Aerospace Supply Chain & Raw Material Outlook

1icfi.com/aviation |
Presented by:
Dr. Kevin Michaels
Global Managing Director – Aviation Consulting & Services
Aerospace Supply Chain
& Raw Material Outlook
2nd Annual European Aerospace Raw Materials &
Manufacturers Supply Chain Conference
September 15, 2014
Toulouse, France

Agenda
 Aerospace Demand Outlook
 Aerospace Supply Chain Trends

Air
Transport
62%
BGA
13%
Military
11%
Military RW
11%
Civil RW
3%
AEROSPACE DEMAND OUTLOOK
Total aircraft production in 2014 is 4,972 units; air transport
aircraft account for 62% of value
Source: ICF analysis
Air
Transport
33%
BGA
22%
Civil RW
21%
Military RW
15%
Military
9%
By Units
4,872
By Value
$171B
2014 Aircraft Production
by Market

Annual production value is expected to reach more than $200B,
with unit production eclipsing 6,000 aircraft by 2024
* Constant 2014 US$
Aircraft Production 2014-2024
By Market Segment
# Aircraft
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2014 2019 2024
Military,
(0.9%)
Military RW,
0.4%
Civil RW, 0.7%
BGA, 4.9%
Air Transport,
2.7%
Total CAGR =
2.2%
Type, CAGR $B USD*
$0
$50
$100
$150
$200
$250
2014 2019 2024
Civil RW, 1.2%
Military RW,
0.7%
Military, 0.3%
BGA, 4.8%
Air Transport,
2.4%
Total CAGR =
2.3%
Type, CAGR

Aggregate aerospace raw material demand is 1.44B pounds
Aluminum
Alloys
48%
Steel
Alloys
22%
Titanium
Alloys
11%
Super
Alloys
9%
Other
6%
Composites
4%
2014 Aircraft Raw Material Demand
By Material Type (buy weight)
Total
1.55 B lbs
 Aluminum alloys are
nearly half of all total
demand
 Steel alloys & titanium
also are large driver of
demand due to their high
buy to fly ratios
 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
Aggregate “Buy to fly” ratio is ~ 6

Boeing and Airbus aircraft account for nearly 70% of raw
material demand
Source: ICF Analysis
 Boeing and Airbus aircraft
models comprise 67% of
demand
 GE is the next largest
consumer – 7% when
including its share of CFM
Boeing
36%
Airbus
30%
General
Electric
5%
CFM Intl
4%
CFM
3%
Rolls-Royce
3%
Embraer
2%
Pratt &
Whitney
2%
Other
15%
Total
1.55 B lbs
2014 Aircraft Raw Material Demand
By OEM (buy weight)

The total aerospace raw material market is worth about
$12 billion
 Aluminum and titanium
are the largest material
markets by value – both
are worth just over $3B
 With 787 production
ramping up, and A350
long-lead items under
production, composites
are the third largest
category at $2.3B
 The value of superalloys
is $1.8B, driven by aero-
engine production
2014 Aircraft Raw Material Value
By Material Type
Titanium
Alloys
27%
Aluminum
Alloys
26%
Composites
19%
Super Alloys
15%
Steel Alloys
10%
Other
3%
Total
$11.9B

Over the next decade aluminum demand will remain solid
while composites & titanium will grow significantly
2014– 2023 Aerospace Raw Material Demand
By Material (buy weight)
Million Lbs
Total CAGR =
1.1%
Type, CAGR
 Overall raw material demand
growth will be lower than
aircraft unit growth due to
lower buy-to-fly ratios and
greater use of composites
 Composites and titanium will
be the fastest growing material
categories
 Aluminum demand will be
relatively flat0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2014 2019 2024
Other, 1.0%
Composites, 4.9%
Super Alloys, 1.2%
Titanium Alloys, 3.6%
Steel Alloys, 0.1%
Aluminum Alloys, (0.5%)

 Aerospace Demand Outlook
 Aerospace Supply Chain Trends
Agenda

There are several important aerospace trends that are
shaping aerospace supply chains
Growing capital
market interest
Key
Aerospace
Supply
Chain
Trends
SUPPLY CHAIN TRENDS
Source: ICF
“Right Shoring”
Advanced
Aeroengines
Additive
Manufacturing
Supply Chain
Transparency
& Control
OEM Vertical
Integration
OEMs Push
For Cost
Reduction

0%
10%
20%
30%
40%
50%
60%
70%
80%
2009-11 2012-14
Move Between High Cost Countries
Reshore
Move Between Low Cost Countries
Offshore
SUPPLY CHAIN TRENDS – RIGHTSHORING
Shifting manufacturing economics underpin increased
interest in manufacturing “onshoring”
Source: The Economist January 19 2013
Note: data is for general manufacturing and is not aerospace-specific
Manufacturing Outsourcing Cost Index
% of US Cost
Companies’ Intentions To Change
Manufacturing Source
Worldwide, % of Capacity

The southeast U.S. and Singapore are now two popular
locations for aerospace manufacturing investments
• 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 is becoming a new
manufacturing hub in
Southeast Asia
• Investments include range of
high-tech manufacturing,
MRO, and engineering
Southeast U.S. Singapore
Source: ICF

