Viewpoint

What’s next for aerospace composites?
Perspective on current trends in the aerospace composite components market

When the Boeing 787 Dreamliner and Airbus A350 XWB were developed almost a decade ago, they promised a new levelof profitability for airlines and huge growth potential for the composites industry. Now that the early struggles are over,composite planes are taking to the skies. Today, the airspace composite components (ACC) market represents the largest
demand for composites, even though supply chain struggles are still shaking the industry. Manufacturers are looking forthe next growth area, and they may have found it: engines and interiors. Arthur D. Little has investigated current trends andchallenges within the global ACC market.

Profitability story for airlines through composites

Aerospace, the most developed composites market

The airline industry has long been known for generating a low
combined net income margin, at around 2–3 percent. WhenBoeing introduced the 787 Dreamliner at the beginning of the
21st century, it sold the idea of a profitable airline. The key selling
proposition of this new composite long-range, wide-body aircraft
was a lightweight structure that was made of more than 50percent composites and offered 20 percent fuel savings over the767. The second composite plane, Airbus A350 XWB, followed
not long after, with a similar level of composite content andpromises.

The aerospace market’s main differentiators from othercomposite component markets such as automotive are its
maturity (composites have been used on aircraft since the1960s), and resilience (due to steady demand, long-lasting
programs and challenging qualification processes that secure
the market share of well-established suppliers).

As observed from the chart below, profitability of airlines isstrongly correlated with fuel costs, and OEMs bet the successof their composite planes on it. Ultimately, composite planes
were a success and proved that going forward, the aerospacesector would be a key demand industry for lightweightmaterials.

Aerospace programs last more than 20 years once developed.
For example, the 737 was first developed in 1967, and the10,000th unit was rolled out of its Renton, Washington factoryin March 2018. Securing a part in any program can provide ademand security for composite part makers that allows them toinvest in their production capabilities.
Deliveries of Boeing 787 Dreamliner and Airbus A350 XWB
Arthur D. Little forecast for 2018 production in dashed lines

135

49

$120
$80

10%

$60
$40

5%
0%
2006
-5%$202008-10%
Source: Arthur D. Little

2010

2012

Net income %

2014

102

65$1002016

Crude oil $/bbl

$03
2011

1
2012

2013

148

78

46

Average profitability of publicly listed airline companies with revenues over $100m

15%

136

114

Global airline profitability vs. oil prices
20%

137

2014

Boeing 787 Dreamliner

142015

2016

2017

2018

Airbus A350 XWB

Source: Arthur D. Little

Another key consideration for the maturity of the market isthe long, expensive and challenging qualification processes
conducted by OEMs, industry organizations and accreditation
agencies. These processes last several years, and both raw
material suppliers and component manufacturers need to pass

Viewpoint

them to be able to sell their products. These processes also
drive the cost of aerospace composite materials up to six times
their industrial equivalents.

2018 that it planned to increase its 787 production rate from 12
to 14 per month in 2019.
Planned increase in the production rates of leading programs
Aircraft production per month+8

A sizable market with steady inherent growth
Today, the aerospace sector is the single-largest source ofdemand for composite component manufacturers. According toArthur D. Little’s market study, it makes up close to 60 percent
of global carbon fiber demand by value. Aerospace is also asteadily growing market, with an expected 7 percent CAGR overthe next five years. Within the aerospace market, demand forcomposites for aircraft components is four times larger than for
the rest of the segments combined: rotorcraft, spacecraft anddefense (missiles and unmanned aerial vehicles). Commercial
jets are the key driver of this demand, and make up 90 percentof composite components in the aircraft segment.
As of 2018, the A350 and 787 make up the vast majority of
the composites demand in commercial jet airframe systems,with A320 and 737 programs following at a much smallerscale. Access to these programs is crucial for any composite
component manufacturer to achieve critical size.
Commercial jet composite components market share breakdown
Composite components in commercial jet airframe systems by volume in 2018

