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American Capital Agency Corp. Message Board

  • raybans2 raybans2 Jan 7, 2013 11:59 AM Flag

    Airplane order backlogs due to increase significantly.

    Fuel prices are driving many airlines to retire their less fuel efficient planes after about 8 years instead of 20 to 25 years. This is increasing demand for newer more fuel efficient planes. Also the new all composite body Boeing 787 with ultra efficient engines is almost 5 years behind schedule. They will make only 74 of them in 2013 however Boeing is trying to ramp them as fast as possible but the new composite materials are making production problematic and this delaying the ramp. However I think they are over the learning curve hump.

    PCP just bought out TIE, one of the three major US titanium producers, leaving only ATI, RTI, and foreign competition as independent suppliers of titanium. PCP makes much of the high grade metal parts for jet engines which use high temperature nickel alloys and rotary grade titanium made by TIE and ATI. Most of the titanium sponge for engine parts is made in the US as the grain requirements are so severe that few others can qualify with the Japanese producers being an exception. Most of the finished products are made by the likes of PCP who buys metal from TIE, ATI, and Japan but now they own TIE. Russia, the largest titanium producer, has been qualified to make structural titanium parts used in the fuselage for both Boeing and Airbus but they have not been qualified for rotary grade titanium and it doesn't look like this will happen any time soon. Insiders seem to think that the Russians cannot be trusted to maintain the high quality standards required by these two companies for rotary grade.

    As a result I have decided to open positions in BA and PCP because I can't see an upcoming recession having a major impact on the current situation as airlines tend to buy planes looking 5 years into the future after which most recession effects have passed. Only if fuel prices drop significantly would this trend be reversed.

    Airlines Scrap Clunkers Sooner as Oil Prices Bite:

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