Roaring Skyward

Today the world is in the midst of a major military spending spree caused by terrorist attacks and each country’s need for security and defense.

The United States, which is currently waging major military campaigns in Afghanistan and Iraq, has budgeted $556 billion in the current year, which includes repairs and replacement of equipment, as well as new hardware purchases and troops.

The U.S. Pentagon has cleared funding for the purchase of 183 F-22 fighters in the 2007 budget, which, with Congressional approval, will extend the production line of this model until 2012.

WORLWIDE WEAPONS. The British, French and German governments are increasing their military spending as well.

The Chinese are increasing their military budget by almost 15 percent, as are the Russians. All of this will cause further increased military spending by the West.

The African and Mediterranean countries have also joined the military purchasing spree, including Algeria’s $7.5 billion purchase of jet fighters and air defense systems from the Russians. Morocco and Libya are also in the buying mode.

The Australian government has increased its military budget to $15 billion and guarantees that it will increase every year by 3 percent for the next 10 years. On its shopping list is the F-35 Joint Strike Fighter and M1A1 Abrams tanks as well as four C-17 Globemaster 3 cargo planes.

India’s 2007-2012 military budget will jump about 44 percent to about $142 billion by 2012. This includes 200 fighters as well as tanks, ships and many other items.

The top 15 military spenders are estimated to have spent $869 billion for military supplies in 2005, and the list of buyers goes on.

FRIENDLIER SKIES. The commercial aerospace business’ demand for new airplanes shows no signs of abating. Both Boeing and Airbus are fully booked for many of their aircraft models, like the 787 and A-380, out through 2012.

Airbus currently has a backlog of 2,177 aircraft orders valued at $220 billion. The production delays of the Airbus A-380 due to technology problems, and Boeing’s 787 delays in ramping up production are causing both the titanium and nickel alloys markets to take a pause, while the subcontractors who have ordered metal to produce these planes wait for the actual production to start in earnest in 2007.

There have also been some minor engine manufacturer production push-outs because of these delays.

The much-awaited production of very light jets by Honda, Adams, Cessna and Embraer will start in 2007 as the majority of these planes have just about completed or have completed their certification processes.

The current projections are for about 500 of these planes to be manufactured per year, with each plane to be twin-engine. Cessna has firm orders for 300 very light jets and is fully booked into the beginning of 2009, with a backlog worth $6.8 billion. Cessna’s other competitors also have orders for 200 to 300 planes each and are also fully booked into 2009.

Domestic airlines, such as Delta, American Airlines and Continental, are all expanding their overseas flights, especially to small destination cities, in order to avoid competition from low-cost carriers and to attract the higher- margin business customers.

The flights across the Atlantic are expected to increase in passenger traffic by 29 percent from the 2002 level, reaching 54 million passengers.

United Airlines is concentrating on the Pacific routes, while American Airlines and Continental Airlines are looking to expand into South America.

The International Air Transportation Association forecasts that the global airline industry will generate $1.9 billion in profits in 2007, its first profitable year after five years of combined losses of $41 billion.

CARGO SNAPSHOT. Demand for large and smaller freighters, especially on Asian routes, still shows no sign of slowing down in the long term.

Boeing expects that almost 3,000 planes will be added to the freighter fleet during the next 20 years, with 75 percent coming from the conversion of existing 767 and 747 aircraft. The balance of 800 planes will be from new production. The overall freight business increased in 2005 by 25 percent, with North America, Europe and Latin America down slightly and the Asian markets carrying the upside.

The high price of fuel has been a restraining factor for the airline industries, hampering profits and allowing the freight sector to lose some business to ocean carriers when airlines upped pricing to cover increased fuel costs.

The use of synthetic fuels made from coal, oil, shale and natural gas is getting a new look. The U.S. Defense Department is experimenting with using a 50 percent blend of fuel derived from a process to convert plentiful natural gas into a liquid for fuel.

The American aerospace industry’s orders, shipments and backlogs set another record this year. The total sales in 2006 are projected to be $233 billion, a $14 billion increase from 2005.

The total shipments for 2006 are projected to be $177 billion, a $15 billion increase from the year before.

The estimated backlog as of June stood at $280 billion. When added to those of the other aircraft producers worldwide, the vast amount of future business for metals producers serving the aerospace industry is apparent.

I do not, however, see any further price reduction in light of the current demand for product and some uptick in pricing if the ferrotitanium demand increases in early 2007.

The year 2006 has seen the worldwide steel mill demand for nickel and ferrotitanium as setting the price levels of these commodities and will probably do so in 2007 also.

We have been seeing a temporary slowdown of demand for titanium and nickel alloy scrap solely because of the inability of Boeing to ramp up production of the 787 and Airbus’ technical problems for the A-380.

Soon, these problems will be corrected and we will have smooth sailing ahead, with steady pricing and demand.