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Important Disclosures Found in Appendix

AEROSPACE SUPPLY CHAIN REVIEW


A Look At The Most Important Issues For The Specialty Material & Forging Markets A Bi-Monthly Update Report November 22, 2013
1. The AIRLINE INDUSTRY is seeing continued positive momentum in travel growth and load factors. The market has been showing relative strength over the past few months (adjusted for the disappointing September results associated with the government shutdown). The global industry traffic growth was reported @ +5.5% versus +6.8% in August. 2. We raised our COMMERCIAL AIRCRAFT production outlook to reflect the revised long-term planning for the BA737 (going to 47 per month) and BA787 (going to 12 per month). We also expect the regional aircraft market to become a positive driver over the next few years. Our 2014 delivery outlook is now at 1,600 units (all-in) which represents +15% growth versus 2013. This includes 640 units for BA (+22-23%), 630 for Airbus (+3-4%), & 120 for the regionals (+4-5%). 3. The results of our TITANIUM survey were disappointing from a demand and pricing point of view. The preliminary 2014 volume growth outlook was +3-4% (we were expecting at least +6%) which reflects a push-out of the BA purchasing needs into 2015. The mills have been plagued by excess inventory throughout the channel for the past 2-3 years. Spot ingot prices have now fallen below the $9.00 per pound threshold. 4. The results of our NICKEL-BASED ALLOY survey have also revealed muted growth for the products levered to the jet engine channel and the main aftermarkets (growth is still holding near +1-2%). The early demand outlook offered by our contact base was +2-3%. 5. The AEROSPACE FASTENERS market has seen some moderation in order trends over the past 90 days (@ +7-8% growth versus +9-10% last quarter). However, the 2014 outlook is holding @ +10-15%, which suggests the airframe market is becoming a stronger pull for the forging segments. This could drive 20-25% growth for the producers over the next 12 months.
Aerospace Materials Peer Group - Recent Stock Movement
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Company Spirit Aerosystems B/E Aerospace Boeing Wesco Aircraft Holdings Hexcel Corp Alcoa EADS Allegheny Technologies Cytec Industries Precision Castparts TransDigm Group Universal Stainless & Alloy S&P 500 RTI International Metals Heico Corp. Kaiser Aluminum Triumph Group Carpenter Technology A.M. Castle Average Ticker SPR BEAV BA WAIR HXL AA EAD-PAR ATI CYT PCP TDG USAP SP50 RTI HEI KALU TGI CRS CAS Price Mkt Cap ($000) 30 Day Chg. 3 Month Chg. Earnings Changes Industries Tier 1 Aerospace Interiors & Fasteners OEM Aerospace Distribution Composites Aluminum Parent of Airbus - OEM Forging & Special Metals Composites Forging & Special Metals Aircraft Components Nickel-Alloys Index Titanium Jet Engine Replacement Parts Aluminum Forging Nickel-Alloys Specialty Distribution 2014E 3% 1% 3% -2% 1% -17% -2% -50% -4% 1% -1% -38% -12% 2% -11% -9% -2% -68% -11% 2015E 4% 1% 2% -1% 1% -23% -4% -21% -5% 0% 0% -31% -10% 4% -9% -10% 1% -31% -7%

$30.98 $83.98 $136.50 $19.27 $43.67 $9.07 $51.98 $33.91 $85.56 $251.58 $148.48 $32.25 $1,793 $34.36 $52.05 $66.59 $70.56 $61.22 $14.64

4,482 8,798 102,574 1,815 4,348 9,701 40,456 3,662 3,034 36,544 7,801 225 1,050 2,763 1,249 3,673 3,243 342
13,098

26% 10% 9% 7% 6% 6% 5% 5% 5% 5% 4% 3% 3% 3% 2% 2% 2% 2% -2%


6%

116% 92% 82% 51% 74% 10% 113% 28% 29% 43% 11% 5% 29% 44% 77% 13% 14% 34% 13%
46%

AERO SUPPLY

Aerospace Supply Channel Update Report


November 21, 2013 Page 2 TABLE OF CONTENTS #1- Macro Demand Outlook A Review Of The Production Outlook..3 #2- Airline Travel Data Series IATA Travel Growth, Global Demand Highlights..4 Individual Domestic & Regional Highlights5 Cross-Atlantic & Cross Pacific Travel Trends.....6 Latin American & Regional Aircraft Trends....7 Non-US Airline Data8 Cargo Traffic Momentum.....9 #3- Interesting News Releases & Articles That Caught Our Attention....11 A Review Of The Global Airline Equity Trading & Estimate Changes....11 Jet Fuel & Commodity Prices.12 #4- CRC Research Recaps Quarterly Titanium Survey Highlights13 Quarterly Nickel-Based Alloy Update15 Aerospace Fastener Survey ........16 Key Industry Drivers Recap Aircraft Production Outlook Titanium Trends (Upstream) Nickel-Based Alloy Trends (Upstream)

Airline Travel Data (Jet Capacity Driver)

Jet Fuel (Airline Margins)

Aero Fasteners (Downstream & Frame Demand) Equity Trading (Health Index)

Commodities (Raw Materials)

The Cleveland Research Company Aerospace Materials Coverage Team Chris Olin, Sr. Research Analyst Kevin Money, Research Associate Curt Siegmeyer, Research Associate (216) 649-7212 (216) 649-7254 (216) 649-7208 colin@cleveland-research.com kmoney@cleveland-research.com ciegmeyer@cleveland-research.com

Aerospace Supply Channel Update Report


November 21, 2013 Page 3 AIRCRAFT DELIVERY OUTLOOK THROUGH THE CYCLE We raised our LT commercial aerospace delivery outlook to reflect the 787 and 737 production revisions announced by BA and the positive momentum developing for the regional aircraft market. Our aerospace macro model is now proactively adjusted for the upside coming from both new delivery targets and the pending introduction of next-generation aircraft (we use other industry sources as the final benchmark). The all-in calculation is now @ 1,600 units for next year (both commercial and regional jets), which represents +15% growth from 2013. This is up from our previous +10-12% outlook. Moreover, we believe the 2015 deliveries will hit 1,675 by 2015, which is up another 5%. This translates into 80-90% growth from peak to trough (versus 140% last cycle). o BA raised its 737 delivery target last month. This will accommodate the current backlogs while creating space to get the new MAX designs into the queue faster. The current delivery run rate is @ 42 per month, expected to hit 44 by April/May. BA is pushing on the channel to reach a long-term production rate of 47 per month by 2017. This translates into an annualized shipment rate of 560-570 units versus 500 in 2013 (up 13%). BA lowered the production target for the 747-8 to 1.5 per month versus the current 1.75x run-rate to reflect a weak freighter market. There could be more downside to this number based on what we are hearing for UPS and FDX (see page 9). The stated 787 delivery target for 2014 is 10 per month, which we expect to happen by early 2014. This compares to the current 7-8x monthly production rate. Long-term, BA is looking to get to 12 per month by 2016 and 14 per month by the end of the decade. This plane still represents a game-changer for the aero supply channel. The Airbus A350 design is expected to start entering service by 2015. This is likely to become a mini demand-pull by mid2014. We are using 50 deliveries in our model for year-one. The new 777X design has been released. The wide-body aircraft is expected to increase fuel-efficiency by 12% and lower the overall operating cost by 10% (@ 350-400 seats). The first delivery is expected to occur by 2020. There are no annual numbers attached to the program yet.

