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. From 2003 to 2007, fuel costs have risen by 284%. This increase has pressured airlines to lighten their aircraft and lower fuel costs by using titanium - which is twice as strong as aluminum.
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). The company also won a $100 million contract in 2007 to provide titanium for the US Army and Marine's lighter howitzer division. 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. The demand for titanium has risen in all three of these segments and has resulted in a 36% increase in US sales.
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.
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.
From 2003 to 2007, the cost of Jet Fuel per gallon rose by 284%. 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. 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. As fuel prices continue to rise, the airline industry will continue to demand more titanium to lower the weight of their aircraft.
In 2007, 33% of RTI's revenue came from Defense market - mostly the US military. 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. 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. Since the 2001 terrorist attacks, US defense spending has risen by 35%.. A fall in the US defense budget will result in less contracts to the RTI.
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. Titanium is used by the oil and gas industry to drill horizontally and to drill at greater depths. 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.
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.