Aerospace composites are in a new era

In the past 10 years, the aerospace industry has been an era of design innovation and technology introduction, starting with the Airbus A380, followed by the Boeing 787 and the Airbus A350. But important changes are coming. We are entering a new era, no longer paying attention to these and the theme of "faster, cheaper, faster". The past 10 years have been innovations, and the next 10 years will be productivity, which will require different success factors from aerospace suppliers.

Aircraft production in all market segments of the world is worth $180 billion, reaching a peak of about $210 billion in 2021, and then slowing down. The good news is that aerospace is still a growing market, the only major capital commodity industry that has grown during the financial crisis. Large jetliners account for half of the market value, and the military sector is still a growth curve. However, attention should be paid to the commercial air transport market, which is the main use of aerospace composites .

We are in a very unusual period: in the past few years we have signed a huge number of aircraft orders, which are mainly driven by high fuel prices and ultra-low capital costs. Airlines want more efficient aircraft to balance oil prices and afford them. Although oil prices have started to fall since 2012, continued low interest rates continue to support fleet capital restructuring and current aircraft orders. Reduced oil prices do affect dual-aisle aircraft, and it is cheaper to fly with older aircraft, so the large two-channel aircraft such as the 787 has a reduced order reserve. However, single-aisle aircraft orders have a history, including Airbus 320 and Boeing 737. Boeing and Airbus want to reach the production speed of 60 single-aisle aircraft per month, as this is the current main source of revenue.

The Boeing/Airbus dual monopoly relies on the fact that single-aisle aircraft sales account for the vast majority of its profits and are the incentive to increase production. The two companies have been competing in market share. As a result, both companies are below the standard price for single-aisle aircraft, and the actual prices of the A320 and 737 have virtually unchanged since 2002. The two OEMs are now focusing on increasing their profits to a profit margin of 15-20%.

Boeing and Airbus are implementing a series of programs, including increasing the profit margin of service (after-sales) revenue, which will likely lead to the acquisition of service companies. Others include lowering supply costs through plans such as Boeing's “successful partners” coupled with better labor agreements, more automation and lean projects. In the aerospace structure, OEM tactics will include redesigning parts, using low-cost processes, material substitution, tough commercial contracts, and recycling more waste. The current period is extremely concerned about cost and reducing costs in pursuit of profit. More operations and practices similar to the automotive industry are expected.

So, what is the impact on suppliers? In general, the aerospace supply chain includes 30-60 Tier 1 suppliers, responsible for system integration; hundreds of Tier 2 suppliers, manufacturing major components; thousands of Tier 3 suppliers, responsible for components; 20-50 homes Tier suppliers supply materials and processes (metal and composite prepregs). OEMs only like to trade with Tier 1 suppliers, so these suppliers are the primary targets of OEM supply chain planning, and they face a lot of pressure in pricing and selecting customers for vertical integration. This will lead to continued integration of Tier 1 suppliers in the future. Tier 2 suppliers will face downward pressure from Tier 1 suppliers and upward pressure on Tier 4 suppliers, for whom it is important to develop a “winning business model” and differentiated competitiveness. There are too many third-tier suppliers, friction is certain, and integration will occur at this level. However, the four-tier supplier is almost complete.

If we look at aerospace raw material demand, a total of 707,000 tons in 2015, composite materials demanded 32,200 tons, or about 5%. It is estimated that by 2020, the demand share of 5% of composite materials will increase by 6% per year, and titanium will increase by 4% annually. The ratio of “purchasing and flight quality ” for all materials is approximately 6:1. Due to design and process improvements, this ratio of composites is less, between 1.2:1 and 1.4:1, helping to grow.

Two of the aerospace-related incidents that occurred in 2016 seem to confirm the change in the market that will occur. The main thing is that Boeing opened a composite wing center in Everett, Washington. Boeing brought the wing manufacturing back to the US and made the wing manufacturing and design process so close, indicating that Tier 1 suppliers will not have the opportunity to manufacture the wings in the future and can only do less profitable projects.

The other is that Bombardier delivered the first C-Series single-aisle aircraft to Swissair. The aircraft is the industry's first aluminum-lithium alloy fuselage and impregnation process to manufacture composite wing. Al-Li alloys are much less dense than aluminum and have higher damage tolerances than composites at low cost. This could mean a major material change in single-aisle aircraft. The composites industry must be alert to the more severe conditions it faces in supplying aerospace components in the coming years.