o o o o

Our current cyclical demand outlook implies a very mild correction could occur when looking our 3-4 years (in between 2016-2017) before another period of acceleration, which is consistent in the data presented by the Airline Monitor. A majority of the new jet demand is expected to come from the shift toward more fuel-efficient aircraft, assuming 3,000 jets are retired over the next four years (roughly 12% of the existing fleet of 23,000). The outlook is very bullish for the part makers, forgers, and specialty material producers. In addition to the increased volumes, most of the companies in our watch group should also benefit from greater content of premium materials and service (secular growth evident through 2018-2020).

Commercial Aerospace Industry Analysis


Total Jet Deliveries (Through 2020) Includes Regional Builds
2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0

Source: CRC and Airline Monitor

Aerospace Supply Channel Update Report


November 21, 2013 Page 4 COMMERCIAL AIRLINE INDUSTRY DATA -- TRAFFIC ANALYSIS & HIGHLIGHTS We monitor the monthly IATA airline traffic data for a general read into aerospace-related aftermarket demand (for the forged/machined parts and metal channels). We believe the trends in global and domestic airline travel represents a leading indicator by approximately 6-9 months. Bottom-line, the airline industry traffic and capacity momentum has been more favorable over the past few months, showing relative strength since early-2013. While there was some sequential weakness in the September data series versus the month of August, the recent reports coming from the airline operators suggests the October mileage growth rebounded with the government shutdown headwinds no longer present. The average RPM growth has now trended above +5% for the past five months. The overall industry RPM growth was reported @ +5.5% in September, which compares to +6.8% in August. The available seating capacity growth was +5.3% which supported an overall load factor of 80.4% (down from 83.4%). The three most interesting data points within the September IATA report include: North American travel growth moderated to +1.7%, which compares to a +2-3% range over the past 3-4 months. The government shutdown appears to have impacted comps by 50-60 basis points. The 2H average of +2.2% compares to the 1H comp of +1.7%. The available seat mileage growth has been muted in 2013, with September reported @ +1.8% versus the 6month average of +2.3%. Load factors remain high in the region @ 82%. European passenger travel growth was reported @ +3.7% for September versus +5.2% in August. This marks 6-7 straight months of better growth rates. The load factor was reported @ 83.1% - the highest level among the 6 tracked regions. Asia-Pacific airline traffic seems to be holding up fairly well through September. The average RPM growth was reported @ +9.2% versus the August average of +10.4%. The year-to-date comps for 2013 is now +6.7% versus an average of +5.9% in 2012. The average load factor was reported @ 78%. International traffic showed a bigger decline @ +5.7% versus +7.5% in August. The domestic RPM comp was more consistent @ +5.1% versus +5.6%.

Commercial Airline Market Analysis


Reported Passenger Traffic Growth (2006 To Present)
12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0%

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Jan-14

Apr-14

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Oct-12

Oct-13

Source: IATA

Available Seat Kilometers

Revenue Passenger Kilometers

Oct-14

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Aerospace Supply Channel Update Report


November 21, 2013 Page 5 DOMESTIC AIRLINES Our analysis of the Big-6 airlines in North America (we adjusted our data for the U.S. Airways & American Airlines merger) suggests October traffic growth rebounded versus a more difficult September. We calculate the average growth rate @ +3.0% last month which compares to +1.9% in September. The airlines showing the best demand data points was JetBlue (JBLU) @ +7.1% (up from +1.6%). October 2013 also represented an easier comp going against the impact from last years East Coast hurricane.

Commecial Aerospace Market Analysis


20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0%

Monthly Reported RPM Growth (Domestic Airliner Rates) -- 2011 to Present

Revenue Passanger Miles % Growth

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 Southwest 13.2%13.0% 9.8% 8.7% 9.9% 7.5% 5.9% 3.9% 6.4% 3.5% 2.5% -0.3% -2.7% 3.8% -0.9% -2.2% -2.6% -0.1% 0.0% 0.1% -2.1% -2.4% -1.5% -0.2% -1.7% -2.3% 4.0% 1.5% 4.2% 2.3% -1.5% -2.7% 1.3% 1.3% Delta United Alaska Jet Blue AA/LCC Average 2.3% 1.4% 0.5% 2.6% 2.2% -1.5% 0.1% -0.3% -0.9% -3.8% -1.9% -2.3% -1.5% 2.5% 2.0% 1.2% -0.6% 0.4% -2.8% 0.2% -1.1% 0.3% 1.2% 0.5% 0.0% -2.2% 0.1% -0.7% 1.4% 0.7% 1.7% 2.7% 1.8% 1.4% 0.9% -3.4% -2.2% 1.1% -0.3% -0.9% -0.1% -0.9% -1.7% -5.1% -3.6% -0.7% -3.2% 3.4% 1.0% 0.9% 0.3% 0.1% -3.3% -0.1% -2.1% -0.3% -2.3% -4.0% 0.9% -3.4% -1.2% -3.8% -0.8% -0.6% -0.6% 0.0% 1.0% 0.2% 15.8%19.0%19.3%18.1%11.7% 7.9% 6.8% 7.6% 10.4% 6.0% 7.8% 6.2% 17.5%21.5%15.7%17.1%11.2%10.6% 8.8% 8.1% 5.1% 8.5% 9.4% 8.4% 11.5% 6.0% 9.4% 8.5% 6.8% 8.1% 9.2% 8.1% 4.3% 3.8% 5.1% 9.0% 7.1% 6.1% 10.6% 7.2% 11.1% 5.8% 7.6% 7.6% 10.9%14.3%13.3%17.4%12.5%14.5% 7.4% 9.7% 7.1% 13.1% 6.1% 1.0% 5.7% 6.1% 11.2% 2.6% 8.6% 4.7% 9.4% 7.8% 7.3% 6.2% 1.6% 7.1% 0.6% 1.8% 1.5% 0.1% 3.5% 1.3% 2.4% -0.7% 0.1% -2.5% 0.6% 0.6% 1.5% 6.2% 1.6% -0.6% 0.6% -1.3% -1.8% 1.6% -3.7% -2.0% 1.7% 2.3% 4.0% 0.1% 1.5% 1.7% 0.8% 3.1% 2.6% 2.7% 1.5% 4.3% 6.3% 6.8% 6.0% 6.1% 6.3% 3.6% 4.4% 2.6% 3.6% 1.0% 2.7% 3.0% 4.2% 9.1% 5.3% 5.2% 2.7% 3.2% 1.3% 3.9% 0.4% 0.8% 2.4% 2.2% 4.3% 0.1% 3.7% 2.0% 3.6% 3.6% 3.1% 2.8% 1.9% 3.0%

