Boeing strike, 787 delays hurting titanium producers

By Steve James

NEW YORK, Sept 29 (Reuters) - The Boeing Co (BA.N) machinists' strike, on top of an 18-month delay in shipping the 787 Dreamliner to airlines, could hurt titanium producers' profits and depress demand for the metal, analysts say.

"The Boeing strike raises risk of further 787 schedule slips and related titanium demand and price softness through 2010," Cowen and Co analyst Gautam Khanna wrote in a research note on Monday.

Recently, David MacGregor of Longbow Research said a survey of contacts in the industry showed shipments of titanium -- favored in aircraft manufacture because it is as strong as steel but weighs 40 percent to 50 percent less -- are down around 5 percent over last year.

MacGregor lowered his third-quarter and full-year 2008 and 2009 earnings estimates for Allegheny Technologies (ATI.N), Titanium Metals (TIE.N) and RTI International (RTI.N) -- the three major U.S. titanium producers.

The aerospace industry accounts for 45 percent to 50 percent of global titanium consumption. The metal is also used to make golf clubs, armor plating and replacement hip joints.

Boeing is outsourcing most of the structure and components of its new models to companies around the world and assembling them at its plant in Everett, Washington.

A prolonged strike by 27,000 machinists who walked off the job on Sept. 6, would seriously hurt 787 development and ripple through a global aerospace industry already strained by project costs, currency volatility and a faltering global economy.

"Further weakness in the commercial aerospace market more than offset strength in energy and industrial markets where demand fundamentals improved," Longbow's MacGregor wrote in a research note. "The current labor strike (at Boeing) has added to the near-term pessimism."

"The Boeing strike raises risk to the latest 787 schedule that calls for 25 (aircraft) deliveries in 2009 and 45-50 in 2010," wrote Cowen's Khanna. "If the strike slips the 787 schedule by two months, Boeing may have enough titanium inventory at yearend (2008) to destock throughout 2010."

Khanna cut his 2008 revenue estimate for Allegheny Technologies from $1.382 billion to $1.374 billion. His full-year earnings estimate of $6.00 per share is $1.26 lower than last year's profit.

MacGregor lowered his 2008 earnings estimate for Allegheny Technologies by 5 cents to $5.75 per share and his 2009 estimate by 10 cents to $5.40. For the third quarter, he cut 1 cent off his estimate to $1.36.

For Titanium Metals, MacGregor lowered his 2008 estimate by 5 cents to 90 cents per share and for 2009 by the same amount to 80 cents. He cut the third-quarter estimate by 3 cents to 21 cents per share.

For RTI, he dropped the 2008 estimate to $2.90 from $3.00 and the 2009 figure to $2.43 from $2.60 per share.

According to Reuters Estimates, analysts on average currently expect Allegheny Technologies to earn $1.45 in the third quarter, $5.94 in 2008 and $6.36 in 2009.

Analysts on average see Titanium Metals earning 22 cents in the third quarter, 95 cents in 2008 and $1.08 for the full-year 2009. RTI is expected on average to make $2.88 in full-year 2008 and $2.93 for full-year 2009, according to Reuters Estimates. (Editing by Gary Hill)