|
|
 | | | |
- close
- close
- close
- close
RTI International Metals (RTI) |
Suggest other news sources for this topic
WIKI ANALYSIS
RTI International Metals (NYSE: RTI) makes raw and refined titanium products for the commercial airline industry, defense industry, and the oil and gas industry. 50%, or $313.4 million, of RTI's sales are used to make commercial airplanes - mostly Boeing and Airbus.[1] From 2003 to 2007, fuel costs have risen by 284%.[2] This increase has pressured airlines to lighten their aircraft and lower fuel costs by using titanium - which is twice as strong as aluminum.[3]
The US military has increased its demand for titanium for Air Force fighter planes and howitzer artillery. In 2007, RTI won a 10 year contract worth $2B to provide the titanium for the US Airforce's F-35 Joint Strike Fighter (JSF).[4] The company also won a $100 million contract in 2007 to provide titanium for the US Army and Marine's lighter howitzer division.[5] Oil and gas companies have also increased their demand for titanium because it can withstand the higher pressures and temperatures from deepwater drilling which is expected to increase 80% from 2007 to 2011.[6] The demand for titanium has risen in all three of these segments and has resulted in a 36% increase in US sales.[1]
Business Overview
Titanium is a metal which is stronger and lighter than steel and aluminum and has a higher melting point, however it is also inherently more expensive to make and manipulate. Because of this, titanium is usually used instead of steel when weight, temperature and stress on the metal are key. RTI International Metals operates through 2 different segments.
- Titanium Group (40.4% of revenue, 74% of income):[8][9] The Titanium Group mills and forges semi-finished goods for customers who further refine the products to the finished product. The segment makes goods used as landing gear, tail sections, wing support and other airplane related goods. 42% of the segment's goods produced in 2007 were sold to RIT's Fabrication & Distribution Group.[10]
- Fabrication & Distribution Group (59.6% of revenue, 26% of income):[11][9] The Fabrication & Distribution Group (F&D Group) makes titanium and titanium alloys into finished products. In 2006 and 2007, the segment won a contract to provide structural components for the 787 Dreamliner produced by Boeing Company (BA) until 2017.[12] The 10 year contract is worth approximately $900 million dollars.[13]
Major customers
RTI supplies three major markets: Commercial Aerospace, Defense, and Industrial & Consumer. The demand for titanium has risen in all three markets, and US sales of titanium has risen from 53 million pounds in 2005 to 72 million pounds in 2007, or a 36% increase.[1]
- Commercial Aerospace (50% of sales):[1] The airplane industry, primarily Boeing and Airbus, use titanium because it is lighter, corrodes less, and can withstand high temperatures than aluminum, steel, and other alloys. Titanium is used in the turbines, sections of the plane's body, and in wing supports.[14]
- Defense (33% of sales):[1] The US military uses titanium in fighter planes to lighten the aircraft, in ground vehicles to provide stronger armoring, and in artillery units to withstand the heat of the barrel.[15]
- Industrial and Consumer (17% of sales):[1] RTI sells most of its goods to the energy industry. The titanium is used for oil and gas extraction and in deepwater drilling. RTI also sells the metal for global consumers for hip and knee replancements, sport goods, and architectural structures.[16]
| (in thousands) | 2003 | 2004 | 2005 | 2006 | 2007 |
| Revenue | $180,256 | $209,643 | $346,906 | $505,389 | $626,799 |
| Net Income | $4,714 | -$2,957 | $38,935 | $75,700 | $92,631 |
| Profit Margin | 2.60% | -1.41% | 11.22% | 14.98% | 14.78% |
RTI's net Income has increased in past years as it has been able to profit over increasing prices. Sales to the Airline Industry has risen greatly in recent years. [17]
Trends and Forces
High fuel costs force airlines to lighten their aircraft
From 2003 to 2007, the cost of Jet Fuel per gallon rose by 284%.[2] To lower fuel costs, airlines, specifically Boeing and Airbus have used more titanium to lower the weight of the aircraft and thus fuel costs. 22% of Boeing's 787 will be made of titanium, and 77 tons of titanium are necessary to produce a single Airbus A380.[18] Boeing Company (BA) and Airbus have increased their demand for aircraft by 37% from 2006 to 2007 to lower fuel costs and keep up with their close competitor.[14] As fuel prices continue to rise, the airline industry will continue to demand more titanium to lower the weight of their aircraft.
