Titanium Today, Issue 8 2023

By John Byrne, Former Executive with Boeing Commercial Airplanes, currently serving as advisor for Pasayten Advisors LLC

Aerospace and titanium go hand in hand and the turbulence of the past three years has been difficult for both industries. Now the question is: where we go from here especially for the titanium industry?

While past downturns may provide for some future insights of what can be expected as the recovery takes hold, the situation going forward will be much different than in past recoveries. It is a function of what has happened over the past three years, program shutdowns, the Covid pandemic and geopolitical unrest.

Over the past three years, four major shocks have impacted the commercial airplane industry just as the industry ramped up to record production rates in 2018. First was the Boeing 737 MAX program stoppage; second Covid; third the 787 program stoppage; and finally the war in Ukraine. These impacts resulted in the aerospace supply chains, including the titanium producers and fabricators, being more dislocated and out of synch than at any time since the beginning of large scale airplane production.

The best analogy to use would be a 200 hundred car long freight train moving down the track at a constant speed, each car carrying a prescribed type and amount of cargo, when that train delivers there is an identical one right behind it. That was the production system for commercial airplanes before the impacts. Now picture that same train being decoupled into 50 smaller trains all moving at different speeds on different tracks and with unreliable types and quantities of cargo aboard, this is more representative of the commercial airplane production system today. Now the challenge is to reconnect all those smaller trains into a single train moving at the same speed and with reliable types and quantities cargo, which is no easy task for OEM supply chain management teams.

The resulting chaos affected the titanium industry by creating a significant inventory overhang and a decoupling of the consumption from demand. Combined with the historically poor forecasting for titanium the environment is challenging. To underscore let’s follow a simple example from ABC machine shop that produces a 737MAX part from titanium plate and a 787 part from a titanium closed-die forging. When the MAX program stoppage began, ABC was kept at a rate of building 52 parts per month, six months later they were asked to begin lowering their rate but it was still at a level that allowed ABC to maintain staff and be economically viable. Then Covid hits ABC struggles with shut downs and supply disruptions and begins to have economic impacts, they are able to access PPP (Paycheck Protection Program) funds to continue to operate the business.

For all practical purposes the 737 program stops but ABC decides to continue to build out all the raw material and WIP (Work in Progress) to keep the shop operating. Then they get schedule adjustments for the 787 forging part, again to continue the viability of the business they ship completed parts to their customers. Finally, Covid has waned and the airline traffic has recovered and the OEM’s are now trying to ramp their production rates back to 2019 levels. But because ABC is cash strapped and now is facing labor shortages and other inflationary pressures they delay or under purchase raw material.

Meanwhile, lead times are starting to increase for raw material and they now have a new forging supplier due to the exiting of VSMPO over the Russian invasion of Ukraine. ABC machine shop will be very challenged to figure out how much titanium plate to buy and when, and the same for the forgings, the odds of success are not good. This scenario is playing out across dozens of ABC type suppliers, and there are several more types of disruption in the supply chain that increase the complexity and magnitude of the problem which is to figure out how much material is needed when and where. And then get it to the fabricators on time.

While the titanium industry’s customers are faced with unprecedented challenges, there are considerable issues for the mills as well. Labor shortages resulting in many new workers, inflationary pressures, equipment failures and extended lead times in their supply chains all loom on the horizon. Most likely the lead times to the OEMs from the titanium mills will increase just as the OEMs are trying to stabilize their production systems and increase build rates. This will only complicate the inventory burndown and managing the inflection point when demand starts to converge on consumption.

An additional twist that everyone must deal with is the war in Ukraine. Boeing has ended its supply agreement with VSMPO and Airbus has recently signaled that it will decouple over the next several months. This will put pressure on the supply of everything from ingot to forgings. Finding new sources for the forgings that came from VSMPO and getting those new suppliers ramped up and stabilized will be the most difficult challenge. Most likely additional support from plate and block will be required to provide the machine shops alternate raw material in lieu of forging delays. Double orders and schedule changes will put and pressure on ingot and billet supply.

There is also the question of hard sanctions for titanium from Russia. While Russian titanium is not currently sanctioned, the continuing support of the U.S. government and E.U. to Ukraine increases the likelihood of sanctions. Currently some aerospace suppliers are still using the Russian titanium, other industries such as medical are using Russian metal, while this could be justified from a business perspective it would be hard to justify it morally or patriotically. The Ukraine conflict is depleting defense stockpiles and the longer the war drags on the more material will be required to support restocking and equipment transfers. This will add additional demand not seen in past recoveries.

The commercial air travel recovery is well under way, domestic travel all around the world has recovered to or is near pre-pandemic levels. While international travel still has a long way to recover most likely it will recover faster than forecasted. Recent changes in China on restrictions and large aircraft orders, like the recent 787 order by United Airlines, are all positive signs. The airlines need new planes and are pressuring the OEM’s for delivery. The OEM’s are working to increase the production rates as fast as they can but are constrained by their supply chains. There have been delays in planned rate increases and disruptions to the assembly lines from shortages, these will continue for at least the next 12-18 months. The situation will affect the demand quantities and timing for titanium flowing into the supply chains.

There will be a “Catch 22” as we move forward over the next 12-24 months. Recovery is taking place and there will be opportunities for the titanium industry. However, the industry’s performance will play a key part in the size and timing of those opportunities. Past performance of the titanium industry would lead one to expect poor on time delivery execution and increased lead times. This will hurt the OEM’s plans and the entire supply chain. Combine that with challenge of managing the inflection point on the inventory overhang and challenges from the conflict in Ukraine, the situation can only be described as “optimistic turbulence!”

(Editor’s note: John Byrne, a former executive with Boeing Commercial Airplanes, currently serves as an advisor at Pasayten Advisors LLC, Auburn, WA. He was a distinguished speaker at the ITA’s North American conferences in 2013 and 2014. Byrne joined the Boeing Co. in 1987 and retired in November 2017. He is a frequent guest contributor to TITANIUM TODAY.)