Airbus and Boeing Likely to Suck In More Than Just Fresh Air in 2008

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The Dubai Air Show ended recently, and already the papers are announcing the massive sales secured by Airbus and Boeing — not just for their new offerings, the A380 and 787 Dreamliner, but for the stable stock in trade of A320’s and 777’s. Both makers have bulging order books with more than 1000 aircraft each on order. In addition, producers of smaller commuter aircraft like Embraer and Bombardier are also booming.

We see so many opportunities for the aircraft industry, but how does this affect the supply market feeding these production lines? After several years of sustained growth both in the West and Asia, the metals markets are already tight, particularly for the supply of semi-finished metals like plate, larger diameter bars, and the famous fasteners that have so delayed the Dreamliner.

I hear you asking, what would you expect in a strong aerospace market like this? Well, the significance is that production hasn’t started yet. The A380 is one and a half years overdue and the 787 is going to be some six to nine months late, so when these aircraft reach full production, they will suck up the availability of aluminium and titanium plate, bars, fasteners and forgings. The A380 uses over 1000 metric tons of aluminium in the production of every aircraft. Because of the premium paid for aircraft quality metals, Airbus, Boeing, and their subcontractors will take first priority for every order placed on the mills. The impact on the commercial market for these metals could be profound. Today’s production capacity in the West is largely the same as it has been for the past 10-15 years. A few mills have upgraded capability to be able to access the aerospace market, but not to a sufficient extent to keep track with demand. A limited number of Asian producers have the necessary certification to supply forgings and bars, but not plate. Airbus projects that A380 production will commence at the end of first quarter 2008, and a similar time is projected for Boeing’s 787. Even assuming these dates are missed, both companies will have to be in at least ramp-up phase to full production by the middle of the summer or the penalties Airbus in particular will be paying to the airlines will ruin EADS.

If you are a consumer of commercial quality plate and large diameter bars in aluminium or forgings, or plate and bars in titanium, you may want to secure your 2008/9 capacity now. When the super jumbos lift off, they will be sucking up a lot more than fresh air.

— Stuart Burns

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