Aerospace

29 kilotons

Other aerospace
Aircraft
Other aircraft
Commercial jets
OtherA220
A320737

A350
787

Source: Arthur D. Little

ACC market growth appears strongly dependent on
production ramp-up of major programs
Two main drivers of ACC market growth are composite content
in aircraft and aircraft production, both of which are increasing.
Average composite content in new aircraft airframes is
estimated to have increased from 7 percent of total empty
weight in 2010 to 13 percent in 2018. This ratio has almost
doubled since composite commercial jets were introduced, but
Arthur D. Little expects no new commercial composite planes
to enter the market in the next five years. However, legacy
programs with fewer composite components are also rampingup, therefore this ratio is expected to increase only slightly in thenext five years.
Airbus and Boeing are both eager to increase the production
rates of their composite planes (which are far below production
rates of their cash cows: the A320 and 737). Airbus is still
ramping up the production of the A350 to reach its target of 10per month. Resolving some quality issues in aircraft interiors will
get Airbus to its target in 2019. Boeing also announced in 3Q
2What’s next for aerospace composites?

55+56352+28Airbus A320

57+2+4103127

Airbus A350
Airbus A220
Boeing 737
2018 Q3
2019 target

14

Boeing 787

Source: Arthur D. Little

Supply chain issues push towards insourcing
During the development of the 787 Dreamliner, Boeing handed
off 80 percent of component development and manufacturing
responsibility to its suppliers. Its aim was to make use of thesupplier’s expertise and spread the development costs. This led
to a global supply chain made up of players from 26 different
countries, most notably the US, Canada, the UK, Germany,France, the Netherlands, Sweden and Japan.
Outsourcing initially led to decreased production costs for
Boeing; however, the reliability of the supply chain plummeted.
Boeing faced huge issues at every step of development. Earlymodels of the plane had to be built several times. The carbon
fiber frame turned out too weak to support the wings, so it
had to be reinforced. Even after it was completed, problems
emerged during tests. The first plane was eventually delivered
three years later than initially planned.
Supplier issues keep haunting Airbus and Boeing. In September
2018, there were 60 737s piled up in front of Boeing’s Renton
facility due to missing engines. 787s were stacking up in frontof its North Charleston, South Carolina site around the sametime due to missing seats and engines. Airbus A220 and A350
programs were also hit due to reliability issues regarding interior
parts from Zodiac Aerospace. At one time, 10 A350s wereparked in front of the Toulouse, France site waiting for lavatories.
Boeing has suffered from its accelerated effort to outsourcein the past decade; therefore, it is turning away from furtheroutsourcing in its upcoming programs. For example, Boeing’s
new 777X will have new composite wings similar to thoseof the 787. The 787’s wings are made in Japan by Mitsubishi.
However, the 777X’s wings will be manufactured in Boeing’s
new $1b wing factory in Everett, Washington.
3

GE is insourcing strategic composite parts
Aeroengine manufacturer GE Aviation is also increasing
insourcing. However, its motives are different from those ofBoeing. GE announced a new direction in mid-2018, to focus

Viewpoint

on its aviation, power and renewable energy business units.
The company is gradually divesting other business units
such as transportation, oil & gas, and healthcare. As a result,
GE’s portfolio will be simplified and the balance sheet will bestronger.
GE’s new strategy is to focus on turbines, and as part of this,
it is focusing on strategic investments that will benefit all threefocus areas and give the company a competitive edge. One
strong example is the insourcing of composite components
manufacturing, and in the case of ceramic matrix composites(CMCs), the vertical integration of the entire value chain.

