How to grow an aerospace supplier’s worth by 1,500% in six years

titaniumingot2.jpg

Two key supply and demand trends in aerospace manufacturing today: global outsourcing  of the manufacturing supply chain and surging demand for specialty metals, such as titanium and nickel.

Two weeks ago, I was offered an invitation to visit a major production site for specialty alloys in Monroe, North Carolina. My host was Allegheny Technologies Inc. (ATI), a company that stands at a unique nexus of both the supply-side outsourcing and demand-side metals issues.

How important is the specialty metals business to the aerospace industry? Let’s put it this way: If you had invested $1 in ATI in 2002, it be worth more than $15 today. And the good times are not over. Titanium demand is projected to grow by more than 500% within the next 20 years.

I profiled ATI’s unique growth strategy, which categorically rejects the globalized supply chain fetish, in this week’s issue of Flight International. 

Ironman’s titanium dream

By Stephen Trimble

 

Companies at the bottom of the aerospace supply chain areunder more pressure than ever to operate like the manufacturers at the top.Simply making a small piece of a much larger whole is not good enough any more.The lower-tier supplier must find ways to “add value” to theproduction process.

In the speciality metals business, that means firms eithermove upstream to produce the raw material or downstream to machine the milledproduct. Pittsburgh-based Allegheny Technologies (ATI), striving to keep pace amidfuriously rising demand for its titanium- and nickel-based products, hasembarked on a strategy to add value in both directions – while pointedlyrejecting the aerospace industry’s embrace of globalised and outsourced supplychains.

ATI is reorganising to form a dedicated aerospace division,spending $900 million to increase industrial capacity in the USA andemphasising a highly integrated and “secure” supply chain.

titaniumingot.jpg



US Strategy

Bucking the outsourcing and globalisation bandwagon, ATI’sgrowth strategy is focused on increasing its own manufacturing capacity withinUS borders.

Rather than pushing more work to subcontractors, ATI hopesto capture a massive tide of demand for speciality metals with a tightly woveninternal network that spans operations from milling to melting to machining.

The goal is to win market share from competitors – the USA‘s RTI International Metals and SpecialMetals, plus Russia‘sVSMPO – that must rely mainly on non-Western sources for titanium sponge, theraw material that can be melted into ingots and forged into aerostructures.

“There is unprecedented opportunity in the aerospacebusiness,” says Pat Hassey, ATI chief executive.

Kevin Michaels, a principal of the Michigan-basedAeroStrategy consulting firm, says ATI’s strategy mirrors a recent trend amongspeciality metals producers to expand beyond melting operations into millingsponge and machining ingots into finished products. The goal is to “getmore integrated so they can move upstream into sponge but downstream intomachining”, Michaels says.

Emphasising ATI’s US-based titanium milling capacity also isa smart move, Michaels adds, as the company’s secure sourcing claim can be acompetitive discriminator in an industry dominated by Russian suppliers.

As titanium demand is projected to skyrocket by 500% in thenext 20 years, the new division will try within the next decade to boost thecompany’s share of revenues from aerospace firms from 31% to 40%.

The new ATI Aerospace division will be formally unveiled atthe Farnborough air show in July. The core of the aerospace unit will be ATIAllvac’s growing titanium and nickel melting centre in North Carolina.

ATI’s capacity for producing titanium sponge in the USA should morethan double by the end of next year. ATI’s titanium sponge mill in Eugene, Oregon,is being enlarged. Meanwhile, the company plans open an even larger spongeplant next year in Rawley, Utah,the first such facility to be opened in the USA in 60 years.

ATI’s total production capacity for titanium sponge shouldrise to an annual rate of 21 million kg (46 million lb) by the end of 2009, orroughly enough to fill approximately one-eighth of projected worldwide demandfor the metal by 2013.

Titanium demand in the aerospace sector is largely driven bythe shift towards greater use of carbon composites instead of aluminium inaerostructures. The chemical properties of composites make then corrode fasterwhen fastened to sheets of aluminium, forcing airframers to rely more ontitanium and other special alloys.

Meanwhile, ATI’s niche capacity for producinghigh-performance nickel-based alloys is critical for the current generation ofjet engines, and will become even more essential as future propulsion systemsburn at even hotter temperatures to improve fuel efficiency.

The company’s next move in the jet engine market is tointroduce a nickel-based alloy called 718-Plus, which can survive hot sectiontemperatures up to 700 degrees-Celsius, or nearly 40 degrees hotter than ATI’scurrent standard for jet engine alloys.

Subscribe

Subscribe to our e-mail newsletter to receive updates.

, , , ,

4 Responses to How to grow an aerospace supplier’s worth by 1,500% in six years

  1. Scott Peterson 23 May, 2008 at 6:16 am #

    This is really good to see, particularly in light of Boeing’s recent SNAFU with the 787 fuselage. I’ve long been of the opinion that there is no lack of qualified workers or manufacturing potential in the US; just braindead management fad-following by the people that have been in charge in the US manufacturing sector.

    Great website…keep it going, please!

  2. Benny Molen 24 July, 2010 at 2:45 am #

    That is a very interesting post, Patents are needed for all new technology. If you come up with something be sure to get a patent on it or you may just have your technology copied.The Visto Philosophy mimics The Real Networks Philosophy… “When you can’t sell your products on your own, just sue anyone else that does the job better.”

  3. click here 17 August, 2013 at 12:44 am #

    I needed to thank you for this excellent read!! I definitely
    enjoyed every bit of it. I’ve got you book-marked to check out new things you post…

  4. timeline covers 7 October, 2013 at 10:28 pm #

    Definitely imagine that which you said. Your favorite reason seemed
    to be on the web the easiest thing to understand of.
    I say to you, I certainly get annoyed at the same time
    as other folks think about worries that they plainly do not recognise about.
    You controlled to hit the nail upon the top and also defined out
    the entire thing without having side-effects
    , other folks could take a signal. Will likely be again to get more.
    Thanks

Leave a Reply