Companies at the bottom of the aerospace supply chain are under 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 the production process.

In the speciality metals business, that means firms either move upstream to produce the raw material or downstream to machine the milled product. Pittsburgh-based Allegheny Technologies (ATI), striving to keep pace amid furiously rising demand for its titanium- and nickel-based products, has embarked on a strategy to add value in both directions - while pointedly rejecting the aerospace industry's embrace of globalised and outsourced supply chains.

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

US Strategy

Bucking the outsourcing and globalisation bandwagon, ATI's growth strategy is focused on increasing its own manufacturing capacity within US borders.

Rather than pushing more work to subcontractors, ATI hopes to capture a massive tide of demand for speciality metals with a tightly woven internal 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 Special Metals, plus Russia's VSMPO - that must rely mainly on non-Western sources for titanium sponge, the raw material that can be melted into ingots and forged into aerostructures.

"There is unprecedented opportunity in the aerospace business," says Pat Hassey, ATI chief executive.

Kevin Michaels, a principal of the Michigan-based AeroStrategy consulting firm, says ATI's strategy mirrors a recent trend among speciality metals producers to expand beyond melting operations into milling sponge and machining ingots into finished products. The goal is to "get more integrated so they can move upstream into sponge but downstream into machining", Michaels says.

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

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

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

ATI's capacity for producing titanium sponge in the USA should more than 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 sponge plant 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 should rise to an annual rate of 21 million kg (46 million lb) by the end of 2009, or roughly enough to fill approximately one-eighth of projected worldwide demand for the metal by 2013.

Titanium demand in the aerospace sector is largely driven by the shift towards greater use of carbon composites instead of aluminium in aerostructures. The chemical properties of composites make then corrode faster when fastened to sheets of aluminium, forcing airframers to rely more on titanium and other special alloys.

Meanwhile, ATI's niche capacity for producing high-performance nickel-based alloys is critical for the current generation of jet engines, and will become even more essential as future propulsion systems burn at even hotter temperatures to improve fuel efficiency.

The company's next move in the jet engine market is to introduce a nickel-based alloy called 718-Plus, which can survive hot section temperatures up to 700e_SDgrC (1,300e_SDgrF), or nearly 40e_SDgrC hotter than ATI's current standard for jet engine alloys.

Source: Flight International