Suppliers are also integrating towards the component
manufacturing business. Component manufacturers are
small and numerous because capital requirements to start
manufacturing components are not too high. Examples ofthis type of move are the acquisition of Harris Aero by Albany
Engineered Composites and the automotive component
manufacturers acquired by Toray and Mitsubishi Chemical.
Another example of an integration move from a supplier is
Aerospace Composites Malaysia, the joint venture between
Hexcel and Boeing.
Tier 4:
Raw materials

Tier 3:
Intermediates

Tier 2:Components

Tier 1:
Systems

OEMs

Profitability comparison of composites players along the value chain

In 2012, GE formed a joint venture with Safran and Nippon
Carbon, called NGS Advanced Fibers, to produce ceramic fiberand matrix and turn it into CMC tape that could be used tomanufacture CMC components in its facility in Asheville, NorthCarolina. This facility manufactures turbine shrouds that areinstalled in GE’s latest-generation engines. The company also
licensed this CMC technology from NGS and invested $200m
into two factories in Alabama. One manufactures SiC fiberand other makes SiC tape to be sold to GE, Safran and the US
Department of Defense. GE has integrated the CMC value
chain, and believes efficiencies created through the increased
use of CMCs will define the future of aeroengines.

Vertical integration leads to increased margins
ACC value chain is dominated by large, integrated suppliers
on one end and oligopolistic OEMs on the other. Component
manufacturers are smaller and numerous, and recently, manyof them were acquired by players from either side of the value
chain.
Suppliers in the market are large players such as Toray, Hexceland Solvay, which produce fiber and resin. They are often bothhorizontally and vertically integrated. In recent years, they also
conducted inorganic moves to integrate towards intermediates.
Examples include Teijin’s acquisition of Toho Tenax, Hexcel’s
acquisition of Structil and Toray’s acquisition of TenCate. This isappealing for several reasons: access to additional profit pools,
developing the demand for the supplier’s product, and becoming
a one-stop shop for component manufacturers.

Selection of 30 companies with profitable operations (% of sales)

30EBITDA margin (%)

Composite usage in aeroengines has been increasing withevery new generation of turbofan engines. For example, GE
Aviation has been developing composites for a long time.
Recently, its GEnx, LEAP (CFM) and GE9X engines have madeextensive use of composites. Historically, composites havebeen more commonly used in the cold sections of engines;
however, manufacturers have also started using composites in
the hot sections. For example, GE manufactures high-pressurecompressor turbine shrouds out of CMCs. Rolls Royce has also
started testing composite fan blades and CMC turbine shrouds
for its next-generation engines.

T2 & T3 & T4

20T4OEM

10T2005

Source: Arthur D. Little

10T1

15

20

T2 & T3
T3 & T4
T1 & T2

25

30

Gross margin (%)

Component manufacturers are more often sought out by large
and consolidated system manufacturers, and even OEMs.
There are numerous examples, including Safran’s acquisition ofZodiac, GKN’s acquisition of Fokker, AVIC’s acquisition of FACC,and SAAB’s acquisition of Applied Composites. Most common
reason for system manufacturers to vertically integrate is tohave wider control over their supply chains.
Private equity firms also see an opportunity in acquiring smaller
component manufacturers and merging them to create sizableplayers. Examples include Applied Composites, owned by
AE Industrial Partners; AIM Aerospace, owned by Liberty
Hall Capital; and Unitech Aerospace, owned by Acorn andEdgewater.
These all demonstrate the attractiveness of the ACC market.
However, there should be no new composite airframe in thenext five years. Where will the growth come from?

Where is the growth for aerospace composites?
According to aircraft experts, composite components inthe airframe are close to reaching a glass ceiling, with thecurrent levels of around 50 percent of the airframe by weight.
Production of airframes will ramp-up; however, no newcomposite airframe is expected in the next five years. Therefore,
composites will look for growth in propulsion systems andaircraft interiors.
Latest-generation engines prove that the turbofan engine is thenext natural growth area for composite components. Currently,
in the most generous cases, composites make up around 35
percent of the empty weight of these engines.
What’s next for aerospace composites?

3Viewpoint

Carbon composite components were traditionally used in thecold sections, and use cases have developed inwards towards
the hot sections. Nacelles were the first group of components
to be switched to carbon composites, followed by fan blades.