Source: Compay Reports

The domestic operators are seeing continued strength in cross-Atlantic travel. The average growth rate for October is estimated @ +7.6% which is up considerably from the +2-3% growth rate the previous two months. United Airlines (UAL) is seeing the most strength in international travel with growth hitting +11%. (chart on page 6) The cross-Pacific RPM data has turned negative once again following five months of positive demand growth. We calculate an average cop for October @ -0.7% versus the +3.0% average during the previous five months. The September comp was +1.0%. (chart on page 6) The Latin America travel has been holding in positive territory. The October comp was calculated +7.7% which is up from +4.4% in September. This market has been a source of strength for the three domestic airline operators levered to these routes (Delta, United, and AA/LLC). The average growth rate for 2013 is +5.9% versus +3.8% for the comparable 2012. (chart on page 7). The small-aircraft regional traffic has been a headwind for the domestic airlines. The average growth rate has been negative for 11 out of the last 12 months, including down 3.6% in October (versus +1.0% in September). United seems to be losing market share. Ultimately, we believe this data series reads fairly cautious for the smaller aircraft market. (chart on page 7)

Aerospace Supply Channel Update Report


November 21, 2013 Page 6

Commercial Aerospace Market Analysis


Monthly Reported Cross-Atlantic RPM Growth (Domestic Airline Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0%

Revenue Passenger Miles % Growth

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0%

Delta United

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 8.8% 6.1% 4.0% 19.6% 0.8% -1.1% -1.1% -2.4% -7.6% -10.3 -11.0 -7.3% -4.2% 3.0% -0.4% -6.1% -4.4% -5.5% -6.7% -5.1% -0.3% -3.0% -3.1% -4.3% -6.4% -8.8% -5.7% -3.2% 2.0% 4.8% 5.1% 6.0% 2.1% 2.4% -4.7% -9.2% -1.3% 18.3% 1.4% -2.0% -2.4% -2.0% -2.1% -7.9% -4.1% -1.1% -1.9% 0.8% 1.4% -6.0% -1.7% -1.4% -5.8% -2.4% -5.3% -9.6% -7.2% -4.6% -4.7% -9.2% -6.8% -4.1% -1.3% 1.0% 2.5% 7.2% 5.9% 11.4%

AA/LCC 8.1% 9.9% 2.7% 20.2% 5.8% 1.9% 4.2% 3.3% 1.8% 2.4% 1.4% 2.3% 4.4% 7.8% 2.0% 0.2% -7.1% -1.3% 0.1% 2.5% -0.9% -6.1% -9.0% -6.0% -7.3% -10.6 -0.5% -1.5% 3.3% 0.6% -0.4% 1.1% 2.3% 5.5%
Source: Company Reports

Average -0.8% -1.3% -2.2% 19.2% 3.2% 0.5% 1.3% 1.3% 0.1% -2.0% -1.8% 2.0% 1.9% 5.6% 1.8% -2.8% -6.2% -2.7% -3.0% -0.2% -2.3% -8.0% -8.0% -5.2% -6.3% -10.3 -0.8% -3.5% 0.6% -0.1% -0.3% 2.4% 2.7% 7.6%

Commercial Aerospace Market Analysis


Monthly Reported Cross-Pacific RPM Growth (Domestic Airline Rates) -- 2011 to Present
24.0% 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0%

Revenue Passenger Miles % Growth

13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0%

Delta United

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 19.6% 13.6% 0.6% -3.0% 5.5% 3.9% 9.5% 14.8% 0.8% -6.0% -7.0% -3.6% -2.5% 2.1% 12.6% 16.3% 12.2% 7.3% -2.0% 0.7% 5.3% 7.5% 11.5% 6.5% 0.9% 6.0% 3.8% 5.1% 0.5% -2.7% -1.4% -1.0% -0.9% -0.1% 4.8% 2.5% -6.6% -8.4% -1.6% -2.0% -1.1% -2.0% -3.6% -1.9% 1.8% -4.3% -5.6% 3.5% 7.9% 13.0% 6.2% 3.4% 0.0% 3.8% 5.2% 2.0% -0.4% -0.6% 4.8% 2.5% 2.6% -3.2% -1.0% 1.2% 0.3% -2.7% -4.5% -5.0%

AA/LCC 12.3% 13.9% 13.9% 8.9% 16.8% 14.8% 22.7% 23.5% 5.7% 2.4% -4.9% 8.7% 17.2% 15.8% 13.4% 18.9% 13.0% 9.1% -4.4% -3.9% 7.2% 8.8% 17.3% 8.3% -2.1% 1.5% -0.9% -4.7% 6.7% 12.2% 12.5% 15.4% 8.4% 3.0%
Source: Company Reports

Average 12.2% 10.0% 2.6% -0.8% 6.9% 5.6% 10.4% 12.1% 1.0% -1.8% -3.4% 0.3% 3.1% 7.2% 11.3% 16.0% 10.5% 6.6% -2.1% 0.2% 5.9% 6.1% 9.5% 4.7% 1.2% 3.3% 1.8% -0.9% 2.1% 3.6% 3.8% 3.9% 1.0% -0.7%

Aerospace Supply Channel Update Report


November 21, 2013 Page 7

Commecial Aerospace Market Analysis


Monthly Reported Latin American RPM Growth (Domestic Airline Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0%

Revenue Passanger Miles % Growth

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0%

Delta United Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 12 12 12 12 13 13 13 13 13 13 13 13 11 11 11 11 11 11 12 12 12 12 12 12 12 13 13 13 19.5% 12.1% 15.7% 15.2% 2.1% -1.3% 0.1% 7.3% 1.2% -2.7% -0.6% -2.1% -4.7% -0.7% -4.1% -2.2% 4.6% 4.8% 3.7% 5.7% 3.2% -2.6% 0.6% -2.2% 0.5% -3.5% -0.8% -3.1% -5.9% -4.9% -4.6% -1.6% -0.1% 6.9% 2.8% -2.9% 3.0% 11.3% 5.5% 2.7% 6.2% 2.7% 8.5% 1.2% 1.4% 4.5% -0.6% 8.3% 6.5% 1.5% 2.9% 8.1% 0.0% 5.6% 2.2% -0.7% 4.0% 0.3% 2.8% -2.9% 6.1% -1.4% 3.4% 3.4% 0.9% -0.2% -1.7% -0.8% 0.5% -4.6% -1.5% 4.3% 3.8% 0.7% 1.9% -2.4% 6.6% 2.4% 2.9% 3.6% -0.4% 5.7% 4.7% 0.6% 3.3% 6.0% 0.1% 5.7% 7.6% 4.7% 9.6% 5.8% 5.4% 2.9% 6.7% 1.3% 7.4% 6.7% 7.4% 9.2% 4.4% 7.7%