“Rightshoring” is the new aerospace investment mantra
Source: ICF
* Note – Russia is emerging for Western certificated equipment
Global Aerospace Manufacturing Clusters
Established Clusters
Emerging Clusters

SUPPLY CHAIN TRENDS – COST REDUCTION
Initiative Activity
New
commercial
terms
• 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
Capture
revert
• Where possible, capture revert from
suppliers
• Work with supply chain integrators to
close loop on material
OEMs are utilizing a variety of cost reduction initiatives…

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
Source: ICF analysis, Wall Street Journal

SUPPLY CHAIN TRENDS – ADVANCED AEROENGINES
The push to deploy advanced technology underpins recent
re-engining decisions – more are likely
“G2” E-jet
Photo credits: Embraer, Boeing, Airbus
 In January 2013 Embraer selected Pratt’s
GTF for is “G2” E-Jets
 Boeing announced the B777-X with GE9X
aeroengines in November 2013
 Airbus announced the A330neo with the
Trent 7000 at Farnborough 2014 for 2018EIS
 A future re-engining possibility includes the
A380
777-X
A330 neo
“Every 25 years a big moonshot ...— that’s the
wrong way to pursue this business. The more-for-
less world will not let you pursue moonshots.”
Jim McNerny – CEO, Boeing

…however aeroengine material trends are encroaching on
titanium’s “sweet spot” in aeroengines
Source: CFM, ICF analysis
CFM LEAP-X
SUPPLY CHAIN TRENDS - ADVANCED AEROENGINES
Nickel alloy moving
forward in the High
Pressure Compressor
module
Composite fan
and fan cases
increasingly
popular
Titanium’s
“sweet spot” in
aeroengines
 Composites
 Powder Metals
 Advanced super alloys
 Titanium Aluminide
Winning Materials

Supply chain transparency and control is growing in
importance
SUPPLY CHAIN TRENDS - ADVANCED AEROENGINES
 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

Some OEMs are trending towards greater vertical
integration; Boeing is a notable example
SUPPLY CHAIN TRENDS – VERTICAL INTEGRATION
Selected Examples of Boeing Vertical Integration
 Boeing has set up the nacelle and
pylon Center of Excellence in
South Carolina
 The 777X wing production will
remain in Everett
 Facility expansions in Winnipeg,
South Carolina, and Helena, MT
will support machining and in-
house production of structures
assemblies

GE is also vertically integrating for strategic technologies
SUPPLY CHAIN TRENDS – VERTICAL INTEGRATION
Acquired Avio
• LPTs
• Gearboxes
Acquired Morris
Technologies for
additive manufacturing
capability
Will make
ceramic matrix
composite
blades, vanes,
seals
Established JV with
Parker to make fuel
nozzles via additive
manufacturing
Selected Examples of Vertical Integration - GEnx
CFAN JV with
SAFRAN makes
composite fan
blades

Additive manufacturing represents a potential step-change
in cost and part design capability
SUPPLY CHAIN TRENDS – ADDITIVE MANUFACTURING
Sources: ICF analysis
• 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
Traditional Subtractive Manufacturing Additive Manufacturing

Several OEMs are trialing additive manufacturing on a
range of production and aftermarket parts
Source: ICF analysis, GKN, GE Aviation, Airbus, Boeing
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 in Parker
Aerospace JV
• Performance is main driver
of adoption

In addition to adoption on certain parts, OEMs and
suppliers are announcing substantial investments in AM
Source: RTI, GE, Carpenter Technology, ICF analysis
RTI Acquires Directed
Manufacturing
Jan 2014
▪ RTI acquired Direct
Manufacturing for $23M to
enhance production
capabilities in medical
devices and aerospace
▪ Makes full rate production
parts for UAVs
GE Expands Auburn AL
▪ GE will expand Auburn
facility starting in late 2014
▪ 10 machines in 2015 with
capability for 50
▪ Will handle full rate
production of all AM parts,
including Leap fuel nozzles
Announced July 2014
Carpenter Powder
Facility in Athens, AL
▪ Facility will be located
adjacent to current mill
facility in Athens
▪ Will produce superalloy
powders for isothermal
forging and additive
manufacturing
Announced Oct 2013

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.
Sources: RapidReady, China Northwest Polytechnical University
 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

WILDCARD – TITANIUM SUPPLY RESTRICTIONS
A Wildcard to watch: political crises with Russia and
Ukraine could drastically impact aerospace supply chains
Source: ICF analysis, Wall Street Journal
VSMPO
30%
ATI
23%
Timet
22%
RTI
10%
Japanese
Suppliers
10%
Others
5%
Total
169M lbs
 Over 30% of aerospace titanium
is supplied by VSMPO
 Ukraine is a key supplier of nearly
all titanium concentrates to
VSMPO
 Some OEMs are stockpiling
titanium as a contingency
2014 Aerospace Titanium Market

Thanks and Questions
Kevin Michaels
Vice President
Global Managing Director – Aviation Consulting & Services
+1 734 821 0220
kmichaels@icfi.com

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