In 1941, Congress enacted the Berry Amendment, a domestic source restriction, which required that certain items procured for defense purposes be grown or produced in the United States. Specialty metals, including titanium and titanium alloys, were added to the Berry Amendment in the early 1970s, generally requiring DOD and its contractors to procure specialty metals produced or melted in the United States unless an exception applied allowing specialty metals from foreign countries. In 1978, the “qualifying country exception” was added to the specialty metals domestic source restriction, which waived the requirement for procuring specialty metals produced in the United States when the purchase relates to agreements the United States has with foreign governments, known as “qualifying countries.” Under this exception, aircraft component manufacturers in 23 “qualifying countries” currently are exempt from the specialty metals domestic source restriction and are permitted to use non-domestic produced titanium to manufacture DOD aircraft components. Under the current version, the specialty metals domestic source restriction does not apply to aircraft or aircraft components manufactured in a qualifying country or aircraft or aircraft components containing specialty metals produced or melted in a qualifying country. Table 1 lists the 23 qualifying countries. Under the qualifying country exception, manufacturers in the listed countries have greater flexibility when procuring specialty metals for DOD procurements than U.S. manufacturers. Specifically, they can procure specialty metals from any source—including non-qualifying countries— while a component manufacturer in the United States must procure specialty metals from a source in the United States or a qualifying country, as shown in figure 1. In addition, there are other exceptions to the specialty metals domestic source restriction that allow DOD to procure items containing specialty metals, including titanium in aircraft or aircraft components, from manufacturers in qualifying and non-qualifying countries. For example, one such exception, known as the domestic non-availability exception, waives the specialty metals domestic source restriction when DOD makes a determination that specialty metals, including titanium in aircraft or aircraft components, are not available in the United States in the required form and at a reasonable price. Other exceptions waive the specialty metals domestic source restriction for purchases outside the United States in support of combat operations or purchases in support of contingency operations. The commercial aerospace industry is the largest consumer of titanium metals in the world. DOD estimates that the aerospace industry accounts for 60 to 75 percent of the U.S. market, with military and DOD business accounting for up to 15 percent of the aerospace industry. Titanium metals are important metals in the aircraft industry, in part because they are lightweight, strong, and corrosion resistant, making them common for use in structural airframe and jet engine components. In an airframe, titanium may be used in bulkheads, tail sections, landing gears, wing supports, and fasteners. In engines, titanium may be used in blades, rotating discs, rings, and casings. To manufacture a titanium aircraft component, there are multiple steps in the supply chain, from titanium production through the manufacturing of the finished component. Figure 2 provides an overview of the DOD titanium production and aircraft component manufacturing processes. There are a limited number of titanium producers in the world, and market shares are concentrated in a small number of large producers. Currently, there are four major worldwide producers of high-quality titanium for aerospace: one in Russia (Verkhnaya Salda Metallurgical Production Association) and three in the United States. These three major U.S. titanium metal producers—Allegheny Technologies Incorporated (ATI); RTI International Metals, Inc. (RTI); and Titanium Metals Corporation (TIMET)—account for 94 percent of the U.S. production capacity. Due in part to the limits of worldwide production capacity, titanium products require a long lead time to produce, and manufacturers may order titanium metal years before it is expected to be delivered in a finished product to the customer. For tactical aircraft and engines, DOD generally contracts with six prime contractors—Boeing, Lockheed Martin, Northrop Grumman, General Electric, Pratt & Whitney, and Rolls-Royce—the latter three for engines. These prime contractors generally rely on aircraft component subcontractors to produce titanium aircraft components. Prime contractors or aircraft component manufacturers generally purchase titanium from one of the four major titanium producers. As described above, when selling components to DOD, the specialty metals domestic source restriction limits the U.S. prime contractors’ and aircraft component manufacturers’ purchase of titanium to one of the U.S. or other qualifying country sources. Qualifying country aircraft component manufacturers that sell to DOD have the flexibility to source titanium from any producer, including a non-qualifying country source. Census data from calendar years 2003 to 2012 show variations in U.S. and foreign produced titanium prices for ingot, bar, billet, and sheet. Data for ingot—the titanium form used to produce mill shapes—show