AA/LCC 6.3% 0.7% 0.3% 2.3% 1.6% 0.0% 1.4% -5.0% -2.5% -0.8% 1.7% -0.7% 1.4% 6.4% 2.4% 1.5% 2.7% 3.7% 1.3% 4.3% 5.8% 3.1% 8.6% 4.8% 4.4% 3.8% 6.1% 2.7% 8.1% 10.7% 10.8% 11.0% 1.3% 5.5%
Source: Compay Reports

Commercial Aerospace Market Analysis


Monthly Reported Regional RPM Growth (Domestic Airliner Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0%

Revenue Passenger Miles % Growth

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0% -14.0% -15.0%

Delta United Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 11 11 12 12 13 13 -4.6% -6.4% -2.4% -3.9% 1.3% -1.9% -2.0% -2.0% 2.3% 0.7% 0.6% -3.4% -2.1% 5.7% 1.1% 1.4% -3.7% -3.3% -7.7% -4.7% -12.1 -7.5% -9.0% -7.9% -7.1% -13.3 -10.4 -8.7% -6.0% -7.3% -6.9% -3.2% -2.2% -1.6% 2.8% -1.3% -1.2% -3.1% 0.9% -0.1% -1.0% -0.1% 0.2% -2.1% -0.6% 3.8% 1.3% 9.8% 1.3% 1.0% -2.3% 1.8% 0.0% 0.0% -1.2% 24.9% 1.4% -3.6% 2.8% -1.3% 2.4% 1.4% 4.1% -1.3% 0.3% 1.9% 4.0% -13.8 4.2% 2.9% 3.3% 0.3% 5.1% 0.1% -0.6% -1.4% -0.4% -2.2% -0.8% -0.5% -2.8% 1.7% 0.9% 1.1% -1.2% 0.4% -2.2% 0.4% -4.4% 5.7% -2.0% -3.0% -0.3% -4.8% -1.5% -2.5% -0.2% -2.9% -2.0% -0.4% 1.0% -3.6%

AA/LCC 14.3% 16.3% 13.5% 7.9% 13.1% 2.4% 1.2% -2.2% -3.8% -5.1% -2.3% -2.0% -7.6% -10.2 0.3% 0.8% 2.5% 2.8% 1.1% 6.0% -0.1% -0.4% 1.7% 2.4% 3.4% 0.4% 3.5% -0.1% 1.2% -0.1% 0.7% 0.0% 1.1% 4.7%
Source: Company Reports

Aerospace Supply Channel Update Report


November 21, 2013 Page 8 GLOBAL AIRLINES The global airlines that we are tracking have shown relative demand strength since the 1Q13 market trough. We calculate the average October RPM growth rate @ +5.5%, which is up from +4.2% the previous month. The six month average is holding @ +5.4% which compares to +2.6% for 1H13. The incremental passenger traffic drivers appear to be emanating from the Northern Europe and United Kingdom rebound. British Airways parent IAG, is seeing the most pronounced demand increases over the past 3 month (average +8-9%).

Commecial Aerospace Market Analysis


Monthly Reported RPM Growth (GlobalAirliner Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0%

Revenue Passanger Miles % Growth

8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 China Southern 16.7% 4.5% 4.2% 10.2%13.1% 8.6% 10.7% 6.0% 7.9% 9.0% 18.0%11.6%17.2%11.2%11.0%10.1% 7.3% 9.9% 10.3%12.3%12.5% 7.8% 8.5% 11.5% -1.1% 18.0%15.1% 7.1% 10.9%12.4% 8.5% 13.7% 9.3% 8.7% IAG Lufthansa Air France Qantas Singapoe Air Average 4.5% 1.4% 8.8% 24.9%14.1% 9.2% 3.5% 2.2% 4.3% 1.9% 2.1% 12.2% 1.2% 1.6% 6.2% 4.0% 6.6% 8.9% 5.1% 9.1% 5.1% 3.2% 3.6% 0.2% 0.7% -0.3% 0.1% -0.8% 7.4% 8.2% 6.6% 10.6% 8.8% 8.9% 9.1% 13.1% 0.3% 24.4% 6.9% 4.9% 8.1% 5.7% 4.6% 2.8% 3.4% 6.8% 1.3% 2.5% 4.0% 0.5% -2.8% 1.2% -2.1% -0.2% -2.4% -2.8% -3.9% -5.0% -1.1% 0.7% 4.6% -25.5 5.2% 5.4% 3.6% 7.0% 6.9% 6.0% 4.8% 4.9% 1.0% 23.1% 4.9% 2.9% 6.9% 7.6% 9.3% 5.7% 2.5% 7.5% 3.6% 6.2% 6.8% 2.8% -0.1% 4.2% 1.2% 0.6% 0.9% -2.0% 2.8% 0.0% 0.2% -0.1% 2.3% 2.3% 4.7% 2.5% 1.8% 4.9% 0.7% 2.8% 8.5% 5.1% 3.3% 10.0% 8.6% 4.8% 5.0% 4.0% -1.1% 5.3% 8.5% 9.4% 8.7% 0.8% -1.7% 1.0% 0.4% 0.1% 6.0% 1.3% -2.4% -4.9% -2.0% -0.2% -1.0% -0.6% -1.4% -2.3% 2.9% -1.0% -3.6% 7.0% 4.3% 0.1% 4.6% 3.1% 5.1% 1.1% -2.0% 2.1% 2.9% 7.2% 12.1%10.6% 7.8% 12.6% 4.1% 9.6% 8.0% 7.8% 9.3% 6.4% 3.4% 5.7% 2.9% 0.9% 1.6% 2.9% 4.4% 8.7% 1.8% 1.1% 7.8% 4.7% 2.3% 16.6% 8.7% 5.1% 6.4% 4.9% 5.9% 3.2% 4.9% 8.0% 5.8% 6.3% 8.1% 4.8% 2.8% 7.3% 3.3% 5.3% 4.0% 3.3% 3.6% 2.6% -0.1% 3.2% 3.8% -2.7% 4.8% 6.3% 4.1% 7.2% 4.2% 5.5%

Source: Compay Reports

Aerospace Supply Channel Update Report


November 21, 2013 Page 9 CARGO MARKET UPDATE We are seeing some better cargo market trends for the domestic airline group following an extended period of weakness. October tonnage growth rebounded to +7.1% versus down 3% in September (driven by a strong showing from the merging airline). Cargo traffic had been down for the previous 13 months.

