Taking Flight with Aerospace Composites
The aerospace composites space boasts compelling growth potential and steep entry barriers.
The aerospace carbon composites industry is a small but lucrative niche within the broader carbon composites market. In our opinion, the aerospace composites space offers robust growth potential and features formidable barriers to entry. As a result, we think that existing players within this industry, such as Cytec (CYT) and Hexcel (HXL), are poised to capitalize on the inexorable shift toward increased composite use in airplanes, amongst other things. In our opinion, Cytec enjoys a particularly strong competitive position within this growing industry.
Long-Term Trend Points Up
Aerospace composites is a $2.4 billion industry, representing a small slice of the estimated $20 billion carbon composites market. These highly specialized materials, also known as prepregs, are carbon fibers processed in specialty resins to confer strength and rigidity. Producers of these complex materials benefit from high barriers to entry rooted in stringent government regulations and sticky customer relationships. In this way, aerospace composites are markedly different from lower-grade commercial composites, which are commodity goods used in various industrial applications such as auto parts, golf clubs, and fishing rods. Companies that manufacture commercial composites, such as Zoltek (ZOLT), do not enjoy the same barriers to entry inherent to the aerospace composites space and consequentially have tended to generate lower, more volatile profit margins versus aerospace prepreg suppliers Cytec and Hexcel.
Joung Park, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.