RTI relies on continued large Defense budgets
In 2007, 33% of RTI's revenue came from Defense market - mostly the US military.[15] In May 2007, RTI entered a $2B contract with Lockheed Martin (LMT) to provide the titanium for the US Airforce's F-35 Joint Strike Fighter (JSF) which is expected to become the new fighter aircraft for the US military.[4] In 2007, RTI was awarded an over $100 million contract by BAE Systems (BAESY) to provide the titanium components for the Howitzer's for the US Marine Corps and US Army.[5] Since the 2001 terrorist attacks, US defense spending has risen by 35%.[19]. A fall in the US defense budget will result in less contracts to the RTI.
Ultra Deepwater Oil Exploration and Extraction requires titanium
As oil prices rise, the demand for oil reserves has increased and the search for deep water drilling deposits has also risen. Deepwater oil and gas production is expected to increase nearly 80% from 2007 to 2011.[6][20] Titanium is used by the oil and gas industry to drill horizontally and to drill at greater depths.[21] As oil companies move farther offshore to find oil, the demand for titanium drills and pipes rise to deal with the higher pressure and temperature.
Competition
RTI has very few competitors that specialize in only titanium. RTI International Metals and Titanium Metals are the only two main companies that supply the airline and defense industry with the majority of their titanium needs. However, RTI competes against other companies which produce alloys from other metals such as steel, nickel, and copper.
- Titanium Metals (TIE): Titanium Metals is RTI's closest competitor. Like RTI, Titanium Metals mills raw titanium and fabricates and refines the finished product. Titanium Metal is slightly more dependent on the commericial aerospace sector, from which it makes 57% of its sales compared with 50% for RTI.[22]
- Allegheny Technologies (ATI): Allegheny makes titanium products that compete with RTI for contracts in the oil and gas and chemical industry. Unlike RTI, Allegheny has diversified and makes other alloys based on copper, nickel, and tungsten.[23]
- Commercial Metals Company (CMC): Commercial metals is not heavily involved with the aerospace industry, but instead, it competes with RTI in the commercial and industrial segments. The company makes steel and steel alloys used in architectural structures and the infrastructure of plants. Unlike RTI, Commericial is involved in recycling of used metal.[24]
- Carpenter Technology (CRS): competes against RTI for titanium milled and finished products. Carpenter produces small goods for aircrafts such as titanium fasteners and casings. Like Allegheny and unlike RTI, Carpenter makes many products out of other alloys such as steel, nickel, and ceramics.[25]
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 RTI 10-K 2008 "Industry Overview" p.1
- ↑ 2.0 2.1 Air Transport Association - Economics & Energy: "Energy/fuel" 12 Aug 2008
- ↑ Jefferson Lab "Titanium" September 2008
- ↑ 4.0 4.1 BNet - Business Services Industry "RTI Announces Long-Term Joint Strike Fighter Supply Arrangement; Plans for Capacity Expansion" 31 May 2007
- ↑ 5.0 5.1 High Beam Encyclopedia "RTI Selected for Titanium Howitzer" 6 Nov 2000
- ↑ 6.0 6.1 Offshore Magazine "Global Deepwater Expenditure to exceed $108 billion through 2012" Oct 2007
- ↑ 7.0 7.1 RTI 10-K 2008 "Products and Segments" p.4
- ↑ RTI 10-K 2008 "Products and Segments" p.3
- ↑ 9.0 9.1 RTI 10-K 2008 "Segment Reporting" p.57
- ↑ RTI 10-K 2008 "Titanium Group" p.3
- ↑ RTI 10-K 2008 "Products and Segments" p.4
- ↑ RTI 10-K 2008 "Fabrication & Distribution Group" p.3
- ↑ Industrial Heating "RTI, Boeing Sign $900 Million Agreement" 16 Nov 2007
- ↑ 14.0 14.1 RTI 10-K 2008 "Commercial Aerospace" p.2
- ↑ 15.0 15.1 RTI 10-K 2008 "Defense" p.2
- ↑ RTI 10-K 2008 "Industrial & Consumer" p.2
- ↑ RTI 10-K 2008 Item 6 "Selected Financial Data" p.15
- ↑ Kiplinger "Titanium Metals: Demand Taking Off" 20 March 2007
- ↑ The Christian Science Monitor "Record US Defense Spending, But Future Budgets May Decline" 6 Feb 2008
- ↑ Deepwater Drilling News & Opinion "Offshore oil seen booming into next decade" 4 June 2008
- ↑ Drilling "Titanium drill pipe a viable option for short-radius horizontal drilling" p.1 Feb 2000
- ↑ Reuters Business & Finance "Titanium Metals Corp"
- ↑ Google Finance Allegheny Technologies Incorporated
- ↑ Reuters Business & Finance "Commercial Metals Co"
- ↑ Reuters Business & Finance "Carpenter Technology Corp"
| |||||||