Commercial Aerospace Market Analysis


Monthly Reported Cargo Tonnage Growth (Domestic Airline Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0%

Revenue Passenger Miles % Growth

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0% -14.0% -15.0%

Delta United Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 19.5% 12.1% 15.7% 15.2% 2.1% -1.3% 0.1% 7.3% 1.2% -2.7% -0.6% -2.1% -4.7% -0.7% -4.1% -2.2% 4.6% 4.8% 3.7% 5.7% 3.2% -2.6% 0.6% -2.2% 0.5% -3.5% -0.8% -3.1% -5.9% -4.9% -4.6% -1.6% -0.1% 6.9% -11.8 -15.7 -8.7% -5.8% -18.4 -16.9 -14.1 -16.9 -15.7 -14.9 -14.3 -8.5% -11.9 -6.6% -5.7% -12.8 -7.4% -2.3% -6.2% -2.6% -0.3% -10.3 -5.3% -10.9 -11.8 -15.7 -13.2 -9.0% -8.3% -10.2 -18.0 -16.5 -16.2 -4.3% 2.4% -2.1% 1.6% 3.9% -7.6% -8.7% -6.5% -6.3% -6.6% -9.9% -8.1% -5.3% -6.0% -2.0% -2.1% -5.3% -1.6% 1.2% -2.5% 1.1% -1.8% -6.8% -1.3% -3.1% -6.9% -9.8% -6.2% -5.1% -3.3% -2.4% -5.6% -4.2% -2.9% 7.1%

AA/LCC -0.4% -2.7% -2.1% 2.2% -6.6% -7.8% -5.6% -9.2% -5.2% -12.0 -9.4% -5.2% -1.5% 1.4% 3.6% -1.0% -2.0% 1.1% -4.9% 0.3% -8.3% -7.6% 0.8% 3.7% -9.3% -10.2 -4.6% -3.2% 4.1% 8.0% 5.7% 5.7% 7.5% 18.6%
Source: Company Reports

UPDATED READS FOR UPS AND FDX Excerpts from the notes issued by Fellow CRC analysts, Mark Davis & Bryan Merolla United Parcel (UPS) Domestic small package volume growth looks sluggish but still up y/y due to B2C growth; B2B stagnant. The UPS B2C shipments continued to be the primary source of volume upside as consumer shop online and take advantage of ground services in order to minimize shipping expenses. Industry commentary indicates B2B shipment volumes and weight per package have not materially improved despite inventories remaining lean. As a result, deployed capacity within UPS domestic air network (~18% of total revenue) looks to be down approximately 1% year-over-year as the company reduces flight activity to match market demand. Demand for UPS Ground and Basic/SurePost remains solid due to online sales as consumers seek out the cheapest prices via the Internet, avoid traveling to stores to save on gas, and look to avoid paying tax on purchases. We continue to hear that UPS is moving more volume on the ground but is doing so with fewer routes and drivers in an effort to reduce overhead. UPS International volumes look slightly up y/y; we see limited upside from new product launches and peak shipping season. Through September (and for all of 3Q13), deployed capacity within UPS international air network was down year-over-year (approximately 2.5%) despite the launch of some high tech products (iPhone) and the beginning of the peak shipping season. Industry commentary indicates UPS continues to leverage its freight forwarding division to try and fill excess space on company aircraft with heavy freight in key trade lanes (especially out of Asia) and has been aggressively pricing heavy freight products to attract volume. We believe capacity reductions and better utilization on remaining aircraft will help international operating margins during 3Q13.

Aerospace Supply Channel Update Report


November 21, 2013 Page 10

CRC UPS International Export Volume Estimates vs. UPS Reported Export Volumes
25% 20% 15% 10% 5% 0% -5% -10%

CRC Export Volume Estimates

UPS Reported International Export Volumes

Source: CRC Reports

Federal Express (FDX) Our channel work for the Domestic Express Segment represents a negative leading indicator for the LT freighter market. Through September, demand for FDX Express services looked flat as shippers continued to trade down from air to ground services and FDX sales reps encouraged shippers to switch modes. We also continue to hear about FDX quietly taking steps to re-orient their domestic express network by replacing mainline aircraft with feeder aircraft serving hub airports and substituting part-time workers for full-time workers to reduce expenses. As an offset to declining Express volumes, demand for Ground and SmartPost remains robust due to B2C shipments while B2B demand remains lackluster from both a volume and package weight standpoint (coming from a separate report from fellow analyst Mark Davis).

CRC U.S. Express Overnight Package Volume Estimates vs. FDX Reported Express Overnight Package Volumes
8% 6% 4% 2% 0% -2% -4% -6% -8% -10%

CRC FDX Domestic Volume Estimate

FDX Reported Domestic Volume

Source: CRC Reports

Aerospace Supply Channel Update Report


November 21, 2013 Page 11 MOST INTERESTING NEWS OVER THE PAST 30-60 DAYS
Could Be Impactful For Future Forging Or Metals Demand Modeling Assumptions= **** This Is Now On Our Radar = *** A Developing Situation = ** Something That We Consider Interesting Information = *

****US Airways & American has finalized an agreement with the DOJ to complete the merger. The settlement is expected to have positive implications for discount airliners which are likely to fill the newly open slots at key airports like LaGuardia and Regan. The company will not become the largest domestic carrier, flying 15% of the existing fleet (10% for American and 5% for US Airways). Delta (DAL) is trying to win slots @ Dallas Love Airport. The IATA cut its 2013 airline profit forecast by 8%. The airline associated now projects total profit @ $11.7 billion (versus $7.4 billion in 2012). The drivers behind these NT cuts included slower growth for regions in China and a pullback in freight demand. The current 2014 earnings outlook is holding @ $16.4 billion. *The Dubai Air Show was a huge success for the airplane markers. There were $200 billion in new commercial aircraft orders taken over the past week, which underscores the changing demand environment for the Middle East. The momentum helped BA launch its new 777X aircraft model (with 200 orders on the tape). Airbus also reported 50 orders for its A380, which has been a laggard. Equity Trades & EPS Movement We are seeing mixed signals from the global airliner peer group. In general, current and out-year (2014) earnings forecasts have been cut by 7% and 5%, respectively (driven by weakness in non-US airline operators). However, there has been positive trading activity over the past 30 days, with the peer group trading in-line with the S&P 500. The group has been supported by the resolution of the AA/LCC merger (JBLU is seen as the big winner) and the recent positive take-aways from the United Airlines (UAL) investor day. o The global shares are up 2% over the past month and +59% over the past three months. The domestic operators have increased by 9% over the past three months lead by UAL (+22%) and JBLU (+22%). The group is also up 103% over the past three months. o Qantas Airways (QAN AU) continues to be the market laggard, with the shares down 21% over the past month lead by a 50-60% cut in current year earnings.
Commercial Airlines Peer Group - Recent Stock Movement
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Company Jet Blue United Airlines Alaska Airlines Southwest Airlines Delta Airlines U.S. Airways Air China China Southern Spirit Airlines Easy Jet Lufthansa S&P 500 Allegiant Singapore Airlines Air France Japan Airlines Republic Airlines Ryan Air Qantas Airways Ticker JBLU UAL ALK LUV DAL LCC 753-HK 1055-HKG SAVE EZJ-GB LHA-ETR SP50 ALGT C6L-SES AF-PAR 9201-TKS RJET RY4B-DUB QAN-AU Price Mkt Cap ($000) 30 Day Chg. 3 Month Chg. Earnings Changes Description Discount Airline Operator U.S. Airline Operator U.S. Airline Operator U.S. Airline Operator U.S. Airline Operator U.S. Airline Operator Chinese-Based Airliner Chinese-Based Airliner U.S. Airline Operator U.K.- Based Airliner German-Based Airliner Index Discount Airline Operator Thailand-Based Airliner French-Based Airliner Japan-Based Airliner Discount Airline Operator U.K.- Based Airliner Australia-Based Airliner Current 5% -12% 0% 7% -1% 16% -13% -21% 8% 2% -15% 0% -1% -17% 1% -25% -15% -52% -8% -1% Out Year -1% -10% 2% 4% -4% -8% -6% -14% 8% 3% -9% 0% 5% -16% 1% 0% -16% -29% -5% -2%