that U.S. export and import prices have varied over the last 10 years. The import price was $3.93 less per kilogram than the export price in 2004, while the export price was $7.84 lower per kilogram than the import price in 2007. In 2011 and 2012, export and import prices converged, as seen in figure 3. Census data also show that import and export price differences for mill shapes—the titanium shapes made from ingot and used to manufacture aircraft components—have also varied over the past 8 years. Specifically, the import prices for billet—used to make rotating disk engine components—have, with the exception of 2011, remained less than export prices over the past 8 years; however, the price difference has been reduced from $17.82 per kilogram in 2005 to $2.77 per kilogram in 2012. Price differences for sheet—used to make wing components—have also varied over the last 8 years, with the import price exceeding the export price from 2009 to 2012. The import price of bar—used to make engine blade components—has consistently remained significantly lower than the export price over the last 8 years. Figure 4 shows the historical import and export prices of titanium billet, sheet, and bar. Relevant reports and government and titanium industry officials we interviewed attribute overall price variations to changes in global demand and the supply capacity of titanium producers to meet demand. Industry officials also told us that price differences between the U.S. and foreign produced titanium products can be driven in part by differences in operating costs and production capabilities between U.S. and foreign producers. In addition, officials told us that price differences between titanium products, such as bar and billet, can partly be due to the increased number of steps needed to produce one over the other. While price differences between U.S. and foreign titanium can be large— for example, in 2005, Census bar import price was $25.02 per kilogram and export price more than twice that at $50.37 per kilogram—officials from prime contractors and aircraft component manufacturers told us that price differences have not been large enough to have a significant impact on the cost of a DOD aircraft. For example, data in one DOD study show that a 50 percent increase in the price of titanium would result in about a 1 percent increase in the cost of a DOD aircraft, because titanium cost is generally a small percentage of the overall aircraft cost. Furthermore, prices are typically negotiated through private agreements and can depend on the specific terms of the agreement between the customer and producer. In addition, industry officials noted that U.S. produced titanium has been competitively priced relative to foreign produced titanium. DOD can either directly contract for aircraft components or contract with prime contractors that in turn buy them from component manufacturers. DOD awarded the majority of aircraft component contracts to U.S. manufacturers from fiscal years 2008 through 2012. Specifically, FPDS- NG data over the past 5 years show that DOD directly obligated a total of This includes all $209.6 billion for aircraft component contracts.contracts for aircraft components, some of which may not contain titanium. Of the $209.6 billion, DOD obligated $205.3 billion, or 98 percent, of these purchases to U.S. manufacturers. Additionally, DOD obligated $2.7 billion, or 1.3 percent of the total obligations, to manufacturers in qualifying countries. While obligations to manufacturers in qualifying countries increased from $335 million in 2008 to $661 million in 2012, their market share of DOD obligations remained between approximately 1 to 2 percent each year. Through other authorities available to DOD, the department obligated $1 billion to manufacturers in non-qualifying countries.consistently been awarded the majority of DOD aircraft component obligations each year from fiscal years 2008 through 2012. Industry officials told us that prime contractors’ long term agreements, prime contractors’ approval of titanium producers, and industry consolidation—rather than titanium price—are major factors affecting the ability of U.S. aircraft component manufacturers to compete for DOD contracts. Prime contractors generally manage titanium sourcing decisions for their DOD component manufacturers through long term agreements for titanium that include pre-negotiated prices. Additionally, DOD prime contractors can also require their component manufacturers to purchase titanium from producers that they have approved. Prime contractors’ use of these methods to manage titanium sourcing may reduce potential pricing advantages from the titanium sourcing flexibilities that are available to manufacturers in qualifying countries. In addition, many officials from aircraft component manufacturers identified industry consolidation as a factor that could affect their ability to compete. However, they did not identify competition for DOD contracts from manufacturers in qualifying countries with potential pricing advantages from titanium sourcing flexibilities as a major factor. According to industry officials, DOD aircraft and engine prime contractors leverage their buying power by arranging long term agreements with titanium producers to ensure titanium availability and pre-negotiated prices. These arrangements usually specify titanium product, price, quantity, and delivery schedule.