Contacts
Austria

Middle East

Belgium

The Netherlands

China

NorwayCzech Republic

RussiaFranceSingapore

Germany

Spain

India

SwedenItalySwitzerland

JapanTurkey

Korea

UK

Latin AmericaUSAtaga.karim@adlittle.com
baes.kurt@adlittle.com

On the other hand, CMCs have proved capable of performing
extremely well in the hot sections of the engine. CMC parts
can operate without burning at the combustion temperature ofaircraft engines, which is 1,500°C. Metals, which are traditionallyused in these parts, start to melt at 1,300°C. Reducing thecooling requirement of the engine allows the air to be directed
inside the engine to increase efficiency. Additionally, these CMC
parts weigh one-third of a similar-purpose metal component.
In the GE9X engine, the combustor, shrouds, blades and nozzles
are made out of CMCs. This engine will be used in the Boeing
777X, and it is 10 percent more efficient than the GE90 engine
used in the 777. According to GE, two percent increase in fuelefficiency is directly attributable to CMC components.
Aircraft interiors can provide another good opportunity forcomposite component manufacturers. According to aircraft
maintenance experts, operators replace seats every four orfive years on average, and entire aircraft interiors every eightor nine years. Glass-fiber composite components are alreadyused in some parts such as side walls, overhead bins, galleys
and seat enclosure. However, stronger materials are required toreplace the aluminum used in the seat structures due to safety
regulations.
Currently, black metal replacements have started to be used,such as carbon-fiber replacements of the aluminum seatplates. However, for composites to obtain a significant market
share in the seat structure, design of these seats needs to bereconsidered. Some innovative players, such as Zodiac andHexcel, are cooperating to develop composite seat designs.

Conclusion
Aerospace composite components currently are and will remain
an attractive market, thanks to the reliable underlying demand
created by composite planes, A350 and 787. New growth
opportunities for composite materials are developing, especiallyin the hot sections of turbofan engines and in aircraft interiors,such as the seat structure.
Composite component manufacturers should invest in beinga reliable part of the supply chain they are in, and continue toinnovate. Innovative players will create new composite materials
and designs that ensure the growth of the aerospace composite
components market.
Vertical consolidation, OEM (re)insourcing, and private equity
appetite all have the power to transform the value chain
structure moving forward; however, players will need to decide
the best moves to ensure that they stay ahead in the innovation
race and capture the growth opportunities.

pell.russell@adlittle.com
brabec.dean@adlittle.com
knab.delphine@adlittle.com
schmitz.klaus@adlittle.com
srinivasan.srini@adlittle.com
agresti.giancarlo@adlittle.com
suzuki.hiroto@adlittle.com
lee.kevin@adlittle.comguzman.rodolfo@adlittle.com

kuruvilla.thomas@adlittle.com
eikelenboom.martijn@adlittle.com
thurmann-moe.lars@adlittle.com
ovanesov.alexander@adlittle.com
ito.yuma@adlittle.com
colon.cristobal@adlittle.com
brundin.niklas@adlittle.com
schlosser.andreas@adlittle.com
baban.coskun@adlittle.com
eagar.richard@adlittle.com
beaumont.mitch@adlittle.com

Authors
Delphine Knab, Samih Coskun Baban, Dr. Andreas Schlosser, Dr.
Philipp Seidel, Can Lök, Thomas Knoblinger

Arthur D. Little
Arthur D. Little has been at the forefront of innovation since1886. We are an acknowledged thought leader in linking
strategy, innovation and transformation in technology-intensive
and converging industries. We navigate our clients throughchanging business ecosystems to uncover new growth
opportunities. We enable our clients to build innovation
capabilities and transform their organizations.
Our consultants have strong practical industry experience
combined with excellent knowledge of key trends anddynamics. ADL is present in the most important businesscenters around the world. We are proud to serve most of theFortune 1000 companies, in addition to other leading firms andpublic sector organizations.
For further information please visit www.adlittle.com orwww.adl.com.
Copyright © Arthur D. Little Luxembourg S.A. 2018.
All rights reserved.

www.adl.com/AeroComp