$8.60 $36.72 $75.74 $18.12 $28.06 $23.68 $5.21 $2.81 $44.50 $12.65 $15.19 $1,793 $105.94 $10.33 $7.11 $5,510 $10.20 $5.53 $1.19

2,428 13,288 5,267 12,625 24,007 4,664 68,172 27,587 3,232 5,009 7,004 1,968 12,154 2,104 n/a 503 7,815 2,679
11,794

22% 22% 15% 15% 13% 13% 10% 7% 5% 4% 4% 3% 1% -2% -4% -11% -12% -13% -21%
4% 10%

75% 87% 82% 100% 188% 92% 18% -3% 168% 110% 38% 29% 45% -3% 17% 20% 90% 30% -20%
61% 103%

Average For All Global Airlines Average Domestic Airlines


Source: FactSet

7,553

The jet fuel price momentum has turned negative. Potential tailwind for the airline margins: The average price for jet fuel (we watch Gulf Coast Kerosene-Type) has traded down slightly from the average August price of $3.00 (and 2013 peak of $3.22). The

Aerospace Supply Channel Update Report


November 21, 2013 Page 12 current price quote is holding around $2.75 per gallon, which is down 8% from the summer highs and down 5-6% sequentially (down 7% versus last year). Fuel represents roughly 70% of the actual flying costs with flight crew costs at 25%. Fuel also represents 50% of the total operating cost (including maintenance and depreciation).
Jet Fuel Price Trend
$4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 $0.00 Aug-03
Source: EIA

Monthly Spot Quotes (Per Gallon)

Aug-04

Aug-05

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

We are not seeing much of a change in the key commodity markets. The positive has been the solid floor that has been established through 2H13. However, there is unlikely to be a major change to the upside until there is more global macro confidence or better demand pull. o The current nickel price is holding @ $6.20 per pound range, which reflects 7-8 months of stability. The market hit a bottom in July-2013 @ $5.90 per pound. o Aluminum is holding at $0.81 per pound, which is down 1.6% versus the October average. Prices have been holding in the low-$80 per pound range for the past 6-7 months (now down 8% versus last year). The MW premiums have started to correct from the mid-2013 highs, now @ $0.10 per pound. This is a better indication of real demand. o Ferro-Molybdenum prices (Europe) are trading near $11.09 per pound, which is up from the average October LME transaction of $10.87 (+2.0%).
Monthly Commodity Nickel Prices
$25.00 $24.00 $23.00 $22.00 $21.00 $20.00 $19.00 $18.00 $17.00 $16.00 $15.00

Ferro-Molybdenum Prices
Monthly, 1997-Present
$45.00

LME Monthly Average (2002 - Present)

$40.00

$35.00

$30.00

per pound

$13.00 $12.00 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

per pound

$14.00

$25.00

$20.00

$15.00

$10.00

$5.00

$0.00 Jan-97 Source: Metalprices.com

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Source: metalprices.com

Aerospace Supply Channel Update Report


November 21, 2013 Page 13

Monthly LME Aluminum Price vs. Inventory


Thousands
$3,500
price per M Ton

Monthly LME Midwest Premium Prices


6,000 5,500 5,000 4,500 4,000
$0.120
Price per pound

$3,250

$0.110 $0.100 $0.090 $0.080 $0.070 $0.060 $0.050 $0.040 $0.030 $0.020 $0.010 $0.000

$3,000

$2,750

$2,500 3,500 $2,250 3,000 $2,000 2,500 $1,750 2,000 $1,500 1,500 1,000 500 0

$1,250

$1,000

$750

Source: Metalprices.com

Inventory

Price

Source: metalprices.com

TITANIUM MARKET UPDATE We are picking up a 5th consecutive quarter of muted order growth within the titanium markets, with 4Q showing a modest contraction versus 3Q. At this time, there does not seem to be any major drivers of mill or fabrication demand, which could limit the shipment levels for the producers over the next 1-3 quarters. We estimate the current demand comp to be +0-1%, which compares to the 3Q rate of +1-2% (and the 12-month moving average of +1.5%). The channel continues to see underperformance, with a net 20% of the contact base seeing orders miss versus plan. Ultimately, the relative demand weakness seems to be broad-based but the industrial markets have trended down quarter-to-quarter. We did not pick up any major changes to the end-market landscape. In general, the aerospace drivers seem to be holding @ muted levels (+1-2%), led by slightly better momentum for the downstream fasteners market (should represent a slightly better read for CRS). The market that represent the demand headwinds are desalination (down 1-2%), chemical processing (down 1-2%), nuclear (down 1-2%), and power generation (down 0-1%).
!

CRC Titanium Quarterly - Demand Update


NT Order Growth Trends (%, y/y)
20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%
Source: CRC Survey

CRC Quarterly Specialty Materials Update


2014 End-Market Outlook (% Growth)
3Q 3.7% 3.3% 3.1% 2.7% 2.7% 2.6% 2.6% 2.1% 2.0% 2.7% 2.2% 2.7% 2.2% 1.8% 1.4% 1.1% 1.0% 0.5% 0.3% 0.0% 0.0% 4Q

-0.4%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

-0.4%

-1.1%

-0.9% -1.1%

Source: CRC Survey

The upside for overall aerospace demand will be capped until the Boeing (BA) channel is holding balanced inventories. For review, there was a fairly large over-purchase of titanium ingot (and other products) during a 3-4 year period. We previously estimated this had created an inventory glut of 20-30 million pounds in 2010/2011 that has since been cut by roughly 40-50%. This has been particularly difficult for the ATI/BA LT supply agreement to drive HPM revenue growth considering BA is still only accepting the minimal volume requirements, which is roughly 6-7 mm lbs below projected normal contract demand for ingots (based on current delivery schedules). !

