
“Right Shoring”
Key
Aerospace
Supply
Chain
Trends
OEMs Push
For Cost
Reduction
Advanced
Aeroengines
Source: ICF SH&E
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SUPPLY CHAIN TRENDS – RIGHTSHORING
Shifting manufacturing economics underpin increased
interest in manufacturing “onshoring”
Companies’ Intentions To Change
Manufacturing Source
Worldwide, % of Capacity
Manufacturing Outsourcing Cost Index
% of US Cost
Move Between High Cost Countries
Reshore
80%
70%
Move Between Low Cost Countries
Offshore
60%
50%
40%
30%
20%
10%
0%
Source: The Economist January 19 2013
2009-11
2012-14
Note: data is for general manufacturing and is not aerospace-specific
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SUPPLY CHAIN TRENDS – RIGHTSHORING
The southeast U.S. and Singapore are now two popular
locations for aerospace manufacturing investments
Southeast U.S.
•
•
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
•
•
Singapore is becoming a new
manufacturing hub in
Southeast Asia
Investments include range of
high-tech manufacturing,
MRO, and engineering
Source: ICF SH&E
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SUPPLY CHAIN TRENDS – RIGHTSHORING
“Rightshoring” is the new aerospace investment mantra
Global Aerospace Manufacturing Clusters
Established Clusters
Emerging Clusters
Source: ICF SH&E
* Note – Russia is emerging for Western certificated equipment
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SUPPLY CHAIN TRENDS – COST REDUCTION
OEMs are utilizing a variety of cost reduction initiatives…
Initiative
New
commercial
terms
Activity
•
•
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
•
Where possible, capture revert from
suppliers
Work with supply chain integrators to
close loop on material
Capture
revert
•
Source: ICF SH&E
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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
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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
 In January 2013 Embraer selected Pratt’s
GTF for is “G2” E-Jets
777-X
 Boeing announced the B777-X with GE9X
aeroengines in November 2013; the fourth
re-engine program in the last three years
 Future re-engining possibilities include the
A330 and A380
A330 neo?
“Our enabling technology is now three times
more valuable than it was a decade ago.”
Engine OEM Executive
Photo credits: Embraer, Boeing, Airbus
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SUPPLY CHAIN TRENDS - ADVANCED AEROENGINES
…however aeroengine material trends are encroaching on
titanium’s “sweet spot” in aeroengines
CFM LEAP-X
Winning Materials
 Composites
 Powder Metals
 Advanced super alloys
 Titanium Aluminide
Composite fan
and fan cases
increasingly
popular
Titanium’s
“sweet spot” in
aeroengines
Nickel alloy moving
forward in the High
Pressure Compressor
module
Source: CFM
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SUPPLY CHAIN TRENDS - ADVANCED AEROENGINES
Supply chain transparency and control is growing in
importance
 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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SUPPLY CHAIN TRENDS – VERTICAL INTEGRATION
Some OEMs are trending towards greater vertical
integration; Boeing is a notable example
Selected Examples of Boeing Vertical Integration
777X Wing
Production
Acquires Alenia’s
fuselage
assembly facility
787-9
Horizontal
Stabilizer
Nacelle design
& production
Source: ICF SH&E analysis
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SUPPLY CHAIN TRENDS – VERTICAL INTEGRATION
GE is also vertically integrating for strategic technologies
Selected Examples of Vertical Integration - GEnx
Acquired Morris
Technologies for
additive manufacturing
capability
Acquired Avio
• LPTs
• Gearboxes
Will make
ceramic matrix
composite
blades, vanes,
seals
CFAN JV with
SAFRAN makes
composite fan
blades
Source: ICF SH&E analysis
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Established JV with
Parker to make fuel
nozzles via additive
manufacturing
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SUPPLY CHAIN TRENDS – ADDITIVE MANUFACTURING
Additive manufacturing represents a potential step-change
in cost and part design capability
Traditional Subtractive Manufacturing
•
•
Additive Manufacturing
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
Sources: University of Exeter
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SUPPLY CHAIN TRENDS – ADDITIVE MANUFACTURING
Several OEMs are trialing additive manufacturing on a
range of production and aftermarket parts
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 (and other
potential applications)
Performance is main driver
of adoption
Source: ICF SH&E analysis, GKN, GE Aviation, Airbus, Boeing
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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.
 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
Sources: RapidReady, China Northwest Polytechnical University
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Thanks and Questions
Kevin Michaels
Vice President
Global Managing Director – Aviation Consulting & Services
+1 734 821 0220
kmichaels@icfi.com
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ICF SH&E Is One Of The World’s Largest And Most Experienced
Aviation And Aerospace Consultancies
Airports • Airlines • Aerospace & MRO • Asset Advisory • Safety & Security
 50 years in business (founded 1963)
 85 professional staff
− Dedicated exclusively to aerospace and aviation
 More than 6,000 private sector and public sector assignments
 Backed by parent company ICF International ($841M revenue)
 Global presence – six major offices
Ann Arbor • Boston • New York • London • Singapore • Beijing
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2011
 Broad functional capabilities
2012
 Specialized, focused expertise and proprietary knowledge
2007
− Recruited from the industry
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