Oct. 3, 2018, © Leeham News: United States-based aerospace suppliers say lead times and prices have significantly increased for aluminum, steel and other high-grade materials used to make commercial and military aircraft. But, they say, they have taken the increases in stride.
Aerospace suppliers based outside the U.S. generally have been less affected by the increases in lead times and prices for high-grade aluminum and steel, which President Donald Trump slapped tariffs on in March.
Domestic steel, imported aluminum
The Trump administration imposed a 10% tariff on imported raw aluminum and 25% on foreign steel. U.S. mills still make about two-thirds of steel used in domestic manufacturing, but about 85% of raw aluminum used by American producers is imported.
Domestic aluminum mills have not been able to ramp up fast enough. According to U.S. Customs and Border Protection data, through Sept. 19, companies have paid $625.4 million in aluminum tariffs, Bloomberg reported.
At the same time, demand for aerospace-grade aluminum is increasing due to OEMs’ production increases. The tariffs, demand growth and supply constriction are driving up aluminum prices closer to 20% to 30% since the beginning of the year, according to employees at several aerospace suppliers and metal distributors.
Increasing lead times
Since the beginning of the year, lead times have increased by more than a week for basic aluminum products to an additional two weeks or more for higher-grade products. The lead time for aerospace-grade plate aluminum is up by as much as six weeks for some suppliers compared with two years ago.
Big buyers, such as Boeing, have been less affected by price swings. They already are able to negotiate for lower prices given their huge demand. Also, they are able to hedge with longer-term contracts and other measures not available to many mid-level suppliers. Many of the smallest suppliers have been less affected as well, as the OEM will often provide the raw material as part of a contract.
“They just drop off the aluminum plates, and we do the work,” said a plant manager at an Everett-area supplier. He spoke on condition that he not be named given, as doing so could cost him his job.
Mid-size suppliers who source their own aluminum are most vulnerable to the price and lead time increases.
Bottom of the supply chain
As John Byrne, former VP of Boeing supply chain management, told LNC in an interview, problems with raw materials and metals can create problems in the “bottom of the supply chain,” which can lead to production schedule changes.
Supply issues have contributed to the backup of 737s at Boeing’s Renton plant and elsewhere. However, these do not appear to be related to physical shortages of raw materials.
When asked about concern for raw materials shortages, Boeing spokeswoman Paula Horton told me in August, “As a general matter, we continuously keep a close eye on our supply chain. While we have had to mitigate risks in our supply chain, we are able to do that in a way where we continue to meet our customer delivery requirements.”
Boeing Commercial Airplanes declined to comment on what risks it has mitigated or how it has done so.
Even prior to Trump’s tariffs, the aerospace giant relied almost entirely on domestic aluminum, according to several analysts.
Aluminum prices and lead times outside the U.S. have gone up due to market demand, but the increases are considerably less than in the U.S. So, whatever the effects, they have been smaller for Airbus.
A U.S.-based Airbus spokesman was unable to get a comment from Toulouse in time for this article.