Aerospace Supply Channel Update Report


November 21, 2013 Page 14 The lack of confidence that Boeing returns to normal ordering patterns before 2015 follows upon the relatively muted guidance offered by the OEMs procurement team during the annual titanium conference (in October). The consensus forecast is now 2015 (versus the consolidated 2H14 outlooks projected in 3Q). The catalysts behind the more conservative outlook are: (1) delayed production ramps for the main aircraft; and (2) the improved buy-to-fly ratios. We have now recorded 25 months without an uptick in spot market prices. The listed quote for titanium 64 ingot is down to $9.009.25 per pound, but our contacts suggest the real offer is down to $8.70-8.80 per pound. There are three drivers behind the aggressive deflationary environment: (1) low mill operating rates; (2) the large drop in titanium scrap costs; and (3) more aggressive actions coming from Precision Castparts (PCP). We estimate ATI to have roughly 15-20% leverage into open market transactions, but the risk to the model would come from downward revisions on contract roll-overs.
Titanium 6'4 Ingot/Scrap Prices
Monthly Average Quotes $32.00 $30.00 $28.00 $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00

Source: metalprices.com

Titanium Ingot Prices

6'4 BW Scrap

Aerospace Supply Channel Update Report


November 21, 2013 Page 15 NICKEL-BASED ALLOYS UPDATE We are seeing the same absence of consumption growth within the nickel-alloys market, matching the sluggish downstream titanium order trends. We estimate the current comp to be running @ +0-1% which is consistent with the 3Q data point. This product category is levered to jet engine OEM and aftermarket customers, which has been a headwind since 2Q. There is also weak demand visible for the industrial markets like power generation and energy exploration, which have slowed quarter-to-quarter. The current order trends seem to be running in-line with expectations as nearly all of our contacts reported 4Q shipment levels in-line with plan.
CRC Nickel-Based Quarterly - Demand Update
NT Order Growth Trends (%, y/y)
14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 -1.0% -2.0% -3.0% -4.0%
Source: CRC Survey

The average 4Q price point for nickel-alloys is down roughly $0.50 per pound, but a greater number of contacts believe the market has found a bottom (following 6 quarters of incremental declines). This could be attributed to the changing direction of the commodity markets (and surcharge sentiment) which seem to be holding in the low-$6.00 per pound range.
CRC Quarterly Nickel-Based Alloy Price Update
Est. Quarterly Pricing Band
$23 $22 $21 $20 $19 $18 $17 $16 $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

Source: CRC Research

Aerospace Supply Channel Update Report


November 21, 2013 Page 16

Aerospace Supply Channel Update Report


November 21, 2013 Page 17 AEROSPACE FASTENERS UPDATE **Bottom-line: 4Q Data Points Were Modestly Weaker, But The Underlying Channel Confidence Is Holding Our channel discussions are showing continued underlying demand strength for aerospace fasteners, but the data points appear to be modestly lower versus our 3Q update. Underlying demand growth appears to be slightly weaker versus 3Q, as there seems to be slightly more cautious activity @ the distribution level and an inventory overhang throughout the rest of the supply base. The relative volume weakness appears to be a temporary factor as the bullish 2014 outlook seems to be holding. The channel commentary suggests next year should become a period of accelerated demand growth & backlog expansion for the peer group driven by higher commercial aircraft delivery schedules. At this point, we believe the distributors are slightly better-positioned in 4Q based on the location of excess inventories in the channel. We expect the producers to start seeing better demand-pull @ some point in 1Q. The companies best-positioned appear to be wining market share on the new aircraft platforms. We have listed the seven most interesting take-aways from the August channel discussions. 1) Downstream fastener order growth has slowed by 1-2 points versus 3Q. We calculate the average comp for 4Q @ +78% versus +9-10% in 3Q. A pullback in military/defense spending is driving some new weakness in the channel, but there is also some buying disruptions evident in the commercial market. This has been attributed to the introduction of new jet designs (which could impact production rates for legacy models) and the lowered 747 targets. The commercial aerospace order rates appear to be running @ +10-12% and military is now estimated to be down 5-10% (depending of the program). 2) The fastener producers are seeing some inventory-related headwinds. There appears to be some excess inventory within the channel and certain distributions are staying cautious on the number of held units until order rates accelerate. We believe this translates into a 2 point reduction in fabrication comps, estimated @ +4-5% versus +5-6% last quarter. This also appears to be putting additional pressure on the wire feedstock market for CRS and Perryman. The inventory situation is expected to become a tailwind over the next 3-4 months.
Aerospace Fastener Flow Chart -- Estimated Growth For Each Part Of Supply Channel
Commercial Aircraft Demand @ +10-12% Wire Feedstock Volume Growth @ +2-3% Aero Fastener Production Volume Growth @ +4-5% Aerospace Fastener Distribution Volume Growth @ +7-8%

Military Aircraft Demand @ down 5-10% Carpenter Technologies (CRS) Precision Castparts (PCP) Alcoa (AA) LISI (FII) Wesco Aircraft (WAIR) B/E Aerospace (BEAV)

Source: CRC estimates

3) There is some optimism building for the regional market. The channel is starting to see better activity for the smaller aircraft market, which includes better order momentum for Bombardier and Gulf Stream over the past 3-4 months. While the comps are very easy, multi-year planning also seems to be moving higher based on the new positive outlook for the new jet designs, like the Bombardier C-Series (technically competes with BA737) or G650 business jet. 4) 2014 expectations are holding. The downstream growth outlook is holding in the +10-15% range, which is consistent with our 3Q update. The major drivers of demand will be the increased 787 & 737 delivery schedules, early pull from the A350 program, and the regional jet market. This is expected to offset the weakness in military aircraft, which is looking down another 5% for 2014. The inventory position could represent an incremental catalyst for the products, with some distributors expected to build holding next year. This implies volume growth for the PCP and AA segment could be up 15-25% next year. Our revised aircraft commercial jet delivery outlook for 2014 is +15%, which includes +20-22% for Boeing, +3-4% for Airbus, and +4-5% for regional aircraft. 5) Lead times have moved out by 2-3 weeks since August but pricing power has not increased. We calculate the average lead time @ 30-32 weeks, which compares to 25-30 weeks @ summer end. The backlogs have improved considerably from

Aerospace Supply Channel Update Report


November 21, 2013 Page 18 the 14-16 weeks level in mid-2012. However, we are not seeing much pricing leverage leading into 2014. Prices are looking flat-to-up-slightly until the lead times reach 40-50 weeks. 6) Boeing is still trying to bring more fastener work in-house. One of the drivers behind BAs new Partnering For Success Program is bringing fastener production & procurement in-house. BA is currently working with New Breed Logistics to better maintain control of its internal fastener supply which includes the increased internal fabrication, better inventory management, and concerted effort to reduce the number of SKUs. At this point, we have not seen the BA strategy impact the distribution channel or supplier base. There are multiple contacts who do not believe BA is likely to be successful in controlling the fastener volume due to past failures at other companies who have attempted similar strategies like Spirit Aerosystems (SPR).

Aerospace Supply Channel Update Report


November 21, 2013 Page 19 APPENDIX Important Disclosures
Allegheny Technologies Incorporated - (ATI: $33.57 - BUY) RTI International Metals, Inc. - (RTI: $34.99 - UNDERPERFORM) Carpenter Technology Corporation - (CRS: $61.78 - BUY) FedEx Corporation - (FDX: $134.58 - NEUTRAL) United Parcel Service, Inc. Class B - (UPS: $100.13 - BUY) Precision Castparts Corp. - (PCP: $250.49 - NOT RATED) The Boeing Company - (BA: $132.45 - NOT RATED) European Aeronautic Defence & Space NV - (EAD-FR: $52.18 - NOT RATED) Alcoa Inc. - (AA: $9.05 - NOT RATED) Hexcel Corporation - (HXL: $42.72 - NOT RATED) Wesco Aircraft Holdings, Inc - (WAIR: $19.74 - NOT RATED) B/E Aerospace Inc. - (BEAV: $85.71 - NOT RATED) Cytec Industries Inc. - (CYT: $86.05 - NOT RATED) TransDigm Group Incorporated - (TDG: $143.37 - NOT RATED) Universal Stainless & Alloy Products, Inc. - (USAP: $34.05 - NOT RATED) HEICO Corporation - (HEI: $54.29 - NOT RATED) Kaiser Aluminum Corporation - (KALU: $66.58 - NOT RATED) Triumph Group, Inc. - (TGI: $72.29 - NOT RATED) A. M. Castle & Co. - (CAS: $13.76 - NOT RATED) JetBlue Airways Corporation - (JBLU: $8.78 - NOT RATED) Delta Air Lines, Inc. - (DAL: $27.71 - NOT RATED) United Continental Holdings, Inc. - (UAL: $37.27 - NOT RATED) Alaska Air Group, Inc. - (ALK: $75.58 - NOT RATED) Southwest Airlines Co. - (LUV: $18.01 - NOT RATED) US Airways Group, Inc. - (LCC: $24.06 - NOT RATED) Air China Limited Class H - (753-HK: $5.55 - NOT RATED) China Southern Airlines Co. Ltd. Class H - (1055-HK: $3.02 - NOT RATED) Spirit Airlines, Inc. - (SAVE: $43.47 - NOT RATED) easyJet plc - (EZJ-GB: $13.77 - NOT RATED) Deutsche Lufthansa AG - (LHA-DE: $15.44 - NOT RATED) Allegiant Travel Company - (ALGT: $106.14 - NOT RATED) Singapore Airlines Ltd. - (C6L-SES: $10.24 - NOT RATED) Air France-KLM SA - (AF-PAR: $7.23 - NOT RATED) Japan Airlines Co., Ltd. - (9201-TKS: $5,380.00 - NOT RATED) Republic Airways Holdings, Inc. - (RJET: $9.75 - NOT RATED) Ryanair Holdings Plc - (RY4B-DUB: $5.64 - NOT RATED) Qantas Airways Limited - (QAN-AU: $1.15 - NOT RATED)

Aerospace Supply Channel Update Report


November 21, 2013 Page 20
Allegheny Technologies Incorporated
70 BUY, $80 60 BUY, $75

BUY, $65 BUY, $52 BUY, $57

50

40

30

Jun-11

Jan-12

Sep-11

Mar-12

May-12

Jul-12

Sep-12

Dec-10

Nov-11

Nov-12

Aug-13 Aug-13 Aug-13

Jan-13

Feb-11

Jun-13

Apr-11

Oct-10

Apr-13

FactSet Research Systems

Carpenter Technology Corporation


60 BUY. $64 BUY, $58

55 BUY, $56 BUY, $46 45

50

40

35
Jun-11 Jan-12 Mar-12 Sep-11 May-12 Jul-12 Sep-12 Jan-13 Dec-10 Nov-11 Nov-12 Feb-11 Jun-13 Oct-10 Apr-11 Oct-13 Oct-13 Apr-13

FactSet Research Systems

40 BUY, $35 35 NEUTRAL

RTI International Metals, Inc.

30

UNDERPERFORM, $15

25

20
Jun-11 Jan-12 Sep-11 Mar-12 May-12 Jul-12 Sep-12 Jan-13 Dec-10 Nov-11 Nov-12 Feb-11 Jun-13 Oct-10 Apr-11 Apr-13

FactSet Research Systems

Oct-13

Aerospace Supply Channel Update Report


November 21, 2013 Page 21
United Parcel Service, Inc. Class B
90

85

80 BUY

75

70

65

Jun-11

Jan-12

Sep-11

Mar-12

May-12

Jul-12

Sep-12

Dec-10

Nov-11

Nov-12

Aug-13 Aug-13

Jan-13

Feb-11

Jun-13

Apr-11

Oct-10

Apr-13

FactSet Research Systems

120

FedEx Corporation

110 NEUTRAL 100

90

80

70

Jun-11

Jan-12

Mar-12

Sep-11

May-12

Jul-12

Sep-12

Jan-13

Dec-10

Nov-11

Nov-12

Feb-11

Jun-13

Oct-10

Apr-11

FactSet Research Systems

Cleveland Research Company - Ratings Distribution

UNDERPERFORM 1%

BUY 36% NEUTRAL 63%

Oct-13

Apr-13

Oct-13

60

Aerospace Supply Channel Update Report


November 21, 2013 Page 22

Disclosures Buy: The stocks return is expected to exceed the market due to superior fundamentals and positive catalysts. Underperform: The stocks total return is expected to underperform the market due to weak fundamentals and a lack of catalysts. Neutral: The stock is expected to be in line with the market due to full valuation and/or a lack of catalysts. Valuation and Risk: Price targets are established under various valuation methods including P/E, P/S, EV/EBITDA on financial estimates based on forward earnings. Price targets are not established for every stock. The price targets effectiveness may be affected by various outside factors. Risk assessments can be found in the most recent research on these stocks. Other Disclosures: We, Christopher D. Olin, Kevin L. Money and Curt Siegmeyer certify that the views expressed in the research report(s) accurately reflect our personal views about the subject security(s). Further we certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report(s). The analysts responsible for the preparation of this report have no ownership stake in this company. Cleveland Research Company provides no investment banking services of any type on this or any company. The information transmitted is intended only for the person or entity to which it is addressed. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer.! Member FINRA/SIPC

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